Rise in KiwiSavers cashing up due to hardship

Concerns have been raised over people trying to "game" the KiwiSaver market by switching providers to get their money out on financial hardship grounds.

The number of people trying to cash in both their and their employers' contribution has swelled with rising unemployment.

The rules governing financial hardship claims were set down by the Government but it is up to individual scheme trustees to make a final call and some fear the discretion has led to some savers changing providers to try to get their money out.

Bryan Connor, general manager of corporate trustees for New Zealand Guardian Trust, the trustee for several KiwiSaver schemes, said anecdotal evidence had trustees worried.

"The rules around hardship should be pretty tight. But we have certainly heard stories where investors will switch from one provider to another to get their money out."

Connor said he had raised the problem with the industry and the Trustee Corporations Association had come up with its own guidelines to ensure consistency across its members.

"Our providers are quite concerned they might be losing money to another provider simply so the individual can take money out."

KiwiSaver is big business for the fund management industry, whose earnings have been battered in the global financial crisis.

Government Actuary David Benison, who is in charge of monitoring KiwiSaver funds, said he had also heard anecdotal evidence of the problem but said savers should realise the financial hardship policy was not there to help with short-term issues.

"People have got to realise this is a retirement savings scheme."

Figures from the actuary's annual report show 858 people pulled $1.29 million out of their KiwiSaver accounts in the year to March 31 on the grounds of financial hardship.

But since then applications appear to have increased. A spokeswoman for ING, one of the largest providers, said that from January to July last year requests for financial hardship applications had tripled and they had stayed at the same level since then.

Typically those applying were blue-collar workers with families where one of the parents had lost their job, she said.

Trustee Corporations Association chairman Clinton Hardy said trustees were having to make some hard calls over KiwiSaver.

Some savers had wanted to get their money out to fly home to Samoa after losing a relative in the tsunami. But Hardy said that was not enough of a reason because KiwiSaver was put in place to be a long-term savings scheme for retirement.

"We had to be quite firm there."

FINANCIAL HARDSHIP

* 858 people made claims in the year to March 31, 2009.
* $1.29m withdrawn from KiwiSaver accounts.
* $1505 per person (on average).

Source: The Government Actuary