The cyclones and floods have forced some people to draw money out of KiwiSaver.
Kiwis hit hard by the cyclones and floods are tapping into their retirement savings in a bid to keep afloat, pushing up the number of KiwiSaver hardship claims.
Inland Revenue figures show the number of claims rose from 1295 in February 2022 to 1792 in February this year with the amount taken out rising from $8.2 million to $13.6m.
Figures for March have yet to be released but David Callanan, general manager of Corporate Trustee Services - a KiwiSaver supervisor in charge of approving hardship withdrawals for multiple schemes - said he had seen a 52 per cent increase in applications between March 2022 and March 2023.
“If you were to look at the quarter, so January, February and March combined 2023 compared to 2022, we have had a 43 per cent increase.”
Callanan said the majority of the increase in applications were weather-related.
“There has been a considerable spike.”
Callanan said all scheme supervisors had implemented a process to streamline withdrawals for members that had been impacted by the floods and cyclones.
“Especially if they are having issues with food and water and clothing or accommodation, basic requirements for a standard of life, then we put in place those provisions. All supervisors all have the same approach.”
KiwiSaver providers had been asked to highlight those applications and prioritise them above others.
Callanan said if it had all the information needed it could pay out the money for flood-affected people within a week. But typically a hardship claim took longer than that to pay out.
Outside of the weather, it was typically a job loss that led to people dipping into their retirement savings as they struggled to meet debt repayments.
Matthew Band, general manager of Trustee Executors, another KiwiSaver supervisor, said it was principally seeing an increase in hardship applications due to an increase in the cost of mortgage repayments.
"There has been a number of applications as a result of the floods/cyclone, but not as many as we might have expected.
“Members are getting help from their insurance companies and the banks have been offering assistance also which is taking care of most of their immediate needs and issues.
“The main reason we are seeing is due to increases in the cost of mortgage repayments.”
Band said it had seen a 10 per cent increase in the number of applications over the last six months and he expected the numbers to continue rising as pressure on mortgage interest rates continued.
Around 50 per cent of mortgage holders are expected to roll on to higher mortgage rates over the next year with another 10 per cent on floating rates also facing higher costs.
On a $500,000 mortgage, a borrower moving from a 4 per cent rate a year ago to 6.5 per cent now would face an increase of around $9275 per year.
A rising number of Kiwis are falling behind on their mortgage payments although the percentage still remains below the level seen in pre-Covid times.
Missed mortgage repayments in February rose to 18,900, which accounts for 1.29 per cent of mortgages nationwide according to data from credit bureau Centrix.
David Verry, a financial mentor at North Harbour Budgeting Services Inc and Auckland Central Budgeting Consultants, said financial mentors around the country were reporting increases in financial hardship applications.
“Obviously since the cost of living [has risen] that has definitely increased, no two ways about it, as have probably debts. The natural disasters, those again are another one where people have been really coming in.”
Verry said many people came in asking to use their KiwiSaver to pay off a debt but that was not possible under the hardship rules. However mortgage arrears - where a borrower gets behind on their payments - were something a KiwiSaver hardship withdrawal could be used for as it meant they were struggling to meet their day-to-day living costs.
But Verry said a withdrawal should be considered a last resort.
“It is one of the last options that we would ever look at.”
He said people should consider restructuring their loans first including rolling arrears into their loans, allowing more time to pay off those arrears, before jumping into a KiwiSaver hardship claim.
Going interest-only and stretching out the term of the mortgage were other options for making the debt more affordable.
Verry said getting a hardship withdrawal was also only the start of the process of getting someone financially back on their feet.
“This is just getting you through the next 13 weeks. This doesn’t cover the long term. We have got to address what your real basic issues are about - either lack of income or too much in the way of expenses or the loans that are unaffordable. A lot of people don’t realise that.”
Verry said KiwiSaver should be there for your retirement. “If anyone thinks they can live just on what the Government pays in retirement ... it’s not enough to live on.”
As well as rising hardship applications there has also been an increasing trend for people to put their contributions to KiwiSaver on hold. This is a much simpler process whereby the member just has to make the request to their provider.
Monthly savings suspensions fell to a recent low of 986 in July last year but in February they had risen to 1449. That was up from the 1332 suspensions made in February 2022.
Verry said he did recommend suspending contributions to those struggling to meet their day-to-day living costs.
“Short-term, absolutely.” He said people needed to remember that if they suspended their own contribution they were likely to lose out on their employer contribution and the Government’s annual contribution.
He said a suspension of contributions was far more preferable than getting a withdrawal.
He had not heard of any cases where employers pressured staff into suspending contributions in order to save them money.
“You would have to say that if an employer was doing that the first thing I would be saying to them [the employee] is look for another job.
“If they are not wanting to pay KiwiSaver they are probably also not paying their GST and a whole bunch of other things so fundamentally their company is probably screwed anyway.”
Verry said once people had got their finances under control again they should resume contributions as soon as possible.
Typically a KiwiSaver supervisor will only release enough funds to cover 13 weeks of living costs for a member.
But Callanan said one impact of the rising cost of living was that withdrawal amounts had increased to cover that higher cost.
“Part of what we do as supervisors is we review our provisions and the principles by which we determine what an appropriate payment would be.
“We calculate 13 weeks - part of that is looking at how much you need for food, transport in particular petrol, and the cost of petrol has gone up quite a bit and therefore we have revised those underlying amounts - the default amounts we can pay - so that means we keep pace with those increases as well as we can. That will flow through in higher withdrawal amounts.”
He said it was too hard to tell if the higher cost of living itself was sparking more applications.
“But you can see an increase in the average withdrawal amount.”
- Make sure you have a budget
- Try to work out your true situation - be honest about where you are spending your money
- Talk to the free financial mentor’s service 0800 345 123, www.moneytalks.co.nz
- Look at ways to increase your income - is there overtime you could do? Or if you are on a benefit are you getting all the benefits you are entitled to?
- If your debt has become unaffordable contact lenders to negotiate down the payments. If you are already behind on payments lenders have hardship processes they can go through with you.
- An insolvency may be a better option than a hardship withdrawal. This can include a no-asset procedure, debt repayment order or bankruptcy. Your KiwiSaver can’t be touched by a creditor in an insolvency process.
OPINION: There are rules and restrictions on what you can take your money out for.