The KiwiSaver withdrawal spike that never happened
PT Insights March 2022
As supervisor to four out of six default KiwiSaver scheme providers and 14 schemes in total, Public Trust has interesting insights into why Kiwis are getting into financial hardship as well as why the predicted spike in hardship withdrawal applications didn’t happen.
Through 2020, Public Trust processed over 10,000 applications for withdrawals; in 2021, that number dropped by 20%, despite predictions that we would see a significant uplift in applications due to the potential impacts of Covid-19.
While it’s difficult to say exactly why the spike didn’t happen, when we analysed our data the following insights emerged:
46% of all applications in 2021 had previously made a hardship application.
The average KiwiSaver balance for those requesting a withdrawal in 2021 was around $21k.
The average amount requested was around $9k.
The average amount released was around $8k.
In most situations of significant financial hardship the release is to cover 13 weeks of living expenses, but if the person’s circumstances have not changed in 13 weeks then they can continue to reapply until their circumstances have changed.
In addition, the Government had a number of schemes in place last year to support individuals and businesses e.g. the wage subsidy scheme and business resurgence package. These may have contributed to the lower-than-expected unemployment rate, which has a direct link to Serious Financial Hardship applications.
We have also taken a look at our data for insights into why Kiwis are getting into financial hardship in the first place. Our data tells us that these are the main reasons why Kiwis are resorting to withdrawing their KiwiSaver funds:
Loss of employment but not eligible for WINZ support or that support is not enough to cover outgoings.
Overdue bills, which can result in demands for payment being made, including loans from family members, or overdue rent.
Sole traders or small business owners who are struggling to meet living expenses.
Relationship breakdowns, resulting in loss of one income but outgoings remain the same.
Costs of surgery/healthcare not covered by Serious Illness withdrawal criteria e.g. dental care.
Lack of savings and therefore unable to ‘ride out’ the unexpected.
High unsecured debt relative to income – mostly car loans.
Unable to afford mechanical repairs.
Don’t own a vehicle and need one for work (no savings, and existing outgoings already exceed income).
Stuck overseas and unable to return to NZ.
On average we approve around 87% of all applications either fully or partially. Some of the main reasons for not approving an application include:
Documentation hasn’t been provided e.g. no evidence of stated debt or outgoings.
The member hasn’t exhausted other alternatives such as repayment plans, other support such as WINZ, or applied for hardship with their financial provider (KiwiSaver withdrawal is the last resort).
Request to settle a debt in full (KiwiSaver is not designed to be used to repay debts).
The application does not meet the threshold for hardship e.g. their income is too high or requests are for renovations such as a deck extension.
Public Trust works hard to provide scheme members with a decision on their application as quickly as possible. We aim to process 95% of applications in the two business days following receipt. In the 12 months ending 31 January 2022 we processed over 7,500 withdrawal applications and 95.1% were within the target timeframe.
We’re always happy to discuss our insights or processes further. Get in touch with Rob Kingston if you’d like to know more. You can also read more about the legislation and guidelines surrounding KiwiSaver on the IRD and FSC websites.