early access under financial hardship

Q)Financially I have been stuck in a never ending rut for some time, but I recall from when I was in a better situation being told by my bank about using my KiwiSaver funds to help me out. Please advise. 

A) Sorry to hear about your financial woes.Your memory serves you correctly about being able to tap your KiwiSaver funds if you are in dire straights.

This determination, about the gravity of your financial situation, is actually made by the trustee who governs your KiwiSaver scheme.  We all have a different idea of what constitutes financial distress so ostensibly this is a way to make a more impartial call on that. You'll remember that a few individuals tried to justify their inability to buy Rugby World Cup tickets as a financial hardship. They weren't successful. 

The following is a guideline from the KiwiSaver Act on terms of financial hardship:

Significant financial hardship includes if you're:

  • unable to meet minimum living expenses
  • unable to meet mortgage repayments on the home you live in, resulting in your mortgage provider enforcing the mortgage on your property
  • modifying your home to meet special needs because of you or a dependent family member having a disability
  • paying for medical treatment if you or a dependent family member:
    • becomes ill
    • has an injury, or
    • requires palliative care
  • suffering from a serious illness
  • incurring funeral costs if a dependent family member dies.

As you mentioned you are from Christchurch, and also on a disability benefit of some kind, I expect the threshold to prove your case won't be too hard. Following the Feb.22 earthquake, Government instructed providers to ensure that earthquake victims from Christchurch suffering from financial hardship be allowed to access their KiwiSaver funds without undue delays and effort.

That said, from what I have heard it can be a cumbersome process. To start, you'll need to go to your provider to get the ball rolling. You'll have to show proof that you are struggling financially. In some cases, trustees have rejected claims forcing KiwiSavers to go through a budgeting advisory service to see whether or not they really are in trouble. 

Considerations to bear in mind:

Before you pull the plug on your KiwiSaver, it's important to evaluate where you are at globally with your finances. In this regard, it might be worth your time to visit a budget advisory service first. You can access such services for free. Here's a link to the Federation of Family Budgeting Services. They will be able to point you in the direction of an advisor.

How much do you have?

You mentioned a specific figure that you are in debt. If you are thinking your KiwiSaver funds will pay this debt off in full, keep in mind that under the financial hardship clause, you only get back what you paid in, and your employer. So you won't get the $1,000 back from your kick-start. Nor will you get back the member tax credits from Government. Take this into account with your calculations before you go to the trouble of trying to pull your funds out.

Contributions tracking?

You should be getting an annual statement from your KiwiSaver provider alerting you to your balance. That said, a good chunk of people remain in default funds that were randomly allocated so many KiwiSavers are clueless about who they're invested with and even foggier about what kind of fund they're in. 

If this is you, you can find out who your provider is and how much you have paid into your KiwiSaver by going to the KiwiSaver website. I'm including the link here. If you are already registered as an on-line user for Inland Revenue you just plug in the same user name and password.

If you aren't registered for on-line services with IRD, you can do so here. All you need is your IRD number. If I recall correctly there is a 12 or 24 hour waiting period in between the time of initial registration and getting set up with your password. Once you've tackled all that, it's smooth sailing.

On the website you'll find out who your provider is, how much you've paid into your KiwiSaver, how much your employer has paid into it, and also how much you've received in member tax credits.

Once you have that information, you'll be in a better position to know how far your funds will go toward your debt.

Keep in mind that KiwiSaver is a long-term savings vehicle that is meant to help you financially in your retirement. If you are struggling to make ends meet today, and you're really not in a position to maintain it because you're going backwards, it might not make sense. Just make sure you've explored all your options first. It could be that a contributions holiday could be a better course of action. A qualified budgeting advisor should be able to help you make that determination if you can't, for whatever reason, do so yourself.

Good luck.