Covid warning: Extended lockdown could push KiwiSaver hardship claims higher

The number of Kiwis tapping into their retirement savings due to financial hardship continues to rise and experts say the latest lockdown could spur more claims if it drags on longer than three days.

Inland Revenue figures show that in December last year 2526 people withdrew money from KiwiSaver accounts due to financial hardship, taking out $16.4 million.

That was a significant jump on a year earlier when 2000 took $11.6m out in December 2019.

Statistics show the number of people taking money out of KiwiSaver for hardship rose steadily over 2020 despite the amount of economic stimulus being pumped into the economy and employment levels staying strong.

Glenys Talivai, chief executive of Public Trust, which is a supervisor for multiple KiwiSaver schemes and signs off on hardship applications, said it had seen an average month-on-month increase of about 20 per cent since the first lockdown in March last year and December had been a record month for it.

She said the higher numbers in December was more about timing. “Both members and providers really tried – we pushed through as many applications as we could in December ahead of the Christmas and summer break.”

Since then January application numbers had been much lower.

Talivai said it was too early to know whether or not there would be any impact from the latest lockdown.

“If it is just three days I wouldn’t imagine that would be significant but you just don’t know where some of these businesses are at now.

“That is the biggest question, is a three-day lockdown enough to push some businesses over the edge?”

One of the biggest drivers of people applying for a financial hardship claim is the loss of their job.

Harry Koprivcic, chief executive at Guardian Trust, another firm which acts as a supervisor for KiwiSaver funds, said if the lockdown dragged on longer than three days there could be an impact on applications.

“It’s a short lockdown, but I think if it goes for more than a week or two weeks you could.”

Koprivcic said Guardian Trust saw a slight increase in applications in April after the first lockdown.

“There was a slight jump – there was never a big spike, it was manageable but I think the industry was preparing for that.”

After that it tailed off until another slight increase in September and October after the Government subsidies dropped off, he said.

Tom Hartmann, personal finance spokesman at the Commission for Financial Capability, said he hoped the latest lockdown would not be the “straw that breaks the camel’s back”.

“People’s situations can vary in terms of how precarious they are and maybe a seemingly small thing for one person is actually a really big thing to another and pushes someone to that level where they have to rely on KiwiSaver to get by, to keep food on the table and that is legitimate.”

But Hartmann said tapping into your KiwiSaver fund was a last resort.

“It’s really a big deal because you are missing out on money that will be yours if you stay in and that could be tens of thousands over time.”

Applications can only be made by those struggling with day-to-day living costs – it can not be used to pay off credit cards or other forms of debt or fines.

He urged those worried about their finances to call the free service Money Talks where they could talk anonymously if they wanted to.

“They will put you in touch with different alternatives like no and low-interest loans available from the likes of Good Shepherd.”

Hartmann said people should also seek help from their financial service providers and could talk to them about restructuring loans or taking an interest-only option.

The mortgage deferral scheme with the banks is open until March 31 for applications.

He also warned people to be wary of withdrawing money from KiwiSaver in order to give it to someone else – particularly someone they had never met in person which could be a scam or fraud.

Talivai urged people worried about their finances to get advice early.

“People hate talking about their finances so they put it off and try and find ways to resolve it – but the longer they wait without seeking advice the deeper in the hole they get which means their options get more and more limited.”

Talivai said people needed to get help around their budget before they put in a hardship application claim to show they had explored other options.

She also said those who needed to apply should get support to work through the application process which required a lot of documentation.

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