Tapping into KiwiSaver early (ie not for a first home or retirement) isn’t an easy process, nor is it meant to be a get-out-of-jail-free card if you’ve been careless with money. Be warned, if you’re planning to withdraw money due to financial hardship, you’ll need to show the government evidence that you’re in genuine financial plight. But there are occasions when, despite how financially disciplined you are, something, such as an illness, can leave you in a serious financial bind. Canstar explores what you need to know about the KiwiSaver hardship withdrawal process.
What does the government classify as significant financial hardship?
Hardship means being unable to meet minimum living expenses, such as food, clothing, accommodation, utilities, house and car insurance, or expenses for dependants with special needs.
The government classifies significant financial hardship based on a number of set scenarios. According to KiwiSaver.govt.nz, these situations include if you’re:
Applying for hardship to access your KiwiSaver
To access your KiwiSaver funds, you must be able to prove real financial hardship. If you’re employed, how you apply will differ depending on how long you’ve been a KiwiSaver member. If you apply for a hardship withdrawal within the first three months of joining KiwiSaver, you need to contact Inland Revenue directly or complete a KS5 form. If you’ve been a KiwiSaver member for more than three months, you must contact your KiwiSaver provider. If you’re unemployed, you also need to contact your KiwiSaver provider.
To be eligible to access KiwiSaver money due to financial hardship, you need to provide paperwork proving that you’re in financial dire straits. This includes: providing evidence of exploring reasonable alternative sources of funding, completing a statutory declaration about your assets and liabilities, and providing other documents or information to support your application, as required.
How much are you able to withdraw under KiwiSaver hardship?
How much you can withdraw is determined on a case by case basis. But, you may be able to withdraw the current value of your contributions, as well as your employer’s contributions. But you will not be able to withdraw the $1000 government kick-start repayment (if you received it), or any money that you’ve received through government contributions.
What counts as illness when applying for hardship?
In order to get your KiwiSaver money back on the grounds of ill health, it needs to be an illness, injury, or disability that either permanently affects your ability to work, or poses a risk of death. You may need to provide medical evidence to support your application.
In addition to your contributions and the contributions made by your employer, if your withdrawal is due to illness, you’ll also be able to withdraw the $1000 kick-start (if you received it). You can also withdraw the member tax credits.
As with hardship withdrawals, how you apply depends on how long you’ve been a KiwiSaver member (see above).
Applying for KiwiSaver hardship is a last resort
The KiwiSaver scheme exists to help build comfortable retirements, and applying for a hardship withdrawal should be a last resort. That is why the government will ask for considerable evidence that you’ve explored all other reasonable avenues.
What about if you just want to pause your contributions, not withdraw funds?
As part of KiwiSaver, there’s a clause that, provided you meet certain conditions, allows you to pause your contributions for a period of time. Generally, you must have belonged to KiwiSaver for a minimum of 12 months before you’re able to apply for a savings suspension.
However, if you find yourself facing financial hardship, you may qualify for an “early savings suspension”, when you can pause your KiwiSaver contributions even if you’ve been in the scheme for less than 12 months.
You may be eligible for an early savings suspension, if you’re experiencing financial trouble for reasons outside your control and it’s affecting your ability to pay your KiwiSaver contributions. The government classifies you as being in financial hardship if you’ve underestimated the impact of being a KiwiSaver member on your financial circumstances, and cannot afford to pay your day-to-day living expenses.
You may also be eligible if your financial situation has changed due to:
- Events beyond your control related to the repair or replacement of essential items, such as your car or washing machine, where there are no reasonable alternatives.
- The cost associated with an illness, injury or condition suffered by you or a dependant.
- The cost of medical treatment or rehabilitation for you or a dependant, including costs related to pregnancy or modification of your home to meet special needs or palliative care.
- Inflationary factors, such as price increases, rent increases or interest rate rises.
- Changes in your living arrangements that result in an increase in rent or a reduction in board payments received.
- Involuntary changes to your or your partner’s employment circumstances, for example, a reduction in overtime or an investment that causes a reduction in your household income (such as a vacant investment property).
- Education costs for yourself or your dependants (excluding private school fees).
To find out more about savings suspensions, have a look at Canstar’s earlier guide here.
Keep tabs on KiwiSaver market using Canstar’s comparison tools
To give you the best chance of growing your KiwiSaver funds – whatever you need to withdraw it for – you’ll want to make sure that you have chosen a scheme and fund type that meets your needs. Canstar researches, rates and compares KiwiSaver providers and schemes, to help you in the decision-making process. Because we have different financial needs that change depending on our ages and life stages, it’s well worth regularly reviewing the KiwiSaver market. If you hit the button below, you’ll be able to scan the KiwiSaver market, for free, to help you review your options.