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KiwiSaver and financial hardship: all you need to know

There’s no denying that we live in tough economic times, with high inflation and high mortgage interest rates putting a strain on Kiwis’ budgets. Is a KiwiSaver financial hardship withdrawal…

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15 June 2023

KiwiSaver and financial hardship: all you need to know 

There’s no denying that we live in tough economic times, with high inflation and high mortgage interest rates putting a strain on Kiwis’ budgets. Is a KiwiSaver financial hardship withdrawal an option for you? 

If you are one of the many New Zealanders who are experiencing some financial difficulties, you may be eyeing up your KiwiSaver funds as a potential saving grace. Perhaps you don’t have a sizeable rainy-day fund – or you’ve already tapped into it – and you’d like to access the few thousands of dollars in your KiwiSaver account.  

So, here are some key things to know about this option.  

Do you qualify? 

You can apply for an early withdrawal of funds if you’re suffering significant financial hardship – for example if you’re unable to meet essential living and/or medical costs. 

You’ll need to show that you’ve exhausted any reasonable alternative sources of funds, and if your application is granted, the amount you withdraw can be limited to a specific amount to meet your hardship requirements. 

If any of the below applies to you, you may be able to withdraw from your KiwiSaver Scheme:  

  • Unable to pay for minimum living expenses such as power, water, and food bills  
  • Unable to pay mortgage/rental/board payments  
  • Unable to pay to modify your home to meet special needs if you or a dependent family member is disabled  
  • Unable to pay for medical treatment for you or a dependent family member because of illness, injury, or palliative care  
  • Incurred funeral costs as a dependent family member has died  

If your application is successful, you can withdraw up to the value of the contributions that you and your employer have made (including investment earnings). You cannot withdraw any contributions the Government has made (e.g. $1,000 kick-start and Government contributions).  

A key part of the hardship application is proving that you cannot currently pay for your minimum living expenses, and so require a KiwiSaver Hardship Withdrawal. 


Minimum living expenses generally include:  

  • Basic food and groceries  
  • Mortgage/rent/board payments  
  • Basic clothing  
  • Utility bills (power, water, and phone)  
  • Basic transport costs  
  • Expenses in relation to any financial dependants with special needs.  


However, minimum living expenses do not include:  

  • Credit card debt relating to non-essential living expenses  
  • Fines or infringement notices  
  • Debt collection agency bills  
  • Hire purchase debt relating to non-essential living expenses  
  • Holidays  
  • Travel to visit a sick relative.  
  • IRD, WINZ repayments Costs relating to investment properties, business expenses, and payment of any non-essential living costs (e.g. gym membership and purchase of assets), are also excluded. 


How to apply 

Contact your KiwiSaver provider to obtain the relevant withdrawal application form. You will only be able to withdraw your employer and employee contributions and investment profits – you will need to leave the Government Contribution in your account for your retirement. You will also need to have been a KiwiSaver member for at least 2 months. 

And keep in mind that each KiwiSaver provider has a slightly different process for application. All withdrawals must be approved by the fund supervisor who makes the final decision on the amount able to be withdrawn. 


What are the consequences? 

It’s important to understand that taking money out of your KiwiSaver fund today will inevitably lead to a lower KiwiSaver balance in the future – which means less money for your retirement – and can lead in extreme cases to a lower quality of life in retirement.  

In saying that though, retirement planning shouldn’t come at the cost of your survival: it’s not worth subjecting yourself to poverty conditions or giving up your house just to honour a commitment to your future self — you’ll need to weigh this up.  

Although it may seem you are only taking out a small portion of your fund (e.g., $10,000), this amount will equate to a much larger amount over your working life. Because once invested, money earns extra dollars on top (the effect of compounding returns), by withdrawing early you’re losing this additional revenue stream.   


Could it be worth using the equity in your home instead? 

Given the rising interest rates and dropping house prices, drawing from the equity in your home might not be as advantageous as it was in the past. However, it's still worth considering the opportunity cost of withdrawing from your KiwiSaver instead of borrowing from your bank.  

As we’ve seen, if you withdraw early, you will lose some of the power of compounding returns. On the other hand, the more you add to your mortgage, the more you will pay in monthly instalments and overall interest costs.  

Make sure you run your numbers, using our digital advice tool as well as your lender’s calculator, and carefully weigh the pros and cons of each option. It’s also worth talking to your lender as soon as possible: they’re usually willing to work with clients to find a suitable solution. In some cases, they may offer temporary repayment relief or suggest alternative repayment plans to ease your financial burden. 

And of course, consider seeking professional financial advice. A financial adviser can help provide personalised guidance, so you can make an informed decision that aligns with your current budget and longer-term goals.  



Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.