KiwiSaver hardship withdrawal – how it works

If money is tight enough that you are reading this, the short answer is yes: KiwiSaver has a hardship route, and people use it. But it is deliberately not easy, it is not fast, and you cannot take out your whole balance. Here is what actually happens.

What counts as significant financial hardship?

Inland Revenue lists the situations that qualify. You may be able to apply if you:

• cannot meet minimum living expenses
• cannot pay the mortgage on the home you live in, and your mortgage provider is seeking to enforce the mortgage
• need to modify your home to meet special needs, for yourself or a dependant
• need to pay for medical treatment for yourself or a dependant
• have a serious illness
• need to pay funeral costs for a dependant
• need palliative care, for yourself or a dependant

Note the mortgage wording carefully. Falling behind is not enough on its own – the test is that the lender is moving to enforce. If you are behind but not yet at that point, talk to your lender first. A hardship application takes weeks; a lender’s hardship team can often act in days, and it does not cost you your retirement savings.

Who decides?

Not Inland Revenue, and not you. You apply through your KiwiSaver provider, and the decision sits with the scheme’s supervisor – an independent licensed body whose job is to protect members’ money. The one exception is if you are within the first two months of your KiwiSaver membership, which Inland Revenue handles directly.

That independence cuts both ways. The supervisor cannot approve an application out of sympathy, but it also cannot refuse one because your provider would rather keep the funds invested.

What evidence do you need?

You have to show the hardship, not describe it. In practice that means a completed application form from your provider, a statutory declaration, and documents backing up what you have said: bank statements, a budget of income against outgoings, arrears letters, medical or funeral invoices, and often confirmation that you have already tried other options.

Providers reasonably expect you to have explored what else is available first – a budgeting service, a payment arrangement, hardship help from your lender or Work and Income. An application that shows nothing else was tried is the one most likely to come back.

The part you cannot withdraw

This is the detail that surprises people. A hardship withdrawal covers your own contributions and your employer’s contributions. It does not include the Government’s money: the annual Government contribution, and the $1,000 kick-start if you were an early member, stay in the account.

Depending on your scheme’s rules, the investment returns earned on your and your employer’s contributions may also be available. Your provider will tell you the exact figure, and it is worth asking for that number before you decide, because it is often less than people assume.

The supervisor also decides how much is released, not just whether. The amount is meant to cover the specific hardship you have evidenced, not to empty the account.

What it costs you later

Money taken out now stops compounding. Someone at 40 who withdraws $15,000 gives up not just $15,000 but everything that $15,000 would have earned across the next 25 years, which at a long-run growth return is often two to three times the amount withdrawn. That is not a reason never to do it – a roof over your head today beats a slightly larger balance at 65 – but it is worth going in with your eyes open, and it is why the test is set as high as it is.

Before you apply

• Ring your lender’s hardship team first if the mortgage is the problem. They can usually act faster than a withdrawal can.
• Talk to a free budgeting service. MoneyTalks (0800 345 123) is free and confidential, and providers look favourably on an application that shows you have.
• Ask your provider what your withdrawable amount actually is, before you commit to the process.
• Check what fund you are in. If you may need to withdraw within a year, being in a growth fund means the amount you get depends on the market on the day it is sold.

We are happy to talk any of this through, and it costs you nothing – we are paid by the providers we work with, not by you. If a hardship withdrawal is the right answer we will say so; if there is a better one, we will say that too.