Needing to withdraw your KiwiSaver savings early?
The main purpose of KiwiSaver is to help you save for retirement so you can live comfortably when the time comes. However, for some of us, retirement may be years away. Many things can happen between now and 65 that could lead to withdrawing your KiwiSaver funds early.
Before Withdrawing Early, Get Some Advice
It’s important to understand the consequences of early KiwiSaver withdrawals to your retirement outcomes. By withdrawing early, you are missing out on money that could be yours if you stayed in KiwiSaver.
The rules of withdrawing your KiwiSaver account are made by the government and not by KiwiSaver providers. Here are some circumstances in which you can withdraw your KiwiSaver funds early.
Significant Financial Hardship
Significant financial hardship is when you cannot meet your minimum living expenses such as basic food and groceries, utility bills, rent payments, and medical or care costs.
Significant financial hardship applies to situations when you:
Can’t pay the mortgage on the home you live in, and your mortgage provider is enforcing the mortgage
Need to modify your home to meet your special needs or those of a dependent family member
Need to pay for medical treatment for yourself or a dependent family member
Have a serious illness
Need to pay funeral costs of a dependent family member
The purpose of significant hardship withdrawals is for when you cannot meet everyday needs like food and shelter. The hardship withdrawal CANNOT be used for situations where you need to pay for:
Credit card debts
Fines or infringement notices
Debts collection agency bills
Hire purchase debt for non-essential living expenses
Travel to visit a sick relative
If you have been a KiwiSaver member for more than two months, you can apply for an early withdrawal directly from your scheme provider. However, if you’re within the first 2 months of being in KiwiSaver, you would need to apply to the Inland Revenue Department. When applying, you will need to provide evidence you are suffering significant financial hardship. This may include bank statements from the previous three months, proof of wages or salary, and statements showing your bills outstanding.
If your application to withdraw funds is accepted, you will only be able to withdraw your and your employer’s contributions. You won’t be able to withdraw any government contributions.
Now more than ever, Kiwis are facing financially stressful times as the impacts of COVID-19 are being felt on jobs and the economy. Before digging into your KiwiSaver and retirement savings, make sure you have exhausted all other options first, explore what support you could receive from banks, lenders, and government support before making a choice. In other words, withdrawing your KiwiSaver funds should be the last resort as the impacts of withdrawing funds now will be amplified in your long-term prospects. KiwiSaver financial hardship withdrawals can adversely impact your future financial situation much more than you will help your present one.
You can withdraw your KiwiSaver funds if you are emigrating from New Zealand.
If you are moving to Australia permanently, once you are there, you can apply to transfer your KiwiSaver savings to an Australian superannuation fund. The transferred amount must be your total KiwiSaver balance, including the government contributions you received while you were living in New Zealand. If you received government contributions whilst living overseas, it will be returned to the government and you will not be able to transfer this into your Australian superannuation scheme. Also note that there may be Australian entry taxes to transfers greater than AU$150,000.
If you are permanently emigrating to a country other than Australia, you can apply to withdraw your KiwiSaver funds after you’ve been living overseas for at least 1 year. You will be able to withdraw your and your employer contributions, your investment returns, as well as the $1,000 kickstart or any fee subsidies (if you got these). You will not be able to transfer any of the annual government contributions.
If your health is affecting you financially, you can withdraw your KiwiSaver funds early under the basis that you face:
An illness, injury or disability that permanently affects your ability to work or poses a risk of death
A life-shortening congenital condition that lowers your life expectancy below 65
When applying you will need to provide supporting medical evidence and if you were born with a life-shortening condition, you may be able to elect an early retirement age so you can withdraw before 65. If you do make a withdrawal under this condition, you will no longer receive government or compulsory employer contributions.
As your KiwiSaver funds are an asset, they can also be used to pay off debts if you become bankrupt.
KiwiSaver funds could also be relationship property in the event of a divorce. This means your KiwiSaver funds could be part of a pool of assets that are divided when your relationship ends.
Additionally, if you’ve transferred savings from a foreign superannuation fund to a KiwiSaver fund, and you have tax due on your foreign superannuation scheme or foreign student loans, you may be able to withdraw KiwiSaver funds to pay for these.
Consequences of withdrawing your KiwiSaver funds
Your KiwiSaver funds are your retirement savings. When withdrawing your KiwiSaver funds early, you are not only taking out the face value of the withdrawal, you are also losing all the future potential gains from that amount too. Before withdrawing your KiwiSaver funds early, we advise you to seek advice before making decisions.
At National Capital, we understand that life happens and circumstances change. When your situation changes, it is important to update your KiwiSaver strategy to match. Does your current KiwiSaver strategy suit your situation? Take our KiwiSaver HealthCheck to find out.