KiwiSaver members under financial stress due to the effects of COVID-19 are urged to consider all forms of Government and bank support before resorting to withdrawing money from their retirement savings through hardship applications.
Retirement Commissioner Jane Wrightson said it was understandable that many KiwiSaver members facing financial hardship were turning to their funds as a potential source of short-term income.
Shes says if people withdraw money from their retirement savings, they will not only crystallise the losses their fund has suffered since the effects of COVID-19 began, but also lose out on future returns.
“For example, a 35-year-old earning $80,000 who has contributed 3% to a KiwiSaver balanced fund since KiwiSaver started 13 years ago could have a fund worth $100,000. If they withdrew $30,000 now, they could have $47,000 less by the time they turn 65.”
She says people could instead consider the following options provided by the Government support package announced in the past week.
This includes the leave and self-isolation support, wage subsidy scheme, support for Māori communities and businesses, mortgage holiday and business finance support schemes, business cash flow and tax measures and the wider $12.1 billion package.
Wrightson says if people have lost their job, can’t work at the moment or their income has been reduced, they may be able to get a benefit or other financial help from Work and Income.
“Avoid making a decision based on fear,” says Wrightson. “Emotional situations tend to lead to poor financial choices. So access the help above before turning to the long term savings and investment that is your KiwiSaver.”
Support from banks
Banks and other financial service providers are willing to work with customers who are struggling financially, by restructuring loans or giving access to short term credit.
If, however, a KiwiSaver member decided they wanted to proceed with a significant financial hardship application, they would need to contact their provider and provide evidence that they’re suffering significant financial hardship as a result of COVID-19.
Some elements of the process may be simplified, such as the requirement to sign a form in front of an authorised witness, such as a Justice of the Peace or lawyer, to take into account self-isolation and level 4 lockdown requirements.
Members are also being cautioned to be careful if they were intending to use their KiwiSaver money to give to someone else, especially someone they had never met in person, as they may be the target of a scam or fraud.