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The implications for insurance planning from KiwiSaver experiences and more daily news

A story has emerged of a man who applied to withdraw the full amount from his KiwiSaver account after getting into a car crash, losing his job and failing to keep up with his mortgage repayments and help his mother living in Japan. His bank allowed him to withdraw just $11,000 from the $40,000 he had saved.

“A man who was only allowed to withdraw $11,000 from his KiwiSaver account after crashing his car, losing his job and struggling with his mortgage is a good example of misunderstanding about what the retirement savings scheme is for, experts say.

The man complained to Financial Services Complaints Ltd (FSCL), an external disputes resolution scheme for financial services providers, unhappy he could not withdraw more.

He had about $40,000 in his KiwiSaver account and applied to his bank, also his KiwiSaver provider, to withdraw the full amount so he could buy a new car to allow him to get to job interviews more easily, pay off some of his mortgage to reduce his payments and help his mother, who was living in Japan.

He was only allowed to access $11,000.”

The KiwiSaver trustee informed him that they would give him money to help with the minimum repayment for his mortgage but said that he didn’t need a new car as he could use public transport. The trustee concluded that paying for his mother to visit wasn’t a minimum living cost.

"The man said the money in KiwiSaver account was his and it was ridiculous he was not allowed to withdraw it to help him in a difficult time.”

Upset the man took his case to the FSCL. But the FSCL backed the decision of the trustee saying that it was reasonable. The FSCL highlighted that KiwiSaver withdrawals are intended for first home purchases and relief from serious financial hardship, and believed that the man qualified to accessing a portion of his funds to cover his living expenses.

Financial adviser Liz Koh commented saying that she didn’t believe that rules around KiwiSaver withdrawals should change as there are always ups and downs in life. Instead, Liz believes that people should be prepared for unexpected events.

“Financial adviser Liz Koh said she did not think there should be more flexibility around withdrawals. Life always has ups and downs, and people need to learn to be prepared for the times in life when things don’t go so well. When times are good, savings should be built up as a buffer for when things change for the worse, as inevitably they do.” Click here to read more

Koh makes a good point, with important implications for wider financial planning, and also for insurance planning: an emergency fund is probably the foundation for all financial planning. The immediate buffer between the unfortunate realities of chance and misfortune in the real world and your own quality of life. Many people are finding this buffer to be inadequate. It also highlights an issue with KiwiSaver that reduces flexibility - Kiwi savers cannot expect to treat the fund as if the money is their own. In addition to an emergency fund, to provide any comfort above that necessary for 'minimum living costs' as seen through the eyes of a KiwiSaver trustee, then savers will require substantial additional resources and ideally, a good insurance plan. 

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