The number of KiwiSaver financial hardship withdrawals has increased by 60 per cent in two years, signalling that New Zealanders are living pay cheque to pay cheque – just one unexpected bill away from financial disaster.
Canstar New Zealand's Emma Quantrill joined TVNZ’s Breakfast this morning to discuss why $78 million has already been withdrawn from Kiwisaver this year.
Ms Cantrill said, "It sounds [like] a huge headline figure because it is, but when you look at the individual figures, you're talking little over $5000 per withdrawal, so these are really desperate measures".
"They've exhausted all the other avenues they can go down, so people are just being hijacked by high prices, bills, and are in desperation."
Ms Cantrill says living costs "have gone up a lot higher than wages have over the last 10 years", leading New Zealanders to dip into their KiwiSaver, but "ultimately, this isn't what KiwiSaver's for".
"Our worry is we're not finding a solution to financial hardships – it's simply being deferred to later on in life."
She says part of the issue is that Kiwis are not opting back into the scheme after making a withdrawal.
"What we've been looking at is the actual KiwiSaver element, so we're looking at people coming out of KiwiSaver withdrawing, but they're not getting back into it, so this is the problem we’ve been looking at, and so in future years, when people reach retirement, because they've not gone back into the system - which contribution holidays allows them to stay out – it just means that we're looking at potential financial disaster in the years to come."
Currently, around 135,000 members are taking a financial contribution holidays, which may cost around $18,000 or more over five years, Ms Cantrill said.
"We looked at an average wage of just over $50,000. Over that five years, when you take into account your contributions, your employer’s contributions, that would also attract your government contributions. We then looked at what returns have been over the previous five years and gave a very conservative return on that investment, and you're looking at over $18,000 or more over that five year period.
"It's a huge amount of money, and if you think that over the next five years and the next five years, it's only going to keep increasing."
Ms Cantrill said the way to get people back into saving is for KiwiSaver to have more interaction with the people taking financial contribution holidays.
"At the moment, people can elect to take these contributions holidays. They can do that for up to five years, and at the end of five years, they can then elect to do it again, so what we're thinking is it would be good if there was a bit more interaction with people at these points. They're not left for five years – they're constantly reminded how much they could be doing, what these impacts might be later on."
She adds that the ease in which people are making financial hardship withdrawals are "a little bit of an understatement".
"It is quite a difficult thing to do, and you’ve got to prove that you've exhausted all your other avenues, that you're really in severe financial stress.
"I think we all get thrown life's curveballs from time to time, and this is a great way to help you over that hump – to really help you in the time that you need it, but then, a little bit of financial management, hopefully, you can get yourself back on track over the next few years, and at the end of a few years, you're then in a slightly stronger position – and we're talking what can be relatively small amounts of money - $20 a week."
Ms Cantrill says retirement can be expensive, saying, “you’re not just looking at your income in retirement, but you’re looking at, you know, mortgage payments, that kind of thing as well, so it’s about looking and getting ahead of the game, really.
“It feels like a long way off, but those years pass quickly.”
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