KiwiSaver early withdrawals all over the map

HOW SICK IS SICK ENOUGH?

A Dominion Post story this week raised concerns about the role of KiwiSaver providers and trustees when it comes to early withdrawal claims. A KiwiSaver member who had a brain haemorrhage—and now suffers seizures and can’t work or drive—was twice refused permission to withdraw his KiwiSaver money under the serious financial hardship and serious illness clauses. On his third attempt, with the help of a consultant and some media attention, the trustee approved the withdrawal.

This is a situation any KiwiSaver member and any trustee could find themselves embroiled in. It’s the result of a system that tasks KiwiSaver providers and their scheme trustees with processing, assessing and granting (or not) early withdrawal claims. It might not sound like a big deal, but having this work done by a public organization, independent from the Schemes, already familiar with the criteria and procedures involved in hardship and illness claims, would make it fairer and less open to inconsistencies than the current setup—

Lack of consistency: Rules are open to interpretation, and with 30+ providers and dozens of different trustees involved, there is little hope for KiwiSaver members to get consistent assessment of early withdrawal claims.

Working the system: If one trustee turns you down for an early withdrawal, you can shop around for one with a more lenient approach.

Trustees in the middle: Scheme trustees are charged with protecting the interests of KiwiSaver members. Is it appropriate for them to be put in the judiciary role of accepting or rejecting early withdrawal claims at the same time?

Providers in a bind: Scheme providers make money from fees on the funds they manage. Although providers don’t make the final decision on an early withdrawal, they do make recommendations to the trustees. A hard line means more funds remaining in the Scheme, earning fees.

What’s the alternative?

At GMI we’re calling for KiwiSaver early withdrawal claims to be assessed and judged by an independent agency. IRD’s an obvious candidate—they are already assessing and judging claims for early contributions holidays based on hardship. MSD / WINZ are another option, with the added advantage of knowing what assistance or benefits the claimant might be receiving. But whoever it is, it needs to be in one place, subject to a fair and consistent approach, not all over the map like it is right now. Deciding what’s hardship and what isn’t is social policy stuff and should be decided by Government agencies.