More New Zealanders than ever are applying to take money out of their KiwiSaver accounts because of financial hardship.
Author
- Victoria Stace
Senior Lecturer, Faculty of Law, Te Herenga Waka — Victoria University of Wellington
In the year to March 31 2025, withdrawals had risen to NZ$443.6 million, up from $264.3 million in the previous year - a 50.8% increase.
IRD figures to September 2026 show the amounts withdrawn for first home purchases still exceed the amounts withdrawn for financial hardship. But applications for financial hardship withdrawals now outnumber those for first home purchases.
As one KiwiSaver provider told our research team:
The current number of [hardship] withdrawals is roughly three times what we had pre-COVID. This is really high numbers of people. This is just a massive expansion of poverty.
FinCap , a charitable trust that supports financial mentors helping people manage their personal finances, asked Victoria University of Wellington to look at ways people seeking a financial hardship withdrawal could keep their money in KiwiSaver.
The researchers spoke to financial mentors (who provide free support to individuals with unmanageable debt), Debtfix (which also provides assistance to people with debt), KiwiSaver providers and the Retirement Commission.
Those working in the sector agree the level of hardship withdrawal applications - one in eight clients according to the mentors we spoke to - is a symptom of the financial stress New Zealanders are facing.
However, our report also suggests there are ways to help people keep money in their KiwiSaver accounts - without simply making it harder to make withdrawals.
'Sidecar' accounts for emergencies
Providing financial mentoring expertise to anyone making a withdrawal application would allow people to explore all their options before opting to take money out of their account.
Financial mentors can also assist people facing unmanageable debt to negotiate with creditors, access government assistance or even go through an insolvency procedure to clear debt.
One suggestion was the establishment of a centralised hardship application assessment and support "clearing house".
This could be staffed by mentors, specialist debt management organisations and other support services to assess people's situation before any formal application was made.
The report also recommends investigating and potentially trialling "sidecar" savings accounts linked to KiwiSaver. These would help members build emergency savings which could be accessed in times of hardship while leaving the rest of their KiwiSaver balance intact.
The research identified significant variation between KiwiSaver providers' hardship application processes, forms and communication. As one mentor said about their clients in prison who were applying for a hardship withdrawal:
They're generally asking for the minimum, around $70 a week for 13 weeks, for extra food, toiletries and similar expenses. Some are getting approved, while others aren't.
The variation means having to tailor applications for each provider, which can be difficult and time consuming.
It can be too easy with some providers, but with others it's absolutely like you're tearing your hair out trying to get one approved.
Impact of election result
The report recommends government agencies such as the Retirement Commission and IRD work with KiwiSaver providers to gather more information about hardship withdrawals and standardise processes.
More generally, the research found little recognition of how the rise in harship applications is adding to workloads in an already underfunded financial mentoring sector.
FinCap has been advocating for sustainable funding for financial mentors and is now organising a petition to government.
In the meantime, the final election result will have an impact.
Another National-led coalition government will likely to see KiwiSaver contributions become compulsory for employers and employees. Labour is also promising to make employer contributions compulsory , and both major parties intend to increase contribution rates.
The Opportunity Party's "KiwiSaver 2.0" proposal - part of a wider tax reset - is more drastic, including a compulsory scheme with no hardship withdrawals allowed.
If a tougher savings model is introduced, it will bring the debate about hardship withdrawals into sharper focus. It is important we balance the benefits of long-term savings to support the future interests of KiwiSaver members with some allowance for withdrawals to meet present hardship.
Victoria Stace works closely with FinCap to research credit and debt issues affecting consumers. She received an internal grant from Victoria University for this research project.
