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Significant hardship withdrawal easier said than done
 
Q.        My wife and I are self-employed, each running our own successful business. We have two children aged 11 and 13. We each have a KiwiSaver account, and we are contributing to our own accounts as well as to our children’s account. While we are comfortable we do have significant financial commitments and we are aware that our success depends on our continuing good health and the wider economy. If everything turned pear-shaped and we needed to make a hardship application, could we apply to withdraw funds out of our children’s KiwiSaver accounts as well as our own?
 
A.         Congratulations on saving while things are going well for you. However, you should treat KiwiSaver as a long term investment and have separate savings going into more accessible accounts both for you and your children. The priorities at your age particularly being self-employed should be repaying debt, building cash reserves and then saving for retirement. How much you direct into each of these is open to discussion, but there is not a strong argument for self-employed people putting more than $1042 per year into KiwiSaver (to get $521 from the Government in MTC) while you still have a mortgage or other debts.
 
The rules around significant financial hardship withdrawals from KiwiSaver are strict and it should be regarded as a last resort. Significant financial hardship includes if you're unable to meet minimum living expenses, unable to meet mortgage repayments on the home you live in, if you need to modify your home to meet special needs for you or a dependent family member with a disability, pay for urgent medical treatment, or funeral costs if a dependent family member dies.

Applications have to be made through your fund manager to the trustee of the scheme. The application form is several pages long and requires detailed information on all your debts including mortgage and hire purchase, all your assets, as well as your weekly income and expenses. You need to provide all supporting documentation including copies of payslips, bank statements, overdue utility notices and any threatening letters from creditors. They also ask what steps you have already taken to help yourself such as a letter of decline from your bank (e.g. for a mortgage holiday) and Government departments (e.g. WiNZ), proof of seeking budgetary assistance including help from non-profit organisations, and any personal loan debt restructuring).  Each application has to be made by the individual concerned, and signed as a statutory declaration before a JP or person authorised to take oaths. It would not be appropriate for a child to undertake this process as the hardship being experienced will be your responsibility rather than theirs. 
 
The trustee of the fund may decide that the amount withdrawn be limited to a specified amount that, in the trustees’ opinion, is required to alleviate the particular hardship. You can apply to withdraw only your own and your employee contributions, not the Government contributions.   Most children’s KiwiSaver accounts comprise the ‘kickstart’ from the Government plus some modest investment returns so for that reason alone it is unlikely that any parents have tried to get funds released from a child’s KiwiSaver on the grounds of significant hardship. 
 
By all means make contributions to your children’s KiwiSaver accounts, but if you think you may need to access the funds at some time in the future you will be better off using a more accessible savings account than KiwiSaver.
 
 
Shelley Hanna is an Authorised Financial Adviser FSP12241. Her disclosure statement is available on request and free of charge by calling 870 3838. The information contained in this article is of a general nature and is not personalised. Send your KiwiSaver questions to shelley.hanna@peak.net.nz