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Debt can be a challenging problem to manage for any growing business. As a sole trader, accumulating debt can be even more stressful. It can be tempting to try to access your KiwiSaver savings to pay down debt. While there are only limited circumstances in which you can withdraw from your KiwiSaver before you turn 65, it is possible to make a partial withdrawal in cases of significant financial hardship. This article explains:

  • what KiwiSaver is; 
  • when you can withdraw from KiwiSaver early; 
  • whether you can withdraw money to pay debt; and 
  • some alternatives to KiwiSaver to help with debt issues.

What Is KiwiSaver?

KiwiSaver is New Zealand’s voluntary savings scheme to help New Zealand workers save for retirement. Most New Zealand employees are automatically enrolled in the scheme. Further, the government annually matches contributions (up to $521.43 each year) with the intent of supporting New Zealanders in their retirement savings. KiwiSaver is also known as a superannuation scheme or ‘super’. 

Generally speaking, KiwiSaver is only accessible once an employee turns 65. This is because the scheme is primarily a savings account that employees cannot access or withdraw from until retirement age. However, in some limited circumstances, you can withdraw from your KiwiSaver ‘early’, meaning, before you turn 65.

When Can KiwiSaver Be Withdrawn Early?

There are a few different circumstances where you can withdraw money from your KiwiSaver account before you turn 65. These circumstances include if you:

  • want to buy your first home (the most common type of withdrawal request);
  • are moving permanently to a different country;
  • are experiencing significant financial hardship;
  • have a serious illness; or
  • have a life-shortening congenital condition that raises the risk, you will not live until 65.

The exception most relevant to sole traders looking to pay down their debt is significant financial hardship. However, the bar for this is quite high.

Significant Financial Hardship

There is no hard and fast rule about what classifies as significant financial hardship. Still, there are some guidelines about how severe the hardship has to be to justify an early withdrawal of your KiwiSaver. You are likely to qualify for an early withdrawal through significant financial hardship if you can prove that you:

  • cannot meet minimum living expenses;
  • cannot pay the mortgage on the home you live in, and your mortgage provider is seeking to enforce the mortgage;
  • need to modify your home to meet your special needs or those of a dependent family member;
  • need to pay for medical treatment for yourself or a dependent family member;
  • have a serious illness; or
  • need to pay for funeral costs of a dependent family member.

While these guidelines represent a high bar for withdrawal, generally, New Zealanders can access their KiwiSaver in difficult times.

Notably, the financial impact of COVID-19 associated lockdowns saw a significant increase in New Zealanders accessing their KiwiSaver early. In June 2020, $11.8 million was withdrawn by 1620 members for reasons of financial hardship, up from $7.1m by 1280 people in June 2019.

However, the debt facing your business would typically need to be quite significant to genuinely risk your quality of life, mortgage or medical costs. You will not generally be able to withdraw your KiwiSaver unless you can show that you genuinely need to pay the debt in urgent circumstances. Further, you will need to provide proof of these circumstances and also be able to explain that you have exhausted all other avenues of funding.

If you would like to try to withdraw your KiwiSaver to pay a debt, contact your KiwiSaver provider directly to apply. Alternatively, if you have been in KiwiSaver for less than three months, contact Inland Revenue. Note that you generally cannot take out any government money that has gone into your KiwiSaver for financial hardship. You may only be able to take out a specific amount from the money you have put in yourself. 

Alternatives to KiwiSaver

There are alternatives to withdrawing your KiwiSaver to pay a debt. Likewise, not all of these options are always clear or obvious. As a starting point, banks and other financial service providers are generally willing to work with clients who are struggling financially. They may be able to help restructure your loan or give you access to short-term credit, for example. 

The government is also offering several relief packages to help businesses through Covid-19 and the associated lockdowns. It is worth checking these options to see if any apply to you:

Key Takeaways

Generally, you cannot use your KiwiSaver to pay debt as a sole trader. KiwiSaver aims to serve as a retirement savings scheme. Likewise, you have to fulfil special exceptions to withdraw it before you turn 65. However, one of these exceptions is significant financial hardship. If the debt you are facing in your business is so significant that it means you are unable to pay living expenses, your mortgage, or medical costs, then it is worth applying to withdraw your KiwiSaver early. You can do so through your KiwiSaver scheme provider. If you want to know more about KiwiSaver or get advice on whether you can access it to pay debt, contact LegalVision’s business lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

What is KiwiSaver?

KiwiSaver is New Zealand’s voluntary savings scheme to help New Zealanders save for retirement, boosted by government contributions. Most New Zealanders are enrolled in the scheme.

When can KiwiSaver be withdrawn?

To help buy your first home if you: are moving permanently to a different country, are experiencing significant financial hardship, have a serious illness, or have a life-shortening congenital condition.

Can KiwiSaver be used to pay debt?

Not usually, although it is possible to withdraw your KiwiSaver early if the debt means you are facing severe financial hardship. You will need to provide evidence of this.

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