KiwiSaver withdrawals soar: But how does it actually work?

Large numbers of New Zealanders continue to withdraw money from KiwiSaver for financial hardship reasons.

More than 4200 members withdrew money for this reason in August, up from 2760 in August last year.

But how do you make a financial hardship withdrawal, how long does it take, and what might get you turned down?

What can you claim for?

KiwiSaver members can apply for withdrawal for hardship reasons in fairly limited circumstances.

You can apply if you cannot pay your minimum living expenses - such as power, water and food bills, if you can't keep up with your mortgage or rent, if you need to modify your home to meet special needs, or if you need to pay for medical treatment or funeral expenses.

The Financial Services Council produces guidelines covering how applications will be considered.

If you need money for clothes, that should be to pay for basics, not "upmarket" brands or expensive items, it said.

Accommodation expenses could include rates, insurance and basic maintenance but if accommodation was of an "excessively high standard" and changing that was a reasonable way to access money, those excess costs would not be regarded as a "minimum living expense".

Private school fees could be included, when those costs had already been incurred - but international school trips would not.

You generally cannot claim for things like paying off fines, paying debt collection agency bills, hire-purchase debt for non-essential expenses, holidays, or travel to see a sick relative.

While KiwiSaver providers compile the information from their members to make the application, it is the schemes' supervisors that make the final decision.

David Callanan - general manager of corporate trustee services at supervisor Public Trust - said significant financial hardship might be, for example, when someone had higher expenses than income and did not have any other savings.

He said people would also need to show that they had tried to find other ways of getting by.

They might have had to ask for repayment arrangements from the bank, for example, or for help from Work and Income.

What about weight loss surgery, or IVF?

Callanan's colleague Amy Cavanaugh said people could apply for things such as bariatric surgery under the serious illness provisions.

"If they are in a position where they can't work, they can't earn income and... medical advice would say having the surgery would put them in a position where they would be able to, they get the documents to evidence their financial situation and the medical assessment - if they meet the criteria wo could release a certain amount of funds for that."

FSC said non-essential medical costs such as cosmetic dental treatment or IVF would usually be excluded but could be assessed on a case-by-case basis.

How much can you claim?

You can apply to withdraw all the funds in your account, apart from the government contributions.

But that does not mean you will be approved for the full amount. Living costs payments are usually made in 13-week allocations.

What is the application process like?

Koura KiwiSaver founder Rupert Carlyon said people should take their time over the application, because there could be a lot of paperwork to work through.

If you were applying for money for a car, for example, you might need to provide your bank statements, copies of ID signed by a justice of the peace, pay slips, proof of address, quotes for cars and verification from NZTA that you have no other vehicles registered in your name. If you live with a partner, you might also need to provide information about their income, assets and expenses, and a breakdown of your household spending.

You may also need to provide proof that there is no further support available to you from Work and Income.

Liam Robertson, a financial adviser at Milford, said turnaround was between five and eight business days at the moment.

What mistakes do people make?

Carlyon said the biggest thing that got in the way of an application was that people did not understand it was a last resort.

Sometimes they would want to withdraw money from KiwiSaver because they did not want to break a term deposit, or use other funds, he said.

"That real understanding that financial hardship is only when you've got no other option - anything you can liquidate, that needs to happen first."

Some people argued that because it was their money, they should be allowed to withdraw it all to clear a debt, he said. But usually, you can only claim enough to cover arrears.

Carlyon said having the money locked up was the price people paid to be able to access employer and government contributions.

He said his team would also ask people to go to any creditors they owed money to and ask whether their payments could be delayed. "The person can say no, and if they say not hat's fine but we need to see that question has been asked."

Carlyon said people should also consider the long-term implications. Taking $10,000 out might be a simple decision, but over 30 years the impact of that withdrawal would compound.

"Take your time to work through it, take it seriously - you'll end up with a better result than if you rush through and expect it to come straight away."