Understanding KiwiSaver Withdrawals: What You Need to Know
KiwiSaver is a cornerstone of retirement planning in New Zealand, offering a structured approach to saving for the future. However, there are circumstances where accessing these funds before retirement is permissible. This guide delves into the scenarios where withdrawals are allowed, the benefits and drawbacks of such actions, and the restrictions to be aware of.
When Can You Withdraw from KiwiSaver?
While KiwiSaver is primarily designed for retirement savings, certain situations permit early access to your funds:
1. Retirement (Age 65 and Over)
Upon reaching the age of 65, you can withdraw your KiwiSaver savings. Options include:
- Full Withdrawal: Accessing the entire balance.
- Partial Withdrawals: Taking out funds as needed.
- Regular Withdrawals: Setting up periodic payments to supplement retirement income.
It’s important to note that once you begin withdrawing, you may no longer be eligible for government contributions, and employer contributions are no longer mandatory unless specified in your employment agreement.
2. First Home Purchase
If you’re a first-time homebuyer, you may be eligible to withdraw funds to assist with your purchase:
Eligibility Criteria:
- Must have been a KiwiSaver member for at least three years.
- The property must be intended as your primary residence.
- You must leave a minimum balance of $1,000 in your KiwiSaver account.
- This option can significantly aid in securing a home, but it reduces the amount available for retirement.
3. Significant Financial Hardship
Under certain conditions, you can apply for an early withdrawal due to financial hardship:
Qualifying Situations:
- Inability to meet minimum living expenses.
- Mortgage arrears leading to potential loss of home.
- Costs related to serious illness or injury.
Applications require detailed evidence, and withdrawals are limited to the amount necessary to alleviate hardship.
4. Serious Illness
If you’re diagnosed with a serious illness that permanently affects your ability to work or poses a life-threatening risk, you may be eligible to withdraw your KiwiSaver funds. Medical certification is required to support your application.
5. Permanent Emigration
If you permanently emigrate from New Zealand:
To Australia: You can transfer your KiwiSaver savings to an Australian complying superannuation fund.
To Other Countries: After one year of permanent residence overseas, you may withdraw your funds, excluding any government contributions and transferred amounts from Australian superannuation schemes.
Pros and Cons of Withdrawing KiwiSaver Funds
Pros:
Immediate Financial Relief: Accessing funds can alleviate financial stress during emergencies or significant life events.
Homeownership: Using savings for a first home can be a strategic investment, potentially leading to long-term financial stability.
Flexibility in Retirement: Post-65 withdrawals allow for tailored financial planning to suit individual retirement needs.
Cons:
Reduced Retirement Savings: Early withdrawals diminish the compound growth potential of your retirement fund.
Loss of Government Contributions: Withdrawing funds can lead to forfeiture of certain government incentives.
Potential Tax Implications: While KiwiSaver withdrawals are generally tax-free, specific circumstances may have tax consequences.
Restrictions on KiwiSaver Withdrawals
KiwiSaver funds are intended for long-term savings, and as such, there are restrictions on withdrawals:
Non-Qualifying Expenses: Funds cannot be withdrawn for purposes such as education, travel, starting a business, or purchasing a vehicle.
Minimum Balance Requirement: A minimum of $1,000 must remain in your KiwiSaver account after a first home withdrawal.
Approval Process: Early withdrawals require a formal application and approval process, often necessitating supporting documentation.
While KiwiSaver provides avenues for early access under specific conditions, it’s crucial to consider the long-term implications on your retirement savings. Before making any decisions, consult with a financial advisor to assess the best course of action tailored to your individual circumstances.
For personalised advice and assistance with KiwiSaver withdrawals, feel free to contact Mortgage & Insurance New Zealand Ltd. Our experienced team is here to guide you through the process and help you make informed financial decisions.