It should never be easy to break into retirement savings

Tuesday, 10 February 2026

“KiwiSaver funds are earmarked for retirement or a house purchase, and unless things are dire, they ought to remain there,” writes Martin Hawes.

Martin Hawes is a financial writer and presenter, and has written 25 personal finance books. He writes a weekly column.

OPINION: KiwiSaver withdrawals for hardship are up: last year 58,000 people were allowed to pull money out, well up on last year. The economy is recovering and it comes as a surprise to some people that hardship withdrawals continue to rise. However, the rise in these withdrawals should not be so surprising given that economic growth usually takes time to filter through to those who might have to raid their KiwiSaver accounts. Some of these people’s lives will be lived on the brink with little fat in the system to come and go on.

It is a shame that people have to withdraw their KiwiSavers as this breaks the compounding and growth that would otherwise have happened to their savings - and makes getting ahead for them so much harder still.

It is no easy thing to make a KiwiSaver hardship withdrawal; for good reason, you do have to be in serious financial difficulty to successfully apply. People apply to withdraw to their own particular KiwiSaver manager and the final decision is made by their scheme’s supervisor. However, supervisors must follow the rules and that means many people will be declined.

I understand the frustration that these people must feel when they see a pot of money and know what a difference this might make to their lives. To hell with retirement, they think. I need that money now.

However, KiwiSaver funds are earmarked for retirement or a house purchase, and unless things are dire, they ought to remain there. Others have contributed (employers and government), retirement savings benefit from remaining untouched and the rules regarding withdrawal are known by people when they join up. It should never be easy to break into retirement savings.

The grounds for hardship withdrawal are set out in the KiwiSaver Act. This defines hardship as such situations as an inability to meet minimum living expenses, an inability to meet mortgage payments with the lender seeking to enforce the mortgage, the KiwiSaver member suffering a serious illness etc.

In total there are seven grounds for hardship withdrawal. There should be little variation about how the rules are applied between funds, but there is no centralisation. KiwiSaver could have been established with the IRD making decisions on hardship instead of each of the funds – but the Act gives decision-making to the supervisor of each fund and so there will always be suspicions that some funds might be easier than others.

This is unlikely to be so to any great extent because the grounds for hardship withdrawal are quite tightly expressed in the legislation. I assume that the IRD (the administrator and overseer of KiwiSaver) monitors all hardship withdrawals closely and ensures that there is no discrepancy amongst funds in approving withdrawals.

Withdrawals are tightly controlled because of the very nature of the KiwiSaver scheme: it is predominantly for long-term retirement savings. It is true that there has been some backsliding on this singular goal: eg people can withdraw all of their savings for their first home (except the $1000 kickstart). There are a few other exceptions that allow withdrawal – eg moving overseas, serious hardship, serious illness or because of life-shortening congenital conditions.

The first home and a few other exceptions aside, the only time that you can withdraw from KiwiSaver is at age 65. The whole point of retirement savings schemes is that you save for the long term, that you do not withdraw, and that you keep on saving/contributing.

Disruption of KiwiSaver funds in the form of withdrawal “stops compound interest making its magic on an ever-increasing amount of money”, Martin Hawes says.

Long-term savings work well because of compound interest. Any calculations that you make to show how much you will have in your KiwiSaver account at retirement will assume that compound interest is not be disrupted.

Disruption in the form of withdrawal stops compound interest making its magic on an ever-increasing amount of money. Suspending contributions is bad for retirement savings, but withdrawal is really bad. Withdrawal stops the compounding and sets you back to near the start.

It is the long period of time which allows compound interest to multiply retirement savings into such large amounts. Compounding gives interest on your contributions but also interest on interest already earned – the more interest you earn and the longer that this goes on for, the better off you will be.

With time and no disruption, compound interest makes saving easier and very fruitful! Compound interest loves time and hence the very tight rules on withdrawal. T he designers of KiwiSaver rightly made it hard to break the virtuous cycle that is compound interest unless your hardship is truly serious.

Martin Hawes is a financial writer and presenter. He is not a financial adviser and the information and opinions here should not be taken as financial advice.