KiwiSaver should be adjusted so that money cannot be withdrawn in the event of any hardship, in order to clear up confusion about bankruptcies, says one provider.
The system is in the spotlight because the Official Assignee, part of the Insolvency and Trustee Service, has started High Court litigation to clarify its rights to withdraw money from KiwiSaver accounts when people are declared bankrupt.
It has taken $440,000 out of KiwiSaver accounts to repay the creditors of 165 bankrupts since KiwiSaver began, but most of those have been people aged 65 or older, whose funds are readily available.
A spokesman for the Ministry of Business, Innovation and Employment (MBIE) under which the ITS operates, said: “ITS is seeing an increasing number of bankrupts with KiwiSaver accounts. One of the ITS’ responsibilities is to realise a bankrupt’s assets to meet the claims of their creditors, and ITS considers KiwiSaver accounts an asset that should be available for creditors.”
But ITS has to use the financial hardship provisions in the KiwiSaver Act, and it is up to each KiwiSaver provider to consider early withdrawal applications on their merits.
It has been reported that most providers do not think they can open accounts up to ITS.
But Milton Jennings, the chief executive of Fidelity Life, said that, given that the KiwiSaver scheme was designed to pay hardship claims, it seemed fair that it should be used to pay creditors in bankruptcies.
“That is the flaw in the system, they should change it so that no hardship claims are payable and then all KiwiSaver funds should be protected from creditors until retirement. Once the funds are on call at retirement then creditors could have a go.”