How the Review of Retirement Income Policies can help New Zealanders with debt (Part One)

While many New Zealanders were still swanning about on holiday, the Review of Retirement Income Policies submitted to the Minister of Commerce and Consumer Affairs went public.

Stop. Don’t hit the ESC button. This is important to everyone, whether you are in or out of debt.

A dilemma about saving for our retirement is that it increases the gap between the haves and the have nots.

That is, if you have some money left at the end of each pay packet you can save for a rainy day and your retirement.

However, if you struggle to stay financially afloat from one week to the next – saving for your 65th retirement birthday is unlikely to be a priority.

Many New Zealanders depend on high-interest, short-term loans to make ends meet and when their Gold Card arrives, they are unlikely to have a nice wee nest egg to pay for a golden oldie cruise.

At Debtfix we are interested in the review of the Government managed KiwiSaver retirement savings scheme, from the perspective of the people who struggle to keep debt collectors at bay.

Debtfix likes the hub recommendation of the Review of Retirement Income Policies

We were impressed with the recommendation to establish a central hub to manage the process when a person makes a hardship application to withdraw funds from KiwiSaver.

Currently, hardship applications are managed by KiwiSaver providers, that is, whoever you have your KiwiSaver account with such as a bank’s investment group or specialist financial company.

When a person makes a KiwiSaver hardship application the approval or disapproval to release funds is unpredictably inconsistent.

It can be devastating for applicants to collect mountains of documents, photocopies of everything and virtually prepare a novel about their situation – then, they are declined with no explanation.

Also, the providers don’t have the experience to manage multiple issues the applicant may be facing, whereas organisations under the building financial capability (FinCap) umbrella do.

FinCap supports all the building financial capability providers, and these are skilled at looking at an applicant’s entire financial situation and could identify that a hardship application is not necessary, and the money can stay put until retirement.

With supportive guidance with budgeting, debt repayment plans and even additional benefit entitlements – the person may not need to dip into the money needed to support them in their later years.

An experienced budgeting and financial capability advisor sticks with the people they are assisting and keeps them accountable.

Currently, if a person’s hardship application is granted there is no follow up to ensure the funds are used wisely or for the intended purpose.

There can be temptation to spend the money on something exciting like a new TV or the applicant might pay off a lump sum to one debt because the creditor is getting grumpy.

However, debt and budgeting advisors will ensure those precious KiwiSaver funds are used to the best advantage of the person in financial hot water.

The bills priority should always be food, power and rent, and what is left over – pays off debt.

A progressive debt repayment plan that can be stuck to will achieve better long-term results for everyone and it can help the person progress towards a savings habit.

The Review of Retirement Income Policies recommendation to create a hub to manage KiwiSaver hardship applications also recognised many people are extremely distressed when they need to cash up some retirement funds.

KiwiSaver providers managing the hardship applications told the reviewers, “they are ill-equipped to deal with some situations, such as when a hardship applicant shows signs of severe stress, or for example, threatens to take their own life.”

Debtfix agrees and believes budgeting and genuine debt solvers have established connections with mental health agencies and can provide wrap-around support and assistance.

FinCap says it is prepared to form the recommended central hub to manage hardship applications and now, we must wait for Government support for the proposal.

Debtfix’s next blog will look at the savings recommendations in the 2019 Review of Retirement Income Policies.