KiwiSaver hardship withdrawals hit record levels, but some could be avoided

A researcher says if governments want to look at making Kiwisaver changes, they should also look at the high increase of hardship withdrawals.

A Victoria University report led by senior lecturer of law Victoria Stace, and commissioned by FinCap shows hardship withdrawals rose sharply in the 12 months to June 2026.

More than 52,000 KiwiSaver members withdrew, which is up from just over 20,000 in 2023.

Total hardship withdrawals have increased from $65 million in 2016 to $443.6m in 2025 and Inland Revenue said the withdrawals now outpace withdrawals for first home deposits.

Stace told Nine to Noon concern over the increase in hardship withdrawals had been expressed by various groups including Retirement Commission, Consumer New Zealand and Financial Markets Authority.

This helped launch the research report which interviewed stakeholders, financial mentors and Kiwisaver providers and looked into superanuation arrangements around the world.

Stace said the research found that those who make KiwiSaver hardship withdrawals often would not have done so had they been made aware of other support options.

Kiwisaver contributions have been a part of the recent elections with both major parties proposing policies.

National proposed increasing contributions up to 12 percent total and making it compulsory for both the employer and employee. Labour's policy would not make it compulsory for the employee.

Stace said if any party was making changes it was an opportunity to look at other issues regarding hardship withdrawals.

"I think the main issue is if the government's serious about helping people get through times of hardship without accessing their KiwiSaver, then they seriously need to consider how that's going to be funded and how financial mentors are going to be incorporated into the process in a way that is sustainable and recognise the value that they can provide in this space."

Lilley said their research showed that financial mentors were concerned if these policies go into place and more money is going into Kiwisaver it would lead to more people looking to take Kiwisaver out.

He said there were around 750 financial mentors with at least 318 full-time equivalents worth of work.

Of those 318 around 181.5 were funded by the Ministry of Social Development. Lilley said this showed a "chronic underfunding " of the sector.

What are the options?

"There are a number of options, whether it's an intermediate step or, I mean, for example, you could have that it was a requirement that you'd spoken to a financial mentor as part of your application process," Stace said.

She said another option was to have all financial hardship withdrawal applications processed by a central clearinghouse or hub, which has financial mentoring expertise built into it.

This was a model already used by six of Kiwisaver providers, Stace said.

She explained applications were made to the Kiwisaver provider who then put a formal application to the supervisor. There were three supervisors, the main one being public trust, who make the final decision.

FinCap's senior policy advisor Jake Lilley says there needs a to be a system where budget advisors can be involved and check all options before a hardship withdrawal.

"You might have entitlement at, say, working income or another government agency or local charity you weren't aware of, or it had been hard to navigate in the first place, that actually means you can get on top of things.

"Sometimes people have had their consumer rights breached and actually there's an underlying issue or they have options."

The average hardship withdrawal amount had been $10,000

Stace said the report also found that the idea of "sidecar savings" should be explored which means setting aside money in a Kiwisaver account ring-fenced for an emergency.

"A more liquid fund. But the amount that you would have in your sidecar savings... would be a lot less than $10,000. It would be more like $3,000 to $5,000."