Open banking takes pain out of processing mounting KiwiSaver hardship

New Zealanders are still tapping their KiwiSaver funds to help them through tight times, but open banking tools are helping increasingly stretched budget advisers clear their heavy workloads.

Inland Revenue Department figures showed 4,500 people withdrew $39.7 million from their KiwiSaver accounts in August, taking the 12-month total to $537.2 million for 61,630 people. That was up from $482.5 million withdrawn by 54,750 people in hardship in the prior 12-month period.

The value of both years’ hardship withdrawals each amounted to about 0.4% of total KiwiSaver funds, while the 4,500 people tapping their savings in August was down from 4,800 a year earlier, the first monthly year-on-year decline in five years among people claiming hardship.

Auckland-based budgeting not-for-profit Debtfix received 5,964 hardship referrals from its partner providers in the March year, of which 2,514 were approved to tap their KiwiSaver fund while another 3,450 were supported through their time of stress through other means.

Co-founder and chief executive Christine Liggins said the level of inquiries has almost doubled from last year to about 8,000, a level well beyond what it’s funded to handle.

Swift responses

Still, the budgeting service has halved the time it spends processing applications and reduced the wait for those who get approved, partnering with artificial intelligence firm Sevaka and open banking provider Akahu.

“We’ve got it down from pretty much four weeks to one week,” Liggins said in a Sept 2 interview. “When someone’s in hardship, that timing is critical.”

Liggins said tapping KiwiSaver often seems like an easy option, but has long-term consequences when people come to retire. She’s working on a process to make sure people exhaust all their options before tapping their KiwiSaver schemes, but said that will need a law change.

“We try to add information and knowledge to the member, so that yes, they might need a band aid right now, but if we can give them more tools as well, it's going to get them out of the hardship quicker, faster, and better for the future,” she said.

Josh Daniell, co-founder and chief operating officer at Akahu, said the open banking firm didn’t have financial assessment in mind when it built the Akahu Pay tool for loan applications, but discovered it does the same thing to prove hardship applications, while also filtering out people trying to game the system.

“For the applicants that are truly in a pickle, their life is in chaos and these application processes are long,” Daniell said in an Aug 27 interview. “Trying to find a few clean hours to just go and methodically work through that process and gather all the information that you need is often a challenge for the person in that situation, and so being able to quickly go through the application process and quickly get a decision is what they need.”

Uncomfortable trade-offs

State-owned supervisor Public Trust was Akahu’s first client to develop a hardship assessment tool, which it can provide to its KiwiSaver scheme clients, followed by Debtfix.

“Both those organisations have built tools that make it easy to share data and then pre-populate the fields and analyse the data to get a quick, accurate decision,” Daniell said.

David Callanan, Public Trust’s general manager of corporate trustee services, said hardship figures have been significantly higher in recent years.

“That's concerning because this is more people that are trading off their future financial wellbeing to get through short-term financial hardship,” Callanan said in an Aug 31 interview.

The volume of hardship withdrawals is projected to increase in the 2027 financial year, although Callanan said the pace of growth is starting to flatten out.

People have traditionally had the ability to ride out unexpected squeezes on the household budget, but that resilience has deteriorated in recent times.

“It used to be it was only people who lost their jobs, people that were completely unemployed, they were overstretched and overcommitted,” Callanan said. “Now there’s people that haven’t had that kind of a massive life event.”

Helping hand

Public Trust – which is a supervisor for 14 KiwiSaver schemes – has approved an average amount of roughly $9,000 to help see them through a 13-week period, which is typically long enough for someone to get back on their feet.

“Although the number of reapplicants has increased, our new tool is giving us some more insights on this as we get more data flowing through it,” Callanan said. “There are still a lot of people who, after the 13 weeks, don’t come back.”

He said providers are really motivated to get their KiwiSaver customers back on their feet, with some using their advisers to provide support and others using services such as Debtfix to help educate them through the process.

“We want to see them through this period so that they don't, for instance in worst case, end up homeless or losing a job, or in that example of ‘I need my motor vehicle to get to work’, we don't want them to lose their job because then they no longer get in KiwiSaver, they stop contributing, and we're perpetuating a negative cycle,” he said.

“You're trying to get them back onto the positive virtuous cycle, rather than the vicious one.”

Reporting by Paul McBeth. Image from Elisa Ventur on Unsplash.

Disclosure: Paul McBeth has had his KiwiSaver managed by Milford Asset Management since 2014.