Financially unprepared New Zealanders have been caught out by the pandemic, with the Commission for Financial Capability registering a record number of requests for KiwiSaver hardship withdrawals and mortgage holidays.
Speaking to Parliament’s finance and expenditure committee, retirement commissioner Jane Wrightson said the covid-19 outbreak had shown that New Zealanders' financial resilience was “very weak indeed” and that something was “badly wrong” with financial education.
“Our personal finances were more brittle than we thought,” she said. “With the pandemic leaving New Zealanders exposed to debt, inadequate savings and a lack of understanding about why their KiwiSaver fund was fluctuating or what to do about it.”
Young people were finding themselves further away from homeownership, many in the middle of their lives had troublesome levels of debt and those heading into retirement had seen their financial plan run off course, she said.
Wrightson said she planned to convene a steering group to redevelop a national strategy for financial capability.
“We have a national strategy for financial capability, except no one much knows about it. So it is not a national strategy at all.”
Wrightson said the good news was the number of people accessing the financial advice tools on Sorted.org.nz had increased significantly during the economic crisis surrounding the pandemic.
“The bad news is last-ditch options such as KiwiSaver hardship withdrawal and mortgage holidays have also been enquired about in record numbers, with people clearly not understanding what the long-term impacts might be,” she said.
One of the recommendations in the 2019 review of retirement income policies is to implement mandatory, expert budgeting advice before New Zealanders are able to make hardship withdrawals.
Budgeting NGO FinCap has put up its hand to provide this service, as KiwiSaver providers have indicated they are not sufficiently equipped to do it themselves
Wrightson said she supported ‘side car' funds - funds savers pay into that mirror their KiwiSaver account but which they can withdraw from at any time - if they set aside a small amount of money for emergencies but the fact that KiwiSaver was designed to be long-term savings was not to be forgotten.
The average KiwiSaver account balance was between $15,000 to $40,000, which was not enough to be drawing down on if people hoped to have enough to retire on, she said.