KiwiSaver Q&A: Is it true that if I invest all my money in KiwiSaver and go bankrupt that the retirement money is still 100% mine?

By Amanda Morrall

Hopefully you are musing about this question and not mulling it over with respect to your personal circumstances because I have bad news.

Just because you can't touch your KiwiSaver funds doesn't mean the Official Assignee (the person who manages your bankruptcy) can't.

Although the KiwiSaver Act is silent on the issue, the Insolvency and Trustee Service's position on KiwiSaver is that it is fair game in the event of a bankruptcy and creditors need to be repaid. (See more on bankruptcy procedure and options here).

Robyn Cox, manager national resources and Southern Region for the Insolvency and Trustee Service, advises that upon adjudication of bankruptcy, all assets go to the assignee and KiwiSaver is treated no differently than any other liquid assets.

Where things get tricky is how providers view the official assignee's request to get at the money. Seems not all providers are reading from the same song sheet on this matter.

Cox wouldn't disclose the respective positions of those providers with whom the Insolvency and Trustee Service has dealt with to date short of saying there was a difference of opinion.

"We regard it as an asset but some providers don't accept that.''

Cox said the office was currently working with providers to reach a consensus pending a court ruling or change in the legislation to bring clarity to the issue.

Instances of KiwiSavers funds being cashed in early on the basis of a hardship claim put forward by official assignees have been few and far between given overall membership, is now close to 1.8 million.

Part of that is because when you go bankruptcy you lose the obligation to pay your debt, said Cox.

Still, as membership in KiwiSaver continues to grow and economic hardships experienced by Cantabrians escalate, Cox said it was inevitable that the protection afforded to KiwiSaver funds would be tested. 

For that reason, she said it was important to get some consistency on the matter.

Default provider Tower Investment and Fisher Funds said they did not have a position as yet as the situation had not presented.

A spokesperson for KiwiSaver scheme OnePath (also one of the default providers) said it followed "best practice" prescribed by Workplace Savings. (See excerpt below for details).

Generally speaking, from the time a bankruptcy as been adjudicated,  the debt repayment window remains live for a period of three years, or until the individual involved has been "discharged.''

So even though debt obligations are 'lost', any assets or money accrued during that time can still be applied to pay off affected creditors.  If, for example, you should come into money, say an inheritance, that money could potentially also be applied to pay off bad debts within that three year window.

KiwiSaver is looked upon in the same light even if those funds are "locked in.''  

Ultimately, pending legislative clarification, the decision would most likely be made by the trustee who oversees a particular provider. This is because the trustee is the authority tasked with evaluating hardship applications which is the procedure whereby KiwiSaver funds are released before maturity at age 65.

If the bankruptcy occurs in retirement (after age 65) then the official assignee would in principle have uninhibited access.

Official Assignee

Under the KiwiSaver Act, there is no specific provision that permits the Official Assignee (OA) to withdraw a KiwiSaver member's account balances in the situation where a member becomes bankrupt. In these instances, the OA stands in the shoes of the KiwiSaver member in relation to his/her assets whilst the member is bankrupt. Any dealings/instructions we have or receive in relation to the bankrupt KiwiSaver member or his/her account must be from the OA, not the member.

If the OA is wanting to access the member's account balances while the member is a bankrupt then the withdrawal must fall within one of the permitted early withdrawal grounds set out in the KiwiSaver Act (significant financial hardship, serious illness, permanent emigration).

Note that bankruptcy, of itself, does not automatically amount to significant financial hardship once bankruptcy has been adjudicated. Entry or pending entry into the No Asset Procedure  or the prospect of a Summary Instalment Order (see below) under the Insolvency Act 2006 are likely to be consistent with a finding of significant financial hardship, but are not conclusive factors.

The OA may liaise with the bankrupt member to get the member to make a significant hardship withdrawal (SFH). This withdrawal must follow the normal process, in that the member must apply for the withdrawal, and the withdrawal request must meet all of the requirements (statutory declaration, statement of assets and liabilities, etc). It may be appropriate to seek further information from the OA as how funds released would be applied to relieve the member from the significant financial hardship being faced. If the Trustee considers that the member meets the criteria for a SFH withdrawal, then any withdrawal payment must be made to the OA or in accordance with the OA's instructions. It might be appropriate to check at the Insolvency and Trustee Service website as to whether the member has been adjudicated bankrupt or otherwise.

I hope this is somewhat helpful.

If you have a question on KiwiSaver, send us an email. Or scroll through our list of Q&As.