Latest / Best of Business / Shamubeel Eaqub: Simplicity chief economist on the increase in KiwiSaver hardship withdrawals

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Shamubeel Eaqub: Simplicity chief economist on the increase in KiwiSaver hardship withdrawals · Best of Business

• 0:09
  Speaker 1: You're listening to a podcast from News Talk zed B.
• 0:12
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• 0:16
  Speaker 2: The New Zealand herold is reporting can We Save a Hardship?
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  Speaker 2: Withdrawals spiked to a near record high last month, according
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  Speaker 2: to the ID five six hundred and ten members. Withdrew,
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  Speaker 2: can we say the savings the second highest month since
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  Speaker 2: August two thousand and sixteen? To discuss what we are seeing?
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  Speaker 2: Simplicity Chief economist, shall you Bill Yakub is with me? Now,
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  Speaker 2: good morning, sham you Bill?
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  Speaker 3: Good morning.
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  Speaker 2: How worrying are the numbers we're seeing when it comes
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  Speaker 2: to the key we saver withdrawals?
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  Speaker 3: Look, it's pretty worrying. So in the last twelve months,
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  Speaker 3: we've had about sixty thousand people withdrawal for hardship reasons.
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  Speaker 3: The background kind of rate is about twenty thousand, so
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  Speaker 3: it's about three times the normal rate. And what is
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  Speaker 3: telling us is there is there's a huge amount of
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  Speaker 3: poverty in New Zealand that has really been exposed in
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  Speaker 3: the last two to three years.
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  Speaker 2: How long have we been seeing this? Is it a trend?
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  Speaker 2: Can we call it a trend?
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  Speaker 3: Oh? Absolutely, I mean it's been rising pretty much as
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  Speaker 3: the recession took hold. So initially it was the cost
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  Speaker 3: of living crisis. Then we had the job losses and
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  Speaker 3: the business closures, and those things have all cumulated into
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  Speaker 3: what we're seeing at the moment. So it's very much
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  Speaker 3: been the trend uputs of the last three years, very
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  Speaker 3: much reflecting the state of the economy.
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  Speaker 2: Do we know why people are withdrawing this money in
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  Speaker 2: the sense, is it just to deal with day to
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  Speaker 2: day life or is it to deal with a cost
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  Speaker 2: which has come out of the blue that they just
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  Speaker 2: can't manage.
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  Speaker 3: It's both of those things. So sometimes it's for medical reasons.
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  Speaker 3: In your teeth, you need something major done with your teeth,
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  Speaker 3: and it's extraordinarily expensive, and this is the last resort.
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  Speaker 3: But mostly what we're seeing at simplicity is it's just
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  Speaker 3: people who've lost their jobs or lost their businesses, or
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  Speaker 3: can't repair their mortgage. It's kind of life stuff. But
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  Speaker 3: the recession has real human cost, and there's human costs
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  Speaker 3: are what we're seeing in the hardship withdrawals.
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  Speaker 2: Shamie belle I was a bit intrigued that what we're
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  Speaker 2: seeing is worse than it was in COVID times. But
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  Speaker 2: of course we had sort of wage payments things in
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  Speaker 2: COVID totally.
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  Speaker 3: Yeah, during COVID it was actually very low. So what
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  Speaker 3: happens through that period was because everybody was carried through,
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  Speaker 3: businesses didn't fail. Job losses were pretty modest except for
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  Speaker 3: the right of the beginning of the COVID period. And
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  Speaker 3: then we had a couple of years when things were
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  Speaker 3: actually really good in the inside of the economy. And
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  Speaker 3: so it's very much been more of a story since
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  Speaker 3: then when we've had the cost of living crisis, interest
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  Speaker 3: rates increase, government spending reduced, all of that, has had
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  Speaker 3: the engineered recession that we've had for the last couple
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  Speaker 3: of years that has really compuned the costs on households.
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  Speaker 2: So, considering the current climate, do you expect those numbers
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  Speaker 2: to keep climbing? Do you think there's an end in
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  Speaker 2: sight here?
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  Speaker 3: Sadly no, and that's because there are still lots of
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  Speaker 3: pressure and pressures in households. So the most immediate you
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  Speaker 3: were just having this conversation before, was the conflict in Iran,
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  Speaker 3: and that had a big impact on fueld costs, and
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  Speaker 3: it's that unavoidable cost It just makes even less kind
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  Speaker 3: of financial sense for people. So what we're seeing is
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  Speaker 3: if you're an unemployed person or you'd just at the
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  Speaker 3: kind of edge of your financial comfort, the q motive
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  Speaker 3: cost of increases and things like food, the electricity rates, insurance, fuel,
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  Speaker 3: these have all just kind of really taken away people's buffers.
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  Speaker 3: And if one of you loses your job in a family,
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  Speaker 3: that means that your income has fallen, you might not
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  Speaker 3: be able to access welfare and you're really stuck. And
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  Speaker 3: that's where the income, the money from the hardship can
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  Speaker 3: be really helpful. The average amount of people are taking out
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  Speaker 3: is about close to nine thousand dollars, which is roughly
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  Speaker 3: six hundred and seventy five dollars a week, because essentially,
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  Speaker 3: when you get hardship withdrawal, it's for about thirteen weeks
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  Speaker 3: of necessity's costs.
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  Speaker 2: Withdrawing the money, obviously it can ease that immediate financial apprecure,
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  Speaker 2: but it is going to have a flow on impact
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  Speaker 2: on retirement savings, isn't it totally?
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  Speaker 3: Totally? And we know that. You know, if you're a
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  Speaker 3: thirty year old towhere that's taking out that close to
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  Speaker 3: that nine thousand dollars on average, you're going to have
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  Speaker 3: about forty thousand dollars less at retirement. But the trade
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  Speaker 3: off here is that if you are in real hardship now,
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  Speaker 3: and the requirements are actually really tough to get access
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  Speaker 3: to the hardship. So you know, it's not like it's
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  Speaker 3: easier to just go to the guro quser of providing
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  Speaker 3: with the money. You have to prove that you are
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  Speaker 3: under quite a lot of financial pressure. So I'm in
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  Speaker 3: two minds about this because I think QV server is
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  Speaker 3: no longer a retirement policy or tool anymore. It's for
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  Speaker 3: a lot of different things. It's for that rainy day fund,
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  Speaker 3: for the last result savings, it's for your first hume
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  Speaker 3: buyer thing as well as retirement. So it has become
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  Speaker 3: very confused over time.
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  Speaker 2: What advice do you have for people who are considering
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  Speaker 2: a withdrawal of the Q saver savings?
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  Speaker 3: Look, it is a last resort. It is really difficult.
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  Speaker 3: Getting access to financial advice is really helpful. So you
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  Speaker 3: can get really good budgeting advice from financial mentors. That's
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  Speaker 3: probably the first step. I think if you do that
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  Speaker 3: quite often people will find that they might be able
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  Speaker 3: to increase their incomes, they might be able to balance
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  Speaker 3: their budgets better. But for those who have no other
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  Speaker 3: resort than this is absolutely a legitimate thing to do,
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  Speaker 3: but think about the potential costs in the future. It's
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  Speaker 3: going to be very much the right thing to do
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  Speaker 3: for some people, but for a lot of people there
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  Speaker 3: will be other options.
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  Speaker 2: Chami, Bill, thank you so much. That was simplicity, Chief
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  Speaker 2: Economist to Shamy Bill Jakob.
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