What's behind the surge in financial complaints?

More Kiwisavers are turning to hardship withdrawals to manage their finances amid rising economic pressures, according to recent findings from a financial mentorship charity. The increased reliance on such measures has placed significant strain on financial advisors, who are dedicating nearly half their time assisting individuals with these applications. The Financial Mentoring Charitable Trust, known as FinCap, released its latest Voices report, revealing that approximately one in eight of its clients sought assistance with Kiwisaver hardship withdrawals. Senior policy advisor Jake Lilley noted that roughly 40 percent of the time spent by financial mentors was devoted to helping clients navigate this process. He stated that requests for hardship withdrawals have surpassed those related to first home purchases, highlighting a growing trend among individuals facing financial difficulties. Lilley emphasized that many clients are reaching out for help due to the challenges of managing their expenses. “Most people when they see a financial mentor are looking to get on top of some debt, or make sure they can keep getting their hands on the essentials,” he said. “You can imagine they’re in hot demand at the moment.” According to Lilley, the current economic climate makes it increasingly difficult for individuals to balance their budgets. “It’s extremely difficult to add things up at the moment, there’s a lot more need for mentors.” He added that more people seem open to seeking assistance, possibly due to a shift in attitudes toward financial support. “We are seeing some positive things around people presenting earlier and asking for help, because it’s quite a big step to ask for help with money, there's a lot of stigma out there.” Many clients are struggling to cover basic living costs, particularly housing. “People are really just trying to hold onto their rental, or their housing however they get it, they’re increasing their spending there and cutting back on the essentials like food or petrol, public transport spending,” Lilley explained. He expressed concern over the impact of reduced energy usage, noting previous reports indicating that many individuals were not heating their homes adequately when consulting with financial mentors. The complexity and inconsistency of the hardship withdrawal process have further complicated matters for both clients and mentors. “There's a mix of ways you go through a hardship application for Kiwisaver across the providers, and still hearing from mentors some frustration around it being quite inconsistent,” Lilley said. He acknowledged that the system is intentionally structured to be challenging, aiming to ensure savings are reserved for retirement rather than used prematurely. Despite these challenges, the high volume of applications continues to grow. “Because when someone goes to make one of these applications, most forms will say you need to see a financial mentor first, and it's putting a lot of demand on free services,” Lilley remarked. This surge in demand has led to calls for additional resources and funding to support the expanding role of financial mentors. As the situation evolves, the focus remains on addressing the immediate needs of those seeking hardship withdrawals while navigating the complexities of the existing framework. The ongoing dialogue between financial advisors and policymakers underscores the necessity for systemic adjustments to better accommodate the changing financial landscape faced by many New Zealanders.