Bankrupt KiwiSaver accounts off-limits

KiwiSaver account-holders who go bankrupt will not have to hand over their retirement savings, a court has ruled.

Wednesday, April 22nd 2015, 6:00AM

The Court of Appeal has decided that a bankrupt’s KiwiSaver account is off limits to the Official Assignee.

The decision has a potentially wide impact – in January there were 5559 bankrupts with KiwiSaver accounts worth more than $27 million.

The court was asked to look at whether the Insolvency Act 2006 entitles the Official Assignee to access KiwiSaver balances and whether bankruptcy automatically satisfies the significant financial hardship test for withdrawing KiwiSaver funds.

It decided the answer to both questions was no.

The Court also considered the KiwiSaver Act's (KSA) purpose statement, which is to encourage a long-term savings habit and accumulation of funds to provide retirement security.

"There is nothing in the KSA to suggest that a purpose of the legislation is to accumulate funds for the benefit of creditors in the event of the member’s bankruptcy. If that were the case, the important social and economic purposes of the KSA would be undermined and the burden of providing for the welfare of individuals would fall back on the state.”

It follows a High Court ruling last year that money could be put aside for creditors but they could not have it until the bankrupt person was eligible to access their KiwiSaver, typically at 65.

Law firm Chapman Tripp said the Court of Appeal decision provided much more clarity but there were still questions, such as what creditors could do if someone who was about to go bankrupt put extra money into their KiwiSaver accounts.

"There may also be a question mark now over any KiwiSaver balances which the Official Assignee was able to access prior to this decision. Is anyone liable to the affected members?"

Some trustees initially accepted applications from the Official Assignee to withdraw money on the grounds of significant hardship but then started to decline them.

It had been argued that going into bankruptcy alleviated substantial hardship, because the bankrupt person was no longer able to be pursued by creditors.

Tags: KiwiSaver