Imagine losing a loved one, and on top of the grief, facing a mountain of paperwork just to access their KiwiSaver savings. It's a nightmare scenario, but thankfully, a recent rule change aims to ease this burden. This change affects how easily you can access someone's KiwiSaver account after they pass away, potentially saving grieving families time, money, and unnecessary stress.
Here's the core of the issue: When someone dies, their KiwiSaver money becomes part of their estate. This means it's handled according to their will, if they have one. The will dictates who gets what. A surviving partner also potentially has a claim to the KiwiSaver funds as relationship property.
But what happens if there's no will? This is where things can get complicated. Even without a will, the KiwiSaver money still forms part of the estate. However, it's then distributed according to a legal formula called intestacy. This formula prioritizes spouses, children, parents, and other relatives, generally in that order. Think of it as a pre-set will determined by law. Public Trust principal trustee Michelle Pope explained that different KiwiSaver providers handle the distribution of these investments in slightly different ways. Some may release funds to the estate executor or administrator even before probate (official validation of the will) is granted, while others insist on probate first.
"Waiting for probate to come through can present challenges in family situations, where funds might be needed right away, say, to pay for a funeral and other estate funds are limited," Pope said. This delay can be incredibly difficult for families already dealing with loss.
For context, you might find the RNZ podcast "Why Are Banks So Stuck on Paperwork?" with Susan Edmunds insightful: https://www.rnz.co.nz/podcast/no-stupid-questions/2025/Why-Are-Banks-So-Stuck-on-Paperwork
So, what's changed? A crucial rule change, effective from the end of September, has significantly increased the threshold at which the High Court's approval (probate) is required. Previously, this threshold was a mere $15,000. Now, it's been raised to $40,000. This means that estates with a KiwiSaver balance below $40,000 can be paid out without the often lengthy and costly legal process of probate. Justice Minister Paul Goldsmith pointed out that the old $15,000 threshold was established before KiwiSaver even existed! He noted that most estates today include KiwiSaver balances exceeding $15,000, and the court process could eat up a large portion of smaller estates in court costs and legal fees. In fact, in the last five years, the High Court processed approximately 17,500 probate applications per year.
Generate customer service manager Dan Alden welcomed the change, stating, "Accessing funds after someone has passed away can be a difficult time for families, so simplifying the process is encouraging. That said, it's still important that checks and safeguards remain in place to protect people's money." He rightly emphasizes that these procedures aren't unique to KiwiSaver; similar safeguards apply when accessing any financial accounts after someone's death to ensure funds are released securely and to the correct individuals.
A Ministry of Justice briefing highlighted that, for many people, their KiwiSaver is their largest solely-owned asset. Assets owned jointly, such as a house, typically don't require probate. Fisher Funds KiwiSaver head David Boyle believes this change will significantly help people with smaller estates. But here's where it gets controversial... Some might argue this increased threshold could open the door to potential fraud or mismanagement of funds. While safeguards are in place, a higher threshold inherently means less oversight.
Boyle stresses the importance of having an updated will to ensure the funds go to the intended family members. He recounts a specific case where a man acting as executor for his father's will encountered difficulties. His father passed away when the threshold was still $15,000, but by the time his son applied to access the KiwiSaver, the balance had risen above that limit. The KiwiSaver provider insisted on applying the $15,000 threshold as of the application date, not the date of death. The son then complained to Financial Services Complaints Ltd (FSCL), a dispute resolution service. Fortunately, the imminent increase to the $40,000 threshold provided a solution. FSCL was able to facilitate the payout of the KiwiSaver balance to the father's estate without the need for probate. The son was understandably pleased, calling the new threshold "a much more sensible amount than the previously low amount of $15,000."
Pope reminds us that the administration process will still take time regardless. Before any payouts can be made to beneficiaries, the estate must settle all debts and expenses and address any claims. However, she added, "In terms of releasing funds, KiwiSaver funds generally come through quickly, once the provider has the documentation they need."
And this is the part most people miss: While this rule change simplifies access to KiwiSaver funds after death, it underscores the critical importance of having a valid and up-to-date will. Without a will, the distribution of your assets, including your KiwiSaver, is dictated by a rigid legal formula which may not align with your wishes.
So, what do you think? Is the increased threshold a positive step towards simplifying estate administration, or does it potentially compromise security and oversight? Should there be further measures to protect vulnerable individuals from potential exploitation in these situations? Let us know your thoughts in the comments below!
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