25 Jul 2018

Living and retiring in debt

From Nine To Noon, 9:09 am on 25 July 2018

A trust that offers support to budget advice services is worried about the increasing number of people entering retirement owing money.

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Photo: 123RF

The National Building Financial Capability Trust told Nine to Noon that more people were accessing their KiwiSaver early under the hardship clause, and more were supplementing their benefits with bank loans.

A Trust board member and insolvency supervisor, Rosalie Grant, said they were seeing more acute consequences of debt because of a growing income divide and the housing crisis.

Ms Grant, who is also the Nelson Budget Service manager, said more people were also supplementing their benefits with bank loans.

"We are seeing an increase in older people coming into retirement with debt. They're not able to get off the rental cycle, or they still have mortgages to pay and that's where other lending or borrowing, or KiwiSaver comes in."

The Trust said the problem was also linked to the number and reach of loan companies, and it wanted to see a reduction in the amount of loans being given to people who did not have the means to repay them.

Ms Grant said it was too easy for vulnerable people to get money they were unlikely to pay back.

"So the law at the moment is that lenders have to make reasonable inquiries to be satisfied that the borrower can afford the loan without suffering substantial hardship, but what does that mean? What does 'reasonable inquiries' mean?"

Ms Grant said the trust wanted to see a comprehensive licensing scheme, an ability to deregister some lenders and a clear definition of what affordability means.

The Trust hopes a review of the rules around borrowing and lending will help stem the problem.

Financial mentor Adrienne Gallie from the Pakuranga and Howick budgeting service also said affordability assessments were very lax. 

"The thing that I’ve noticed is that every debt schedule includes at least four or five debts. They often include WINZ [Work and Income] debt, they include finance companies, they include bank loans and credit cards and it got me wondering how did this happen?

“That’s something that we are very keen on having reviewed very robustly in this latest review." 

The service felt the law reform in 2014-15 had not gone far enough, she said, and finance companies themselves were calling for more specific definitions of affordability. 

“Some people on lower incomes are using some finance companies in ways that other people might use a payday lender … they keep adding to an existing loan but they’re being charged settlement fees and establishment fees every time they do it. 

“They’re often using income that’s designed for something else, like child disability allowance and should family tax credit be used to service loan repayments."

She said finance companies lending to people at rates well over 30 percent had proliferated. Another serious main problem was so-called payday lenders.

“There’s no limit, like there isn’t any cap on interest rates. 

“I’ve seen contracts with 700 percent on them for that short-term lending where it’s been loaned just over two or three weeks."

Submissions to the government close next week on the review of the Credit Contracts and Consumer Finance Act.