National's proposal for Kiwisaver to be used for starting a business is risky, experts say

Allowing Kiwis who lose jobs to use their KiwiSaver to start a business is risky and could mean they lose their life savings, experts say.

On Wednesday, the National Party announced a new policy that would allow people who lost their job after March 1 to use $20,000 of their KiwiSaver savings to start a new business. 

Other support includes professional advice, free business registration and tax credits on either the amount of tax paid on redundancy, or to meet tax obligations.

National Leader Judith Collins said KiwiSaver was money that people had "put aside for a rainy day" and they should have a choice whether they invested it with fund managers or in their own business. 

Infometrics senior economist Brad Olsen, said he understands the rationale behind the plan to encourage business investment and increase activity and jobs but is "cautious of the spin-off effects" of using KiwiSaver to do it.

"Getting additional business investment to either increase the number of new businesses coming online or to allow for the right capital investment to allow existing businesses to pivot into the new and rebuilding economy is quite important," Olsen said.

The risk of business is that some don't make it.  Essentially the National Party is saying they could take that risk using their life savings.

"If they withdraw that money to start up a new business and it doesn't go well, that will be a fair portion of their eventual life savings they're not able to get back...I'd be concerned that this is too squarely on people getting ahead by themselves," Olsen added.

Financial expert and author Martin Hawes said while he's very supportive of growing Kiwi business, he's "not supportive" of using KiwiSaver.

"The purpose of KiwiSaver is for retirement savings (it's also gone to first-home and I'm happy with that) but I'm very wary of 'mission creep'," Hawes said.

Pointing to the experience over the ditch, where options to withdraw retirement savings for 'hardship' were increased, the money might never be recovered.

"The average balance of KiwiSaver is $20,000 so [effectively] the National Party is saying on average, people should be allowed to pull out all of their KiwiSaver and put it into a business," Hawes added.

KiwiSaver advice provider National Capital called the idea of using KiwiSaver "terrible."

"The primary reason for small businesses failing is undercapitalisation. And here we have a policy which is encouraging someone who is unemployed to start a business using $20,000 from their retirement savings. It’s a recipe for disaster," director Clive Fernandes said.

KiwiSaver was intended as a retirement savings scheme and there was already an issue of people not have enough money to live on when they got there.

"Encouraging them to withdraw even more from their KiwiSaver accounts will only exacerbate the problem," Fernandes added.

Referring to $1000 towards professional advice and tax relief payments as "Gold", Max Whitehead, managing director of The Whitehead Group, said it would help those in trouble, or who were thinking about starting a business.

"[The tax relief payments] is money that businesses have paid: they're using their own money but it's being guided into something positive."

Echoing thoughts that KiwiSaver should be saved for retirement rather than starting a business, he said unlike applying for a business loan through the bank, there's "no checks and balances".

"[Some people] are vulnerable to 'get rich quick' and if you're going to invest your life savings into that, you could go down the gurgler very quickly," Whitehead said.

Supporting Kiwis to "have a go" supports local communities and society needs more of them. But while some flourish, between 2010 and 2015, 58 percent of small businesses failed.

"If it fails, it's not the end of the world, but you may have invested money [and] you need to have a contingency for that," he added.