Simon O’Neill provides a where-we’ve-come-from and where-we’re-going analysis of KiwiSaver and how it can help you into your first home.
Back in 2007, when KiwiSaver came in, it was touted as a retirement scheme: feed it until you're 65 and you’ll have a fantastic nest egg to assist when retire. You could choose what percentage you contributed, and both your employer and the government would contribute (the latter by way of the member tax credit of up to $521 per year). This is your money and won’t be taken back. The $1000 kick start payment was a tax-free government contribution made to all KiwiSaver members who joined before 2pm on 21 May 2015.
Some of us were opted-in by default (1.6 million Kiwis in KiwiSaver in 2011) and have been contributing consistently without much thought or care for what happened to the money. These people will have likely built up something quite substantial that can be considered genuine savings.
The money goes into your KiwiSaver account, which is part of a larger fund managed by your KiwiSaver provider and they invest your funds in different assets, like cash, shares, fixed interest and property. You decide the exact match of percentages divided across the different types of funds. The IRD acts like the gate keeper.
Our clients (and myself six years ago) were over the moon to hear that KiwiSaver came with another terrific option: I could use a good part of it for the deposit on my first home. Plus, had I been contributing without a break for several years, and met some other pretty surmountable criteria, there was a built-in even more terrific option in the Home Start Grant that could further boost my deposit and general attractiveness to the bank.
A KiwiSaver account is a powerful tool to wield when it comes time to ask a home loan provider for hundreds of thousands of dollars. And the bigger your balance is, the closer you can get to that favourable 20 per cent deposit.
If you meet the government’s conditions to withdraw all but the thousand-dollar kick start to put towards your first home, you will find yourself in good news and bad news situation. For, yes, you do get a home and a great asset but, also, your retirement fund takes quite a hit. Of course, that home could be just the beginning—but not everyone is a property investor. So, if you’re using the KiwiSaver for your first home, it’s important to get a solid understanding of timing for using your KiwiSaver (and Home Start Grant) for your purchase.
Should a boutique KiwiSaver provider shut down (arguably more likely than a bank, but them too) then your money is not gone. IRD will guide you through either putting you into a default provider or you can contact a new provider directly to start with someone new.
You can change sooner if you wish. Often the application process is quick, efficient and online.
Given it’s such an integral part of the New Zealand landscape, it’s unlikely KiwiSaver will drastically change.
If you find yourself back to square one, given all the money went into the house, or reading this has you thinking that now is the time to be proactive about your retirement savings, head on over to kiwisaver.govt.nz and do some digging. You’ll see the different ways you can use your KiwiSaver, the different investments you can spread your money across, see what a good performing KiwiSaver looks like and what happens to all the money if you die before 65.
And while you’re online, Google “KiwiSaver providers in New Zealand” and you’ll have some reading to do (176,000 options in 0.68sec, no less).
Simon O’Neill is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.