Free Cash for your First Home

QUESTION:  In your column last week you mentioned the First-Home Deposit Subsidy.  How do you qualify for that?

ANSWER:     This subsidy is run through Housing New Zealand for KiwiSaver members.  Anyone who has been contributing to KiwiSaver for three years or more, and wants to buy their first home, should find out if they qualify for the First-Home Deposit Subsidy. 

The First-Home Deposit Subsidy can also be accessed by KiwiSaver members who have owned a home before, but are in a financial position similar to someone who does not own a home. 

Although it is called a ‘Deposit Subsidy’ it is only paid out on settlement day, not before.  Talk to your bank and your solicitor to make sure you can get all the money you need before you sign a Sale and Purchase agreement.

If you apply for the Subsidy you are not obliged to withdraw your KiwiSaver contributions as well, although you may wish to.  This is a separate process, managed by the trustee of your KiwiSaver scheme.

The Subsidy is designed for people on modest incomes to help them buy modestly priced homes.  The income limit for one or two people is $100,000pa.  You can buy a house jointly with more than two people, in which case the income limit is $140,000.  The house should cost no more than $300,000 ($400,000 in Auckland, Wellington or Queenstown). 

For every full year you have contributed the minimum amount of your income or benefit, or a percentage of the minimum hourly wage if you are not in work (being 4% to 31 March 2009 and 2% thereafter) you should be entitled to $1000, up to a maximum of $5000 for 5 years’ contributions.  As KiwiSaver has only been going for just over 4 years, no-one will qualify for the full subsidy yet.  A couple who both qualify could get $8,000 towards their first home now, or $10,000 after 30 June 2012.  If you think you’ll qualify, it might be worth waiting until then. 

When you apply to Housing New Zealand you need to give them full information of your income, your KiwiSaver contributions, the income of anyone buying the house with you, and a copy of the sale and purchase agreement.  Allow at least 4 weeks for the application to be processed.

Does the Subsidy have to be repaid?  Only if you live in the house for less than 6 months.  Otherwise it is yours to keep.  So it is a generous subsidy and a good incentive particularly for younger people to join KiwiSaver. 

As published in the Hawkes Bay Today 18 October 2011.

Shelley Hanna is an authorised financial adviser FSP12241.  Her disclosure statement is available on request and free of charge by calling 8703838.  The information contained in this article is of a general nature and is not intended to provide specific or personalised advice.  If readers have any KiwiSaver questions they would like answered please go to www.peak.net.nz or email shelley.hanna@peak.net.nz.

KiwiSaver Help To Buy A Home

QUESTION:  My wife and I joined KiwiSaver in 2007.  Can we cash up our savings to buy our first home?

ANSWER:   Yes you probably will be eligible to withdraw some of your savings, as you have been a member for more than 3 years.  Most if not all KiwiSaver providers will allow their members to make a withdrawal to buy their first home.

Assuming you qualify, you (and your wife) should be able to withdraw all your own contributions and your employer contributions.  However, you can’t withdraw any Government contributions – that includes the $1000 ‘kickstart’ and the annual member tax credits.  You can continue contributing to your KiwiSaver after you have bought the house, or you can apply for a contributions holiday if money is very tight.

The home you intend purchasing must be for you to live in; it can’t be a rental or investment property.  

Your KiwiSaver provider will have a First Home Withdrawal Application Form for you to fill out.  The trustee of the scheme will then consider your request. 

Don’t expect the funds to turn up in your own bank account – they will be paid to your solicitor’s trust account to await settlement.  You will need to provide information from your solicitor including a copy of the sale and purchase agreement and confirmation that the agreement is unconditional.  If for any reason you do not go ahead with the sale the money will need to be returned to your KiwiSaver account.  Involve your solicitor at an early stage, before you sign a sale and purchase agreement.

You may also qualify for the First-Home Deposit Subsidy administered by Housing New Zealand.  This is worth $1000 for each year you have been contributing the minimum percentage or more to KiwiSaver (up to a maximum of $5000 for 5 years’ contributions).  If you live in the house for less than 6 months you will have to repay the subsidy, otherwise it is yours to keep. 

Read the useful booklet from Housing New Zealand entitled “Buying Your First-Home with KiwiSaver”.

I assume you joined KiwiSaver with the intention of using some of your savings towards your first home, and are invested in a lower risk scheme?  I ask because with recent volatility some of the higher risk KiwiSaver funds have fallen 10% or more over the past 6 months. 

All KiwiSaver investors need to take into account both their risk tolerance and their timeframe when choosing what fund is right for them.  If you need help, talk to an authorised financial adviser.

As published in the Hawkes Bay Today 11 October 2011.

Shelley Hanna is an authorised financial adviser FSP12241.  Her disclosure statement is available on request and free of charge by calling 8703838.  The information contained in this article is of a general nature and is not intended to provide specific or personalised advice.  If readers have any KiwiSaver questions they would like answered please go to www.peak.net.nz or email shelley.hanna@peak.net.nz.

What happens to KiwiSaver in separation?

QUESTION:  My partner and I have separated after more than three years of living together.  We don’t have any children.  We are dividing our assets between us without involving lawyers.  My husband says that his KiwiSaver can’t be divided as he can’t access it until he’s 65.  Is that correct?

ANSWER:  I am not qualified to give you legal advice, but as far as KiwiSaver is concerned it is an asset like any other savings and should be included in any division of your property.  KiwiSaver Scheme Rule 7 says the courts can make an order to release funds from a KiwiSaver scheme under section 31 of the Property (Relationships) Act 1976.

As the balances in KiwiSaver grow over coming years this will become more of an issue for couples separating, especially if one of them earns significantly more and has built up a larger account balance.

KiwiSaver started more than four years ago, so if your partner joined before you entered the relationship then his contributions from that time may be treated as separate property.  All contributions from the time you became a couple will be considered joint. 

I note that you do not intend to seek legal advice.  I suggest you reconsider.  It is best to get legal advice at the earliest stage of your separation so that you can be clear about what you are entitled to.  You can also have free joint counselling (through the Family Court).  Most people take legal advice and go on to resolve their property issues by negotiation and agreement. Only if agreement cannot be reached will an application be made to the Court. 

Once you have valued all your assets and deducted all your liabilities you can work out how to divide everything equally between you. 

A Court

order would be required to access some of your partner’s KiwiSaver account – you would file a claim with all supporting evidence to the Trustee of the fund.  However, it may be possible to leave your partner’s KiwiSaver scheme intact if you can get other assets of equal value.  

Even if your separation is amicable, independent legal advice will help you to achieve the best outcome.

As published in the Hawkes Bay Today 4 October 2011

Shelley Hanna is an authorised financial adviser FSP12241.  Her disclosure statement is available on request and free of charge by calling 8703838.  The information contained in this article is of a general nature and is not intended to provide specific or personalised advice.  If readers have any KiwiSaver questions they would like answered please go to www.peak.net.nz or email shelley.hanna@peak.net.nz.

Mortgage no excuse not to join KiwiSaver

QUESTION:        Should I join KiwiSaver or pay off my mortgage first?

ANSWER:  Usually repaying debt takes precedence over savings.  This is because with debt there is a certainty of having to pay interest every day, while the return on investments can be uncertain.

However, with KiwiSaver there are more factors than just investment return to consider.  Let’s assume you are on a salary of $60,000 pa and contribute 2% of your income ($1200 pa) to a KiwiSaver account.  On top of your contributions you will also get 2% from your employer, plus $521 from the Government in ‘tax credits’ each year.  This equates to a return of 143%pa on your investment of $1200.  With mortgage rates starting at around 5.6% pa, this is considerably better than the ‘return’ you would get by putting an extra $1200 on your mortgage each year.

Those who say “I am not going to join KiwiSaver until I’ve paid off my mortgage” are missing out on years of Government contributions and employer contributions as well if they are in paid work.  And how many are actually putting that 2% onto their mortgage instead of into KiwiSaver?

I believe that many people use their mortgage obligations as an excuse not to sign up to KiwiSaver, when in fact they just haven’t got round to it.  Inertia is recognised as a major contributing factor to the behaviour of investors in schemes like KiwiSaver.  It works both ways - the majority of those who are automatically enrolled stay in but if they have to sign up, many don’t.  Evidence of this behaviour was confirmed by research into KiwiSaver membership commissioned by Inland Revenue in early 2010.

In a few cases it would make sense to deal with your mortgage first, for example if you are on such a high income that 2% would make a considerable difference to your mortgage balance and/or if your mortgage is very large and causing you a great deal of worry.

But if you have just been using your mortgage as an excuse not join KiwiSaver I suggest you reconsider. 

As published in the Hawkes Bay Today 27 September 2011

Shelley Hanna is an authorised financial adviser FSP12241.  Her disclosure statement is available on request and free of charge by calling 8703838.  The information contained in this article is of a general nature and is not intended to provide specific or personalised advice.  If readers have any KiwiSaver questions they would like answered please go to www.peak.net.nz or email shelley.hanna@peak.net.nz.

Working Abroad Means No KiwiSaver

QUESTION:  My wife and I are New Zealanders who have been living and working in South America since 2001.  Our intention is to return and retire in NZ one day.  On a recent return visit we applied to join KiwiSaver but were summarily refused.  This does not seem fair.  If someone joined KiwiSaver and then left the country would they be kicked out of the scheme?

ANSWER:  The KiwiSaver scheme was set up by the KiwiSaver Act 2006 and is specifically designed for a person ‘normally living in New Zealand’ (with limited exceptions such as a government employee serving outside New Zealand).  KiwiSaver is really a ‘quid pro quo’ for New Zealand tax payers – most adults pay income tax and everyone pays GST (even babies by default when their parents buy food and nappies).  So the government is giving some of that money back as an incentive for New Zealanders to join the scheme.

The government contributions to KiwiSaver accounts are managed by Inland Revenue.  They will only make those payments if the account holder is currently a tax resident in New Zealand. 

I have consulted Inland Revenue on the question of eligibility.  According to their spokesperson ‘the scheme provider has a responsibility to determine eligibility at the time a person opts in through them’.

The scheme provider also ‘has a responsibility to determine the member's eligibility for entitlement to the member tax credit each time the annual claim is made.’  If someone joins KiwiSaver and then heads off overseas, once they become non tax residents in New Zealand they will not be entitled to the annual tax credits from the government (even if they continue to make ad hoc contributions to their KiwiSaver scheme). 

It appears the aim of the government is for KiwiSaver to become less of a drain on their coffers as time goes by.  In the recent Budget the government announced that from April 2013 employer contributions would be fully taxed.  The tax the government will receive from employer contributions for those on higher incomes will more than cover the tax credits they pay out to them, and will partially cover the cost of tax credits for lower income members.

The power of KiwiSaver comes from the combined income stream – individual contributions, the government’s kickstart and annual top ups and, for many people, the employer contributions as well.  It is an attractive scheme and I understand your regret that you are unable to participate while you are living and working abroad.

As published in the Hawkes Bay Today Tuesday 20 September 2011

Shelley Hanna is an authorised financial adviser FSP12241.  Her disclosure statement is available on request and free of charge by calling 8703838.  The information contained in this article is of a general nature and is not intended to provide specific or personalised advice.  If readers have any KiwiSaver questions they would like answered please go to www.peak.net.nz or email shelley.hanna@peak.net.nz.

Considering the worth of holiday

QUESTION:        I joined KiwiSaver when the minimum was lowered to 2%.  My wife has just stopped working to have a baby and we are now living on one wage.   Should I put my contributions on hold?

Answer: You certainly can put your contributions on hold.  Anyone can apply for a ‘contributions holiday’ after they have been a member of KiwiSaver for at least 12 months.  The minimum was lowered from 4% to 2% in April 2009 so I am guessing that you have been a member for over two years.  (For those members who have been in KiwiSaver for less than 12 months, they can apply for a contributions holiday in the case of hardship).

Inland Revenue has a form KS6 which you will need to fill out (in hard copy or online) and return to them to process.  They will inform your employer.  You can suspend your contributions for any period from 3 months to 5 years.  You can also extend your contributions holiday if you need to at the end of the period that you choose.  Once you have started your contributions holiday, your employer will not be required to make any contributions.  You can still make voluntary contributions if you wish to. 

Adjusting to life on one wage is not easy, especially with all the costs of a new baby.  If your KiwiSaver contributions are making a difference, then taking a contributions holiday is a good idea. 

But if you are managing on one wage without going into debt, then I suggest you keep your KiwiSaver going.  For the purpose of this exercise I will assume you are earning $60,000 pa gross.  On this salary you will be contributing $100 to your KiwiSaver each month.  Can you adjust your household spending so you won’t miss that amount? 

Your employer will be contributing at least 2% as well, and you will also be entitled to $521 from the government each year in ‘tax credits’.  So by keeping your KiwiSaver going you will get $1721 from your employer and from the government over 12 months, which you won’t get if you take a contributions holiday for that period. 

I hope this information will help you come to a decision.  This is a special time in your lives and you want to enjoy it as much as possible.

As published in the Hawkes Bay Today 13 September 2011

Shelley Hanna is an authorised financial adviser FSP12241.  Her disclosure statement is available on request and free of charge by calling 8703838.  The information contained in this article is of a general nature and is not intended to provide specific or personalised advice.  If readers have any KiwiSaver questions they would like answered please go to www.peak.net.nz or email shelley.hanna@peak.net.nz.

KiwiSaver still best option for self-employed

QUESTION: I understand the benefits to KiwiSaver are the combination of my input, government and employer contributions. I'm self employed so what happens to the employer contributions? Also I have a very seasonal income, and don't want to commit to regular investments. Maybe there are better options for me?

ANSWER:  For most self employed people KiwiSaver is still a generous Scheme even without employer contributions. This is because it is the only superannuation scheme in New Zealand to which the government makes financial contributions.

When KiwiSaver started 4 years ago employers were not required to make contributions.  Employers started contributing 1% of an employee’s salary from 1 April 2008 and 2% from April 2009. In this way, people on a regular wage do benefit from regular contributions from their employer.  However, every New Zealander over the age of 18 who contributes to a KiwiSaver account is entitled to the same top ups (or tax credits) from the government. 

Firstly, every new KiwiSaver will receive a $1000 ‘kickstart’ on signing up.  Then, those over 18 receive annual ‘tax credits’ - depending on how much they have contributed over each 12 month period.  Employer contributions do not count so the self employed are not disadvantaged. 

One of the advantages of being self employed is that you are not restricted to contributing 2% 4% or 8% of your gross salary – you can contribute any amount you choose, either by regular direct debit or an annual contribution.  Since your cashflow is irregular a lump sum may work best for you.  Others find a monthly direct debit is easier on the cashflow. 

There are many self employed people who contribute $1042 each year (or $87 per month) in order to get the maximum tax credit from the government.  From 1 July this year the government has lowered their maximum ‘tax credit’ contribution to $521 per annum. While you still need to contribute $1042 each year and be a member for the full 12 months to receive this full amount, this is still a worthwhile incentive.  For every month that you delay joining you will get about $43 less from the government.

For a new KiwiSaver investor starting on 1 July this year and contributing $1042 during the year, they will receive an equivalent return (before any investment return) of 50% with the government tax credit, plus the $1000 ‘kickstart’. 

Even without the employer contribution, it would be difficult to find a savings product providing a better outcome than this in the current climate. 

As published in the Hawkes Bay Today 6 September 2011

Shelley Hanna is an authorised financial adviser FSP12241.  Her disclosure statement is available on request and free of charge by calling 8703838.  The information contained in this article is of a general nature and is not intended to provide specific or personalised advice.  If readers have any KiwiSaver questions they would like answered please go to www.peak.net.nz or email shelley.hanna@peak.net.nz.