Everything first home buyers need to know about KiwiSaver

Most New Zealanders know about KiwiSaver, but not everyone knows how it can benefit you as a potential home buyer, or how the process works when you want to use it. We thought we’d delve into the details to explain exactly what KiwiSaver is, answer some commonly asked questions and give our top tips for making the most of your KiwiSaver account. Let’s get into it:

What is KiwiSaver?

KiwiSaver is a voluntary savings initiative, set up by the government to help New Zealanders save for retirement. You can choose your level of contribution which is deducted from your gross salary or wages and put directly into your KiwiSaver account. The options are 3%, 4%, 6%, 8% or 10% of your gross salary (before tax) and you also have the option to opt-out of the scheme within 2-8 weeks of starting a job.

Adding to your own contributions, your employer also has to make payments into your KiwiSaver account, matching at least 3% of your gross salary. On top of this, there is an annual government contribution and you can make additional direct deposits at your discretion.

Benefits of KiwiSaver

Here are some of our favourite benefits KiwiSaver has to offer:

• Contributions are deducted from your salary automatically, making it easier to save.
• It’s a low-cost option for investing in managed funds. (And generally, your KiwiSaver provider will do this for you).
• Whenever you change jobs, your KiwiSaver account moves with you.
• It keeps your savings at an arm’s length - if saving for retirement, you’re unable to touch your KiwiSaver funds until the age of 65, when you get New Zealand Superannuation.
• It’s designed to help you, so if you experience financial hardship, you may be able to access your funds early.
• Your employer and the government are required to make contributions to your savings.
• It can assist with the purchase of your first home.

Top tips for making the most of your KiwiSaver

If you’re currently working and are between the ages of 18 and 64 years, you have probably already been automatically enrolled in KiwiSaver. While sticking with KiwiSaver’s default settings is a great start, tailoring your account to your financial goals can help you save more money, faster. Here are some tips to get you started:

Choose the right fund for your financial goals

There are five key types of KiwiSaver funds:

1. Aggressive
2. Growth
3. Balanced
4. Conservative
5. Defensive
   
   

If you never selected a fund when you were enrolled into KiwiSaver, you would have automatically been allocated to a default scheme which is a conservative fund. Conservative funds have less risk but are unlikely to deliver higher returns on your money over the years. Research and compare the different types of KiwiSaver funds and select the one that works best for youRemember, you’re in charge of this, so although your KiwiSaver provider can recommend a scheme for you, it’s worth doing your own research too. 

Raise your KiwiSaver contribution rate

When you’re looking at your payslip, it can be tempting to choose the lowest contribution rate (3% of your gross pay). But keeping your future self in mind, increasing your KiwiSaver contributions is a surefire way to boost your savings and can make a massive difference in the long run. If you’re not sure what contribution rate you’re on, just ask your employer. Just keep in mind this tip when you're getting close to withdrawing your KiwiSaver for your first home.

Make additional contributions

When you’re making a budget, consider sending your savings directly to your KiwiSaver account. Keeping these out of reach means you can’t dip into them whenever you want. And the longer your savings are in KiwiSaver, the more time they have to grow. We wouldn’t recommend you send all your savings to KiwiSaver because of how limited your options are to withdraw them (purely for retirement or buying your first home). It could be a better idea to set up a term deposit or a high interest savings account as well. Another investment option with high returns and flexible terms is our peer-to-peer investing platform.

Don’t miss out on the government contribution

Even if you’re not in the workforce, adding $20 a week to your KiwiSaver account means you’ll be entitled to the full government contribution at the end of the year. That’s a free $521 every year!

Check your tax

Prescribed investor tax rates (PIRs) can be confusing. But they’re also worth having a look at to ensure that you’re not paying too much tax. Working out your correct PIR only takes a few moments on the Inland Revenue site and can save you from paying unnecessary fees.

How can KiwiSaver help you buy your first home?

Getting a deposit together for your first home can be a daunting task. The good news is KiwiSaver recognises that and offers two ways that can help you get started:

1. KiwiSaver HomeStart Grant

Depending on the type of property you’re wanting to purchase, you may be entitled to a grant between $3,000 and $10,000. These grants are administered by Housing New Zealand and can contribute to your house deposit, helping you land your dream first home. The amount that you’re able to apply for depends on the age of the property/land you’re wanting to purchase and the length of time that you have been contributing the required minimum amount to KiwiSaver.

It’s also worth noting that even if it isn’t your first home, Housing New Zealand may still be able to provide you with a HomeStart Grant if they determine that you fit the same financial profile as a typical first home buyer.

2. KiwiSaver First-Home Withdrawal

When you’re purchasing your first home, you may be eligible to withdraw some (or most) of your savings from your KiwiSaver. You would need to leave at least $1,000 in your KiwiSaver account and fit the required criteria. This withdrawal can include contributions from your employer, the government, yourself, and any returns on investment received.

To be eligible for these schemes, you need to fit the following criteria:

• You have been a KiwiSaver member for at least three years, contributing the required minimum amount (3%).
• It needs to be your first time owning a property or a piece of land
• You intend on living in the home (i.e. it’s not an investment property)
• The property must be in New Zealand
• It’s your first time withdrawing from the KiwiSaver scheme to purchase a property.

Common KiwiSaver questions for first home buyers

What kind of ‘home’ can I buy with KiwiSaver?

While you are able to purchase land with your KiwiSaver savings, it is worth noting that the grant/withdrawal can only go towards the purchase of the land itself and not building materials for the actual construction of the house. You can also use your savings to purchase off-the-plan apartments and existing homes. Your purchase must also meet KiwiSaver’s property criteria.

How do I get my KiwiSaver funds out when I want to buy?

Firstly, you’ll need to request a letter from your provider to confirm your eligibility to withdraw your KiwiSaver to go towards your house deposit. When the time comes to purchase, you’ll then need to request a withdrawal form from your provider (your lawyer will go through this with you and you’ll need to sign the form in front of them). It generally takes up to 10 working days for the funds to be released, so it’s important to get on top of it well before settlement.

How does my KiwiSaver withdrawal get paid to me?

Your grant or withdrawal funds will not be sent to you directly. Your KiwiSaver manager will pay your savings or grant to your solicitor. Your solicitor will then keep this in a trust account until your deposit is required.

What happens to the KiwiSaver withdrawal if the purchase falls through?

If the purchase falls through or settlement is not completed, your solicitor will send your KiwiSaver savings back to your KiwiSaver manager’s account. If this happens, you may be able to apply for a withdrawal again at a later date.

Can I combine my withdrawal or grant with another person?

Yes, you can combine your KiwiSaver savings with one or more members if you are looking to purchase a single dwelling together. However, no matter how many eligible buyers there are, KiwiSaver has allocated maximum values of grants that are payable towards single dwellings.

Let’s talk!

When it comes to grants and withdrawals on KiwiSaver, all of the criteria and conditions can get pretty confusing, pretty quickly. Ultimately, KiwiSaver was created to help you and it’s something you should take advantage of if you can.

We can help you work out what you’re eligible for and how much you can borrow. Our team is here to answer all of your questions and give you expert advice. We’ve even got a free First Home Buyers Guide  which has everything you need to know to get started.

If you’re looking for answers, get in touch today.

The opinions expressed in this article should not be taken as financial advice, or a recommendation of any financial product. Squirrel shall not be liable or responsible for any information, omissions, or errors present. Any commentary provided are the personal views of the author and are not necessarily representative of the views and opinions of Squirrel. We recommend seeking professional investment and/or mortgage advice before taking any action.

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