NZ Herald 19 May 2012

AThe KiwiSaver help for first home buyers is pretty flexible in some ways. You can switch providers as many times as you like. But of more interest to many people will be the flexibility around the rules about maximum income — something I just learnt about.

Let’s start by telling other readers about the two aspects to KiwiSaver first home assistance:

Firstly, the withdrawal. Anyone who has been in KiwiSaver for at least three years can withdraw their contributions, employer contributions, and returns earned on all the money to put towards buying the house. The kick-start and annual tax credits must stay in the account.

Secondly, the subsidy. If you buy a house for $400,000 or less in Auckland, Wellington or the Queenstown Lakes District, or $300,000 or less elsewhere, you may qualify for a deposit subsidy. This is $3000 after three years rising to $5000 after five years or more. A couple where both are eligible can combine their subsidies for the same home purchase.

To get the subsidy — but not the withdrawal — there are several criteria. These include minimum contributions over the relevant three to five years.

Currently you have to contribute at least 2 per cent of your total income or benefit, or 2 per cent of the adult minimum wage if you are not working. If you include the period before 31 March 2009, you had to contribute 4 per cent — the minimum employee contribution at that time.

The current 2 per cent is likely to rise to 3 per cent from April next year, when the minimum employee contribution rises to 3 per cent — although Housing New Zealand, which runs the subsidy, hasn’t yet confirmed that.

The subsidy rules also include limits on your household income — a maximum of $100,000 earned for one or two people, or $140,000 if three or more people are buying the house.

But here’s the surprise. “For eligibility for the deposit subsidy, we only require clarification of their income for the last 12 months,” says Housing NZ. “What they earned when they joined KiwiSaver, say in 2007, is not something we have to check, as it is not an eligibility criterion.”

So you could have earned $1 million in earlier years and still qualify — as long as you contributed 2 or 4 per cent of that $1 million if you want that period to count in your three to five years. It’s only in the year before you apply that the income limit matters.

For more details on the first home assistance, see tinyurl.com/kiwisaverfirsthome.

AIt’s definitely worthwhile for you to join KiwiSaver, and for you and your wife to each contribute $1043 a year to get the maximum $521 tax credit. It’s even more worthwhile if you’ve never owned a home or you qualify as being in the same financial position as someone saving for a first home. More on that in a minute.

But first, even if you have been homeowners in the past, the 50 per cent boost from the tax credit means you will end up with 50 per cent more savings than elsewhere. What would otherwise total $100,000 will total $150,000.

There is a slight complication. You, as an employee, will have to contribute 2 per cent of your pay for the first 12 months — rising to 3 per cent in April 2013. But after that you can take contributions holidays right through to retirement, and then put in just $1043 a year.

Given your tight budget, how do you get through that first year? Well, it makes sense to “raid” your house deposit account to cover that year, as well as to supplement your two lots of $1043 each year if necessary. After all, the money is still yours — it’s just moving from one savings pool into another, and the second pool should perform better because the government is adding to it.

The possible downside is that perhaps you will lose access to the KiwiSaver money to buy your home.

But only “perhaps”. I’m hoping that you’ll qualify for the first home assistance described in the above Q&A — once you’ve been in KiwiSaver for three years.

The withdrawal won’t be a huge boost for you in the short term. You won’t get employer contributions to KiwiSaver, because you already get their contributions into the other scheme.

Still, the returns you withdraw will be higher than in a savings account, because they’ll include returns on the kick-start and tax credits. And while you can’t withdraw the government contributions, they will still be growing there for you to take out in retirement.

What about the first home subsidy? I assume your household income is less than $100,000, so that’s okay.

The minimum contributions could be a bit of a problem for you. In your first year, you have to contribute 2 to 3 per cent of pay anyway, as explained above. But after that, instead of taking a contributions holiday and contributing just $1043 a year as I suggested, you would have to continue at probably 3 per cent of pay if you want the subsidy.

But it’s the same story. It would be worth raiding your home deposit savings to do that, so you can get the subsidy.

If your wife isn’t in the workforce, she should be fine. She has to contribute 2 per cent of the minimum wage to get the subsidy, probably rising to 3 per cent next April. That’s $562 a year currently, and probably $850 to $900 next year — less than the $1043 she’s putting in anyway.

If she does have a job, she’s in the same situation as you. Again, raid the savings if necessary.

Gosh — this sounds rather complicated. But there’s government money there, and you two might as well get your share.

In the next week or two — depending on space — we’ll go into how KiwiSaver first home help applies to people who have moved overseas. There’s more good news there, too.

ACalling those other people arrogant might be the pot calling the kettle black, as my mother used to say.

That aside, I have some sympathy for what you say. The difference between your bigotry and that of the correspondent two weeks ago is that you pick on people who “could do better”, as opposed to being born into a certain ethnic group and gender.

But I also have some sympathy for the “fat-arsed, beer-gutted and thunder-thighed”. Some weaker-willed people have had a tough run in life. Sure, others seem to be just plain lazy. But is that entirely their fault, or is it the result of an upbringing that you, too, might struggle to break free from?

Maybe a bit more meditation and yoga would help you accept the failings of your fellow human beings!

AI’m tempted to ask, “Does it matter, as long as you get the money?” But that might seem disrespectful to you and others who bothered to write about this — including a man who banks with Westpac, like last week’s correspondent, but his bank statement reads “New Zealand Super”.

If it does matter to anyone, I suggest they ask their bank to change the wording. If that can’t happen, maybe switch to a bank that uses different wording.

One correspondent also mentioned the special features his bank offers superannuitants. We won’t go into that in this column — it would take too much space. But you might like to shop around on that basis. That might be a better reason to switch banks.