15 Jan KiwiSaver savings – early access fish hooks
By Jean Strock, AFA
KiwiSaver schemes have been successful in getting Kiwi’s engaged with and actively saving for their retirement. The FMA KiwiSaver Annual Report 2019 identified 2.9m people invested in KiwiSaver schemes as at March 2019 with total funds under management of $57bn, which has risen to $65bn as of September 2019.
Most people will need to wait until age 65 to access their KiwiSaver savings although it is increasingly seen as a good way to accumulate funds for a first home deposit, which is one of the few ways of accessing funds earlier. Many younger people are electing to contribute at higher rates (8 and 10%) for their first home deposit. In fact the FMA’s report refers to $953m withdrawn from KiwiSaver accounts in the 12 months to March 2019 for that very reason.
There are a few other ways of accessing funds before age 65 but there are some fish hooks to be aware of and times when KiwiSaver accounts may not be the best investment choice for your goals and time frame.
The hardship fish hook
Not all people are aware that early withdrawal on hardship grounds is a high bar to get over and you may only be permitted to make a partial withdrawal. As per the table at the end of this article, you are not allowed to withdraw the contributions made by NZ taxpayers such as the annual contribution and the $1,000 kick-start which was withdrawn in May 2015.
The serious illness fish hook
In cases of serious illness you may withdraw everything in your KiwiSaver account before 65 but must provide medical evidence to confirm you have an illness, injury or disability that affects your ability to work or poses a risk of death.
Moving to Australia – the Trans-Tasman portability fish hook
If you move overseas permanently you can apply to withdraw your KiwiSaver savings after one year, unless you have chosen to move to Australia.
In July 2013 the Australian and New Zealand governments agreed on an optional system for portability of KiwiSaver accounts and compulsory Aussie Super accounts. This recognises the amount of migration between the two countries and enables people to consolidate their retirement savings in one place. A link to the Fact Sheet is here.
The problem is if you move to Australia, unlike migrating to other countries, you cannot withdraw your KiwiSaver savings after one year of permanent migration nor can you withdraw the funds for a first home purchase if you transfer the funds to a complying Australian Super fund. The Australian Superannuation rules do not permit this.
So if you have saved a decent amount in your KiwiSaver account for a first home deposit you must either leave the funds in your KiwiSaver account while you are away, expecting that you can buy a home if you return, or buy before you leave.
If you buy before you leave your intention should be to live in the property and you must live in the property for at least six months from the settlement date. If you rent the property out after six months and leave the country you will be liable for Capital Gains Tax if you then sell the property within five years of purchase.
So if an OE or permanent move to Australia is on the cards you need to think carefully about where you save and invest, especially when it comes to accessing your savings for a first home. It may be better to drop your contribution back to a minimum 3% and invest additional savings outside of your KiwiSaver account to give you more flexibility and liquidity.
For more information about buying your first home with your KiwiSaver account click on the link.
Summary of Early KiwiSaver savings Withdrawal Conditions
* Own and employer contributions
** Previously called the government tax credit – up to $521 per annum if minimum contributions are made
*** Any amount transferred to your KiwiSaver account from your complying Australian Superannuation fund
The views expressed in this article are the views of the author. The information provided is of a general nature and is not intended to be personalised financial advice. You may seek appropriate personalised financial advice from a qualified Authorised Financial Adviser to suit your individual circumstances.