Mum’s the word on KiwiSaver assistance
The very people who could really use HomeStart grants are missing out. Rob Stock reports.
One woman’s maternity leave KiwiSaver shock has revealed many people are missing out on first home grants.
When Amy Wright from Christchurch went on maternity leave, nobody told her she should make voluntary contributions to KiwiSaver or risk missing out on the HomeStart grants.
The grants of between $3000 and $5000 are designed to help young people buy homes, but only if they have been contributing members of KiwiSaver for at least three years.
Wright took to Facebook to alert other new mums to the threat.
‘‘So this is a warning, especially for mums like me who have been on maternity leave,’’ she said. ‘‘We’re trying to buy a house, and applied for the KiwiSaver home grant which gives you $1000 for every year you are a member of KiwiSaver.
‘‘But actually, you have to have been making contributions for a minimum of three years.
‘‘If I knew that, I would have made my own voluntary payments while on maternity leave.
‘‘Instead, I’ve missed out on a free $3000 we really needed for our deposit.’’
Wright was just a few months short of the three years of contributions she needed to make, all of it a result of her maternity leave.
The good news is that she got the place, and will be there in time to celebrate Christmas.
The bad news is there is no
Common KiwiSaver pitfalls
appeal of the decision, and nor is she alone in missing out on the grant.
Housing New Zealand (HNZ), which administers the grants, sees others in her position, and not only new mums. The selfemployed are also missing out.
HNZ’s HomeStart grant rules require KiwiSavers to put in the equivalent of 3 per cent of their gross incomes to be considered to be contributing for the purposes of meeting the minimum three-year contribution period which qualifies them for the $3000 grant.
Just putting in the minimum $1042.86 a year needed to get the full $521.43 member tax credit is not considered enough, HNZ rules state.
Four years of contributions qualify KiwiSavers for $4000, and five years qualifies them for the maximum $5000, meaning couples stand to lose out on up to $10,000 if they are judged not to have made sufficient voluntary contributions.
Unemployed people, and those temporarily without an income, are expected to make voluntary contributions equal to 3 per cent of the gross adult minimum wage, which equates to contributions of around $20 a week.
Wright said she was not given the option of making a catch-up payment, which HNZ said it did allow in some cases.
She feels HNZ were looking for reasons to say no.
‘‘I can’t understand why they are looking for ways to decline people like me.
‘‘The grants are designed to help people like us into homes.’’
She also feels like there’s something off in the design of the grants, which seem to be catching out new mums.
‘‘I felt a little bit discriminated against because I had been on maternity leave,’’ she said.
KiwiSaver expert David Boyle from the Commission for Financial Capability thinks human resources departments need to be aware of the KiwiSaver aspects of maternity leave.
‘‘It should be part of the ‘pack’ of information people get when they go on maternity leave,’’ he said. The complexity of KiwiSaver and its rules can easily trip people up, and there are currently few smart systems to alert those whose circumstances have changed, prompting them to rethink their KiwiSaver strategy.
‘‘It’s complex even for those in the industry for a long time,’’ says David Boyle of the Commission for Financial Capability.
Experts like Boyle see many instances of ignorance of the rules, or other very ordinary human failings leading to KiwiSaver pitfalls.
The self-employed are particularly vulnerable to this thought. To get the full member tax credit (MTC) of $521.43, a person has to contribute $1042.86 each year. That’s earning an immediate 50 per cent return. Believing you’re too poor to join is also an issue. Some people genuinely are too poor to contribute the full 3 per cent, Boyle says. Others could be doing it, but are leaving wealthenhancing MTCs going begging.
In one real-world example, a man complained to the Banking Ombudsman after joining KiwiSaver through his bank. He joined without reading the offer documents, and was horrified to find it wasn’t like a bank account, and any money he put in was locked away until he reached the age of 65.
Another man who complained to the ombudsman was in KiwiSaver for four years before he realised he was in a low-return cash fund. He blamed the bank for returns he had missed out on. He’d filled in the application himself, and had been receiving statements for four years at the point he complained.
More than 130,000 people are on KiwiSaver contributions holiday, many for more than three years. They missed out on employer contributions, MTCs and returns during a period when sharemarkets rose rapidly. This could leave many short of funds when they come to retire. The Financial Markets Authority believes there’s precious little price awareness among KiwiSavers, and has launched an online tool to get people thinking about whether they are paying too much, which will hurt their returns in the long-term.
It’s easy to think you’re smarter than everyone else, and know when it’s the right time to buy and sell shares. It’s tripped up many an investor. Buying and selling at the wrong times costs investors dearly.
Like paying the minimum off your mortgage, doing the bare minimum through KiwiSaver is unlikely to be enough. Most people will need other savings to achieve a prosperous retirement. Saving the minimum needed to get the maximum benefits is important, but putting in a penny more can be a mistake. KiwiSaver money is locked in until you are aged 65. Any extra savings, which might be needed for other purposes earlier – including possibly starting a business – should be saved outside of KiwiSaver.
Many people take their KiwiSaver money out at age 65 and simply stick it in the bank on term deposit, says Boyle. That’s a mistake. Those who took all the money out and just jammed it into a bank account might not need that money for another 10-15 years. They are denying themselves the chance of getting some growth. This is no excuse for having a rethink each year. Lives change, and that can mean your savings strategy is no longer fit for purpose.