Helen Twose 's Opinion

Personal finance and KiwiSaver columnist at the NZ Herald

Helen Twose: KiwiSaver nest-egg for grandchildren

8 comments
KiwiSaver accounts do not qualify for the member tax credit until the holder is 18 years old. Photo / Getty Images
KiwiSaver accounts do not qualify for the member tax credit until the holder is 18 years old. Photo / Getty Images

Our question is that we are considering putting $10,000 each into starting a KiwiSaver account for our grandkids as inheritance. They are 10, 15 and 18.

Would we be better putting it into KiwiSaver and letting it not be touched until they reach 25 or thereabouts and stipulate it is to be used for a deposit on a home only, as opposed to a bank savings scheme.

We were hoping that they would also get the start-up amounts of $100 each plus maybe $500 a year for five years from the Government if we drip-feed in $1045 each year for five years.

Can you advise if what we propose is correct?

There are a number of questions here so let's deal with them in turn.

It's great that you want to make a contribution to KiwiSaver for your grandkids, they are very lucky. However, it is KiwiSaver itself that sets the rules on access, not you.

Once the funds have been deposited into their KiwiSaver accounts they are unable to access these funds until they are 65 unless they are buying a first home or experience financial hardship.

So I guess that would take away the need to stipulate that these funds can be accessed only for a deposit on a home as that happens automatically.

Is it better than a bank deposit?

The incentives are far greater than the miserable interest rates the banks are currently paying.

The key to this lies in your second question about getting the start-up amounts and the member tax credits.

When a KiwiSaver account is opened a $1000 contribution is made to the account by the Government.

Assuming the account is opened on July 1 with $10,000, the 18-year-old will receive a $1000 kick-start plus a full member tax credit at the end of year one of $521.43 which gives an account balance of $11,521.43 (plus any investment return) equating to a 15.21 per cent net return in that year.

Before any additional investment return your bank term deposit balance will be $10,000 plus any investment return.

While the annualised return drops over time as the impact of the $1000 kick-start diminishes, as long as you are contributing the $1042.86 annually the account is going to go up by $521.43 extra every year.

But be aware that this is at the cost of illiquidity - a bank deposit can be accessed virtually any time, whereas the KiwiSaver contributions are locked in until age 65.

The other benefits of a KiwiSaver account include the first home deposit subsidy available to first home buyers who have been in KiwiSaver for three years.

They receive a $1000 subsidy for every year they have been in KiwiSaver, up to a maximum of $5000.

There are other rules affecting this: http://www.hnzc.co.nz/rent-buy-or-own/buying-your-first-home-with-KiwiSaver.

To clarify your last comment - only 18-year-olds qualify for the member tax credits, so the younger children would not receive this benefit until they are 18, even if the required amount is deposited each year.

They would then receive the credits for each subsequent year if contributions of $1042.86 are made.

Peter Christensen, Camelot Group chairman.

This is a long story but last year my sister and I bought our parents' house from them to save them from losing it.

We both used our KiwiSaver first home withdrawals towards the deposit.

Within the next 18 months or so my partner and I would like to buy a house together. We would most likely sell mum and dad's house when this happens.

My question is - would my partner still be allowed to withdraw and use his KiwiSaver towards the deposit if my name was on the house ownership?

He has not owned a home before so would still be a first home for him personally.

I just wanted to know if having me as a joint owner who has owned a home before would prevent him from using his KiwiSaver in this way.

When considering an application to withdraw funds from a KiwiSaver scheme, the KiwiSaver provider will take into account the member's individual situation: is this his first home?

Has he been in the scheme for at least three years?

Is the property intended to be the member's principal place of residence?

As long as he meets these criteria, and provides his KiwiSaver provider with the appropriate documentation in their required timeframe, he should be able to access his KiwiSaver funds.

If he is buying a property with a previous home owner, it will not affect his ability to withdraw his KiwiSaver funds.

However, Housing New Zealand takes into account the income of all the purchasers when considering eligibility for the first home deposit subsidy.

Please refer to the Housing New Zealand website at http://www.hnzc.co.nz/rent-buy-or-own or phone them on 0800 801 601.

Blair Turnbull, ASB executive general manger of wealth and insurance.

Disclaimer: Information provided is accurate to the best of the respondent's knowledge at the time of publication. It is general in nature and should not be construed, or relied on, as a recommendation to invest in a particular financial product or class of products. Readers should seek independent financial advice specific to their situation before making an investment decision.

- NZ Herald

Helen Twose

Personal finance and KiwiSaver columnist at the NZ Herald

Helen Twose is a freelance business journalist who writes regularly about KiwiSaver and entrepreneurial companies. She has written for the Business Herald since 2006, covering the telecommunications sector, but has more recently focused on personal finance and profiling successful businesses.

Read more by Helen Twose

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