KiwiSaver: Helping grandchildren into first home

Setting up a KiwiSaver account for a grandchild is a relatively simple process. Picture / Getty Images

Lump sum into KiwiSaver accounts one way to ensure inheritance is not frittered away on cars and travel.

I intend to settle a substantial cash sum on each of my grandchildren on my eventual demise. However, I am not prepared to have that money spent on fancy cars, travel, etc, but preferably on a first home.

What fish hooks exist if I place a lump sum in a KiwiSaver account for each grandchild?

I believe that if not used for a home, the only other options for a withdrawal would be hardship or retirement, which suits my purposes ... I think?

It is good to see you're taking the time to sort your affairs while you have the time and energy to focus on such things.

I'm sure your family will appreciate the effort you have made to not leave problems for them.

Wills can be a tricky balance between providing appropriately for your loved ones and what I've heard one lawyer describe as "trying to retain control beyond the grave", which as well as creating complications can have unintended consequences.

I asked ASB's head of wealth products, Roger Clayton if using KiwiSaver could be a good option for ensuring some money was available to your grandchildren for their first home.

"It's certainly possible to place a lump sum into a KiwiSaver account for each of your grandchildren, and a great way to ensure the money goes towards their first homes," Clayton says. "You'll simply need to know their reference details (usually a KiwiSaver member number, IRD number and surname).

"If the grandchildren don't already have a KiwiSaver account, that's fairly simple to set up.

"Two legal guardians must sign an application form to enrol a child aged up to and including 15 in KiwiSaver.

"A 16- or 17-year-old must sign an application form along with one legal guardian.

"Your understanding of the options for withdrawing the funds is correct. Current legislation only allows a KiwiSaver member to withdraw their savings early for the following reasons:

*A first-home purchase.
*In circumstances of financial hardship.
*In circumstances of serious illness.
*If a member permanently emigrates to a country other than Australia ."

The KiwiSaver rules are slightly different for the under-18s and are worth taking into consideration when you weigh up your options.

Everyone between the ages of 0 and 64 gets $1000 from the Government to kick-start their savings when they join KiwiSaver.

The under-18s aren't eligible for the annual member tax credit of $521 until they turn 18, even if they have a job or are making regular contributions.

If they do have a job and are a KiwiSaver member, then 3 per cent will come out of their pay, but until they're 18 their boss won't be required to chip in a 3 per cent employer contribution.

All this may mean that by the time they are preparing to buy their first home the combination of your lump-sum contribution, their contributions, anything added by their employer once they're eligible, plus any investment returns could make a real difference to their house deposit.

Currently the money from the Government - the kick-start and member tax credits - can'tbe withdrawn to use for a house deposit.

There are some risks that the rules on KiwiSaver can change and mean the option to access those funds for a first home is no longer available.

There have been tweaks to the rules in the past so there is no guarantee that there won't be more changes, although there has been no indication from any political party that access to KiwiSaver for a first home is likely to be scratched.

Many people also "set and forget" when it comes to KiwiSaver but it will also pay for your grandchildren to keep an eye on their KiwiSaver accounts to ensure fees aren't eroding their nest egg.

*Disclaimer: Information provided is stated accurately 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 financial product.

Readers should seek independent financial advice specific to their situation before making an investment decision.

To have your KiwiSaver questions answered by the NZ Herald's panel of industry players email Helen Twose, helentwose@gmail.com. Sorry, but Helen cannot answer all questions, correspond directly with readers, or give financial advice.