Students eyeing the first-home subsidy should take care with their KiwiSaver contributions. Photo / Getty Images
To qualify there are house price and income caps but there are also minimum contribution levels
Q: A Q&A on buying a first home using KiwiSaver funds prompted me to share our daughter's experience.
She and her husband were able to withdraw their funds using the savings withdrawal scheme. However, their application for the deposit subsidy left them disappointed.
They had both been in the scheme for five years and had contributed from their salaries while employed. But within that time they were studying for paramedic degrees and meeting compulsory practical requirements on shift work, which made even part-time employment impractical.
Thus the requirement that they contribute to KiwiSaver for at least three years at the minimum percentage of their incomes was not met.
If they had made small contributions from their student living allowances (their only "income"), would they then have been eligible for the subsidy? Had we realised their position we would have happily given them the contributions.
Ultimately they used their savings withdrawal from KiwiSaver towards buying a home in a small rural town. It does seem unfair that they will continue to contribute to KiwiSaver but can't apply for the deposit subsidy retrospectively.
Had my daughter and son-in-law found part-time work for 10 hours a week while studying (their training provider would not allow any more), and contributed 2 per cent towards KiwiSaver, would they have been eligible for a subsidy?
We feel others need to be advised of this situation.
A: All is not lost for your daughter and hubby - or others in a similar situation. More on that in a minute.
First, let's look at the rules. Any first-home buyer who has been in KiwiSaver for at least three years can withdraw money to buy their home - regardless of how much they've contributed. But to get the subsidy, there are house price and income caps. See tinyurl.com/firsthomenz. There are also minimum contribution levels, as follows:
• July 2007 through March 2009: 4 per cent of your income or benefit. If you receive neither, 4 per cent of the adult minimum wage based on a 40-hour week.
• April 2009 through March 2013: 2 per cent of your income, benefit or the minimum wage as above.
• From April 2013: 3 per cent of your income, benefit or the minimum wage as above.
Blame governments that changed the minimum employee contribution levels for the complications!
If you've met those contribution levels for three years, the subsidy is $3,000. For four years it's $4,000 and for five or more years it's $5,000. Each member of a couple can get the subsidy, so a couple can get up to $10,000.
It's okay if there are periods when you've contributed less or nothing. Housing NZ, which runs the subsidies, just adds up the periods when you made at least the minimum contributions.
Money paid by StudyLink - including student living allowances - is counted as income, says Matthew Smith, senior manager financial operations at Housing NZ. "However, the KiwiSaver contributions will not be deducted at source, as they would if you earned a salary/wage. Therefore, members need to voluntarily make regular or lump sum payments directly to their scheme provider or Inland Revenue. "It is the responsibility of the individual KiwiSaver member to make these payments. Therefore, if the couple in the example only received Studylink and no other income, they would only need to have paid 2, 3 or 4 per cent of that income - it could be paid via regular small amounts or in an annual lump sum within the same financial year.
"If they did this over the period that they received the income, and it was the only income that they received, then it is likely they could have been eligible for the subsidy," says Smith, adding that "we are unable to say for sure, based solely on the information in the letter".
He continues, "If the students had found part-time work, in addition to their Studylink funds, they would need to have contributed from all income sources - that is, Studylink and part-time work - to qualify for the subsidy. The issue here is not that they have to be working to qualify - they just need to contribute to KiwiSaver from their income streams, at the minimum percentage."
You're quite right that the couple can't apply for subsidies retrospectively.
However, says Smith, "as the couple in your example has never received the subsidy, if they sell their existing property, they can both apply for the deposit subsidy as previous home owners, provided they no longer have any interest in real estate. In addition, they must not have realisable assets totalling more than 20 per cent of the regional house price cap for the area they are buying a home in."
Smith is referring to the rule that people in the same financial position as first-home buyers may be eligible for the subsidy. You have to no longer own a property - which is what "having an interest in real estate" means. "Realisable assets" are basically assets that can be sold for cash.
If your daughter and son-in-law were to sell their home, and they didn't make much gain on it, they might find they're left with cash - after repaying the mortgage - of less than the 20 per cent cutoff level.
It probably wouldn't be worth doing that unless they want to buy a different house anyway. But it is an option.
Note that the house price caps for the subsidy will rise from next April to $550,000 in Auckland and $350,000 or $450,000 elsewhere. Also, from April 2015, the subsidies will be twice as big if you buy a newly built home, so a couple could get as much as $20,000.
Maybe your young couple could look into buying a newly built home. Obviously, though, they would want to check first with Housing NZ about their eligibility for the subsidy.
PS. After sending the above, you sent another email, that said your daughter and her husband "are now proud new parents and homeowners and we are enjoying a delightful new granddaughter. Choices. Life is not all about money is it?" A timely Christmas thought.
Q: The closure of the ASB First Choice KiwiSaver Scheme's Global Sustainability Fund and your article last week shows an opportunity for education about investments each of us as individuals make.
If 90 per cent of people would avoid investing in "labour exploitation, tobacco and arms", then how can we make it easy for every KiwiSaver account holder to know what their money is supporting? It is hard to find this information.
KiwiSaver is still very new, and people who never previously invested in shares now are in the scheme. Yet the knowledge to choose such schemes based on their personal values, rather than trusting the "default" schemes will do so, is lacking.
I look forward to easier access to relevant information on all schemes, so people can choose their KiwiSaver account to support their personal values.
A: There's pretty good information on funds in the KiwiSaver Fund Finder on sorted.org.nz.
The Fund Finder doesn't at this stage specify which funds are "ethical" or similar. But - as discussed last week - you can find many of those funds by clicking on "Check your current fund" and then searching for the following words in a fund's name: ethical, sustainable, socially responsible, or SRI (which stands for socially responsible investment). Alternatively, last week's column lists six ethical KiwiSaver funds in addition to the one that is being closed. Also see the Q&A below.
Once you have the name of an ethical fund, the Fund Finder gives you a brief description from the provider, which should tell you the basis on which it chooses its investments.
Scroll down to see how much of the fund is in cash, bonds, property, shares or other investments, as well as a list of the fund's top 10 investments. For more information, go to the provider's website.
Q: I was dismayed to note you overlooked the Amanah KiwiSaver Plan, a new ethical fund, in your last column.
Amanah KiwiSaver Plan does not, among other things, invest in money lending, weapons of war, tobacco, gambling, alcohol and pornography. The fund ethics bring it within the beliefs of the Christian and Islamic religions; it is Halal.
This means, of course, Amanah Kiwisaver does not invest in banks, which are after all the largest money lenders in New Zealand. Financial institutions that lend money were, due to their questionable ethics, or lack of any ethics, the cause of the global financial crisis.
The consequence of money lending when the economy downturns is all too frequently the loss of homes and other familiar horror stories. Our dairy industry is heading for the misery of mortgage foreclosures, courtesy of the money lenders, if the commodity market does not pick up.
Amanah KiwiSaver is a growth fund that invests in industries that make or do something the world wants. At present this fund is invested in 44 international corporations, many of which the local market has not heard of - for example, Calavo, which grows avocados. For more information go to amanahnz.com.
A: In my view, money lending does much good as well as harm. It enables many worthwhile businesses to grow. But let's not get into that debate here.
Thanks for drawing my and readers' attention to an interesting new KiwiSaver fund, which is included in the KiwiSaver Fund Finder. Readers should note that, as a growth fund, it's a higher-risk option.
It's Christmas break time. A big thank you to everyone who sent in questions this year. Each year I get more letters, which means - sadly - that more don't get published. But I do appreciate hearing from everyone.
A quote from one letter that didn't make it into the paper: "I always have a look at your column during my Saturday morning Herald reading ritual ...
"Occasionally there's a letter that amuses me in that it seems the writer's main purpose is to show off how well they've done financially.
"Conversely, I admire the bravery of some for whom things have not panned out so well, who have written in to see if there's any hope. And then it is heartening to see how many other readers care enough to write in with helpful input."
The writer went on to offer assistance to a correspondent, and I forwarded his email to her.
But my point in printing this excerpt is that I'm also touched at how often readers offer help, advice or another viewpoint to correspondents. You're not a bad bunch!
I hope you all have a safe, relaxing and heart-warming break, and I'll see you in late January.
Mary
• Mary Holm is a freelance journalist, member of the Financial Markets Authority board, director of the Banking Ombudsman Scheme, seminar presenter and bestselling author on personal finance. Her opinions are personal and do not reflect the position of any organisation in which she holds office. Mary's advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to mary@maryholm.com or Money Column, Business Herald, PO Box 32, Auckland. Letters should not exceed 200 words. We won't publish your name. Please provide a (preferably daytime) phone number. Sorry, but Mary cannot answer all questions, correspond directly with readers, or give financial advice.
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