Canny View: No need to fix what isn’t broken

Dipping into your KiwiSaver to cover bonds is not a good idea says Nick Stewart.

OPINION

Anyone who has ever had to get together four weeks’ rent for a bond will surely be able to spare a sympathetic wince for young renters in today’s market.

With the median rental price in NZ at $690 as at June 2023, it is easy to understand the difficulty people just starting out in their careers, studying fulltime, or otherwise with little disposable income are having in raising a lump sum just to get their foot in the door (pun intended).

The solution to this is not to dip into KiwiSaver, regardless of certain recent policy announcements.

KiwiSaver works by promoting regular, small contributions – from 3 per cent up to 10 per cent for individuals, an additional 3 per cent from your employer and a bonus $521 Tax Member Credit from the Government if you hit the minimum annually.

It’s better over time than a savings account, more tax-efficient than most investment products, and the best part is you cannot touch it for just any reason. Obviously, the aim is retirement as your KiwiSaver is ‘unlocked’ at 65, but you can also use it for a first home deposit, or in the case of exceptional circumstances like bankruptcy, serious or life-threatening illness, or if you are moving permanently to another country.

KiwiSaver is purpose-built, familiar, liked by Kiwis, and most of all – it works. It is a smart product to help reduce reliance on welfare (specifically NZ Super) generationally for our ageing population.

This is not the first time National has made to ‘white ant’ a Government sponsored superannuation scheme, or the first time they have undermined KiwiSaver itself.

Nick Stewart.

In 1975 Labour set up a mandatory contributory super programme, only for National to replace that in 1977 with the National Superannuation scheme (which does not require any prior contribution, and which has and will struggle to keep up with the rise of living costs over time).

When KiwiSaver was started in 2007 to help reduce this burden in future, National halved the Member Tax Credit maximum to $521 in 2012 and then removed the $1000 kickstart incentive in 2015 and made the scheme accessible for first home withdrawals.

This latter move made the entire scheme prohibited for UK pension transfers by expats or immigrants under the HMRC (UK IRD) pensions rules and made prior transfers to NZ stranded with no ability to change providers without incurring potential hefty UK tax penalties.

Using the $690 median weekly rental figure, under-30s would be able to withdraw numbers like $2600 for bond costs from their KiwiSaver under National’s new policy.

Given 12-month tenancy contracts are common in New Zealand, let’s also assume many people will either be re-signing or finding a new home after this period. It is unlikely, given inflation, that bond costs would get cheaper year to year. It is also unlikely that everyone will get the entirety of their bond back, which means the potential for double-dipping to replace or top up bonds owed in new contracts.

A bond as small as $800 could be worth $16,000 by retirement.

A bond of $2760 would be somewhere in the realm of $32,500 (assuming 35 years at an annual net return of 7.3 per cent, as per Booster KiwiSaver’s growth fund assumptions).

Retirement is known as the third age, and ideally you spend the rest of your life putting small contributions away to make the transition to and reality of retirement as stress-free as possible. We cannot know what the future holds, but it is likely that by the time today’s ‘young people’ retire, the Government will not be able to financially support them as it does now.

Inflation is part of it, but there is also the fact that people are living longer on average than they used to. That means more money needs to be available to support a potentially longer stretch of non-earning in retirement, whether that starts at 65, 67 (as this will be the new ‘retirement age’ from 2040) or any other age.

Enabling under-30s to withdraw rental bonds from KiwiSaver is robbing Peter to pay Paul. It will impact the ability of these Kiwis to accumulate their retirement savings – and it will likely impact low-income earners more, as these are the people who may have little alternative to raise a bond otherwise. It is a disappointingly short-sighted policy, particularly from a party that trades politically on its fiscally savvy identity.

We don’t need to fix a tool that isn’t broken. KiwiSaver is a foundation for the future. It’s hard-earned Kiwi money in action. Widening criteria for withdrawal will only disadvantage those who need help further.

Take a longer-term view of your financial future. If you’re looking for a second opinion on your KiwiSaver or investments, contact a trusted financial adviser for a chat about your specific situation and goals.

· Nick Stewart (Ngāi Tahu, Ngāti Huirapa, Ngāti Māmoe, Ngāti Waitaha) is a Financial Adviser and CEO at Stewart Group, a Hawke’s Bay-based CEFEX & BCorp certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver scheme solutions. Article no. 316.

· The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from a Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz