A valuable feature of KiwiSaver for younger people is how it can assist people to get into their first homes.
Firstly, KiwiSaver members who are eligible can withdraw all the funds in their account except for the $1,000 kickstart payment to pay for their new home. There are very few restrictions on who can withdraw these funds, as long as it is their first home and they are going to be living in the house. (There are a handful of 'second chance' opportunities as well.)
Secondly - for lower income earners, there may be the ability to receive a grant from Housing New Zealand towards the purchase of their first home. This is in addition to withdrawing their own contributions.
There are a number of rules around receiving a grant from the Government including a test which is based on the total income of the purchaser(s), and a further test based on the value of the house that is being purchased.
People have to have been in KiwiSaver for 3 years, and can apply for a grant based on how long they have been a member - with maximums.
In addition, the KiwiSaver member has to have been contributing to KiwiSaver. In helping some of our clients to take advantage of these benefits, we uncovered some interesting information on the rules around contributions, which we have shared below with you.
1. The minimum of 3 years of contributions to qualify for the grant do NOT have to be consecutive years. They only need to be 3 years since you have joined KiwiSaver.
2. If someone is a student or unemployed, you can still make voluntary contributions based on 3% of the average adult wage, and this will also quality you for the home start grant.
Point two is of particular interest for our financial planning clients who may have a goal of helping your children into a first home in the short to medium term. If your children are over 18 and not working, the parents can start the average wage contributions to start the 3 year qualification period rolling.
Regular and minimum contributions
To be eligible for the HomeStart grant, KiwiSaver members need to contribute the minimum percentage of their total income (currently 3%) for at least three years to their KiwiSaver scheme, complying fund or exempt employers fund. Members are required to contribute regularly in each of the years that they are making payments, however contributions do not need to be consecutive in order to qualify for the HomeStart grant. For those earning no income, contributions for those periods will need to be made of at least the minimum percentage (currently 3%) of the minimum adult wage, based on a 40 hour week. If no voluntary contributions are made during periods of non income, then that period will not count towards eligibility for the HomeStart grant.
It is important to note that in order to qualify for the HomeStart grant, contributions must be made to the KiwiSaver member’s scheme from all sources of income, not just their main source of income.
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By Paul Swarbrick AFA