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Proposal to allow KiwiSaver withdrawals for investment

Tuesday, October 15


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Proposal to allow KiwiSaver withdrawals for investment property

Relaxing KiwiSaver rules around first home withdrawals to include investment properties could be a way of reversing the declining rate of home ownership.

This is one suggestion up for discussion in the three-yearly Review of Retirement Income Policies, being undertaken by Interim Retirement Commissioner Peter Cordtz.

Home ownership has been declining for the past 30 years, from a high of about 78% in the 1980s, to about 55% today.

Māori and Pasifika have fared the worst – today only 35% of Māori and 20% of Pasifika own their own homes.

About 12% of New Zealanders aged 65-plus are renting, making them eligible to apply for the Accommodation Supplement if they are struggling. The cost to taxpayers of the accommodation supplement paid to people 65+ has already increased 92% in the past six years, from $88 million in 2013 to $170 million in the year ended March 2019.

This is on top of the cost of NZ Super, currently $39 million a day and forecast to rise to $120 million a day in 20 years due to the ageing population.

“Super wasn’t designed to cover rent – it currently pays $411 for a single person; $632 for a couple. At that rate, it assumes you have housing sorted,” says Cordtz.

“The cost of declining home ownership is a problem that affects all of us, and we need a circuit breaker,” says Cordtz. “If we can get more people on the property ladder earlier, there may be less liability to taxpayers later.”

One idea open to public submissions is to loosen the KiwiSaver rules related to withdrawing savings for a deposit on a first home. Currently, the KiwiSaver member has to live in that property, but high house prices in cities like Auckland, Wellington and Tauranga mean it is difficult for members who work in those cities to purchase a home there to live in.

“If they could buy a property in a more affordable part of the country, they could use it as an investment to progress on the property ladder or simply to retire to one day,” says Cordtz.

He says the idea originally came from a Māori mortgage broker who was trying to help clients buy property near whānau in areas other than where they worked.

“We see this as an idea that could help a lot of New Zealanders get on the property ladder and create a long-term investment to aid retirement,” says Cordtz.

KiwiSaver withdrawals to finance first homes have risen steadily – in the year to June nearly $1 billion was withdrawn by first home buyers, up from $870 million in 2018. Cordtz says some may say there is already too much in retirement savings being withdrawn for property, without making it easier to do so.

“But since the prospect of a capital gains tax was scrapped, property is still one of the best long term investments people can make to help fund their retirement, as well as giving security of tenure.”

Public submissions on the Review are open until October 31 and can be made through the website cffc.org.nz. Cordtz will deliver his report with recommendations to government in December.


Background

The Retirement Commissioner is required by law to carry out a Review of Retirement Income Policies every three years.

Click here for the 2019 Review’s Terms of Reference

Interim Retirement Commissioner Peter Cordtz is overseeing the 2019 Review, being undertaken by the staff of his office, the Commission for Financial Capability.

Independent research papers commissioned for the Review are posted on the CFFC’s website: cffc.org.nz The views expressed in these reports are entirely those of the authors and do not necessarily reflect the views of CFFC or the recommendations to be made at the end of the current Review.

Public submissions are open until October 31.

The Retirement Commissioner’s report and recommendations will be tabled in Parliament in December.


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