Mortgage diversion will enhance KiwiSaver
Thursday 24th August
Copeland: mortgage diversion provision will enhance KiwiSaver
United Future’s finance spokesperson, Gordon Copeland, today expressed his delight that the government has adopted his suggested mortgage diversion mechanism as part of KiwiSaver.
“It is difficult for people, and particularly parents, to both service a mortgage on their home and, at the same time, save for retirement.
"The financially savvy thing to do, of course, is to pay off the mortgage first but that ideal can, in some circumstances, be at the expense of putting funds aside for retirement.
“Mortgage diversion creates more options in that regard. For example, a person on the average wage of $43,000, who contributes 4% to KiwiSaver (the minimum amount unless it is accompanied by a contribution from the employer) will save $33 per week in KiwiSaver.
"However if that person concludes that they cannot both service their mortgage and save $33 a week, they may be forced to cease all contributions to KiwiSaver during the 30 or so years they take to pay off their mortgage.
“Mortgage diversion would enable them, however, to use 50% of that amount ($16.50 per week) of their contribution to the servicing of a mortgage, thus allowing them to continue contributing a similar amount to their retirement savings.
“That amount may appear fairly small but makes a huge difference over a 30 year period when compounding interest is taken into account. It will make an important difference to their standard of living during their retirement years.
“The mortgage diversion option will be completely voluntary but scheme providers and banks will all benefit by offering the option as it increases funds under management and keeps up mortgage payments.
Mr Copeland said that United Future strongly supports the KiwiSaver scheme as now modified.
“I have no doubt that KiwiSaver has the potential to make an enormous contribution both to the security of Kiwis in retirement and as a source of capital to boost our economic growth in the years ahead," he said.