Budget 09: Troublesome KiwiSaver mortgage diversion scheme gets the axe

The ability to divert half of your KiwiSaver contributions on to your mortgage is no more.

In yesterday's Budget the Government announced it would axe the mortgage diversion facility from June 1.

The scheme has been problematic and complex, with many mortgage holders excluded and only some KiwiSaver providers offering it. As a result fewer than 1000 investors have bothered to take it up.

The April 1 changes to KiwiSaver reducing the minimum contribution from 4 per cent to 2 per cent of an employee's salary made it even less attractive, ING head of KiwiSaver distribution David Boyle said.

Redirecting half of 2 per cent towards your mortgage was hardly worth the effort. "You'd be better to increase your fortnightly instalments to your mortgage directly."

ASB head of wholesale distribution Greg McAllister said the move was not surprising. Out of ASB's 190,000 KiwiSaver customers only about 300 had taken it up. "The numbers indicate it was of low to little interest, and maybe a degree of complexity too far."

Sharon Mackay, senior product manager for BT Funds Management, which manages Westpac's KiwiSaver funds, welcomed the move. "It is pretty difficult for investors to get their head around, and there's a huge delay in terms of getting money from your salary through to your mortgage provider, so it does make it kind of a strange process to try to put people through."

Over a million people have so far joined KiwiSaver.