Confusion over KiwiSaver rules

Deborah Battell. Photo / Mark Mitchell

The banking Ombudsman says people are missing out on the opportunity to put their KiwiSaver funds towards their first home because of confusion over the rules surrounding the scheme.

Deborah Battell said one of the most common misunderstandings has been over whether the accumulated funds could be used for the deposit on a house.

Battell said her office's understanding had been that they could not - but Housing New Zealand, which administers the subsidy part of the scheme, says they can.

The government superannuation scheme is now three years old, meaning the first batch of KiwiSavers have become eligible for the first home deposit subsidy and savings withdrawal.

Battell said the Banking Ombudsman's office was now starting to receive KiwiSaver-related complaints.

The two main categories were customers who felt they had been pressured into signing up to the superannuation scheme and those who were unaware of the rules surrounding withdrawing their funds to buy a house.

She said the handful of cases the Ombudsman had seen was likely to be the tip of the iceberg.

"The key issues are to do with the fact that you can't use [the funds] to put towards the deposit, it has to be put towards the purchase of the property, and it has to be paid to the purchaser on settlement day."

People were unaware they could not pay for the property or arrange finance from elsewhere and then apply for their money later.

Savers needed to make sure they understood all the rules, or risk missing the opportunity to use KiwiSaver to help them get on the housing ladder.

There also needed to be more clarity and direct messages from administrators of the scheme, Battell said.

Claire Falck, director of housing partnerships and programmes, said Housing New Zealand was reviewing its customer information on the KiwiSaver first-home deposit subsidy but it was unaware there had been confusion.

"The feedback raised through the Banking Ombudsman will be taken into consideration during our review."

The KiwiSaver deposit subsidy of between $3000 and $5000 was paid directly to the home buyer's solicitor's trust account as part of the overall deposit.

The savings withdrawal was administered by individual KiwiSaver providers and was also paid out towards the overall deposit, Falck said.

Of KiwiSaver's 1.6 million members just 393 have so far claimed the first home deposit subsidy, but that is ahead of the 315 who were expected to apply by June.

The KiwiSaver Annual Report for the year to June 2010 said about a quarter of members cited home ownership as a reason they joined the scheme.

"Despite this, current levels of knowledge about the home ownership features are relatively low," the report said.

Of those who did not own a home, only 40 per cent knew about the deposit subsidy.

Most of those who were aware of the scheme planned to apply for it within five years.

"If these features are to be effective in getting households into home ownership, they may need to be more widely promoted and the target audience more actively educated on their value."

Who qualifies

* Those who have been a KiwiSaver or complying scheme member for three years, making at least the minimum contributions.

* Couples with a combined income of $100,000 or less, or a group with a combined income of $140,000 or less.

* Those buying a house worth up to $400,000 in Auckland, Wellington or Queenstown, or up to $300,000 in the rest of the country.