Inside Money: National messes KiwiSaver house rules

Prime Minister John Key during a recent visit to the Hobsonville Point housing development. Photo / Brett Phibbs.

First Labour, now National have announced plans to mess up KiwiSaver.

It was always too much to hope that $20 billion-plus-and-growing KiwiSaver system would not be used for electioneering purposes.

Whatever the merits of the respective Labour and National KiwiSaver tinkerings - beyond vote-gathering - they both confuse the purpose of the alleged retirement savings system.

To repeat from my earlier rant, which quoted the KiwiSaver Act: "The purpose of this Act is to encourage a long-term savings habit and asset accumulation by individuals who are not in a position to enjoy standards of living in retirement similar to those in pre-retirement."

While you could argue that a family home is an asset worth accumulating, KiwiSaver was also intended to steer New Zealanders gently away from a reliance on property.

Of course, the inclusion of a mortgage payment diversion option (now defunct) and the first home deposit subsidy in the original KiwiSaver legislation, clouded that issue from the start. It was also a tacit admission that many New Zealanders couldn't afford to both save for a home, and retirement at the same time.

National's proposal tilts the game even further in favour of property, doubling the subsidy for first new home-buyers (while keeping it unchanged for first home-buyers of old property) and allowing eligible KiwiSavers to clean out their accounts by withdrawing all government co-payments - $1,000 kickstart and annual member tax credits.

In an operational sense, National both removes complexity - halving the number of regional house price caps from six to three - and reintroduces it by creating differential subsidies for new and existing properties as well as unlocking the previously sacrosanct KiwiSaver tax gifts for house deposits.

KiwiSaver providers, already struggling to make the existing early withdrawal measures function smoothly (an industry working party has been formed to examine how to improve the current financial hardship, illness and home subsidy rules), will no doubt be making further provisions in their IT budgets to accommodate National's urge to climb on the property vote-winning ladder.