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Grandparent gives a leg up
 
Q.           As a grandparent I would like to see my grandkids buy their own home one day. With recent government changes regarding deposit rates etc is starting KiwiSaver for my grandkids (aged 11 and 13) a good idea? And after a minimum of say 5 years how much subsidy would be available to top up their KiwiSaver savings for the deposit on a house?
 
A.            It is a great idea for family members to encourage children and grandchildren to save. It was so much easier back in the old days when you had to save up money to buy what you needed – before credit cards and eftpos. Watching mum pay for groceries with dollars and cents was far more instructive than the plastic cards we use today.
 
I am all for signing up children or grandchildren into KiwiSaver, as it sends a clear message to them that saving is important. However, there are limited subsidy opportunities for children.
 
Everyone who signs up to KiwiSaver gets the $1000 kickstart. If you wish to contribute to their account you can set up a regular direct debit. These personal contributions will one day be available to them as a First Home Withdrawal but won’t count towards Member Tax Credits until they are over 18.
 
As long as they sign a declaration that they have not owned a home before, they can apply to withdraw their own and any employer contributions for a First Home purchase. Note that the Government contributions cannot be withdrawn for this purpose.
 
As well as the First Home Withdrawal, they may also qualify for First Home Deposit Subsidy.   This is administered by Housing New Zealand and the minimum age is 18.   Applicants need to sign a declaration that they have contributed the minimum percentage of their income to a KiwiSaver scheme for at least three years (4% prior to 1 April 2009, then 2% to 1 April 2013 and now 3%). The 12 page pre-approval form is available online and it is worth reading to find out exactly what is needed. While certificates of income and pay slips are required to support the application, self-employed or unemployed can also qualify by contributing the required amount, either based on a 40 hour working week or as deductions from a benefit. By contributing the required amount for five years they may qualify for the maximum Deposit Subsidy of $5000. This is quite separate from their KiwiSaver money and does not have to be paid back.
 
The Government has made some changes recently which come into effect on 1 October 2013. Buyers applying for the Deposit Subsidy will now need to stump up 10% of the purchase price, including what they get out of KiwiSaver and the Deposit Subsidy. Single applicants will need to earn less than $80,000 per annum or in the case of two or more applicants, $120,000. These figures are lower than previously. For Hawkes Bay buyers the house cap for the Deposit Subsidy remains $300,000. Note that these limits do not apply to the KiwiSaver First Home Withdrawal, they only apply to the First Deposit Subsidy.
 
Can your contributions help your grandkids to get the First Home Deposit Subsidy? According to Housing Corporation website “Contributions to your KiwiSaver account before you turn 18 will count towards your eligibility for the Deposit Subsidy as long as they meet the minimum contribution requirements.”   
 
The purpose of the First Home Deposit Subsidy is both to help young people into their own home and to reward a regular savings habit. While a parent or grandparent could contribute to a young person’s KiwiSaver to help them meet the threshold for qualifying, this is not helping them establish a savings habit. Contribute by all means (and let them know that they can withdraw these funds to buy their First Home) but also sit down with them and work out a way that they can contribute enough themselves to get the Subsidy. In that way they will be complying not only with the letter but more importantly the spirit of the law.
 
Shelley Hanna is an Authorised Financial Adviser FSP12241. Her disclosure statement is available on request and free of charge by calling 870 3838. The information contained in this article is of a general nature and is not intended to provide personalised advice. Send your KiwiSaver questions to shelley.hanna@peak.net.nz. You can read earlier columns at www.peak.net.nz