We look at one couple's disqualification for a first time home withdrawal from KiwiSaver and a plan by another to square Auckland's over-priced market with KiwiSaver.

By Amanda Morrall

Two interesting KiwiSaver questions came across my desk recently which I thought I'd share for the benefit of those who might also encounter similar situations. Please bear in mind we can't give advice here at interest.co.nz, only information.

The first came from a couple, who shall remain anonymous, who asked: "is there any recourse for Housing New Zealand Corporation's rejection of our request to access our KiwiSaver funds for the purposes of withdrawal (not the subsidy) on the basis we earn too much money.''

Here's the back-story to their rejection. It's been seven years since this particular couple owned a property. They joined KiwiSaver when it was first introduced expressly as a savings vehicle for a deposit on a first time home. To them, this was the most attractive feature of KiwiSaver. As per the HNZC's criteria for qualifying as a first time home buyer  they do not have any "realisable assets" outside of their personal savings.

Here's where it gets interesting. The couple meet the definition of a first time home buyer in every way but one: they earn more than the NZ$100,000 income threshold, a figure which HNZC construes as being more than what a typical first time home ought to earn. 

Even though the couple does not want or is asking for the subsidy, HNZC maintains they are ineligible to tap their own funds in KiwiSaver because they fail the income test relating to the subsidy.

Under ordinary circumstances, first time home buyers in KiwiSaver are not bound by any income threshold. The NZ$100,000 limit is mentioned in the KiwiSaver literature only with respect to eligibility for the subsidy, an additional incentive for first time home buyers.

Mike Woodbury, a lawyer with ChapmanTripp who was involved with the construction of the KiwiSaver legislative framework, believes the matter is open to interpretation, but only by those wielding the power - in this case Housing New Zealand Corp.

Although the couple has decided to challenge HNZC's decision, Woodbury says it could well be in vain.

That's because while the application of the "details of the regulations" governing first time home eligibility at "entirely its prerogative" if HNZC believes it has correctly applied the current policy, there is no real recourse for an appeal.

"The legislative intent is clear - the withdrawal facility is a first home facility and only where applicants can invoke regulations 30 and 31 (if they’ve owned a home before) can they make a withdrawal under the second-chance facility."

It's likely you've never heard of regulations 30 and 31 of the KiwiSaver Schemes Regulations 2006 but I expect over time people will become more familiar with this fineprint. These two regulations outline qualifying criteria for first time home withdrawal. For those interested, they are as follows:

Qualifying person for withdrawal for purpose of purchase of first home

·         Heading: added, on 19 December 2007, by section 118 of the Taxation (KiwiSaver) Act 2007 (2007 No 110).

30 Qualifying person

·         For the purposes of clause 8(3)(c)(ii) of Schedule 1 of the KiwiSaver Act 2006, a person is a qualifying person if they hold a notice that complies with regulation 31 and they have given their KiwiSaver scheme provider a copy of that notice.

Regulation 30: added, on 19 December 2007, by section 118 of the Taxation (KiwiSaver) Act 2007 (2007 No 110).

31 Notice

·         For the purposes of regulation 30, a notice complies with this regulation if the notice—

·         (a) is in the name of the person:

·         (b) is signed by the Minister of Housing or a delegate:

·         (c) states that the Minister of Housing or delegate is satisfied that the income, assets, and liabilities of the person represent a financial position that would be expected of a person that has never held an estate in land (whether alone or as a joint tenant or tenant in common).

Regulation 31: added, on 19 December 2007, by section 118 of the Taxation (KiwiSaver) Act 2007 (2007 No 110)."

Woodbury argues there are "good process reasons for applying the same tests both for the purposes of the above regulations and for the purposes of the housing purchase subsidy facility" adding that it's a "fair reflection of the policy intent.'' On the other hand, Woodbury says the tests need not be entirely identical. 

What's more; Woodbury argues "there is nothing compelling HNZC to apply the subsidy eligibility test without any modification in relation to each and every second chance withdrawal application."

So rather than making a cut and dry decision that they can defend in principle, actually they (HNZC) could reserve to themselves some very carefully limited residual discretion.''

So what does HNZC have to say on the mattter?

A spokesperson at HNZC admitted that the KiwiSaver Act of 2006 does not specifically provide eligibility criteria for previous home owner to withdraw their KiwiSaver funds. However, they said the Act does state that the Minister of Housing (or delegate) "needs to be satisfied that the income, assets and liabilities of the person (a previous home owner) has to "represent a financial position that would be expected of a person who has never held an estate in land, i.e. that the applicant is in the same financial position as a first time home buyer.''

It is on this basis, HNZC tells me that it was "determined by Government that the same income cap used for the deposit subsidy eligibility be used as way of determining what a typical/suitable income a first time home buyer would earn."

"It is important to remember that the first home withdrawal feature was initially designed to be for the first time home buyers only.''

Ironically, because housing in Auckland is so expensive, the couple at the centre of this debate deliberately worked hard(er) to boost their income so they would built up a bigger deposit so as to avoid taking on such a big a mortgage as they might otherwise do so. I don't think they'll find me disclosing the fact that they were $10K over the $100K limit, owing to over-time worked to put them in a better position as a home buyer.

I understand the application of the law in this case, its intent, and principle but wonder whether it has any basis in reality given the median home price in Auckland (where the couple was looking to buy) is more than $550,000. That automatically prices out of the market anyone who earns less than $100,000. At least most banks, on an income of $100,000 wouldn't lend more than around $430,000. 

Don't give up the fight I say. Here's the process by which you can dispute KiwiSaver issues.

2) Too poor for my city

Another couple, looking to use their KiwiSaver funds to get onto the property ladder which they can't afford in Auckland, asks whether they can use the home buying facility (withdrawal and subsidy) to buy outside of Auckland. Their plan is to move the family to a more affordable location out of town and rent a cheap room for hubby in the city. 

They want to know a) whether the rules will allow it and b) what their fall back position will be if the commuting plan wears thin.

Provided you intend to use your KiwiSaver funds to buy a home which you will live in (for at least six months) there is nothing stopping you from using your deposit money in this regard or from eligibility for a further subsidy through Housing New Zealand Corporation.  If you end up renting the house before that six month period and this is discovered by the KiwiSaver powers that be, you face being asked to return the subsidy money.

You can read more about the ins and out and nuances of the Act here and here. It would also pay to read about the rules surrounding the release of the deposit money before you go making a bid on a house.