About three weeks ago I got a call from a first home buyer I had pre-approved – and the first thing she asked me was “Do you know where all my KiwiSaver money has gone?”
Unfortunately I didn’t have the answer she wanted to hear but I could explain what had happened – and run through how to be ready and ensure your house deposit isn’t eroded away by a sneaky virus called Covid-19!
In recent months with the Covid-19 pandemic sweeping across the world, investments in general have taken a hit. KiwiSavers, share portfolios and even small businesses are all suffering the effects of the rampant virus.
Many first home buyers have been watching incredible returns over the past 6 months – especially if they are in growth funds. But those funds are high growth for a reason – because they are also risky, and many of them have now dropped with market uncertainty.
So firstly – what actually is Kiwisaver?
Introduced in 2008, KiwiSaver is New Zealand’s Superannuation scheme, intended to provide savings for when you retire.
It’s also accessible to form part of a deposit to purchase your first home. For many first home buyers it’s a large chunk of their deposit, and it’s withdrawn through your lawyer, who facilitates the transfer of your KiwiSaver money from your KiwiSaver provider’s account, through to the vendor when you buy a house.
But KiwiSaver is also an investment, not just a savings account. And like all investments, there are options for how best to manage your fund.
So what does “managing KiwiSaver” mean?
Us Kiwis are notorious for signing up to whatever fund our employer puts us in. The statistics around how many people actually review what KiwiSaver provider they are with, let alone what kind of fund they are in, is massively low. We tend to “set and forget”, perhaps without the “setting” part!
Broadly speaking, funds come in a few different categories, namely Conservative, Moderate and Aggressive, or Growth. Respectively they are low, medium and high risk vs. reward. Most standard funds are conservative by default. So usually if you haven’t changed or reviewed your fund, your balance doesn’t move that much as it’s invested in low risk investments. The best person to explain these to you in detail and give advice around funds is a KiwiSaver Advisor, an Authorised Financial Advisor.
While we’re experts in helping you choose the right home loan, they explain investments and your different options around which fund to choose and why. Like us, they do this every day for a huge range of different people.
For example, a younger person who is a long way from retirement might be able to take a slightly higher risk in their fund than someone who needs to withdraw their KiwiSaver in the near future. That’s because there’s time for you to recoup any potential losses.
How will it affect me?
If you’re looking to buy your first home or you’re pre-approved – the bank will ask for an updated balance to ensure the money is still in your KiwiSaver account. If it’s dropped, they might not be able to lend you the same amount of money.
The first thing you need to do is check your KiwiSaver balance, either by looking at your app if it’s with your bank, or by contacting your provider online or via phone. If you’re not sure who your provider is, it should be listed in your IRD KiwiSaver section – log into myIR here and check that out.
If your KiwiSaver has dropped significantly – you may be in a high growth fund, and it’s important to get advice around the best way to manage it heading forward. If you’re pre-approved and want to buy a house, you’ll need to prove you still have enough money.
As always, we’re here to help
We can recommend someone to talk to about your KiwiSaver, and help you through making sure you’ve got enough money to complete your purchase. We can also make changes to your current loan approval and point you in the right direction if you’re not sure!
Adam, Claire, Greg and the My Mortgage Team.