Right fund could speed up first home purchase
KiwiSaver represents untapped potential for mortgage advisers to help their clients not only buy their first home, but also plan for their retirement, a financial adviser says.
Keith Ward (pictured above), financial adviser at Auckland Finance Adviser, specialises in investment advice including KiwiSaver, and insurance. Having bought his first shares at the age of 16, improving the financial literacy of Kiwis is something he’s passionate about.
A lack of engagement with their KiwiSaver has been cited as among the reasons why people stay in funds that do not meet their needs. Ward said that he often asked potential clients whether they spent as much time planning their retirement as they did their annual holiday.
“My job as an adviser is to get people into the best possible returning fund with the lowest fees possible,” Ward said.
Optimising KiwiSaver could reduce time to save deposit
Acknowledging that the KiwiSaver first home withdrawal could be used by members who had held their KiwiSaver for at least three years, Ward said that in many cases, KiwiSaver members were in the wrong fund for their life stage and needs, potentially increasing the time it takes to save the required deposit.
“If people saving up for their first home deposit were in a better KiwiSaver fund that was earning them more money, they would be able to afford a home sooner,” Ward said.
“If a mortgage adviser has a client who is declined, there is an opportunity to review their investment and restructure it if needed.”
According to Massey University NZ Fin-Ed Centre New Zealand Retirement Expenditure Guidelines 2023, most Kiwis aspire to a better standard of living than can be supported by NZ Super.
According to the report, for a single person living a “no frills” lifestyle in a metro setting, the weekly difference between NZ Super and expenditure in 2023 was $329.89 (a lump sum of $355,000), or $666.72 for a “choices” lifestyle (a lump sum of $717,000).
Ward said that he had come across young people in their 20s who invested in a conservative fund, a risk profile he said was generally better suited to someone in their early 60s who wanted to protect their wealth from volatility before retirement.
Generally people under the age of 50 should consider a high-growth fund, he said.
“The lack of understanding about KiwiSaver and hoping it will come right sometime between 45 and 54…it’s just too risky to leave it,” Ward said.
Ward recommends people who are buying a first home should aim to have their fund reviewed around two years beforehand.
“We’re trying to get them up as quickly as possible, but we also don’t want to have their [investment] eroded, particularly if they’re a year away,” he said.
Mortgage advisers with clients wanting to use their KiwiSaver towards a first home can refer them to another financial adviser, or could consider upskilling and provide the advice themselves.
“The lost decade for people for financial affairs in New Zealand is between 20 and 30…if you start small ($10 to $30 per week) when you’re 20 or 30, the extra decade you’ll have over everybody else means your compound interest and the end is significantly higher,” Ward said.
According to Financial Advice New Zealand June 2023 figures, the average KiwiSaver member balance is $29,800.
Are mortgage borrowers missing opportunities with their KiwiSaver? Share your thoughts in the comments section below.
