KiwiSaver Mortgage Diversion to Be Closed

(Government Press Release)

The KiwiSaver mortgage diversion facility is to be closed to new applicants from 1 June 2009, Revenue Minister Peter Dunne announced recently.

Mortgage diversion is a feature of KiwiSaver that allows members to divert up to half their contributions to their mortgage repayments.

"Any benefits of mortgage diversion are outweighed by its disadvantages, while not all banks offer it and only about 600 people out of more than a million KiwiSaver members have taken it up," Mr Dunne says.

"Mortgage diversion imposes additional and unnecessary compliance costs on KiwiSaver providers and on banks that offer the facility, and these costs are generally passed on to members using the facility through increased fees”.

"It also goes against a basic principle of KiwiSaver to lock in savers' funds until they are 65, thus helping them to accumulate assets for their retirement years. Someone using mortgage diversion could, for example, sell the house before he or she is 65, thus gaining access to funds”.

"There is no practical way of stopping members gaining early access to their funds via mortgage diversion, without imposing further compliance costs on banks and providers and further complicating the law. It is simpler and more straightforward to stop offering the facility for new applicants," Mr Dunne says.

Mortgage diversion will be closed to new applicants from 1 June, while remaining available for existing participants. However, as providing mortgage diversion has never been obligatory, providers and banks can stop providing the facility to existing participants if they so choose.

"Legislation bringing about the change was being introduced on the 29th of May 2009."