KiwiSaver mortgage diversion to be closed
The KiwiSaver mortgage diversion facility is to be closed to new applicants from 1 June 2009, Revenue Minister Peter Dunne announced today.
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 is being introduced today."
Media contact: Mark Stewart 04 817 6985 or 021 243 6985
Deferred tax cuts - fact sheet
- The Government remains committed to lower personal income taxes.
- The planned second and third tranches of tax cuts, which were due to take effect on 1 April 2010 and 1 April 2011 respectively, have been deferred to avoid further increasing debt.
- Even with the other debt reduction measures in Budget 2009, the Treasury is forecasting large budget deficits for 2010 and 2011. This means the Government would have added to its already considerable debt to fund the planned second and third tranches of tax cuts.
- This has been a difficult decision. But, on balance, the Government has decided to prioritise safeguarding entitlements, improving public services and reducing debt.
- Tax cuts will be assessed to consider whether they are affordable, as part of future budget processes.
- The Government's first round of tax cuts delivered on 1 April 2009 is not affected. It left around $1 billion a year in the pockets of 1.5 million New Zealand workers. These tax cuts were fully funded from other policy changes rather than through borrowing.
- By deferring the second and third tranches of the tax cuts, the Government will save around $900 million a year from 2011/12.
- The Government's medium-term goal remains to align and reduce the top rate of personal tax, trust, and company tax rates at a maximum rate of 30 per cent.
- The decision to defer the tax cuts will be included in legislation introduced today.