Changes announced to KiwiSaver’s first-home buying rules for farmers and rural workers will create inequities and risk poorer outcomes come retirement, according to advice given by officials.

But Federated Farmers and Finance Minister Nicola Willis say allowing workers in employer-provided housing to withdraw KiwiSaver funds to buy a home without having to live in it or buy a farm through a company or trust fixes a very real problem.

Announcing the policy at the start of March, Willis said workers in service tenancies, such as farm workers, rural teachers, country cops, and defence personnel, have effectively been locked out of KiwiSaver first-home withdrawals.

“That’s not fair, so we’re making a technical change to the KiwiSaver Act to ensure workers in service tenancies aren’t denied the opportunity to put a foot on the property ladder.”

The Act will also be amended to allow first-time farm buyers to put their KiwiSaver balances towards the purchase of a farm through a commercial entity they majority-own, provided it will be their principal place of residence.

Right now, farm purchases using KiwiSaver are possible, but they must be owned by an individual, while most commercial farms are held by a company or trust.

At the time, Commerce and Consumer Affairs Minister Scott Simpson said this rule had “prevented aspiring farmers from accessing KiwiSaver in the same way as someone buying a house in town”.

The legislation to enable this will be introduced later this year.

Both ministers see it as a clear win for the rural community, but officials from the Ministry of Business, Innovation and Employment weren’t in favour of either change.

‘If they never buy a home, they face the risk of retiring without homeownership and having to pay a mortgage on a pension’

Federated Farmers dairy chair Karl Dean

In a regulatory impact statement dated September 22, they recommended KiwiSaver rules remain unchanged, and other options be assessed to address problems facing the farming sector.

While there were benefits to the rural sector, the ministry believes the cost of the proposal outweighs these benefits.

Officials say the policies had arisen out of lobbying from the farming sector, specifically Federated Farmers, and seem to be based on anecdotal observation rather than evidential analysis.

“There is no evidence suggesting that the proposals are a more effective way to support the farming sector into farm ownership than other possible interventions, such as a targeted education campaign for farmers, developed in partnership with industry players to provide financial advice to those saving for a farm, or a bespoke product for that purpose.”

A tight timeframe for delivery meant these knowledge gaps couldn’t be filled, it says.

The officials say maintaining the status quo on farm purchases would safeguard the KiwiSaver scheme’s original purpose as a retirement savings scheme.

“In addition to contributing to individual retirement outcomes, a home is a reliable investment asset with fewer risks than a farming business,” the statement reads.

“By targeting support to a single industry, it also introduces an inequity between farmers and members in other sectors, such as hospitality, wishing to purchase a business with a family home attached. And in general, an increase in withdrawal provisions like those proposed could lead to fewer people having sufficient savings for retirement.”

On the service tenant proposal, officials say maintaining the status quo would avoid introducing an inequity into the scheme by allowing “one small cohort to withdraw money to purchase an investment property”, while other KiwiSaver users need to live in their home for a set time period.

The regulatory impact statement also raised the possibility of housing market distortions in small rural areas by creating an increase in rental properties.

The Office of Rural Communities at the Ministry for Primary Industries was also consulted, and supports the proposals in principle, but expressed concerns about the delivery and equity of benefits and the risk of leaving workers vulnerable in retirement.

Asked about concerns raised by officials, Willis says this isn’t a proposal that came from officials, and was the result of the Government listening to rural communities.

“The existing KiwiSaver rules effectively lock workers in service tenancies, such as farm workers, rural teachers, country cops, and defence personnel out of first-home withdrawal because their jobs require them to live in employer-provided housing.

“They also restrict the ability of first-time farm buyers to put their KiwiSaver balances towards the purchase of a farm.”

She says it will make it easier for both groups to get a foot on the property ladder.

“That is a good thing. As the regulatory impact statement notes, workers in service tenancies and first-time farm buyers both stand to benefit from the changes.”

Federated Farmers, which has been pushing for the change for three years, believes it will be a game-changer.

While officials warned it would create an inequity, Federated Farmers dairy chair Karl Dean believes it evens things up, saying farm staff, rural teachers and rural police had been denied the same opportunity to get on the property ladder as their urban counterparts.

“For farm workers, their key aspirations for retirement are to either own their own home or farm. This isn’t possible under the current KiwiSaver rules as workers often live on-farm in service tenancies and can’t purchase farms due to the price of the farm and the common practice of buying a farm through a company or partnership. 

“If they never buy a home, they face the risk of retiring without home ownership and having to pay a mortgage on a pension.”

On the perceived inequity of letting young farmers, but not other cohorts, invest in small businesses, Dean says this could be an argument for expanding the policy, rather than curtailing it.

“The National Party itself proposed a policy in 2020 called ‘BusinessStart’ that would allow Kiwis to withdraw money from KiwiSaver to start a business. 

“This would allow people to invest in their own small business for retirement and create a positive shift towards more small businesses being founded in New Zealand. It could be something worth considering by politicians once again at a future date.”

Simplicity managing director Sam Stubbs says the change “is very small cheese”, only affecting something like half a percent of KiwiSaver investors.

He contrasts it with National’s policy to gradually lift KiwiSaver contributions to match Australian Super’s 12 percent rate.

“On one hand, they give to the growth of KiwiSaver. On the other hand, they’re somewhat eroding the spirit of what it was set up to do.”

But he finds the precedent of the policy concerning, “If you’re going to allow a farmer to buy a farm, which is effectively a business, with a KiwiSaver, why wouldn’t you let a dairy owner buy a dairy if they’re going to live above it?

“It sets an unfortunate precedent, and it’s certainly not in the spirit of what the scheme was set up to do.

“This particular instance won’t make much difference, but in principle it sets a precedent that future politicians could use to justify pandering to a particular part of the electorate by allowing them to unlock money which other people can’t.”