As the Government plans to allow KiwiSaver withdrawals for farms and exempt service tenants from living in their first home, MBIE analysis says 'proposals have arisen out of lobbying from the farming sector'

Ministry of Business, Innovation and Employment (MBIE) officials recommended against the Government's move to allow early KiwiSaver withdrawals for farm purchases saying they preferred sustaining and safeguarding KiwiSaver’s original primary purpose as a savings scheme for retirement.

At the start of March, the Government announced it would be making major changes to KiwiSaver - allowing people, through a commercial entity they majority own, to make early withdrawals for their first farm and letting those in serviced tenancies buy their first home without having to live in it for at least six months.

Documents on the amendments to KiwiSaver were proactively released by MBIE on Tuesday, including a paper Finance Minister Nicola Willis and Commerce Minister Scott Simpson took to Cabinet outlining the proposals.

In the paper, Willis and Simpson said: “The proposals in this paper reflect the National Party’s 2023 pre-election announcement to allow young farmers to use their KiwiSaver as part of a deposit to buy a farm.”

“This aims to address inequity of access to KiwiSaver first home withdrawals for rural workers.”

Willis and Simpson also said the farm purchase proposal would “support the farming industry, with potential flow-on contributions to export growth”.

The second proposal on serviced tenants would “similarly support farming communities, where many farm workers are required to reside on the farm, with benefits extended to other sectors using service tenancies”, Willis and Simpson said.

The paper said the Ministry for Primary Industries welcomed the proposals; “as they present an opportunity to boost pathways for aspiring farmers, support rural workforce retention, and strengthen the resilience of rural communities”.

MBIE preferred sustaining and safeguarding KiwiSaver’s original primary purpose

Alongside this was a Minute of Decision document from the Cabinet Economic Policy Committee and a Regulatory Impact Statement from MBIE.

MBIE recommended that neither amendment proceed, saying it "prefers the status quo in relation to both proposals in the Cabinet paper". 

In wanting to keep the status quo, MBIE said the benefit of not including farms, “is to sustain and safeguard KiwiSaver’s original primary purpose as a personal savings scheme for retirement”.

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

When it came to service tenants, MBIE said: “The status quo preserves the integrity of the purpose of the first time home purchase withdrawal to provide a residence for the member.”

“It also avoids introducing an inequity by allowing only one small cohort to withdraw money to purchase an investment property.

“It also does not risk housing market distortions in small rural areas that could be introduced by an increase in rental properties, preventing others from purchasing a home to occupy.”

Service tenancies are when an employer provides accommodation for someone to live in during their employment. Examples of this include health professionals, farm workers, clergy, military personnel and country police officers.

'Proposals have arisen out of lobbying from the farming sector'

“The Ministers of Finance and Commerce and Consumer Affairs directed a process that did not include public consultation on the policy proposals. Instead, public engagement will occur as part of the select committee process,” MBIE’s regulatory impact statement said.

“The limited timeframes to date have left gaps in analysis."

“The proposals have arisen out of lobbying from the farming sector (specifically Federated Farmers) and seem to be based on anecdotal observation more than evidential analysis,” MBIE said.

The analysis is constrained by data gaps, MBIE said, including limited data on first-time farm buyers and the farming sub-sector they’re in.

Alongside this MBIE said it's also constrained by; "the lack of figures on the number of service-tenancy workers across sectors or how many would be likely to use the provision (we are not aware of requests for this amendment being driven from anywhere outside the farming sector".

MBIE said there was no evidence suggesting the proposals are “a more effective way to support the farming sector into farm ownership than other possible interventions”.

This included things like a targeted education campaign for farmers to provide financial advice to people saving for a farm, “or a bespoke product for that purpose”.

“Potential housing market impacts, such as localised price effects if service-tenancy homes become rental properties, are uncertain. The tight timeframe for delivery has meant that these gaps cannot be filled.”

Currently people can make early withdrawals from their KiwiSaver to:

• buy their first home
• if they’re moving permanently overseas
• if they are experiencing significant financial hardship
• have a serious illness
• have a life-shortening congenital condition

Federated Farmers, a lobby group for farmers and rural communities, has long been advocating for changes to the KiwiSaver Act, initially calling for farmers to be able to use KiwiSaver for their first home, farm, herd or flock.

The group even launched a petition in June calling for the Government to uphold their promise.

Following the Government’s announcement, Federated Farmers dairy chair Karl Dean said it was a “huge step forward” for the next generation of farmers.

“We’re immensely proud to have led the charge on this issue, advocating for a change to the KiwiSaver rules for three long years.”

What happens next

Legislation to make these changes happen will be introduced to Parliament in the middle of the year.

A KiwiSaver Amendment Bill will likely go before a select committee before the election and would be enacted after it.

New withdrawals would likely be in place at least six months after it’s enacted.