Question:

I've heard that under National's KiwiSaver policy, mortgage diversion won't make sense unless you earn over $104,000.  However, the  two per cent saving from reduced KiwiSaver contributions could be used to increase mortgage payments, and therefore have the same effect would apply as diversion.

What are your thoughts?

Answer:

Mary Holm: Good point. And in light of several emails I've had about how difficult it can be to set up mortgage diversion, National's proposals will make the whole thing so much simpler.

Certainly employees earning more than $104,000 should consider mortgage diversion under National's changes - contributing 2 per cent of pay and then diverting half of that to their mortgage. For people earning less than that, mortgage diversion is less rewarding.

Still, people earning more than, say, $70,000 might find it worthwhile, especially if they are younger and/or are investing in a lower-risk KiwiSaver fund.

Your point, though, applies to every employee - no matter what their income level. Instead of putting the current 4 per cent into KiwiSaver and then diverting half of it towards mortgage payments, they will be able to put 2 per cent into KiwiSaver and another 2 per cent - or any other amount they choose - into their mortgage. No need to fill out forms with your provider and mortgage lender; just do it.

The question is, I suppose, whether people actually will do it, or whether they will just settle for 2 per cent into KiwiSaver and leave it at that. Still, that will be much better than nothing.

All those who aren't in KiwiSaver now because 4 per cent of their pay feels like too much, but who might manage 2 per cent from next April on, will certainly be better off in the long run.

Another consideration: What if the Government makes the changes hinted at above, and permits employees to boost their annual tax credit up to the $1043 maximum by contributing more than 2 per cent of their pay?

People will then have to weigh up putting that extra money into KiwiSaver versus putting it into mortgage repayment.

Broadly, older KiwiSavers and those in higher-risk funds will be better off putting the extra into KiwiSaver, while younger and more conservative investors will be better off concentrating on their mortgage. I'll go into that in more detail once the changes have been finalised.

Mary Holm is the author of bestselling books on KiwiSaver and personal finance. She is also a highly praised seminar presenter. Her written advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following that advice.