This submission on the Fair Residency Amendment Bill is an overview of our policy on the Direct Deduction Policy

28 October 2020

By Sissi Stein-Abel (author and administrator of NZ Pension Protest)

To: Committee Secretariat Finance and Expenditure Committee Parliament Buildings Wellington fe@parliament.govt.nz

Submission:

New Zealand Superannuation and Retirement Income (Fair Residency) Amendment Bill

As the author and administrator of the website www.nzpensionprotest.com I have been lobbying for the abolition of the Direct Deduction Policy (DDP) for about ten years. Until then it had been one of New Zealand’s best-kept secrets, and I had never heard about it despite doing research on the pension system before moving to New Zealand in early 2004.

The Direct Deduction Policy has been renumbered to Sections 187-191 of the Social Security Act 2018, but it is still known as Section 70 by those who are affected by the policy.

Thanks to my work on the website and the huge amount of research that has gone into this project, including receiving thousands of emails from hundreds of people who are or will be affected by the policy at some point, I have become an expert on the policies that surround the deduction of overseas pensions that are NOT similar to NZ Super and have been funded through employer/employee contributions, as opposed to the tax-funded, universal New Zealand pension.

The residency requirement for receiving NZ Super and the policies around it, particularly the deduction of overseas pensions, form a big part of the inconsistencies and inequities that stain New Zealand’s reputation as a fair country and a worthy partner for foreign governments.

For this reason, I think I am qualified to make a submission on the New Zealand Superannuation and Retirement Income (Fair Residency) Amendment Bill, as proposed by NZ First member Mark Patterson during the previous government cycle.

I am not affected by this discriminatory policy yet, as I am not of pension age, but on a personal level I do not see any justice in not receiving a cent of NZ Super after living and working in New Zealand for ten, twenty or more years, while rich people who do not need it, as well as lifelong beneficiaries who have never contributed to the tax-base and/or society, receive it. It is time that the New Zealand government change the parameters of NZ Super, and it cannot be done in such a simplistic way as suggested by Mark Patterson.

This submission highlights the inconsistencies and injustices around NZ Super and makes suggestions on how to make the system fair to pensioners who have not spent their whole life in New Zealand, and not only to those who have spent their whole life in this country.

Thank you for the opportunity to submit.

I also wish to make an oral submission.

Sissi Stein-Abel

Summary

New Zealand Superannuation and Retirement Income (Fair Residency) Amendment Bill

The Member’s Bill, submitted by former NZ First Member of Parliament, Mark Patterson, in 2018, passed its First Reading in Parliament on 1 July 2020. It amends Section 8b of the New Zealand Superannuation and Retirement Income Act 2001 by raising the minimum residency requirement for NZ Super from 10 to 20 years.

To receive NZ Super at the moment, someone must have lived in New Zealand for 10 years, and five of those after age 50.

While the explanatory note of the bill suggests raising the minimum residency qualification from 10 years to 20 years “after age 20”, the proposed amendments do not clarify if the 5 years after age 50 should be kept in place or if any 20 years after age 20, as mentioned in the explanatory note, should count towards the requested minimum number of 20 years.

What are “global standards”?

In his introduction of the bill, Mark Patterson said that the current 10 years is, on global standards, a short timeframe for full entitlement to a generous, universal, non-means tested, non-contributory pension at age 65. I totally agree.

What he did not say is that only eight countries in the world, plus one city (see below), have a universal, non-means-tested, tax-funded pension like New Zealand. Almost all other countries have compulsory work-related, employer/employee-funded retirement schemes, and he didn’t mention either, of course, that in other countries only people who have contributed to such schemes receive a pension. People who have not contributed to the schemes do not receive a pension. If they cannot make ends meet, they have to apply for a means-tested social welfare benefit which is funded from totally different sources.

As the contributions are made up of a certain percentage of salaries and wages, all pension accounts are individual, and every person receives a different amount that reflects the amount of contributions they have made over the years. This means that high-earners receive higher pensions after not very many years, and low-income earners receive smaller pensions after more years of contributions. It is the level of contributions made and not the years of contributions.

Tier 1 and tier 2 pensions: universal entitlement vs earned benefit

This is a system that has no resemblance to New Zealand’s pension system whatsoever. But still the New Zealand government has passed a law that allows the legalised (indirect) theft of overseas pensions. Parliament has given the CEO and the bureaucrats of the Ministry of Social Development (MSD) the God-like power to define what a deductible overseas pension is, and they have found a way to totally ignore the differences between tier 1 (NZ Super) and tier 2 overseas pensions and treat them as equal.

They ignore that NZ Super is a universal entitlement and contributory overseas pensions are earned like money from a savings scheme. This way it is possible to not pay a cent or only a fraction of NZ Super to migrants and returning Kiwis who have been living here for decades. And still Mark Patterson was only interested in addressing “fairness to New Zealand superannuitants who have lived in New Zealand their entire lives”. And to keep NZ Super sustainable, it is obviously fair to deny migrants and returning Kiwis their entitlement to NZ Super, as defined in the New Zealand Superannuation Act (Entitlements to New Zealand Superannuation).

Out of step with the rest of the world

I have read the Hansard transcript of the debate on the NZ Superannuation (Fair) Residency Amendment Bill and was astounded how little many Members of Parliament know about the parameters of NZ Super. Jamie Strange (Labour), for example, said: “So, I would like to touch on the fact that globally 10 years is actually an unusually short time for full entitlement to a universal non-means tested pension at the age of 65. So maybe we are a little bit out of step with other countries in terms of the OECD and other developed countries.”

Yes, New Zealand is out of step – with the rest of the world. Any comparison with OECD countries is comparing apples with oranges.

New Zealand is the only country in the OECD and among other developed countries that has a non-means tested pension as their only retirement scheme. The other countries – and one city – that have residence-based schemes like New Zealand are: Mauritius, Namibia, Botswana, Bolivia, Nepal, Samoa, Brunei, Kosovo – plus Mexico City.

NZ Super is not really universal

Jamie Strange also called NZ Super universal – but it is not. People who receive employer/employee-funded overseas pensions have these overseas pensions – pensions they have paid for with their contributions – deducted from NZ Super dollar-for-dollar, and I cannot see any change proposed by Mark Patterson that would say these overseas pensions should not be deducted any longer if the residency requirement were raised to 20 years.

If the Direct Deduction Policy (Sections 187-191 of the Social Security Act) is not abolished when the residency requirement is raised to 20 years, nothing will change for many migrants and returning Kiwis who have been here for 15, 20, 30 years or even longer. They would still not receive full NZ Super or nothing at all when the overseas pension exceeds the amount of NZ Super.

These people might be pensioners who were in high-paying jobs and paid high taxes in NZ, and while they receive nothing as a reward for contributing to the NZ economy, a lifelong beneficiary or someone who has spent a significant amount of time in prison, receives full NZ Super. Where is the fairness?

Or let’s just take a recent example: a born-and-bred Kiwi I know receives NZ$ 8.76 NZ Super a fortnight despite having lived in New Zealand for nearly 30 years after age 20 and working until age 72, compared to the NZ$ 327.27 (before tax) married individuals who receive the full rate of NZ Super.

This born-and-bred Kiwi would still qualify for NZ Super if the residency requirement were raised to 20 years and still only receive the NZ$ 8.72 per fortnight. I cannot see any fairness in this, on the opposite.

Only raising the residency requirement without giving up the Direct Deduction Policy, would raise the unfairness and injustice to an even higher level because people who have been in NZ for e.g. 15 or 19 years might miss out on NZ Super completely from the start. The number of people robbed by the New Zealand government would increase. Zero dollars of NZ Super for many years of hard work, paying taxes and doing good for society.

What the PM and Grant Robertson had to say in Opposition

In this context I recommend to read what PM Jacinda Ardern had to say on this topic in 2015 while in Opposition: http://www.nzpensionprotest.com/Home/letters-from-wellington/pm-jacinda-ardern

She called aspects of the system “totally unfair” and said: “The issue with this policy is about making a judgment over what overseas pension schemes are similar to ours and what are not. And that is where there seems to be real injustice in the way that the direct deduction policy works.”

She asked: “Why not look at whether or not in this changing globalised environment, where more and more New Zealanders are working offshore, where more and more are contributing to an overseas pension scheme — I have one — our scheme is equitable anymore? […] We have given our commitment that we will review the direct deduction policy with a view to removing the unfairness of this scheme — the fact that it is antiquated and no longer caters to the modern environment and the fact that so many schemes actually are not similar to New Zealand schemes and yet are being treated as such.” My words.

There is another member of the current government who has spoken in favour of the fair treatment of migrants and returning Kiwis. Just listen to Grant Robertson in this recording from 2014 on YouTube: https://www.youtube.com/watch?v=meeGZy3oVOc.

He said: “It is unfair on many people who have worked extremely hard wherever it is and are in New Zealand at this time. People have the right to have the resources they have worked so hard for. It’s a tricky policy issue. We have to define how we get the balance right. […] I am 100% committed to universal superannuation for New Zealand. […] And we must ensure that those who have earned that money overseas have a way of benefitting of it here in New Zealand.”

Again: my words. And I wonder how politicians can speak such big words in Opposition and not remember them when in power.

Common sense is needed and not over-simplification

The only MP who used common sense in the 2020 debate on the introduction of the Fair Residency Amendment Bill was Paul Goldsmith (National). He raised awareness of the fact that NZ Super is NOT available to all New Zealanders, and that raising the residency requirement needs to be coupled with the amendment of other policies.

I totally agreed with Paul Goldsmith who said that Mark Patterson’s bill was a very lazy piece of legislative work, and, as he said in the debate, it needs to be phased in and not abruptly started from one day to the next.

And now to the wording of the amendment bill. What is the appropriate amount of time to be spent in New Zealand to be able to receive full NZ Super? I know pensioners who do not even receive full NZ Super after 30 and 40 years in New Zealand due to the Direct Deduction Policy. Is this appropriate? No, it is not. It is a shame, it is scandalous.

A missed opportunity in 2015

The 2015 debate on paying proportional NZ Super to migrants and returning Kiwis was a step into the right direction but National, Peter Dunne und David Seymour torpedoed this proposal, and for this reason it never went to Select Committee where a serious debate could have taken place, independent research could have been made instead of repeating MSD’s mantra, and adjustments could have been made.

There is an opportunity now to re-ignite this debate. My suggestion would be to pay full NZ Super after 20 or 25 or 30 years – whatever is considered appropriate, and proportional NZ Super (or in increments of 25%, 50%) for people who have been here between 10 years and the amount of years that is considered appropriate for receiving full NZ Super.

My estimate is that already now about 130,000 migrants and returning Kiwis do not receive full NZ Super, and at least 30,000 of them are not paid a cent. MSD’s official figure in March this year was 95,160. It is lower than my estimate because pensioners, who do not receive any NZ Super after the deductions, are not counted in the statistic. MSD only counts pensions/pensioners who must be paid a few dollars of NZ Super. The great New Zealand pension rip-off.

People who have worked and contributed to the employer/employee-funded schemes overseas have their overseas pensions deducted from NZ Super dollar-for-dollar, as said earlier. This does not reflect the years spent here and there between ages 20 and 65. The overseas pension paid is only a “full” pension in the way that it is the full amount that can be received for the contributions that have been made. It is not a full pension that would cover 45 years of contributions during a working life from age 20 to 65. But still it is deducted from the 100% New Zealand pension, as if it reflected contributions of 45 years.

An earlier, but withdrawn, Member’s Bill was spot-on

It remains a mystery to me why, in 2018, NZ First withdrew an earlier Member’s Bill in which had suggested to raise the residency requirement to 20 years AND abolish then-Section 70, a promise NZ First had made before every election. Now, as NZ First is not represented in Parliament anymore, we can only speculate about the reasons. But I have written evidence that before the last election in October 2020 NZ First urged pensioners to vote for them, as the raised residency requirement would be the door-opener to the end of the Direct Deduction Policy which would be decided in this term.

It was another promise to be broken, just like after the election 2017 where Winston Peters said their fight for ending the pension rip-off “died during the coalition negotiations”. The 2.7% in 2020 were the answer to all the broken promises over the years. I do not know a single pensioner affected by the deduction of overseas pensions, who would have voted for NZ First in the last election.

The reason why NZ First wanted to raise the residency requirement was clear: because Winston Peters wanted to stop Chinese parents receiving NZ Super after ten years because most come into the country late in life under the parent category, never work (except minding their grand-children) and don’t pay a lot of taxes in New Zealand. But by just raising the residency requirement to 20 years – and even overnight – and not make any further changes to the superannuation act, Parliament would accept that people, who have really contributed to the NZ economy and society over an extended period, would become collateral damage.

Between generosity and state crime

To pay full NZ Super after ten years surely is too generous. But not paying full NZ Super or any NZ Super at all to someone after 20 or 30 years is a state crime. I am not loyal to any political party, only to justice and fairness, and I judge policies on their merit and not on who has brought it in. I vote for any party that ends the Direct Deduction Policy in a fair manner and doesn’t treat people with overseas pensions as second-class citizens, double-dippers, bludgers and worse.

I don’t accept the spin-doctoring of MSD which is responsible for all these insults, telling the “real” New Zealanders that migrants just come to New Zealand to cash in two full pensions, ripping off our generous system, and that New Zealanders are disadvantaged if migrants (and returning Kiwis) could keep their overseas pensions on top of NZ Super.

What’s really happening

The opposite is the case. Kiwis are advantaged because they do not need to contribute to compulsory retirement schemes. They can invest this money into KiwiSaver, property, funds etc and reap the benefits of it to supplement their retirement because NZ Super isn’t sufficient for most to keep their standard of living. At the same time, migrants and returning Kiwis have their overseas pensions indirectly confiscated by the New Zealand government and are impoverished, many forced to live on an amount equivalent to NZ Super and nothing else, and work well into their seventies.

To make you understand better what’s really happening, let me give you some numbers. While I was working in Germany, my employer transferred more than 19% of my salary into my personal account of the compulsory retirement scheme. (Now the contributions stand at 18.6%.) During more than 20 years my employer and I contributed more than 90,000 Euros – each! I’ll receive my German pension because I have worked for it. It doesn’t fall from the sky like NZ Super. I would receive twice the amount, had I stayed in Germany and kept on working and making further compulsory contributions.

My contributions in a well-paid job in Germany for over 20 years will lead to monthly pension payments higher than the amount of NZ Super, and I will not receive a cent of NZ Super, once my overseas pension payments kick in. Living and working in New Zealand for 20 years when I retire will remain totally unrewarded. And still New Zealand claims the Direct Deduction system is in place to share the pension costs with other countries. The truth is that it puts the burden of the pension payments completely on the country where the overseas pension comes from, and New Zealand avoids paying its fair share.

The Portability rules highlight the perversity of the policy

The perversity of the situation is highlighted in the Portability rules which apply when someone who already receives NZ Super leaves New Zealand permanently. In this case, such pensioners receive proportional NZ Super, based on the time spent in New Zealand between age 20 and 65. For each month they receive 1/540^th of NZ Super – 540 being the number of months of these 45 years. This means that someone who has been in New Zealand for 22.5 years and leaves in retirement will receive 50% of NZ Super. Obviously, it is cheaper to get rid of old people than to cover their health cost.

Contributory overseas pensions and KiwiSaver

Finally, a few words about KiwiSaver. Indeed, overseas pensions are similar to KiwiSaver but not identical. The difference is that KiwiSaver is not compulsory, paid out as a lump sum and has no government guarantee. This way it escapes the same treatment as overseas pensions.

But to claim that there is no government involvement is blatantly wrong, given that the government has even made a kick-start payment in the early years, makes direct contributions every year, commits the employer to make contributions if the employee joins, and grants a tax credit.

It is a government scheme that is managed by the private sector and not “by or on behalf of” an overseas government. (This is the tricky wording to catch nearly all overseas pensions.)

It is equally wrong to claim that KiwiSaver is not a retirement scheme. Even IRD (Inland Revenue Department), New Zealand’s tax authority, writes on their website that “KiwiSaver is a voluntary savings scheme to help set you up for your retirement”.

The Government’s spin-doctoring feeds xenophobia

The New Zealand government needs to stop its spin-doctoring around the Direct Deduction Policy because it creates envy and feeds the underlying xenophobia in this country. It has to be honest about the different nature of pensions and admit that the policy defenders at MSD only fight for the deductions to remain in place because they save the Government annual pension costs of more than NZ$ 500m. It has nothing to do with fairness and justice. And this has been going on far too long.

On top of this, the policy breaches Human Rights , e.g. several articles of the International Covenant on Civil and Political Rights and the UN Convention on Human Rights. It ignores the property guarantee of many foreign pensions which can e.g. be used in divorce settlements, and interferes with the pension laws of other countries and individual contracts pensioners have with their overseas providers (e.g. deferment of payments in the USA and Canada). New Zealand also breaches Objective 22 of the UN Compact for Migration (mechanisms for the portability of earned benefits and social security entitlements) and also the EU – New Zealand Partnership Agreement on Relations and Cooperation.

Foreign governments have protested New Zealand’s abuse of their retirement schemes repeatedly. The refusal to end the travesty is the reason why New Zealand has only nine Social Security Agreements.

1. My submission summary

The New Zealand Superannuation and Retirement Income (Fair Residency) Amendment Bill is too simplistic in its approach. It leaves pensioners who have contributed to the New Zealand economy and society over extended periods out of pocket, pushes many into poverty, if it is not coupled with the amendment of other policies, particularly the Direct Deduction Policy (Sections 187-191 of the Social Security Act 2018).

There is no fairness in this new Bill, on the opposite, it raises the unfairness and injustice to an even higher level because people who have been in NZ for e.g. 15 or 19 years might miss out on NZ Super completely, even if their overseas pension is lower than the amount of NZ Super. It disadvantages migrants and returning Kiwis against New Zealanders who have never had to make contributions to a compulsory retirement scheme.

New Zealand is the only developed country in the world that deducts employer/employee-funded pensions dollar-for-dollar from its state pension. Usually, when someone has worked in several countries, contributory pensions are added up and not deducted from each other.

I have absolutely no problem with pensions similar to NZ Super being deducted from NZ Super, as not doing it would indeed represent double-dipping, and someone would receive two full pensions, and it would lead to the crazy situation that someone could even achieve this without spending the 45 years between age 20 and 65 in the respective two countries that pay universal, residence-based pensions.

2. Suggestions and considerations

Such a law amendment needs to be phased in over several years and cannot abruptly start from one day to the next. To raise the residency requirement overnight would mean that the New Zealand government would accept that people who have contributed to the NZ economy and society over an extended period are not rewarded for their contributions at all.

If the Direct Deduction Policy remains in place, it must be changed in a way that only overseas pensions similar to NZ Super (tier 1) are deducted from NZ Super, but not employer/employee-funded (tier 2) pensions. The nature of a pension must be the paramount criterium for the deductibility and not the fact that the overseas pension is a regular payment, and it is administered by or on behalf of a government. (This wording is just a way to encompass almost all pensions of the world and rip off almost everyone who sets foot in New Zealand.)

Most New Zealand parties have promised in the past to end the Direct Deduction Policy, particularly when they are in Opposition. It is always impressive how forgetful politicians can be, once they are in power. Here are some links:

PM Jacinda Ardern and the former Labour Minister

The hypocrits of the Green Party

The National Party

The ACT Party

The ignorant Maori Party

The 2015 debate on paying proportional NZ Super to migrants and returning Kiwis was a step into the right direction. Due to the veto of the National Party, Peter Dunne and David Seymour, after a disgraceful debate in Parliament, the proposal didn’t even go to Select Committee. There is an opportunity now to re-ignite this debate.

Proportional NZ Super – but under which formula?

My preferred option has always been proportional NZ Super for everyone, reflecting the years someone has lived in New Zealand. (Although there is no total fairness in this either because full NZ Super is paid to people who have barely ever worked and not contributed to society, and others who have worked for decades and paid huge amounts of tax all their lives would only receive proportional NZ Super.)

Going with the suggestion to raise the residency requirement, my suggestion would be to pay full NZ Super after 20 or 25 years – whatever is considered appropriate, and proportional NZ Super (or in increments of 25%, 50%) for people who have been here between 10 years and the amount of years that is considered appropriate for receiving full NZ Super.

There needs to be a top-up option when someone receives a very low overseas pension. No-one should receive less than the amount of NZ Super after adding up the pensions.

There are several options - and nothing will be perfect. The important thing is that this discussion takes place and a consent is found that is less anti-migrant, envy-laden and unfair to hard-working people.

Room for exceptions

One pensioner has written to me that some countries only pay a pension after 25 years and that, in the face of globalisation and split-up work histories due to migration, it becomes increasingly impossible to receive a pension at all if New Zealand raises the residency requirement to 20 years. This is surely an exception, but New Zealand cannot be held to account for other countries’ failings.

However, this issue should also be addressed if someone would be affected in such a way by a raised residency requirement. One solution would be to introduce a minimum pension income. If no pension is available from overseas, the pensioner residing in New Zealand, should receive the minimum amount, just like in the current top-up regime, without income- and asset test, if they have been living here for however many years (10, 15, under 20). Or there needs to be a means-test for such exceptional cases.

MSD and the Government often say we need simple systems when the topic of exceptions is raised, and that we can’t have complex systems. This makes me laugh because the pension system we have now is only simple on the surface. In reality it is very complex, and huge resources are needed to administer the Direct Deduction Policy which is not even fully understood by MSD employees in International Services, or they would not regularly send out false information to pensioners who then contact me because they cannot believe what they have been told. And this is only the tip of the iceberg because not everybody knows where to verify MSD information.

On top of the cost of administration, more resources are needed to deal with the daily complaints of pensioners affected by the policy, the cases are dealt with in the Benefits Review Committee, the Social Security Appeal Authority and sometimes even in the High Court, and we have had the Spousal Provision injustice go to the Human Rights Review Tribunal.

Two further unfair outcomes that need to be amended urgently

Another related policy needs to be changed urgently: Due to the nasty wording of the Winter Energy Payment (WEP) policy, pensioners who are affected by the Direct Deduction Policy also miss out on the heating supplement which the New Zealand government introduced for pensioners and beneficiaries in 2018. This adds insult to injury.

While all pensioners are entitled to receive the WEP, only those who receive any amount of NZ Super really receive it. This excludes all pensioners who are entitled to NZ Super but don't receive it because their overseas pensions are higher than NZ Super, and this leaves them with not a cent of NZ Super after the direct deductions. Still, millionaires who do not need it can receive it if they don't opt out. (Who does?) Privileged seniors, like Winston Peters who received more than NZ$ 330,000 a year as Deputy Prime Minister until his party lost big in the 2020 Election, can also receive it.

It was a final slap in the face when the Government, in response to the COVID-19 crisis, decided to double the WEP for 2020. To pensioners who do not receive NZ Super after the deduction of their overseas pension this means that they get zero dollars twice.

The equation is: 2 x 0 WEP = 2 x NZ$ 0 = 0.

By delaying the end of the Spousal Provision from 1 July to 9 November 2020, hundreds of pensioners who would have received the WEP from 1 July were missing out again. And all this under a self-proclaimed government of kindness.

And let’s just be clear: The Ministry did not choose the condemnable wording of the legislation by mistake but intentionally. When I spotted it, I (and others) immediately wrote to the Minister and several party leaders and asked them to amend the wording, so that the poorest pensioners would be able to receive the WEP. But there was no empathy and no will to include these people. It looked like an act of revenge on people who have kept the Ministry busy with their complaints about the Direct Deduction Policy for years, and despite continued appeals the wording has not been changed in the social security amendment act in 2019/2020. Please do it now!

Another unsolved problem – which I have raised in the third paragraph of my Summary – is the fate of Kiwis who return to New Zealand at retirement age. Some people have spent the required number of years in New Zealand to receive NZ Super – now ten, later probably twenty – between ages 20 and 65, but not the five years after age 50. They return at age 65 and have to wait five years until they can receive NZ Super. How can it be fair to not pay NZ Super to born-and-bred Kiwis who might have lived and worked in New Zealand from age 20 to 45, then worked overseas and returned to their home country in retirement?

3. Background

In June 2020, Ministry of Social Development tables show 809,001 people in receipt of NZ Super.

The cost of NZ Super was NZ$ 14.5 billion, and due to an ageing population and annual adjustments to inflation this cost will increase by more than $1b each year.

In March 2020, the MSD statistic showed that it deducted 95,160 overseas pensions from NZ Super. This saved the Government NZ$ 429,872,123.

The real numbers are much higher because the MSD statistic only counts cases where MSD must pay a few dollars of NZ Super after the deductions. If someone receives an overseas pension higher than the amount of NZ Super, the pension/er and the saved amount is not counted.

Comparing numbers of overseas pensions paid to pensioners living in New Zealand, provided by overseas government agencies, and the MSD numbers, the real number could be as high as 130,000 affected pensioners and NZ$ 800 million or more in savings on the cost of NZ Super.

A string of revealing government reviews

The New Zealand government knows all too well that the deduction of overseas pensions from NZ Super goes against all international conventions. Already after the General Election 1999, the Ministers of Finance and Social Development (Cullen, Maharey) were warned that New Zealand's pension system was in urgent need of a major overhaul. This was the reason why they asked MSD officials for a review of New Zealand Superannuation. This ended in a string of five reviews - delivered in November 2001, February 2003, May 2004, November 2005 and October 2007 - because the ministers were never satisfied with the results, demanding more modest options that did not stretch the budget.

Some of these reports were treated as highly classified material. Access was denied to the public and even to the other parties in Parliament. Cabinet agreed half-heartedly that the Spousal Provision was so unfair that it should be discontinued - but did not "find" NZ$ 2.7 million in the Budget to end this shameful policy (which now ends/ended on 9 November 2020). In the 2008 election Labour were voted out of government, and the National Party government did not even touch the hot potato, despite other parties supporting the call for change (i.e. the Greens, NZ First, Labour Party – all of them only when not in government…).

Justice and fairness are only desirable when it costs no money

The cost of changes to the system has always prevented justice, just like in August 2012, when the National (Party) majority in the Government’s Social Services Committee shut down a motion by Labour, the Greens and NZ First to initiate an inquiry into the Direct Deduction Policy. The Chairperson, Peseta Sam Lotu-Iiga, wrote: “The majority of the committee, while sympathetic to the anomalies in the system, decided not to initiate an inquiry. Prevailing fiscal constraints were also a consideration in this decision.”

The most important findings in the above-mentioned reviews prove that the New Zealand government of the day and now have always been well-aware of the injustice created by the Direct Deduction Policy and particularly Spousal Provision. They even admitted that changes were not needed because the policy affected “only 10% of superannuitants”. This is the admission that discrimination is acceptable as long as it only affects a minority. It would have been abolished a long time ago if justice and fairness didn’t cost money.

Some of the findings of these reviews:

„Most other countries have pension systems in which a retiree's level of entitlement is based on social security contributions made by that person over the period of their working life. New Zealand's residence-based system contrasts with the contributory systems in most other Western countries.”

“This option [Option 5 in the proposals of the 2005 Review: Deduction of Tier 1 Pensions only] would ensure that only overseas pensions that are similar to NZS are deducted. [...] Currently Section 70 authorises the direct deduction of second-tier earnings related pensions, despite the fact that, other than being administered by the state, they have little resemblance to NZS.”

“The Review also found that there are aspects of the policy that are arbitrary.”

“In my view there is insufficient evidence to suggest that we should take the step of establishing a less equitable and more complex system to improve the international interface of NZ Super, when this interface affects only 10% of superannuitants.”

4. Concluding remarks

New Zealand’s pension system is outdated in a world of mobility and globalisation. The Direct Deduction Policy was introduced in the Social Security Act 1938 and is not fit for purpose anymore. No change to the residency requirement for NZ Super can go without ending the deduction of overseas pensions and/or changing the parameters of New Zealand’s pension system. More honest debate is needed, and the debate should not be based on the cost but on ethics, fairness and justice.

Thank you for giving me the opportunity to make this submission.