Anomalies and inequities
Australian occupational pensions
Beside state pensions that are deducted from NZ Super, Australia has contributory pensions (superannuation funds). Most contributions come from the employer. The superannuation contributions are invested over the period of the employee's working life.
Individuals can choose to make extra voluntary contributions to their superannuation and receive tax benefits for doing so.
When a person retires, the sum of compulsory and voluntary contributions, plus earnings, less taxes and fees, is paid as a lump sum. (This again can be invested in private pension schemes, with these pensions not being deducted from NZ Super. It is also possible to choose a continuous pension stream instead of a lump-sum payout.)
In exceptional cases these employment pensions can be accessed before the so-called preservation age. This varies, depending on the date of birth. It ranges from 55 to 60 years (from 2025).
More information on NZ Super payments to Australians and Kiwis returning from Australia, in the context of the Social Security Agreement between these two countries, here:
Terrible hardship for many, windfalls for a few
The number of double-dipping pensioners who accidentally or intentionally rip off the NZ Super system is rising fast:
Australians cashing in NZ Super without having spent a minute in New Zealand before age 65. (Note that Australia is raising the pension age to 67 years gradually by 1 July 2023. This means everyone born after 1 January 1957 will receive the Age Pension at age 67.)
Chinese nationals feeding their parents and grand-parents at the New Zealand taxpayer’s cost.
Pacific Islanders enjoying special rights regarding the payment of NZ Super overseas.
And also the Kiwi lifestyle beneficiary who has never worked and - before 9 November 2020 - could include a non-qualified, much younger mail-order bride from the Philippines or Thailand in his application for NZ Super.
When we started this website in 2010, we said that only a handful or two of such double-dippers did exist and that they were a tiny minority within the minority of superannuitants with overseas pensions. Most of these pensioners were ordinary people who had contributed to New Zealand’s economy for decades.
Unfortunately this is changing and costing the taxpayer dearly. There is a tide of Kiwis returning from Australia, and, thanks to the Parent Reunion Policy, there have been exceptional numbers of Chinese seniors who have not contributed anything to the New Zealand tax base or community cashing in on NZ Super.
Funny enough, this still slips under the radar of many New Zealanders. The only political party that dared to voice their concerns, NZ First, did so because they are anti-Chinese and want to stop the Chinese ripping off the system. NZ First - not represented in Parliament since September 2020 due to receiving less than 5% of the vote in the General Election - has more knowledge about Sections 187-191 than any other party in Parliament and understands what is happening, while the previous governments and Prime Ministers closed their eyes and locked in even dirtier deals with the Chinese government, all under the veil of economic growth and free trade.
Anyway, still many New Zealanders think that immigrants are the only ones receiving overseas pensions. However, there are lots of Kiwis affected by the Direct Deduction Policy and the strangest of strange Social Security Agreements they might not even know about.
Retirees do not want double pensions
Pension and benefit experts deal on a daily basis with superannuitants who suffer the shock of their lives when they learn that their overseas pensions are being deducted from NZ Super. Those retirees do not want double pensions. Rather they want proportional payments from New Zealand for what they have contributed in this country. They are not looking to take advantage of New Zealand's pension system. When they came to New Zealand, the pension system was the last thing on their mind.
All they want is a fair treatment of longtime immigrants who suddenly struggle through their retirement with fixed incomes, with bullying by authorities, with appeal systems stacked against them and no officials willing to help, be it the Ombudsmen, Retirement Commissioner, Human Rights Authority or Race Relations Office. None of them has ever challenged the Crown Law makers.
Learn about the hopeless appeal system in this YouTube video, domestic remedies starting at 3:00 minutes: https://youtu.be/HpvhsFUJCM4
Not all contributory pensions
are deducted
If you thought all overseas pensions would be deducted from NZ Super, thus creating the same unfair treatment for all retirees with overseas pensions, you are wrong.
For example, Australian occupational pensions are not subjected to the deduction under Section 70 of the Social Security Act although they are heavily subsidised by the Australian taxpayer. MSD's explanation is that these pensions are not administered by the Australian government. And they are usually paid out as lump sums (but can also be paid out as a continuous pension stream).
Chinese pensions are not deductible either (but only until 2023). The fact slipped under the radar when then Prime Minister Helen Clark signed a free-trade agreement with China. The convenient justification to grant the Chinese preferential treatment: their pensions are not administered by their government but - of course, due to the massive numbers of people - by the local authorities! However, a pension campaigner found out that this is not true. The story on this page: Lucky Chinese.
British pensioners receive both a state pension and NZ Super in full if they...
1. qualify for NZ Super without the assistance of the Social Security Agreement (totalisation); and
2. were a permanent resident of New Zealand on or before 1 January 1970; and
3. on or before that date, made (voluntary) contributions to the UK National Insurance scheme while living in New Zealand.
(Source: WINZ Factsheet)
Pensions from Chile that are identical to most other contributory pensions are not deducted because they are not administered by the Chilean government but by a private entity.
List of non-deductible pensions on this separate page (click link).
Welcome as cash cows and treated as second-class citizens
The story of making people with overseas pensions suffer started with pure meanness in the attempt to generate money, and was aimed at immigrants who are welcome as cash cows but treated as second-class citizens. It is collateral damage that was not intended in the original Act in 1938 which introduced the Direct Deduction Policy. But it now affects more and more returning Kiwis. Adding the Spousal Provision in 1955 was also aimed at immigrants and up to its abolition in November 2020 was hitting more and more Kiwis coming home. It went on with amendments disadvantaging Kiwis who leave the country.
Already before the 2009 New Zealand Superannuation and Retirement Income Amendment Act, passed in November 2009, quite a big number of anomalies and inequities regarding NZ Super existed. But they affected only a small number of people. A few nationalities, especially people from the South Pacific, enjoyed preferential treatment, whereas retirees with overseas pensions from Europe, the USA, Canada and many other countries were disadvantaged due to Sections 187-191 (which, at the time, was called Section 70).
An amendment act that created more anomalies
Knowing about all these anomalies, not only the average Joe but also tax and superannuation experts would have thought that the goal of an amendment act would address these problems, and create more fairness towards all people affected.
Instead, the 2009 Superannuation and Retirement Income Amendment Act (which amended the 2001 Act) created even more anomalies!
It did not change anything for those falling within the scope of the then-existing eight Social Security Agreements (SSAs) New Zealand had with a few countries worldwide (2015: ten, 2021 eleven, 2022 probably twelve).
It did not address the profound problems that were identified by the Ministry of Social Development itself in several reviews, and in various submissions on the Bill. It did not change anything for those retiring in New Zealand who fell under the scope of the Social Security Act, meaning: those at the time more than 90,000 people whose overseas pensions are deducted from NZ Super, despite earlier announcements that some of those issues would be reviewed (Spousal Provision in particular - but only abolished in 2020).
In fact, the 2009 Amendment Act affected only about 1,000 pensioners at the time. Under critical judgment you could be inclined to say that the whole act was not much more than a symbolic gesture, so nobody could say the Government had done nothing. As following statements and letters by the Minister for Senior Citizens confirmed, only changes were implemented that cost nothing or next to nothing.
"The New Zealand government has created a mess"
Andrew Smith, international tax expert from Victoria University in Wellington, talked during his presentation at the Overseas Pension Forum at Auckland University on 24 February 2010 about the perception of New Zealand's superannuation policies at an international level. "At a recent conference in Europe it became obvious what a mess the New Zealand government creates with its policy", he said. "It brings terrible hardship to some people and terrible windfalls to others."
This quote has to be adjusted: it brings terrible hardship to many people and windfalls to very few others, as explained at the beginning of this article.
Those profiting most are nationals from small South Pacific Islands. The 2009 Amendment Act even enhanced their privileged status (see Portability page). The thought behind this seemingly generous treatment, however, was not benevolence but a simple calculation: It is cheaper to pay Pacific Islanders a higher pension and get rid of them. Far away, they are no burden on New Zealand's public health system.
British pensions
With more than 63,000 people (as of March 2019) British immigrants and Kiwis returning from the United Kingdom make up the bulk of retirees receiving overseas pensions.
Their Basic State Pension (for men born before 6 April 1951 and women born before 6 April 1953) respectively the New State Pension (for people born on or after these dates) is deducted from NZ Super like most other overseas pensions, despite being contributory pensions:
To get the full Basic State Pension you need a total of 30 qualifying years of National Insurance contributions or credits. This means you were either working and paying National Insurance contributions, or you receive National credits for time of unemployment, sickness or as a parent or carer, or you have been making voluntary contributions.
Men born before 6 April 1945 need 44 years for the full amount, women born before 6 April 1950 need 39 years. To get the minimum of 25% men need 11 and women 10 years of contributions. For the minimum amount of the New State Pension men and women need to have made contributions to the National Insurance of at least 10 years.
The problem of the Basic and New State Pension is that it is not indexed, meaning: it is frozen in the moment these people leave the UK and is not adjusted to the inflation rate.
Beside these basic pensions - which are, as you can see above, not state pensions like NZ Super, there is an additional state pension called the State Second Pension (SSP). It is earnings-related, like most European contributory pensions. But UK residents can "contract out" of this scheme. Contracted-out pensions are then regarded as private pensions and therefore not deducted from NZ Super. However, SSP payments count as taxable income in New Zealand.
It is possible to transfer those "private" pension funds when UK residents move to New Zealand. These lump sum payments from UK pension schemes (Compulsory Purchase Annuity or Pension Annuity) escape abatement and taxation if you make the transfer within four years after arrival, and into a so-called QROPS scheme, that's schemes in New Zealand approved by the UK HMRC.
Read about warnings and dangers here, also good information:
https://www.windsorwealth.co.nz/uk-pension-transfers-new
and here:
Please note that pension transfers can be done without the help of such financial advisors, you just have to do your homework. And there are plenty of experts out there who are specialised in such transfers and - of course - charge you for it.
Like a lottery win for Australians
The most unbelievable fact, however, is the preferential treatment of Australians (and Australian residents of other nationalities) over New Zealanders (and New Zealand residents). New Zealanders retiring in Australia - and this happens frequently - are penalised and might miss out on pension payments completely. This is thanks to Article 9.3 in the Social Security Agreement with Australia which says that New Zealand will not pay more than the Australian entitlement would be. So if the Australian entitlement is zero, New Zealand will never pay a cent. (Also read: The big bangs for Kiwis.)
In return, Australians (and New Zealanders who have spent their whole working life there) enjoy a privilege that takes your breath away: if they decide at and after age 65 to live in New Zealand, they can - after living in New Zealand for six months - collect full NZ Super when they have never contributed to the New Zealand tax base because years spent in Australia count as years spent in New Zealand (Article 8.1 of the SSA: totalisation). They even get free health care.
This, curiously enough, applies to rich Australians who are not entitled to the means-and asset-tested Australian Age (state) Pension. And they can bring their government-subsidised private retirement savings without risking them to be deducted from NZ Super, as they are paid earlier and as a lump sum (see extra info under the photo). Poor Australians' Age Pension is abated against NZ Super. If it is lower than NZ Super, New Zealand tops it up.
Somehow this policy looks like a big lottery win for Australian nationals, Australian residents and Kiwis returning from long-term work in Australia. But as mentioned, migration takes place in the opposite direction: there are eight times more New Zealanders in Australia than Australians in New Zealand. This means that both countries - but only the governments and not the people of both countries - benefit from the Social Security Agreement.
Kiwis fly to Australia
Te Ara Encyclopedia says that in 1996 there were 291,388 New Zealand-born people in Australia; by 2006 this had grown to 389,463. According to the Australian Immigration Department, at 30 June 2009, an estimated 548,256 Kiwis were present in Australia and about 568,000 by 30 June 2018 - easily the largest New Zealand expatriate community in the world. By the 2000s, one in nine New Zealanders lived in Australia. Most do not intend to return (source: Te Ara Encyclopedia).
Statistics from the Ministry of Social Development show that at the end of June 2008 there were 4,918 people receiving Australian benefits and pensions in New Zealand. At the same date, 13,922 people were entitled to New Zealand benefits and pensions in Australia. Of these, 11,055 people were entitled to New Zealand Superannuation. What these numbers do not say is what fraction of NZ Super those Kiwis received in Australia - and how many did not receive any NZ Super at all.
More numbers (source: Te Ara Encyclopedia): In 2001, about 96,000 Kiwis drew some kind of Australian welfare. In the early 2000s Australia claimed that the annual cost was as high as AU$ 1.1 billion. New Zealand pointed to the contribution its citizens made to the Australian economy, including tax payments of around AU$ 2.8 billion per year.
In 2001 new restrictions required New Zealanders to obtain permanent residence if they wished to access social security, gain citizenship or sponsor other people for permanent residence. While these restrictions applied to New Zealanders in Australia, the converse did not apply, reflecting the fact that there were eight times more New Zealanders in Australia than Australians in New Zealand. Australian officials expected New Zealand immigrants to halve under the new restrictions.
Statistics New Zealand wrote in its study in 2020 that the estimated number of people migrating from New Zealand to Australia was 31,300 in the year ended June 2019. This was half the peak of 62,800 in the June 2012 year. "Trans-Tasman migration has ebbed and flowed at different times, and currently we have relatively low numbers of migrants departing to Australia", population insights senior analyst Kim Dunstan said in the report. The numbers after that can't be compared, as with the start of the COVID-19 pandemic migration flows more or less stopped and changed in a dramatic way.
(Latest update: 02.04.2024)
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