The big bangs for Kiwis

Those who are as sleepy as Australia's cuddly koalas might miss out on NZ Super completely if they retire to New Zealand's big neighbouring country.

No pension at age 65 if you live in Australia

The process of applying for NZ Super when retiring in Australia is described on the WINZ page: "NZ superannuation and ... going overseas". In their brochure Retired and going overseas it was described as follows:

"If you plan to live in Australia for more than 26 weeks and want your New Zealand Superannuation or Veteran's Pension payments to continue, you must first apply at the Australian Government Department of Human Services (Centrelink) for an Australian Age Pension. You need to do this within 26 weeks (inclusive) of arriving in Australia (if you're 65 and over). The Department of Human Services will provide you with a New Zealand application form.

The date you applied for Australian Age Pension will be used as the date of application for New Zealand Superannuation (paid in Australia). Please note that your partner will be excluded from your payments from the same date. If you don't apply within 26 weeks (inclusive), you may not qualify for payment [...] from the date you leave New Zealand.

To get an Australian Age Pension you must be an Australian resident. In general, this means that you must have been in Australia for more than 26 weeks or intend to stay there for more than 12 months. How much you get will also depend on your income and assets.

If the Department of Human Services grant you an Australian Age Pension, they will send you a New Zealand Superannuation application form to complete so our Senior Services team can work out how much you'll be paid while you're living in Australia."

No way to bridge the gap

All this means that you cannot apply for NZ Super at age 65 if you live in Australia and bridge the gap until you can apply for the Australian Age Pension at age 66 (since 1 July 2019; it will be 66 years and 6 months from 1 July 2021, and 67 years from 1 July 2023).

Returning home...

... is still a goal.

In the longer term, quite often at retirement, many skilled New Zealanders come back home. Since the early 1980s more than half a million have returned.

The exception is Australia. The majority of Kiwis who move across the Tasman have no intention of retiring back home.


Living in Ameeeerica...

Credits and quarters

To determine a worker’s insured status, Social Security looks at the amount of the contributor’s earnings and assigns so-called “credits”. These credits are called quarters of coverage.

In 2009, one quarter of coverage (QC) was credited for each US$ 1,090 in annual covered earnings, up to a maximum of four QCs for the year. Earnings of US$ 4,360 or more gave the worker the maximum four QCs in 2009.

The meanest agreement and tit-for-tat policy

Life can be so easy. You have worked hard, paid taxes and count on New Zealand's seemingly universal superannuation payments. Additionally, you have saved for your retirement, either by investing into shares or property, or paying into a pension fund. You think you have done everything right to enjoy life at old age. Once turning 65, you should be able to profit from your considerate planning.

But beware, there are two ways for New Zealanders to end up losing their pension entitlements completely, more than just suffering losses and disadvantages due to New Zealand's Direct Deduction Policy, the deductions from NZ Super when retiring overseas, and various Social Security Agreements (SSAs) with about a handful of other countries:

  • Having lived and worked in New Zealand all your life and dreaming of retiring in Australia, you might face the loss of NZ Super. The reason: the payment is means-tested against the Australian means-tested Age Pension, courtesy of the meanest of Social Security Agreements two countries might ever have signed.

  • Having lived and made contributions to the Social Security pension scheme in the United States of America and returning home in retirement, New Zealand nationals are denied their US Social Security payments. It is the USA's answer to New Zealand's portability rules, a tit-for-tat reaction to not paying returning US citizens full NZ Super. It is as questionable as the New Zealand government's legalised theft of overseas pensions. But other than in the case of the scandalous reciprocal agreement with Australia there are ways around it if you are aware of this trap and plan well ahead.

The Australian retirement trap

We are not fantasising about the high risk of you losing your entitlement to NZ Super when living in Australia. Here is information from the WINZ brochure "Retired and going overseas" and the WINZ website:

"The total amount you get from both countries is the same as if you had lived in Australia all your working life. Australian Age Pensions are income and asset tested.

This means that if the rate of Australian Age Pension is nil because of your income and assets, then you’re unable to get New Zealand Superannuation or the Veteran’s Pension in Australia.

If the amount of New Zealand Superannuation or Veteran’s Pension you’re entitled to is less than the amount of Australian Age Pension you’re entitled to, you’ll be paid the difference by Australia."

To calculate if you are entitled to Australian Age Pension and therefore for NZ Super, you best contact an expert - as the income and asset test is hugely complex.

As of September 2017, any income over A$ 168 (single; couples A$ 300) a fortnight, be it from work, investments, private pension schemes, KiwiSaver and even valuable consideration, lead to a decrease of the full pension payment. Excess income affected the pension by 50 cents in the dollar for singles and for couples. At the time the maximum fortnightly paid base pension rates were at A$ 808.30 for singles and for couples A$ 609.30 each. (The Age Pension rates are indexed twice-yearly, in March and September.) To receive a (part-)pension the fortnightly income had to be less than A$ 1,944.60 (2,978.40, couple living together). These amounts are called cut off points. The income test and the whole procedure is designed to keep as many people as possible from receiving Age Pension.

The problem was exacerbated when changes to the income test took effect in January 2017. Hundreds of thousands of pensioners had their Age Pension cut or lost it completely.

(The full rates of the Australian Age Pension from September 2021 to March 2022 were at AU$967.50 per fortnight for singles and for couples AU$729.30 per fortnight each).

Income and asset test for life in the sun

The system is especially hard on Kiwis: unlike most Australians who receive government-subsidised employee/employer-funded contributory (occupational) pensions, they have no guaranteed retirement income - due to the New Zealand government's lack of foresight and compulsory pension schemes.

For the asset test about everything but your own house counts. So it is better if you do not own a brand-new Porsche or a Ferrari you had thought might be the perfect vehicle for outings in the sunshine of the Gold Coast...

Overall it means that only New Zealanders have nothing to lose when retiring in Australia...

  • if they own nothing but their modestly furnished house, an average car, only a few not too valuable assets,

  • if NZ Super was their only source of retirement income when living in New Zealand, and

  • if their partner is entitled to a pension in his/her own right

As already mentioned, consult a benefit and tax expert if you consider moving to Australia. You might be better off if you stay in New Zealand and only travel to Australia.

Link to information on what counts as income in Australia:

"Alien Nonpayment"

You must read the page about Exceptions to Alien Nonpayment of US Social Security benefits very carefully to find the paragraph that excludes Kiwis living in New Zealand from the payments.

At first glance you get the impression that if you meet any of the nine listed requirements, you are exempt from the nonpayment. A minimum residency of 10 years OR 40 Quarters of Coverage (QCs) are two of the listed requirements for foreigners residing outside the USA. So you wonder why New Zealanders should not be entitled to the payments.

But if if you have a look at the second "CAUTION" in the section about "40 Quarters of Coverage" you find the reason. The text reads as follows:

"Beginning July 1968 neither the 10-year residence nor the 40 QC exceptions may apply to an individual who is a citizen of a foreign country which has in effect a social insurance or pension system of general application paying periodic old age, retirement, or death benefits, but not to otherwise qualified U.S. citizens outside that country."

And that it is: New Zealand's portability rule to pay only 1/540th of NZ Super to people retiring overseas, be it a Kiwi, an American or any foreign national of a country that has no Social Security Agreement with New Zealand.

If New Zealand paid US citizens moving back to the USA at old age full NZ Super after fulfilling the 10(5) years residency requirement, Kiwis returning to New Zealand in retirement would receive US Social Security payments.

Insurance payment vs. benefit

Social Security makes a clear distinction between old age pensions and welfare benefits. The Social Security Act, in the meantime amended several times, came into place in 1935. It encompasses several social welfare and social insurance programmes. Old age pension is a social insurance programme and has nothing to do with providing the necessities of life for needy individuals.

Social Security pensions are also abbreviated as OASDI (Old Age, Survivors, and Disability Insurance) or RSDI (Retirement, Survivors, and Disability Insurance).

By the end of December 2008, 50.9 million people received benefits in and from US Social Security, at an annual cost of

US$ 615 billion (4.8% of the GDP).

"All reasonable steps" or no NZ Super

People with pensions from the USA (and Canada) should also know that MSD does not respect their right to defer their overseas pension payments up to age 70.

By means of Sections 173 and 174 (formerly 69G) of the Social Security Act the Ministry of Social Development (MSD) can force pensioners to apply for all overseas pensions they could be entitled to, so they can then be deducted from NZ Super. This includes pensions from the USA and Canada which have flexible starting dates, according to the agreement a pensioner has with their overseas pension provider/ administrator. Americans e.g. can defer payments until age 70 in order to receive higher rates.

MSD thinks that "taking all reasonable steps" (as lined out in the above mentioned Sections 173/174) includes applying at an earlier date, in the case of Canadians at age 65 and for Americans at age 66, despite the law not mentioning that this includes MSD breaching a pensioner's right to start their overseas payments later.

In a letter from June 2019 MSD points out that an appellant's case on this issue was dismissed by the Benefits Review Committee (BRC) in June 2016. Here is the link to this case:

We think this pensioner should have appealed the decision, as barely ever the BRC has disagreed with a decision made by MSD, and because MSD's line "taking all reasonable steps" is only a biased interpretation of the law.

The American Nightmare

The USA's pension system, well-known as Social Security, is very similar to those of the major European countries. Of course, there are differences in details and names, but that is about it. No-one - but federal, state or local government employees or people with royalty income - escapes the compulsory scheme. Everyone who works in the United States - be it citizens or foreign residents - has to make earnings-related contributions into a personal insurance account, administered by Social Security, on top of income tax.

In the USA someone is eligible for a full Social Security pension when a minimum of 40 quarterly payments, equivalent to 10 years of residency, have been made. The minimum retirement age is 62 years; the full retirement age for people born 1960 and later is 67 years (as in 2021). The amount of pension is proportional to each individual's contributions. Higher lifetime earnings result in higher benefits. So again no difference to most countries other than New Zealand.

But here comes the catch: while Social Security payments are made to people retiring abroad, be it US citizens or foreigners, the USA deny this right to New Zealand nationals who wish to live in their home country at old age.

Tit-for-tat from Washington to Wellington

This tit-for-tat policy can be seen as the direct reaction to New Zealand's practice of not paying full NZ Super to returning US citizens (and in fact to anyone who has not lived in New Zealand for 45 years and retiring in another country than New Zealand). But indeed it is the tit-for-tat reaction to New Zealand's policy of not paying a cent of NZ Super to people who leave the country permanently before age 65 despite having lived and worked in New Zealand for decades.

The National Press Office of Social Security's Administration let us know: "The US Social Security Administration does not withhold US Social Security benefits for New Zealanders based on the New Zealand Direct Deduction Policy. We do so because of the Alien Nonpayment Provisions of section 202(t) of the US Social Security Act. This became law on August 1, 1956. The Alien Nonpayment Provision and its exceptions cover all US Social Security beneficiaries outside the United States who are not US citizens."

This Alien Nonpayment Provision says: "The beneficiary is a citizen of a foreign country which has in effect a social insurance or pension system that pays periodic benefits on account of old age, retirement or death; and pays those periodic benefits at the full rate, without restriction to eligible US citizens who are outside the foreign country, regardless of his/her length of absence."

Additionally, New Zealand deducts US Social Security payments, like most other overseas contributory pensions, from NZ Super when eligible people reside in New Zealand.

Punishing residence requirement when applying for NZ Super

As said above, the USA also punishes New Zealanders for their Government's requirement that pensioners actually have to be resident in New Zealand when turning 65 and applying for NZ Super. Even if someone, in this case an American citizen, has worked and paid taxes in New Zealand for 40 years and returns to the USA for good at, let's say, age 63, he/she is not entitled to a cent of NZ Super.

When people were aged 65 and applied for the New Zealand pension before moving to the USA or whichever country they chose - if it was none of the short list of countries New Zealand has a Social Security Agreement with - they only received 50% of NZ Super before the 2009 Superannuation and Retirement Income Act came into effect. This is not acceptable for the US government either.

There are few countries whose citizens suffer the same treatment by the USA as Kiwis headed for home although the USA has only 30 Social Security Agreements (as of November 2021), i.e. with Australia, Germany, Canada, the UK, Sweden and Ireland.

It is a long-standing policy. US officials have tried in vain to convince the New Zealand government to amend the Social Security Act which allows this blunder. In return New Zealand officials had the cheek to travel to Social Security's headquarters near Baltimore and ask for the release of the pension funds of New Zealand citizens who have lived in the USA and made Social Security contributions.

One simple way around the trap

In extreme cases, the tit-for-tat policy could mean that New Zealanders who have spent nearly their whole working lives in the USA and move back home at retirement age receive no pension at all: the USA denies them Social Security because they are New Zealanders, and NZ Super is not paid because they have not spent the minimum of 5 years in New Zealand after turning 50. They suddenly depend on social welfare if they were not lucky enough to make a fortune while abroad.

But there is one simple way around it: Kiwis in the USA who wish to return home in retirement have to become American citizens while living and working in the USA, and return to New Zealand with dual nationality.

As long as New Zealanders did not know about the blunder they just fell into the trap. But in late 1998 a New Zealander living in San Francisco started a remarkable campaign after he had learnt that he would lose his more than 30 years of Social Security contributions when returning home to Christchurch in retirement - which was his intention.

He started contacting US politicians and thanks to the help of a Congress member, he got appointments with the Chiefs of Staff of each Member of Congress appointed to the US Social Security Sub-Committee. No-one had ever been approached by the New Zealand embassy about the lack of pension portability between the two countries.

Trying to fool the world

Through several reports named Pensions and Politics, published on a website that, unfortunately, can't be reached anymore, thousands of Kiwis learned for the first time about their situation - and how to secure their Social Security pensions. These reports were available on the website of the New Zealand American Society (NZAS) - which doesn't seem to exist anymore. Some details have changed in the meantime but the big picture is still the same. It was an interesting read if you really wanted to get into the topic - including the inappropriate behaviour of the former New Zealand ambassador.

The latter deserves special mention because he reflects the way the New Zealand government treats the issue: They are amicable and friendly as long as nobody knows. They think they can fool the world by claiming New Zealand has the finest pension system in the world, insulting critics and rubbishing their revelations by employing spin doctors who twist the truth over and over again so as to make immigrants and returning Kiwis look bad.

(Last update: 25.11.2021)

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