By Michael Poole

Around the world, national pension schemes fall into two broad categories, referred to as tier 1 and tier 2. A typical tier 1 pension is a universal flat-rate pension that is available to all who become eligible. New Zealand Superannuation is a particularly straightforward example of a tier 1 pension. The eligibility criteria are simply age and some quite lenient residence requirements. It is always payable in full to all who become eligible.

New Zealand Superannuation is taxed, so although it is, in principle, not means-tested, a form of claw-back mechanism for those with other income does exist via standard taxation. These features lead the New Zealand government, with some justification, to describe NZ Super as "generous".

When it comes to tier 2 pensions, there is a great deal of variation among administrations. Most share one basic feature, which is that they are supplementary to a basic tier 1 pension, and are generally related to working-age income by means of income-related contributions.

"An earnings-related pension on top of the Basic Pension"

Among others, I am in receipt of a tier 2 pension from Japan, the so-called Employees' Pension. The nature and purpose of this pension is neatly summed up by the Japan Pension Service itself: "The Employees' Pension Insurance (EPI) system provides the 'earnings-related pension' on top of the Basic Pension provided by the National Pension system."

Now, the New Zealand Government, not unreasonably, dislikes the idea of people drawing both its paid-in-full NZ Super and some other country’s state pension, which could be considered to be "double-dipping".

Its rationale is typically stated thus: "One of the purposes of Section 70 of the Social Security Act is to ensure that a person who has not spent their entire working life in New Zealand and is entitled to payment from a scheme run by an overseas country should not be advantaged over a person who has spent their entire life, including their entire working life, in New Zealand." The Government's mechanism for overcoming this problem is Sections 187-191 (formerly known as Section 70) of the Social Security Act 2018 ("The Act").

Because New Zealand Superannuation is always payable in full, and only because it is, the Sections 187-191 Direct Deduction Policy presents no problems for a person receiving only a comparable tier 1 pension from overseas. Deduction of a tier 1 pension is "deduction with recompense", and is broadly fair and reasonable.

Deduction without recompense is unfair and unreasonable

However, Sections 187-191 (formerly Section 70) is very broadly worded, apparently deliberately so, with the effect that it can always be made also to capture any foreign tier 2 pension. The problem here is that when a tier 2 pension is deducted from NZ Super, there is no mechanism for replacing the pensioner's payments so diverted, because New Zealand has no comparable state-administered tier 2 scheme to make up the shortfall. Deduction of a tier 2 pension is thus "deduction without recompense", and is easily shown to be unfair and unreasonable.

In my case, I am currently receiving three overseas pensions: a UK State Pension based on National Insurance contributions spanning the mid 1960s to the early 1980s, including voluntary contributions made in the 1970s while I was resident in Japan, plus some income-based contributions which act to add a supplementary component to the UK Basic State Pension; and from Japan a Basic Pension and a supplementary Employees' Pension based on contributions made while living and working in Japan in the 1970s and again during the 2000s.

No cent of NZ Super - and wife's payments are also reduced

I am also eligible for NZ Super, but am not currently receiving it because the sum total of my three foreign pensions exceeds its value. To complicate matters, my wife is also eligible for New Zealand Superannuation and is receiving it, but is having deducted from her payments the amount by which my three foreign pensions exceed the value of my NZ Super, due to the manner in which (former) Section 70 of the Act is worded. [Note: this Spousal Provision Policy ended on 9 November 2020.]

As indicated above, given that New Zealand Superannuation is always paid in full, and given that the UK Basic State Pension and the Japanese Basic Pension are both flat-rate pensions broadly equivalent to New Zealand Superannuation, the rationale for deduction quoted above is reasonable in those two cases.

On the basis that "fair exchange is no robbery", I see nothing objectionable in the deduction of those two (partial) pensions from my NZ Super, and I do not seek to have their deduction under Sections 187-191 of the Act overturned. That is what I have dubbed "deduction with recompense".

The Japanese Employees' Pension clearly is a supplementary pension

The Japanese Employees' Pension is, however, another matter altogether. The earlier quotation from the Japan Pension Service makes it very clear that the Employees' Pension is a supplementary pension, aimed specifically at improving the standard of living of its recipients relative to that of those who are only entitled to the Basic Pension.

The Employees' Pension is funded separately from the Basic Pension by additional contributions collected only from the employees of private corporations with five or more staff, and also from those employers.

There is also a similar, small earnings-related component to my UK State Pension.

As the New Zealand government neither funds nor pays any such supplementary pension, in the deduction of my Japanese Employees' Pension and the supplementary portion of my UK State Pension from the flat-rate tier 1 New Zealand Superannuation there is no fair exchange, only robbery.

Openly hostile Bench at the Benefits Review Committee

I have taken the issue of this over-enthusiastic deduction of the multiplicity of state-administered foreign pensions I am currently receiving before a Benefits Review Committee of the Ministry of Social Development (MSD) and before the Social Security Appeal Authority (SSAA). In both cases the current deduction of all my pensions, including the tier 2 ones, was upheld. In the latter case the Bench was, in my opinion and that of my support person, openly hostile to my submission and disposed to prejudge the outcome.

No-one in power is interested in changing the current deduction regime, including the Ministers for Senior Citizens of the day, John Carter and Craig Foss (May to October 2011), and the then CEO of the MSD, Brendan Boyle, with all of whom I have had correspondence.

This is despite the fact that none of them was either willing or able to provide a reasoned refutation of my assertion (with reasoned evidence) that the deduction of a supplementary tier 2 pension from the basic tier 1 NZ Super not only does not serve the equitability that is claimed for it, but is in fact totally inequitable.

Sections 187-191 is a catch-all to ensure that nothing escapes

The question that obviously arises is whether or not the Sections 187-191 deduction regime is legal. This former Section 70 of the Social Security Act is couched in terms of determining whether an overseas state pension "forms part of a programme providing benefits, pensions, or periodical allowances for any of the contingencies for which benefits, pensions, or allowances may be paid under this Act". The Direct Deduction Policy is, in short, a catch-all intended to ensure that nothing escapes.

For that purpose it is well-worded, and has effortlessly withstood testing in Court, especially as the challenges mounted to date appear to have been generally poorly presented.

The further question then arises as to whether this deduction is equitable for all parties, as claimed. Now, although I touched lightly on equitability in my submission to the Benefits Review Committee, I was unable to pursue it strongly at that time because I had no formal basis on which to do so, as it is not being addressed in any shape or form in the Act, as far as I can see.

However, in their report to the Social Security Appeal Authority (SSAA), the MSD themselves opened up this issue (with the rationale quoted above), and I presented my views on this subject in some depth in my submission to the SSAA hearing.

In its decision the SSAA argued that the Chief Executive of the Ministry of Social Development has no discretion under (former) Section 70 of the Act not to deduct my Japanese Employees' Pension from the sum total of my wife's and my New Zealand Superannuation, and dismissed the appeal.

Addressing the issue of equitability

It is instructive at this point to recount the proceedings of the SSAA hearing, and in particular certain remarks by the Bench.

My submission was in two parts, the first questioning the similarity of the contingencies with reference to Section 70, and the second addressing the issue of equitability.

During the first part, I was subjected to a barrage of "clarification" questions aimed primarily at convincing me of the error of my ways, apparently from an entrenched view that the appeal would necessarily fail even before the presentation had been completed. To that extent, I do not believe that I received a fair and impartial hearing, a view I placed on record with the Convenor.

When I moved on to the second part of my presentation, I prefaced it with a statement that nowhere in the Act, including Section 70, is the question of equitability addressed, indicating that this appears not necessarily to be a core purpose of Section 70. This was greeted with a thunderous response from the Bench, which insisted that equitability was the "core purpose" of Section 70.

The deduction of the supplementary pension is excessive

However, as I proceeded to demonstrate that deduction of the supplementary Japanese Employees' Pension is excessive and therefore does not serve equitability but is purely a revenue-gathering exercise, the Bench fell uncharacteristically silent and remained so throughout.

I also pointed out that what was included in the deductions from my New Zealand Superannuation was a proportion of my UK State Pension that is funded from the voluntary UK National Insurance contributions I had been paying while in Japan in the 1970s, and during which time I was also making Japanese Social Insurance contributions: a clear case of double-dipping by WINZ.

The Bench, while noting that there is nothing in the Act covering the issue of voluntary contributions, observed that the MSD has a policy of not deducting foreign state pension payments based on voluntary contributions, and firmly directed their representative to ensure that the voluntary portion of my UK State Pension not be deducted from my New Zealand Superannuation.

WINZ has ceased to deduct pensions based on voluntary contributions

It took a long time, but WINZ has indeed ceased deduction of that part of my UK State Pension that is based on voluntary contributions. This appears to be contrary to the part of the SSAA's Decision in which they say: "Section 70 of the Social Security Act 1964 does not give the Chief Executive any discretion in relation to the decision of whether to deduct an entitlement to an overseas pension from entitlement to New Zealand Superannuation."

In the case of that part of my UK State Pension, discretion does indeed appear to have been exercised, whereas it is most determinedly not in the case of my Japanese Employees' Pension. We have here an anomaly, one of several.

It should be noted that no deduction would be made of a private-sector pension from any country. Now, in the UK it is only possible to escape paying income-related National Insurance contributions if one is in a "contracted out" private pension scheme that offers benefits that equal or exceed the tier 2 components of the UK State Pension.

Such a pension then replaces the tier 2 elements of the UK State Pension, so it would be quite easy to declare that it is "administered [...] on behalf of the Government of the country from which the benefit, pension, or periodical allowance is received", to quote Section 70 - which is now Sections 187-191.

An enormous anomaly and a Minister's "Mount Eden Defence"

I have challenged Mr Boyle of the MSD to do just that, and thus to deduct private UK pensions from NZ Super, as logic based on the determined deduction of other tier 2 pensions dictate that he should, but he didn't even respond to that suggestion. I suppose that he simply dare not. However, this is clearly another anomaly, an enormous one.

When I wrote to the Minister of Social Development on this issue, my enquiry was referred to the Minister for Senior Citizens. That correspondence culminated in a statement by John Carter, the Minister of the day, that his Government had no intention of amending the Act. He also wrote: "In lean times, a purpose of limiting expenditure may be more important than in times of prosperity."

I take this as a ministerial admission that a purpose of Section 70 [187-191]is, as I surmised, to maximise revenue-gathering at the expense of certain superannuitants - elder abuse indeed. This justification of the Direct Deduction Policy I have dubbed the "Mount Eden defence", on the basis that many of Her Majesty's "guests" at Mount Eden Prison no doubt plead poverty as the reason for their actions that led to their being incarcerated there.

Increasingly large numbers of people will be disadvantaged

With the increasing mobility of the world's population, including New Zealand's own citizens, the deduction of supplementary tier 2 state pensions will disadvantage increasingly large numbers of people relative to those who have only ever lived in New Zealand.

The ability of people who have resided overseas to make private savings to supplement their New Zealand Superannuation on their return is often severely impacted by mandatory contributions to supplementary pension schemes levied while overseas, a burden full-time New Zealand residents are not required to bear.

To have those supplementary pensions then taken by the New Zealand government in addition to their foreign basic pensions, with no return in the form of a supplementary New Zealand pension, means that far from gaining some advantage over full-time New Zealand residents, they are being penalised, through no fault of their own, in a manner to which full-time New Zealand residents are not subjected. I have made this point to the SSAA, the Ministers and Mr Boyle. None has attempted a reasoned refutation.

My aim is to achieve the cessation of the deduction of those foreign pensions or parts of pensions that are paid over and above basic entitlements that mirror the universal, flat-rate New Zealand Superannuation. I am, however, content to let the deduction of tier 1 pensions continue, in the interest of equitability, both with full-time New Zealand residents and for the New Zealand Government itself.

(Article written in 2012 and re-edited in November 2021 to make clear that Section 70 has been renumbered into Sections 187-191 in 2018 and that the Spousal Provision policy ended on 9 November 2020. This article's main points are still valid to this day.)