From Alec Waugh
At the recent Auckland Business School Seminar “Does the UK’s reform of pensions have lessons for NZ, I was approached by Bob Stevens, who told me Kaspanz needed to be stronger on Overseas Pension reform in relation to NZ Superannuation.
Kaspanz strongly supports a review of the current formula and approach adopted, specifically Section 70 of the Social Securities Act.
This opinion piece by Michael Little wood sums up the issue, and hopefully assists Bob Stevens to realise Kaspanz wants the issue addressed
OPINION: New Zealanders are entitled to New Zealand Superannuation from age 65 if they have lived here for at least 10 years after age 20, with five of those years being after age 50.
However, if they have a state pension from another country, the Ministry of Social Development will deduct that pension under section 70 of the Social Security Act, if it decides the overseas pension is similar to New Zealand Super.
The idea is that someone shouldn’t receive two full “basic pensions”, especially as New Zealand Super has an unusually short qualification period – just 10 years.
There has been something like section 70 since 1938.
The ministry has looked at the section several times over the years but it hasn’t changed and is now strengthening its enforcement of section 70 deductions.
The Retirement Policy and Research Centre has been looking at section 70 for four years.
Apart from the Government, everyone, including the retirement commissioner thinks that section 70 needs to change.
It no longer copes with an increasingly mobile workforce; it is inconsistent with the way New Zealand treats superannuitants who leave New Zealand; it is opaque and, in some respects, just plain wrong.
The Government is entitled to acknowledge in some way pensions that are payable by other governments and do a similar job to New Zealand Super.
We have a relatively generous state pension with unusually low- qualification requirements. New Zealand can justify some form of reduction to New Zealand Super or raise eligibility barriers where someone has more than one basic state pension.
However, the way things work needs to change. There are some things that are just wrong and others that are applied unevenly.
Other countries don’t like what we do and that probably explains why we have just eight “social security agreements” that governments use to make their and their citizens’ lives easier.
Here are the things that are wrong and that, in essence, even the ministry recommended for change in 2008:
Where one of a married couple has an overseas pension that is more generous than New Zealand Super, it is wrong – even possibly illegal – to reduce the other’s New Zealand Super by the excess. No other superannuitant over age 65 has a family-income test applied in this way. It seems incomprehensible that these people are treated as though they are welfare beneficiaries. New Zealand Super is not like the unemployment benefit.
Occupational pensions, even if administered by an overseas government, should not be caught by section 70. It’s not straightforward to pin down what precisely is “occupational”, but as a principle, section 70 should have nothing to do with workplace superannuation, even if state-run.
The way in which this issue is explained to immigrants needs fixing. There should be country- by-country explanations showing precisely how section 70 works. Many pensioners now say the rules were never explained when they came here and they are probably right. There is no excuse for that today.
Fixing these three things does not require a change to section 70 but it does need a change in the ministry’s administration.
Then there is the “Australia problem”.
A potential fiscal time-bomb is brewing across the Tasman. To illustrate: an Australian who has never worked or lived in New Zealand can retire in New Zealand on full New Zealand Super even though the Australian Age Pension would have been lost through its income-asset test had she stayed in Australia.
The social security agreement between the two countries means that residency in Australia counts as residency in New Zealand for pensions.
On the other hand, a New Zealand superannuitant who wants to live in Australia after age 65 might lose New Zealand Super under the income-asset test even though he would have received it in full in New Zealand.
Australians may well prefer to retire in Australia despite losing the Age Pension but there are about 500,000 Kiwis living in Australia. When they reach pension age and find out how the Australian income-asset tests work, we must expect many of them to retire in New Zealand. That will be expensive.
The Retirement Policy and Research Centre thinks section 70 is no longer “fit for purpose”. It suited an era when migration flows were largely in one direction and were permanent.
It does not suit the modern world where labour ebbs and flows, following work and business opportunities. The centre has discussed some possible reform options; there are probably others.
Section 70 must change. We need a research-led, public discussion on how best to integrate pension systems between New Zealand and the rest of the world.