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NZ Herald in 2007

KiwiSaver opens door for equity
NZ Herald on 22 January 2007
By guest columnist Peter Luiten
The managing director of ASB, Hugh Burrett, is quite correct to stress the importance of KiwiSaver. The Labour Government's initiative in promoting a source of savings over and above New Zealand Superannuation for those who aspire to more than a basic retirement lifestyle will indeed prove a great legacy.

It is worth pointing out that one group of superannuitants is likely to benefit almost immediately from the adoption of KiwiSaver - those New Zealanders who, while working overseas, paid out of their weekly wages into pension schemes similar to KiwiSaver.

Current New Zealand law requires that whatever superannuitants receive of overseas government-administered savings is deducted from their New Zealand Super.

The Government continues to defend this practice by maintaining that these funds are not savings at all, and by claiming that New Zealanders receiving such pensions should not be better off than those who have never had an opportunity to work overseas.

This stance has been outdated for years. With international career movement accelerating, and New Zealand anxious to attract more people with overseas qualifications into the workforce, it is imperative that New Zealanders should not be penalised for having worked overseas.

Imagine the furore if some future government were to start speaking of our children's payout after decades of KiwiSaver contributions as a benefit to justify reducing their NZ Super.

Since the Government has assured us that KiwiSaver accounts will not affect anyone's NZ Super entitlement, the advent of KiwiSaver means that those who participate will be better off in retirement than those who do not. The argument against deducting NZ Super from those receiving KiwiSaver-type overseas pensions loses all its force.

Mr Burrett highlights portability as the magic missing ingredient KiwiSaver is about to supply - the ability to change employers without unsettling one's savings scheme.

Portability is an internationally accepted principle. Most countries allow a pension paid for in another country to remain with the individual payer.

New Zealand is a conspicuous exception, and our failure to accommodate pension portability has earned us quite a degree of international odium.

The United States, for example, would never dream of offering New Zealand a free trade agreement until it is prepared to consider a fair social security agreement with the US.

New Zealand has managed to enter into social security agreements with only a handful of other countries. Most refuse outright because they perceive that New Zealand is freeloading with regard to pensions from other countries.

The international community is well aware that New Zealand refuses NZ Super to many superannuitants with an overseas work history, despite their having paid taxes in this country for decades.

Social security agreements have enormous present and future benefits. Hundreds of thousands of dollars of pension funds that would flow into New Zealand if an agreement with the US was in place are withheld by the American Government in retaliation against New Zealand's retirement policy.

Economics underlines the argument of justice that portability is long overdue in New Zealand superannuation law.

Mr Burrett advocates that KiwiSaver be compulsory, and such a move would certainly give us a flying start towards a savings culture. But imagine the bitterness of New Zealanders deciding to retire overseas if they were forced, having been obliged to save for decades, to abandon their KiwiSaver nest-egg.

Most of the 16,000 New Zealanders now living in the US are in just that position. They are required to pay into a retirement scheme that - as a result of New Zealand's policy - they will lose if they leave the US.

The advent of KiwiSaver, however, is obliging our Government to address the portability of overseas pensions with some urgency at last. In a response to the Social Services Committee, the Government recognised an obligation to ensure superannuation policy is consistent, fair, and internationally acceptable.

This response is the closest the Government has ever come to acknowledging its present policy is inadequate.

The law introducing KiwiSaver is destined to have a twin that has yet to be announced - a law abolishing the deduction of overseas pensions from NZ Super.

It would simply be too anomalous to continue to treat other government-administered savings elsewhere on a different basis from those administered by a New Zealand government.