Two weeks ago we reported that Ardern was drafting the terms of reference for a select committee inquiry into the issue, though it would require the Government to allow it to go ahead.

Anyone reading the internal 2004 Ministry of Social Development Review into the issue - a review that was never supposed to have been released - will see that an open inquiry is long overdue. Labour is not alone in thinking this. United Future and NZ First both believe the policy is unfair.

The review said in blunt terms that the policy was unsustainable. It said that people generally lost their entire overseas pension and that there was a genuine “lack of cost-sharing”. It wasn't the last review, and one gets the feeling it didn't impress ministers who didn't want to spend the money implementing fairer cost-sharing, but to me, the sheer number of reviews shows there is an issue of fairness that needs an airing in Parliament.

Under our policy, people can live in New Zealand for years and years and yet every cent of their pensions from overseas is taken to help pay for their NZ Super. That's deeply resented by other countries, who believe that New Zealand is not genuinely sharing the cost of paying for its own residents' retirements.

To their eyes, New Zealand was taking all the taxes and economic benefit from immigrants' working lives and then using pensions built up in their time overseas to reduce the costs for New Zealand using the opaquely worded section 70 of the Social Security Act. In some cases that can result in people who have lived and worked here for 20 years not getting a bean in NZ Super, so New Zealand pays no contribution to their retirement.

So unimpressed are some countries they simply refuse to pay state pensions here. The 2004 report notes that around $21 million of such payments were not coming from countries like Germany, Switzerland and the US because “our current policy settings mean these countries will not negotiate a social security agreement with us”.

The 2004 report notes that the current policy, which impacts more Kiwi Brits than any other group of immigrants, saved the Government $178m a year. That sum seems to have grown to $240m. It's big money, particularly for a government keen on getting the country back into surplus. If there is a case of injustice here, it is one that could cost a lot to fix.

The pensioners claim their savings are being raided, and that in some cases it is forcing them into penury. They consistently claim that they were told they would earn their NZ Super entitlement in full when they were considering coming here. It was only when they retired, that they found the pensions they had built up from contributions from their earnings were taken to part or fully fund their NZ Super.

They feel they were decieved. Worse still, for those who have Kiwi spouses, any surplus is taken to reduce the NZ Super of their spouse. They feel that even though they were required to save a portion of their salaries into the schemes that built the pensions, they are pensions built up with their own money, and that they are being unfairly raided. They feel it is like having a KiwiSaver nest egg used to reduce a person's NZ Super.

Just how much it might cost to "address" the issue is a tough one to estimate. There have been internally mooted suggestions with a range of price tags which would allow those receiving overseas pensions the right to keep some portion of it giving them some benefit from their past salary sacrifices.

We do not know how much extra would flow in from countries currently not willing to make payments here while each dollar is deducted from NZ Super rather than a fairer proportion. An open inquiry could provide some of this information.

Will it happen?

My gut feeling is Ardern will be rebuffed. It is expedient to ignore the issue, but as I say, there is no harm in giving people who helped build this country a fair hearing and reporting on it to the New Zealand people.

- © Fairfax NZ News

Letters to the Editor (22 July 2012)

1. NZ Pension Protest (Sissi Stein-Abel)

I admire Iona Holsted, the deputy chief of the Ministry of Social Development (MSD), for the guts to tell New Zealanders that it is right and fair to deduct contributory overseas superannuations from NZ Super. She is twisting the truth and telling only half the story. 

1. The law is indeed not new but the wording has been adjusted over the years to an all-encompassing formula which allows the CEO of MSD to declare about all superannuation payments worldwide similar to NZ Super and therefore deductible. However, only eight countries and one city have tax-funded state pensions like New Zealand.

2. Telling us that 76 per cent of superannuitants have deductions less than $5000 a year means that every month more than $400 are missing in a person’s budget. This is a lot of money for people who have nothing but NZ Super, and it is the difference between coping and suffering hardship.

3. Most pensioners only learn about Section 70 when they turn 65 and apply for NZ Super at WINZ. Then it is too late to make additional savings in order to supplement their income in retirement. Until then no-one would have imagined that his/her contributory overseas superannuations would be deducted from NZ Super. Overseas superannuation payments reflect the contributions made by each individual. Everyone pays about 20 per cent of his/her wages into personal superannuation accounts, meaning high-income earners will have higher pensions than low-income earners.

4. As overseas superannuations are funded by personal contributions (on top of income tax and health insurance!) they are, of course, higher than tax-funded NZ Super which is paid to everyone who has spent ten years in New Zealand, including people who have never contributed to the tax-base or society. To deduct such contributory superannuations from NZ Super dollar by dollar and not percentage-wise defies logic and is hugely unfair. If someone has spent half his adult life in New Zealand he/she should be entitled to 50 per cent of NZ Super as the overseas payments reflect only 50 per cent of a full pension as well.

5. Many people who have lived and worked and paid taxes in New Zealand for 20 or 30 years receive no NZ Super at all because they have made high contributions to their overseas pension scheme. Had they worked in three different countries overseas their superannuation entitlements would be added and not deducted from each other. 

The most important injustice Iona Holsted did not mention is the meanest part of Section 70 which legalises the theft of contributory overseas pensions. The law might be old (from 1938 and renumbered 1964), but Spousal Provision was added in 1985. This tool allows NZ authorities to deduct any excess overseas pension from a spouse’s payment of NZ Super.

While the government/MSD claims NZ Super is paid individually, they turn a couple where one of the two receives an overseas pension into an “economic unit”, deducting the overseas pension from both partners’ added NZ Super entitlements and – in a worst case scenario – leaving a New Zealander who has never left the country with nothing! 

This directly contradicts Iona Holsted’s claim that the government’s policy was “to ensure New Zealanders who spent their whole life working and paying taxes here were not disadvantaged when compared with others who have worked overseas or immigrants […] who have entitlement to overseas state pensions”. 

The interesting thing about this unbearable claim is that Brendan Boyle, the CEO of MSD, just lately wrote in a letter to a pensioner that this sentence would disappear from the collection of MSD stock phrases. This pensioner had successfully demonstrated that the deduction is inequitable. MSD, on the other hand, failed to demonstrate that the deduction is more than just a revenue-maximising exercise. All they can do now – and that is what Iona Holsted has done – is to say: „It’s the law.“ 

As the co-author of the website www.nzpensionprotest.com I can report that hardship resulting from the policy is widespread and not only occurs in isolated individual cases.

We receive emails from suffering pensioners every week, some accumulating debt, others never being able to buy new clothes, and all of them getting sick, tired and stressed. And as good as it sounds, what would MSD do when Iona Holsted says: “There is no need for anyone to be in hardship as we work through their entitlements.” What rubbish talk! Would they suddenly not deduct a foreign pension? 

In the name of all retirees who are going through hell due to this rip-off I would like to thank business editor Rob Stock for exposing this hot potato topic and MP Jacinda Ardern for speaking out and doubting the rightfulness of this shameful injustice.

2. Christopher Arnesen (Christchurch)

In attempting to justify the appropriation of overseas pensions (SST, July 15th), Iona Holsted, deputy chief executive of the Ministry of Social Development (MSD), makes one questionable claim after another. Her most misleading claim however concerns reviews of overseas pension deductions which, she alleges, were not in favor of a proportional system, and which found the direct deduction policy reasonably sound.