Sunday Star Times on 28 November 2010
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The original article quoted Michael Littlewood as Michael Chamberlain, this has been corrected in this version.
Minding the super gap
By Rob Stock
KIWI EXPATS in Australia can reap the benefits of pension policy differences between the two countries, but one academic reckons it may be time to publicly debate that to make the NZ Super system fairer.
Michael Littlewood, from Auckland University's Retirement Policy and Research Centre, said Kiwis heading across the Tasman can develop their career and build their retirement nest egg in a larger economy with higher wages and tax breaks on their savings.
Then, at age 65, they can head home bringing with them their substantial Aussie-government subsidised savings, which will often mean they are not entitled to the means-tested Australian state pension. On arrival they will immediately qualify for NZ Super at the full rate.
With the Australian age of retirement heading for 67, Kiwis who hit 65 over there could move back to New Zealand to retire earlier.
Littlewood said it was an issue that sooner or later a government worried about an ageing population and pension affordability has to address. That could mean considering whether the age of eligibility for NZ Super should move in tandem with Australia's.
Littlewood said when introduced it was not envisioned so many Kiwis would head to Australia to work. There are currently over half a million New Zealanders in Australia.
"If you are one of those people who will not get a state pension in Australia it makes huge economic sense to move back to New Zealand", Littlewood said. It would basically entitle a single person living alone to just under $1500 a month before tax. A couple both entitled would get just under $2250.
Over time the issue will rise in prominence as Kiwis living in Australia who have built up large retirement nest eggs start retiring.
Littlewood wondered if the issue might be the trigger to ignite a proper political debate on the affordability, and as importantly, fairness of the NZ Super system.
But he acknowledged NZ Super was treated as a "third rail" issue no politician felt they could touch.
One option to "fix" the problem could be to shift the entitlement test to 25 years residency between the ages of 20 and 65. Any entitlement to an overseas pension could be ignored under this arrangement, removing a sense of injustice among immigrants. If the test is not met by residents at age 65, they would be entitled only to an income-tested benefit.
Another option might be to have a "fair share" test, where the NZ Super people get accrues at a rate of one 540th part of the NZ Super rate for every month they lived in New Zealand between the ages of 20 and 65. (The original text said 45 - but this is wrong.) That solution might also go a long way to reduce some of the other perceived unfairnesses in the NZ Super system (see sidebar).
Retirement Commissioner Diana Crossan said Littlewood was right to identify the issue, but that it should be seen in the context of the entire, multi-faceted relationship with Australia. "If you look at this particular issue in isolation, you can see how it might pan out in the future", she said.
Our statement to this article (which was not published by the Sunday Star Times):
Supporting New Zealand’s pensioners – immigrants and returning Kiwis – who are robbed of their overseas pensions by the New Zealand government thanks to the Direct Deduction Policy (Section 70 of the Social Security Act), I read your article “Minding the super gap” with great interest.
Apart from misnaming Michael Littlewood of Auckland University’s Retirement Policy and Research Centre as Chamberlain through most of the article, the facts were correct. Just some things should have been added to paint the full picture of the injustice done to pensioners with overseas pensions or just living with the wrong partner, and the incompetence and/or misdemeanour of subsequent governments.
A handbook on how to rort the system
Your article read more like a handbook on how to rort the system, telling Kiwis to move to Australia and accumulate future wealth by making contributions to Australia’s occupational superannuation scheme and return to New Zealand in retirement and immediately cash in NZ Super without having spent a single day in New Zealand after age 50 – which is required for Kiwis who have never left the country in order to be eligible for NZ Super (ten years between age 20 and 65 of which five must be after age 50).
This seems to be totally acceptable to the Government which labels immigrants and returning Kiwis as double-dippers when they have spent huge parts of their working lives in New Zealand and find it unfair that their overseas pensions are deducted from NZ Super while millionaires, criminals and life-long beneficiaries cash in full NZ Super.
They find it unfair because NZ Super is tax-funded and does not require that someone has ever worked and paid taxes whereas contributory overseas pensions are only paid to people who have paid huge amounts of their wages into personal pension accounts.
Open door to Australians who have not spent a day in New Zealand
The occupational Australian superannuation is not very much different to these overseas pension schemes and even heavily subsidised by the Australian government. Still the New Zealand government signed an agreement which even opens the door to NZ Super to Australians who have never spent a day of their lives in New Zealand before retirement.
On the other hand it leaves Kiwis out in the cold who have worked and paid taxes in New Zealand all their lives and wish to retire in Australia. In this case they might not get any pension at all because the payment is means-tested against the Australian means-tested Age Pension, courtesy of the most lop-sided Social Security Agreement the New Zealand government has ever signed.
The exact wording is: “…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”.
An insult to everyone
The comment of Retirement Commissioner Diana Crossan is an insult to everyone, saying the Australian issue “should be seen in the context of the entire, multi-faceted relationship with Australia”.
Does she seriously think it is fair that Australians should be allowed to cash in full NZ Super when they have never lived or worked in New Zealand before age 65? And why should Kiwis returning from Australia receive better treatment than Kiwis returning from the Netherlands, Germany, France or any other country with pensions people have to pay for during their working lives in order to receive them in retirement?
And it goes on: Young New Zealanders who move overseas to pay their student loans back faster and make compulsory contributions to overseas pension schemes will have their overseas pensions deducted from NZ Super if they return to New Zealand after ten or fifteen years as long as the Government does not discontinue this shameful Section 70 of the Social Security Act. They better stay overseas, make more contributions and receive much higher pensions than NZ Super later in life.
Move to the right country
And to finish off the handbook of how to use New Zealand’s pension system to your advantage:
If your partner receives a nice overseas pension which is deducted from your and your partner’s combined NZ Super entitlement (because you become, other than “normal” Kiwis who remain non-means-tested individuals regarding NZ Super, an economic unit at old age), move to any overseas country New Zealand has no Social Security Agreement with (= most countries in the world).
The reason: NZ Super is paid proportionally if you retire overseas. This means: If you have never left the country you are entitled to full NZ Super; if you have lived here for 22.5 years, you receive 50 per cent NZ Super. Your overseas pension remains untouched because it is YOUR personal pension, not tax-funded.
It is a mystery why the New Zealand government cannot treat its people this way if they wish to stay here.
The sidebar article:
There are other perceived unfairnesses about the way NZ Super is paid that it may be time to address. Here are a few:
WHO YOU MARRY CAN REDUCE YOUR SUPER: If you marry someone with a generous overseas pension, your NZ Super will in many cases be reduced.
DISCRIMINATION ON HOUSING STATUS: If two elderly friends found themselves both widowed, they might decide to share costs by living together, but doing so would see their NZ Super reduced from the single "living alone" allowance of $747.12 before tax to the single "sharing" allowance of $ 685.16.
WHERE YOU SAVED YOUR NEST EGG: If you saved into a government-subsidised super scheme in Australia, it will have no impact on the NZ Super. Do the same in Holland, or some other countries, and your NZ Super is reduced by $1 for every $1 you get from the scheme you saved into overseas, even if you worked here for 30 years.
RESIDENCY AFTER 65: It is possible to start getting NZ Super after the age of 65, even if you only worked here for a short time, or not at all, as entitlement to NZ Super kicks in after 25 years residency.