NZ's pension system and Social Security Act
New Zealand pensions are state pensions paid from taxes, rather than individual contributions made from income a person has earned from work. New Zealand pensions are not intended to be a state benefit to alleviate poverty and they are paid regardless of an individual’s assets or other income. This is why New Zealand pensions are commonly referred to as “universal”, i.e. a payment that is neither needs-based nor means-tested, with only few requirements attached to qualify. So far the theory.
A general entitlement with a catch in the small print
The New Zealand pension system is based on two pieces of legislation:
According to New Zealand's Superannuation Act (Entitlements to New Zealand Superannuation) “every person is entitled to receive New Zealand Superannuation who attains the age of 65 years”. There are some requirements they have to fulfil, as explained on our WINZ page.
However, this general entitlement is subject to the Social Security Act which sets out certain terms and conditions. It also includes a little-known, yet consequential restriction: Section 70.
This is what the law says
This piece of legislation is written in legal language and requires dissection into digestible bits for the gist of it to be understood. We do not want to withhold this gem of “legalese” from you and have added bold emphasis to peel out the main points:
Section 70 (1) Rate of benefits if overseas pension payable
For the purposes of this Act, if —
(a) Any person qualified to receive a benefit under this Part of this Act or under the Social Welfare (Transitional Provisions) Act 1990 or Part 6 of the War Pensions Act 1954 or under the New Zealand Superannuation and Retirement Income Act 2001 is entitled to receive or receives, in respect of that person or of that person's spouse or partner or of that person's dependants, or if that person's spouse or partner or any of that person's dependants is entitled to receive or receives, a benefit, pension, or periodical allowance granted elsewhere than in New Zealand; and
(b) The benefit, pension, or periodical allowance, or any part of it, is in the nature of a payment which, in the opinion of the chief executive, 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 or under the Social Welfare (Transitional Provisions) Act 1990 or under the New Zealand Superannuation and Retirement Income Act 2001 or under the War Pensions Act 1954 which is administered by or on behalf of the Government of the country from which the benefit, pension, or periodical allowance is received —
the rate of the benefit or benefits that would otherwise be payable under this Act or under the Social Welfare (Transitional Provisions) Act 1990 or Part 6 of the War Pensions Act 1954 or under the New Zealand Superannuation and Retirement Income Act 2001 shall, subject to subsection (3) of this section, be reduced by the amount of such overseas benefit, pension, or periodical allowance, or part thereof, as the case may be, being an amount determined by the chief executive in accordance with regulations made under this Act.
The original wording of the Social Security Act 1964 has been changed many times by various amendmends. Whereas the Direct Deduction Policy was introduced in 1938, the deduction tool of Spousal Provision was only added in 1985. In 2004, with the passing of the Civil Unions Bill (Civil Union Act), the Spousal Provision was extended to include de facto and same sex couples.
In plain English this means: overseas pensions can affect not only your but also your spouse’s New Zealand pension entitlement. This is the case if the overseas pension is a periodic payment, e.g. it is paid monthly or weekly; if it is paid for the same purposes as New Zealand Superannuation, e.g. an age/retirement pension, a survivor’s benefit or a disability allowance; and if it is administered by or on behalf of an overseas government agency, e.g. a state pension fund such as the German Pension Insurance.
The practice of abating, or calculating, overseas pensions against a person’s New Zealand pension entitlement is called Direct Deduction Policy (DDP).
The practice of extending this practice to the entitlement of a person’s partner or spouse is called Spousal Provision (SP).
We call it pension rip-off.
Pension entitlements: Personal property?
In Germany, pension entitlements are considered personal property, for which a constitutional property guarantee exists. The Federal Constitutional Court (Bundesverfassungsgericht) which permanently reviews the laws, embodied the protection of pension entitlements to the state's compulsory insurance scheme in Section 14 of the constitution (Grundgesetz = "Basic Law").
This is also reflected in the treatment of pensions in divorce proceedings under the gains-adjustment and pension-rights compensation rules.
In a divorce, the gains achieved during the marriage - and this includes the pension rights acquired during this period – are balanced between the spouses. (Exception: the pension compensation can be excluded by a prior marriage contract. In marriages of short duration, i.e. under three years, or if the pension entitlements of the partners are similar, it is only done on request).
Thus, while in Germany as well as, for example, in Canada pension entitlements are treated as property and can be transferred like cash, tangible assets or benefit entitlements from life insurance policies, New Zealand ignores this property guarantee of foreign pensions. They are considered to be up for grabs, indirectly, when calculating the entitlement to NZ Super. It comes as no surprise that pensioners consider the deduction of their overseas pensions at a rate of 100% as the confiscation of their overseas pensions.
Spousal Provision since 1985
The Direct Deduction Policy (DDP) was introduced in the 1938 Social Security Act (Section 65). This article guaranteed a pension up to the maximum level (top-up principle). It was renumbered to Section 70 in 1964 with the 1964 Social Security Act. It is now being used as a top-down rather than a top-up tool.
The first amendment to Section 65 was in 1955, the 1955 Social Security Amendment (no. 2)
which allowed the NZ authorities to also deduct any part of an overseas pension that is/was paid to the main beneficiary to support a younger or non-qualifying spouse.
The Act was again amended in the 1985 Social Security Amendment (no. 2) (no. 159) that allowed the NZ authorities to deduct any excess overseas pension from a spouse's payment of NZ Super.
Let's highlight the good things about NZ Super:
- It is paid regardless of a person's tax contributions.
- The level is determined by the level of price increases and as a proportion of the net average ordinary-time wage.
- It is guaranteed not to fall below the present level in real terms.
- If the "income" from an overseas pension were to fall below NZ Super's minimal level (after it has been taken away from you by the NZ government in the first place...), it would be topped up to reach the level of NZ Super.
- The residence requirement of
10 years is (too) generous.
Misleading information about the rate of NZ Super
The Government claims that the rate of NZ Super is 66% of the net average wage.
Several organisations, including Grey Power, and also the experts of the University of Auckland', clarify that this claim is misleading, as the 66% rate applies for married couples.
Therefore the rate for an individual being paid half the married rate is only 33% of the net average wage. A single living alone gets 43%, a single sharing 40%. The Government is comparing apples and oranges, as it does with the nature of NZ Super and contributory overseas pensions.
In 2008, the average annual wage was NZ$ 45,800 before tax, and NZ$ 37,372 net.
Other countries with universal pensions
Only eight other countries and one city pay a universal pension with no test other than citizenship, residence and age, comparable to NZ Super:
... and Mexico City.