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The Law

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:
  • the New Zealand Superannuation and Retirement Income Act 2001 (last amended in 2009) and
  • the Social Security Act 2018 - which came into effect on 26 November 2018 and is just a re-write of the Social Security Act 1964. The 1964 Act originated from the 1938 Social Security Act. An Amendment Bill - which eliminates the Spousal Provision - was passed into law on 24 July 2020. (Start date of the changes: 9 November 2020.)
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: the former Section 70 - which, after the re-write, has become S. 187 - 191, 434 (S. 70A became 192 - 194; S. 70B became 195, 196).

While the Social Security Act now carries the year 2018 in its name, the facts remain the same. The Direct Deduction Policy dates back to 1938. In a world of globalisation and mobility the New Zealand government still thinks it is adequate to base its overseas pension administration on an 80 year old piece of legislation, as of 2018.

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 added in 1955 respectively1985. 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. 

And it remains a huge rip-off even when the deduction of the "excess" of a partner's overseas pension stops on 9 November 2020. Only 400 to 600 couples profit from this change. More than 100,000 pensioners will still be impoverished as before.



The wording of the new Social Security Act 2018 can be found here:

The sections relevant for overseas pensions are listed under Part 1P

Section 70 is now         187 - 1991, 434
Section 70A                  192 - 194
Section 70B                  195, 196

Also relevant:
Section 69G                  173 - 176
Section 69H                  177 - 180

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:

Factors reducing benefits: entitlement to overseas pensions
187   Interpretation
In this section and in sections 188 to 190,—
NZ benefits legislation means all or any of the following enactments:
(a) this Act:
(b) Part 1 of the New Zealand Superannuation and Retirement Income Act 2001:
(c) Part 6 of the Veterans’ Support Act 2014

overseas pension means a benefit, pension, or periodical allowance, or any part of it, that—
(a) is granted elsewhere than in New Zealand; and
(b) is determined by MSD to be a payment that is part of a programme that—
(i) provides benefits, pensions, or periodical allowances for any of the contingencies for which benefits, pensions, or allowances may be paid under NZ benefits legislation; and
(ii) is administered by or on behalf of the Government of the country from which the benefit, pension, or periodical allowance is received
;
and
(c) is not a Government occupational pension (as defined in Schedule 2); and
(d) is not determined by MSD to be in the nature of, and paid for similar purposes as,—
(i) compensation for injury or death for which payment could be made under the Accident Compensation Act 2001 if the injury or death had occurred in New Zealand after the commencement of that Act; or
(ii) a war pension or allowance granted under the Veterans’ Support Act 2014 of a type that would not affect any recipient’s entitlement to a benefit under sections 18 and 199 to 201 of this Act unless the pension or allowance is a pension or payment granted under Part 6 of the Veterans’ Support Act 2014; or
(iii) a disability allowance.
Compare: 1964 No 136 s 70(1), (1A), (1B), (2)


188   Persons affected by receipt of overseas pension
A person (P) is a person affected by the receipt of an overseas pension if P is a person who is qualified to receive a benefit under the NZ benefits legislation and—
(a) P is entitled to receive or receives an overseas pension in respect of any of the following persons:
(i) P:
(ii) P’s spouse or partner: [until 9 November 2020]*
(iii) any dependant of P [until 9 November 2020]*; or
(b) P’s spouse or partner is entitled to receive or receives an overseas pension [until 9 November 2020]*; or
(c) any of P’s dependants is entitled to receive or receives an overseas pension [until 9 November 2020]*.
Compare: 1964 No 136 s 70(1)(a) 
* notes in [brackets] added by us, part of the superannuation amendment act passed into law on 24 July 2020.

189   Benefit of person affected is reduced by amount of overseas pension
(1) The rate of the benefit or benefits that would otherwise be payable under the NZ benefits legislation to a person affected by the receipt of an overseas pension must be reduced by the amount of the overseas pension as determined by MSD under regulations made under section 434.
(2) Subsection (1) does not apply to—
(a) New Zealand superannuation payable overseas under section 26* of the New Zealand Superannuation and Retirement Income Act 2001; or
(b) a veteran’s pension payable overseas under section 182 of the Veterans’ Support Act 2014.
Compare: 1964 No 136 s 70(1)
*Note by us: Section 26 of the Act is the payment of (proportional) NZ Super overseas under the Portability rules)

190   MSD may enter into arrangement with person affected by receipt of overseas pension
MSD may, in accordance with regulations made under section 434, enter into an arrangement with a person affected by the receipt of an overseas pension (P) to pay P the rate of a benefit or benefits under the NZ benefits legislation in consideration of MSD receiving an amount that is equivalent to the amount of the overseas pension in question.*
Compare: 1964 No 136 s 70(3)–(4)
*Note by us: We do not recommend to enter in such an arrangement (Special banking option) if your overseas pension is close to the amount of NZ Super because due to the ever-changing exchange rate you lose control of the deductions. If your overseas pension is much lower than NZ Super there should not be any problems.

191   Treatment of certain overseas benefits, pensions, and allowances that are not overseas pensions
(1) This section applies to a benefit, pension, or periodical allowance, or any part of it, that—
(a) is granted elsewhere than in New Zealand; and
(b) is administered by or on behalf of the Government of the country from which the benefit, pension, or periodical allowance is received; and
(c) is determined by MSD to be in the nature of, and paid for similar purposes as,—
(i) compensation for injury or death for which payment could be made under the Accident Compensation Act 2001 if the injury or death had occurred in New Zealand after the commencement of that Act; or
(ii) a war pension or allowance granted under the Veterans’ Support Act 2014 of a type that would not affect any recipient’s entitlement to a benefit under sections 18 and 199 to 201 of this Act unless the pension or allowance is a pension or payment granted under Part 6 of the Veterans’ Support Act 2014; or
(iii) a disability allowance.
(2) MSD must treat a benefit, pension, or periodical allowance, or any part of it, to which this section applies as if it were in fact the relevant compensation, pension, or allowance specified in subsection (1)(c) (see, for example, sections 18, 87, and 199 to 201).

Wording of Section 70 of the Social Security Act 1964 below the following two articles.
 
 
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.

New Zealand's overseas pension grab is in breach of the UN Convention on Human Rights, and it also breaches the right to property which is guaranteed in the UN Covenant on Sociael and Political Rights.
 
 
Voluntary contributions must not be deducted from NZ Super
 
There is quite some confusion about the term "private pensions" and "voluntary contributions". 

It is clear that a private pension, funded outside a country's compulsory scheme, cannot be deducted from NZ Super.

However, if you have made voluntary contributions to your account in a country's compulsory scheme, this part of your overseas pension must not be deducted from NZ Super either. The only thing you have to do is get a statement from your overseas pension provider which says which percentage of your overseas pension has been funded by voluntary contributions, and this part of the pension must not be deducted from NZ Super.

The problem is that some WINZ workers, MSD employees and many pensioners do not know about this ruling, and therefore the entire overseas pension is deducted and no-one complains. It has become written law on 24 July 2020 and comes into force on 9 November 2020. But long before that MSD had been instructed e.g. by the Ombudsman many years ago to not deduct the privately funded part of an overseas pension. Huge backpayments, interest and compensation had to be paid to affected pensioners. 

How many such pensions have been wrongfully deducted, we don't know. There is reason to believe it has happened well into 2020 - and might still happen after the change if your case worker is incompetent. If you are affected by this blunder, complain as soon as possible and demand backpayment, interest and compensation for damages and stress.



Wording of the original Section 70 of the Social Security Act 1964:

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.



 
Read at the bottom of the main article on this page:
  • Contributory overseas pensions are personal property

  • Voluntary contributions must not be deducted 
    from NZ Super

And at the bottom of this column:
  • MSD interferes with US and Canadian pension legislation and personal pension contracts 


 

Direct Deduction since 1938

Spousal Provision since 1955
 
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 knock-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.

More information on the history of superannuation in New Zealand could be found in a Treasury report from 2003 but unfortunately the page has either been relocated or deleted. This one is a relatively brief background paper: https://treasury.govt.nz/sites/default/files/2007-11/prg-msd-dnzcrif.pdf


 
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:
Mauritius
Namibia
Botswana
Bolivia
Nepal
Samoa
Brunei
Kosovo...
... and Mexico City.

"All reasonable steps"
or no NZ Super
By means of Sections 173 and 174 (formerly 69G) of the Social Security Act the Ministry of Social Development (MSD) can force pensioners to apply for all overseas pensions they could be entitled to, so they can then be deducted from NZ Super. This includes pensions from the USA and Canada which have flexible starting dates, according to the agreement a pensioner has with their overseas pension provider/ administrator. Americans e.g. can defer payments until age 70 in order to receive higher rates.

MSD thinks that "taking all reasonable steps" (as lined out in the above mentioned Sections 173/174) includes applying at an earlier date, in the case of Canadians at age 65 and for Americans at age 66. In a letter from June 2019 MSD points out that an appellant's case on this issue was dismissed in June 2016. Here is the link to this case: