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Pension glossary

From Direct Deduction to Tier 3 pensions
Direct Deduction Policy
The practice by which WINZ deducts pensions from another country in full from an applicant’s entitlement to New Zealand Superannuation (pension).
 
Spousal Provision
The practice by which WINZ deducts one partner’s/spouse’s overseas pension from the other partner’s/spouse's entitlement to New Zealand Superannuation (pension).

Abatement
In this context: deduction. Overseas pensions are abated against, or deducted from, overseas pensions. Exception: private pension schemes.
 
WINZ
Work and Income New Zealand, the Government agency administering New Zealand pensions.
 
NZ Super
New Zealand Superannuation, the term used for the New Zealand state pension scheme. NZ Super is by nature a Tier-1, tax-funded, flat-rate, universal pension which is neither needs-based nor means-tested (in theory).

Pay-As-You-Go Pension System (PAYG)
Contrary to funded pensions systems, PAYG pension systems are based on the idea of an intergenerational contract. Members making compulsory or voluntary contributions to the pension fund, or paying tax, finance the pensions paid out to today’s beneficiaries. Germany’s pension system is a PAYG system. As opposed to: funded pension system.

Funded Pension System
A pension system, sometimes referred to as pre-funded pension, where contributions are used to build up a capital reserve to pay pension benefits at qualifying age. As opposed to: pay-as-you-go pension systems.
 
Universal Pension
Pensions paid solely on the basis of age and citizenship or residence, without regard to prior work history, earnings or contributions. New Zealand Superannuation is a universal pension.
 
Residency Requirement
One of the conditions to collect New Zealand Superannuation (pension): 10 years` legal residency in New Zealand after the age of 20, with five of those after age 50. Sometimes represented as 10(5) rule.
 
Defined Benefit
A retirement benefit plan, usually a pension, that promises benefits defined on the basis of earnings and/or membership of a pension scheme prior to retirement. It is based on individual contributions.
 
Defined Contribution
A retirement benefit plan that provides benefits based on individual contributions (from the member, employer and/or government) plus the investment returns.
 
Means-tested Pension
Benefits targeted to the poor, or that exclude the wealthy, by making payment conditional on earnings, income, or assets. Separate tests of this nature are sometimes called income tests or asset tests.
 
Income Test
An examination of an applicant’s income (from work, investments, other financial benefits) to establish whether that person qualifies for a pension.
 
Asset Test
An examination of an applicant’s assets (savings, real estate or any other item of economic value that could be converted to cash) to establish whether that person qualifies for a pension.
 
Tiers (or pillars) of Pensions
A concept of categorising different types of pensions.
 
Tier 1
A state pension to which all citizens or residents of a country may be entitled. It is usually contributory but often counts periods out of the workforce if those are deemed to be socially contributive, e.g. caring for children.

New Zealand Superannuation is by nature a Tier 1 pension but differs from most other countries’ Tier 1 pensions in that the residency requirement is very modest; it is not means-tested (in theory); it is not proportional to the number of years lived in New Zealand.
 
Tier 2
A mandatory, work related pension (e.g. German age pension). It is financed by defined contributions and pays a defined benefit. Contributions can be made by the worker alone or on a co-funded employee/employer basis (e.g. German pension scheme, 50/50 co-funded).
 
Tier 3
Voluntary retirement saving schemes, either workplace-related or individually arranged. 
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