CPP: Canadian Pensions Pirated

Since this website was established in early 2004, not one foreign nation has entered into a social security agreement with New Zealand. The trap that the Canadian Government fell into serves as a grim warning.

Canada provides three pensions/savings schemes within its pensions' regime; the Old Age Security (OAS) scheme as the first-tier ("pillar" in Canadian description), a residency-based retirement benefit provided by the Canadian Government to all residents on fulfilling a minimum of 10 years residency, or 20 years if the OAS is exported unless there is a social security agreement in place. Canada has social security agreements with many countries - including New Zealand.

Although the OAS scheme is very similar to NZ Super, it is worth noting that recipients of the OAS are not subject to any direct deduction of pension entitlements from other nations. An OAS recipient can receive pension payments from, say, Germany or the US, without such payments affecting his/her OAS entitlement. Unlike New Zealand, there is no bureaucracy in Canada inferring that these people are "double-dippers", churning out such dishonest claims as "Canadians who have had the opportunity to work overseas should not be advantaged over Canadians who have stayed home!"

In addition to the OAS, there is a second pension program known as the Canadian Pension Plan (the CPP), a compulsory second-tier/pillar contributory scheme paid to all eligible persons on retirement, regardless of where they choose to live. Payments into the CPP are based solely on employee/employer contributions with no government (public monies) invested, and the monthly amount of the CPP pension is based solely on a person's earnings under the plan. The CPP also provides for disability and survivors benefits in addition to benefits available through their OAS entitlement.

The CPP is administered by the Canadian Government; all provinces participate with the exception of Quebec which opted instead for its own second-tier retirement scheme known as the Quebec Pension Plan, or the QPP.

The third-tier/pillar of the Canadian pension/retirement savings regime is the Registered Retirement Savings Plan (RRSP). This plan is an investment scheme providing certain tax incentives and is privately administered. To date, the RRSP has not been targeted by the NZ Government's direct deduction policy.

In 1996, on behalf of the provinces (except Quebec) the Canadian Government signed a social security agreement with New Zealand in good faith, indicating at the same time, some uneasiness at New Zealand's direct deduction policy. Initially, the New Zealand Government confined the direct deduction policy under Section 70 only to those persons in New Zealand receiving the Old Age Security (OAS), a retirement benefit almost identical to NZ Super.

Not content however, after an interval MSD officials began targeting people in New Zealand eligible for the CPP, a personal retirement savings closely resembling KiwiSaver (even though KiwiSaver is administered by statute of the government, the government has utilized ‘administration' as a reason to capture the CPP during the appeals process through to the High Court).

In 2002, the Ministry and Crown Law won a significant High Court decision in the Hogan Case (refer: The Roe Case and Other High Court Decisions) with the ruling that it was not necessary for the CPP to be analogous to, or have like contingencies with, NZ Super.

Responding to continual complaints, the Canadian Government at ministerial level has asked the New Zealand Government, on several occasions, to reconsider its policy of deducting the personal employment-based CPP retirement savings from NZ Super - only to be rebuffed every time.

Relying on advice from MSD officials, various Ministers for Social Development have replied to Ottawa claiming, initially, that deducting the CPP is in compliance with New Zealand law, later, that these actions have been upheld in the High Court, and more recently a blunt "it is exclusively an internal matter" - which could be interpreted as "it's none of your business". (The direct deduction policy is implemented at the ‘discretion' of the MSD chief executive and therefore does not require legislative change to rectify).

After successfully capturing the CPP, MSD set its sights on the few individuals in New Zealand receiving the Quebec Pension Plan. The language of the Social Security Act 1964 specifies that section 70 can only be applied to pensions "administered by or on behalf of the Government of the country from which the benefit, pension or periodic allowance is received": some of those persons affected by the MSD bid to grab the QPP appealed before Benefit Review Committees and the Social Security Appeal Authority claiming that Quebec is a province, not a country.

Furthermore, the Social Security Agreement between New Zealand and the Canadian Government applies to the provinces that participated in the CPP but does not apply to Quebec which refused to have anything to do with the CCP (except to honor pension rights when individuals move from one province to another). Quebec has its own social security agreements with other countries - and has astutely avoided entering any agreement with New Zealand.

Nevertheless, the combined forces of MSD and Crown Law crushed the appeals against the abatement of the QPP by arguing that (in disregard of the language of Section 70) no distinction should be made between a retirement scheme operated by a federal government and a scheme operated by a provincial government. And they succeeded! It speaks volumes about justice, and the legal system, in New Zealand.

Conclusion

In the treatment of overseas pensions, none more than the Canadian situation exposes a complete disregard - almost contempt - on the part of Ministry of Social Development and Crown Law officials for New Zealand's international relations. Canada, a nation respected for being non-aggressive, non-confrontational, a good friend and fellow Commonwealth member, has turned to the NZ government and specifically asked it to discontinue measures that are punitive to Canadian citizens (and others). These requests have been made more than once - but the attitude of public servants in New Zealand has been an insulting, "Mind your own damn business".

A number of Canadians resident in New Zealand, along with New Zealanders receiving the CPP/QPP, have asked the Canadian Government to review its Agreement with New Zealand. Previously, Ottawa has been reluctant to review its Agreement with New Zealand because, in spite of concerns over the CPP deduction, the Agreement benefits many people.

New Zealand pays about 550 NZ benefits to residents of Canada, which are payable as a result of the Agreement (the payment of NZ Super to Canadian residents, under the old system, would have been reduced to 50% of the going rate if Canada were a non-agreement country). This number does not include those Canadian citizens who have emigrated or returned to New Zealand and are presently in the NZ workforce who, until they reach retirement age, have no idea that the NZ Government will confiscate their personal savings in the CPP/QPP.

With the passing of the 2009 NZ Superannuation and Retirement Amendment Act (refer: Portability: Retirement Outside New Zealand) the equation has changed. Under the new legislation, should Canada become a non-agreement country, Canadian residents eligible for NZ Super payments from New Zealand would now be paid on a proportional basis based on their years of residency in New Zealand, and, Section 70 would no longer be applied to any overseas pension entitlements.

In pirating the CPP/QPP, the NZ Government is thumbing its nose at a very basic principle. This is not solely a monetary issue; it is a human rights issue, the human right to the proceeds of personal savings implemented to retain dignity and independence in retirement.

FOOTNOTE: The recently completed study "New Zealand Superannuation and Overseas Pensions: Issues and Principles for Reform" by the Retirement Policy and Research Center, Economic Department, University of Auckland (St. John, Littlewood & Dale) and commissioned by the Human Rights Commission, presents further evidence for resolving this major issue. Reference to this document and supporting literature can be accessed through the www.rprc.auckland.ac.nz website and should be utilized to obtain valuable reference data.