British Pensions: Dual Entitlement

The British comprise by far the largest group of overseas pensioners.

Over 40,000 British pensioners are penalized by the direct deduction policy, even though 75% of them have contributed to the New Zealand economy for 25 years or more.

United Kingdom pensions due British migrants in New Zealand amount to $165 million a year. The pensions are deducted from the expatriates' NZ Super or paid by the Bank of Scotland directly into WINZ accounts.

National Insurance is an employment-based pension.

The UK National Insurance pension, unlike NZ Super, has nothing to do with tax contributions. It is not state-funded and it is not a benefit. It is a pension, administered by the British government and funded by levy, every employed person in the UK paying a fixed amount each week. But it is paid out only to those who have earned it, the amount received depending on the number of contributions made, in the same way as a private pension or annuity.

Some British pensioners enjoy dual entitlement: they are exempt from the direct deduction policy, receiving two state pensions - the UK National Insurance pension and NZ Super - without reduction. However, 99% of British migrants never learnt, or learnt too late, that they might qualify to receive both pensions by making voluntary payments.

British pensions paid into New Zealand are not inflation-adjusted.

British expatriates in New Zealand are keenly aware of further discrepancies regarding UK pensions. British pensioners living in the European Union, the United States and a few Commonwealth countries have their pension rates indexed to inflation. But for those living in 48 of the 54 Commonwealth countries, including New Zealand, there is no annual adjustment: the UK pension is frozen at the amount it was when first paid.

While many British migrants favor New Zealand adopting a proportional system, it has to be admitted that if New Zealand were ever to do so, a UK pension frozen at this amount would be insufficient to live on. (The 2003 and 2004 Reports take these considerations into account in their provision of "safety nets" to ensure no one is disadvantaged).

The frozen pension arrangement saves the British government some 400 million pounds every year. Australia has cancelled its Agreement with the UK in an attempt to force Britain to index its pension to inflation. British policy is currently being challenged as discriminatory and in breach of the Human Rights Act in the European Court of Human Rights.

Even if the challenge were to succeed, and the British government forced to up-rate the pensions of all its citizens living abroad, the majority of British pensioners living in New Zealand would receive no benefit - it would all go to the New Zealand government. For all those subject to section 70 of the Social Security Act 1964, any increase in the UK pension would simply be deducted from their NZ Super.

Of the 47,000 British pensioners living in New Zealand, only those exempt from the direct deduction policy would receive the extra benefit of the up-rating of their UK pension in line with inflation.

Dual entitlement

Until January 1968, British immigrants who had lived in New Zealand for twenty years enjoyed dual entitlement.

They received their New Zealand pension in full in addition to any retirement pension they might be receiving from the United Kingdom. The position changed in 1969, however, when the 1956 UK/NZ Agreement was being revised. Section 70 of the Social Security Act 1964 required that New Zealand pensions would be reduced by the amount of any pension paid under the social security system of another country - including the UK.

In the new (1970) Agreement however, a concession was obtained for those people who, before 1970, based on British government advice, had been paying voluntary contributions to the UK pension from New Zealand. Under this concession, a number of British pensioners are still enjoying dual entitlement: they are exempt from the direct deduction policy, receiving two state pensions - the UK National Insurance pension and NZ Super - without reduction.

The concession was not advertised widely in Britain - and not at all by New Zealand authorities.

Perhaps an annual income of hundreds of millions of dollars was too considerable a bonanza for the New Zealand government to relinquish. The upshot was that 99% of British migrants never learnt, or learnt too late, that they might qualify to receive both pensions by making voluntary payments.

Not surprisingly, the previous government appeared to be considerably embarrassed by the dual entitlement anomaly, loth to admit that the Ministry of Social Development operates a discriminatory two-tier pension policy that does not treat all overseas pensioners on an equal basis.

To admit to dual entitlement would be to admit to double standards.

Instead, former Finance Minister Michael Cullen chose to answer enquiries with explicit denials:

"Claims ... that many New Zealanders have two state pensions (are) not correct ... Claiming that some New Zealand citizens are already exempt from the direct deduction policy ... is not correct."

Although the dual entitlement provisions were not made known to most British immigrants, New Zealand's Deputy Prime Minister was certainly aware of them.

Ever since the direct deduction policy was formulated in 1964, New Zealand governments have insisted that there should be no double dipping.