Portability: Retiring Overseas

With the unprecedented upsurge in the international mobility of labour during the second half of the 20th century, most of the world's developed nations agreed to protect the pension rights of individuals and ensure the portability of legitimately earned pensions from one country to another. New Zealand has remained an embarrassing exception.

The Kiwi system of state pension has become so convoluted and inequitable that nations around the world baulk at entering into social security arrangements with New Zealand. Over the past decade, New Zealand has ignominiously failed to sign a social security agreement with any other country. Sweden is the latest in a long line of nations to flatly refuse a social security agreement - unless New Zealand cleans up its act.

New Zealand does have agreements in place with a smattering of other countries. Each agreement is flawed and a source of increasing discomfort for those nations misled into signing agreements with New Zealand: Australia, Canada, Denmark, Greece, Holland, Republic of Ireland and the United Kingdom (with a separate agreement for Guernsey and Jersey)

uperannuitants (and persons eligible for the Veterans pension) who wish to retire and receive NZ Super payments outside New Zealand must be ordinarily resident in New Zealand, or one of the countries with which New Zealand has a social security agreement, when they reach 65.

Superannuitants who retire in agreement countries are subject to the terms of the agreement with that specific country. These agreements vary. For example, the social security agreement with the UK has not been revised since 1983 and does not provide for the payment of NZ Super to Kiwis living in the UK, who can, if eligible, apply for the British pension. Under the agreement with Australia, eligible New Zealanders are subject to means testing (assets and income) with the result that many New Zealanders end up with nothing. (refer: Discovering the Australian Outlook)

For superannuitants who retire to non-agreement countries, the rules have now changed.

THE 2009 NEW ZEALAND SUPERANNUATION AND RETIREMENT AMENDMENT ACT

Effective January 5, 2010, the Retirement Amendment Act changes the rules for NZ Super and Veterans pensions paid to persons retiring to non-agreement countries (although the application restrictions remain unchanged). Previously, superannuitants retiring to non-agreement countries were paid a flat 50% of the going rate of NZ Super. Under the new rules they are now paid on a proportionate basis.

Persons who have lived 45 years in New Zealand between the ages of 20 and 65 can now receive 100% NZ Super if they retire to non-agreement countries. Persons with, for example, 25 years of adult residency will be paid 25/45ths of NZ Super. (Note: the calculation is based on fully completed months of residence in New Zealand rather than years).

This recent change to the "general portability rule" is a welcome improvement for some and has enabled them to receive more than just the previous 50% rate. But, despite the way some MPs congratulated themselves on the passage of this bill, the new rules have not been properly thought through - they in fact exacerbate the problems in the nation's retirement program.

First, the legislation is not as generous as Minister for Social Development Paula Bennett trumpets. Ms Bennett and Finance Minister Bill English disregarded original recommendations to the government (refer: The Nation Betrayed) that eligibility for full NZ Super should be based on 40 years, not 45, to allow New Zealanders a period of overseas experience without penalty.

Secondly, the legislation fails to provide adequately for pensioners who retire overseas with an unqualified spouse/partner. The pensioner may qualify for full NZ Super in a non-agreement country, but when his/her unqualified spouse/partner reaches 65 years of age, he/she will get nothing because of the application restrictions.

Thirdly, no provision has been made for pensioners who, moving from an agreement country to a non-agreement country, have to reapply for NZ Super, only to be denied any further payments because they are not resident in New Zealand when applying for the portability to a non-agreement country. SECTION 70

Prior to this new legislation, Section 70 was applied to the half-rate payments of NZ Super and Veteran's pension to residents of non-agreement countries. Under the new legislation, the direct deduction policy (Section 70) no longer applies to persons (or their partners) with overseas pension entitlements who retire to either agreement or non-agreement countries.

For Ruth and her husband Bill, the new rules constitute a huge advantage - providing they move offshore. If Ruth and Bill retire to the United States (a non-agreement country), the NZ Government would no longer deduct Bill's US Social Security income from Ruth's NZ Super. Moreover, Bill would be eligible for NZ Super on a proportional basis; Ruth would also be eligible for NZ Super (likewise on a proportional basis) as well as any US social security pension based on the years they paid into the system.

The new rules also benefit Mr A and Herr B of Christchurch (refer: Shortchanging Ruth) - providing they move offshore. If these two men moved to Germany, Section 70 would no longer be applied to Herr B's German pension. In addition, the NZ Government would start paying Herr B proportional NZ Super, and Mr A (who currently gets nothing) would be paid full NZ Super.

Most retired people, whether or not they have children, grandchildren and close friends living nearby, are unlikely to move to another country so late in life. Neither Ruth nor Bill nor Mr A nor Herr B want to leave New Zealand, despite the significant financial advantages now offered to them if they do so.

For migrant communities, the law change adds insult to injury. There is every appearance that the new legislation is designed to encourage immigrants to leave New Zealand for good: it has all the hallmarks of a deliberate attempt to penalize those who have the cheek to stay in New Zealand once their working days are over.

The recommendations put to the former Labour Government to urgently reform the state pension program have been entirely disregarded by the current government as well. Rather than adopting a proportional system of NZ Super for everyone, a move all government departments had supported, Mr English and Ms Bennett have applied it only to retirees in non-agreement countries.

PACIFIC ISLANDS - SPECIAL PROVISIONS

Besides the so-called agreement and non-agreement countries, there is a third category of nations affected by New Zealand's state pension program: the Pacific Islands.

The long-standing special portability provisions for persons retiring to Pacific Island states/territories remain unchanged by the new bill. Anyone with a minimum of just 20 years New Zealand residency can receive full NZ Super payments when retiring to any of 22 designated Pacific Island states/territories: American Samoa, Cook Islands, Federated States of Micronesia, Fiji, French Polynesia, Guam, Kiribati, Marshall Islands, Nauru, New Caledonia, Niue, Northern Mariana Island, Palau, Papua New Guinea, Pitcairn, Solomon Islands, Tokelau, Tonga, Tuvalu, Vanuatu, Wallis and Fortuna, and Western Samoa.

To qualify, all applicants must be resident in New Zealand on reaching 65, and Section 70 will still be applied to anyone in receipt of an overseas pension from a third state. For example, a German national with 23 years of pension from Germany and 20 years residence history in New Zealand will qualify for full NZ Super if he/she moves to one of the listed Pacific Islands. However Section 70 will still be applied to the German pension, with the same harmful effect as if the pensioner had stayed in New Zealand.

Although these special provisions are available to anyone, they are primarily intended to benefit Pacific Islanders. Official documents cite "special provisions" in return for the "special contributions" Pacific Islanders have made to the New Zealand economy.

NZ Pension Abuse asks why New Zealand should single out any group for special privileges. How can it be argued that Chinese, German or American workers in New Zealand have made less of a contribution to the New Zealand economy than Pacific Islanders?

Once again, it is hard to escape the conclusion that the NZ Government's special treatment of Pacific Islanders is designed to encourage Pacifika to leave New Zealand for good - that the "special provisions" are not prompted by generosity but by the realization that it is cheaper in the long run to encourage Pacific Islanders to return home rather than stay and become a burden on the public health system.

New Zealand has no social security agreements with France or the US. The special portability provisions to Pacific Islands lead to several embarrassing inequities. Having qualified with exactly 20 years residency in New Zealand an American citizen can retire in Pago Pago or Palau with full NZ Super, whereas the American citizen who retires to Honolulu or Los Angeles gets less than half that amount (20/45ths). Similarly, a French citizen with 20 years residency in New Zealand can retire in Papeete or Noumea with full NZ Super - but a French citizen who retires in Paris or Nice gets less than half the going rate.

CONCLUSION

The new portability rules for persons retiring to non-agreement countries are in many ways an improvement on the previous general rate of 50%. However, granting full NZ Super within 10 years and using it to excuse applying Section 70 to any pension paid from overseas is creating even more inequity between people who remain in New Zealand and people who move offshore.