The Direct Deduction Policy

Shortchanging Ruth

With the exception of a few years living in the United States, Ruth has spent most of her life in New Zealand. On turning 65, after several decades of working and paying taxes in New Zealand, Ruth applied for New Zealand Superannuation (NZ Super) only to be told that she was ineligible for the state pension.

Ruth was denied her right to NZ Super on the grounds that she was married to an American with retirement income from the US. As Ruth points out, "In the eyes of New Zealand law, I married the wrong man."

Had Ruth married a "good, keen Kiwi bloke" with an inflation-adjusted pension from a large company, or the Government Superannuation Fund, plus KiwiSaver and/or other tax-subsidized retirement funds including tax-free Teachers Superannuation, then Ruth and her spouse would both enjoy full NZ Super!

The Retirement Commissioner falsely defines NZ Super as a "Universal Pension" paid to everyone aged 65 and over after fulfilling a minimum 10 years New Zealand residency (including 5 years over the age of 50), subject to neither income nor asset testing. After a multitude of complaints, the Retirement Commissioner has finally redefined the "Universal Pension" as being paid to everyone - except to those persons in receipt of overseas pensions.

On reaching the age of 65, roughly one in every four New Zealanders discovers that his/her right to the "Universal Pension" doesn't exist.

There are a number of mechanisms in place to deny any form of retirement income to large numbers of foreign nationals who have lived, worked and paid taxes in New Zealand over a period of many years. There are ways to reduce (or withhold completely) the "Universal Pension" for many New Zealand-born persons as well.

The politicians and bureaucrats who repeatedly claim that New Zealand adheres to a principle of "cost-sharing" pensions with other countries are lying - the exact opposite is true. Wherever and whenever possible the NZ Government evades its pension obligations, denying NZ residents any form of retirement benefit in return for their many years of living, working and paying taxes, leaving it entirely to other nations to provide them with a pension.

The restrictions on applying for NZ Super are by far the most effective way to deny New Zealanders the "Universal Pension". Except for persons living in the few countries with which New Zealand has social security agreements, all persons must be ordinarily resident in New Zealand when applying for NZ Super. They may have lived, worked and paid taxes in New Zealand for 40 years and more, but if they are not resident in New Zealand when they reach 65 years of age they get nothing from the NZ Government.

The second (and possibly most contentious) way to reduce NZ Super payments - or deny them completely - is through the direct deduction policy.

Under Section 70 of the NZ Social Security Act, migrants and New Zealanders who have lived and worked overseas are required to declare any foreign government-administered pension investments. The chief executive of the Ministry of Social Development (MSD) decides which overseas pensions "in his opinion" are analogous to, or have like contingencies with, NZ Super - and can therefore be deducted from NZ Super entitlements (refer: Discretionary Powers). His "opinion" extends to the appropriation of virtually all foreign pensions.

Governments over the years have continually sought ways to increase this revenue by extending the direct deduction policy. In 1985 the government extended it to include spouses and children (Social Security Amendment Act Number 2, #1959) - which is how Ruth was caught. It means that any Kiwi who marries someone drawing a pension fund administered by a foreign government loses his/her right to NZ Super if the amount of the partner's overseas income exceeds the amount of NZ Super paid to married couples.

In 2004, the passing of the Civil Union Bill extended the policy to same sex and de facto couples. Only days after the passing of this bill, Mr A - who had lived his entire life in Christchurch and had just reached 65 - was informed by WINZ that he was ineligible for any form of NZ Super as his partner, Herr B, was receiving a pension from Germany.

Further, through the international services of MSD, targets were set to locate alleged undeclared overseas pensions for confiscation, to bring in an additional $25 million a year. (Areas primarily under scrutiny were South East Asia, China and the US). To prevent so-called "double-dipping" MSD has approached foreign governments asking them to release the names of persons receiving their pensions in New Zealand. Countries such as Austria, Switzerland and Germany rebuffed these approaches.

The Sunday Star Times exposed the degree of "legalized theft" in an article "Clobbered by Pension Grab" (August 7, 2005) featuring a British migrant couple who calculated that by the time they reach 85, the NZ Government would have taken from them $300,000 in overseas pension funds. NZ Super is not a gift from the government: the article makes the point that people in New Zealand do actually pay the government for a pension in retirement through general taxation. In appropriating overseas pension funds, the NZ Government is being paid twice for an individual's retirement pension.

It is the government which is effectively "double-dipping", not pensioners.

Spanning several decades, the direct deduction policy has provided successive governments billions of dollars in revenue. It is a bonanza that the state has shown it is not prepared to lose, at any cost. The confiscation of foreign pensions is highly unethical with no basis in international law; nevertheless it is a source of income that the NZ Government has been determined to safeguard.

Keeping this cash flow continuing, undisturbed, is the responsibility of senior MSD officials. These public servants enjoy job security, impressive salaries, handsome performance bonuses and generous pensions massively funded by the tax-payer (refer: Rewarding Service). Their Ministry oversees the payment of millions of dollars each month in benefits, without blinking an eye, to extended families (some as large as 10 or 12 members) where no one works or has any intention of working. These same officials however, show an extraordinary zeal in pursuing the retirement savings of elderly hard-working migrants and New Zealanders returning from working abroad.

How would New Zealand react if other countries captured incoming NZ Super payments to subsidize their retirement schemes? What would be the reaction if other countries introduced a Spousal Provision and informed their residents that they were being denied a pension because they had married a New Zealander? What if Courts around the world endorsed such policies?

No other country in the world maintains policies of this nature, no other Court system has approved them - these are unique to New Zealand.

The public servants, politicians and Courts responsible for New Zealand's retirement policies appear to have absolutely no concern for New Zealand's image in the world which recently has taken a battering with damaging media coverage in Holland and Germany. More is sure to come.

Conclusion

Approximately 11% of persons receiving NZ Super have their NZ Super entitlements reduced under Section 70, currently 70,000 persons according to MSD. Another 7% of our aged resident population, for varying reasons, received nothing at all. Furthermore, out of 155,000 New Zealanders of retirement age living in non-agreement countries, only 511 (3%) were receiving NZ Super, and at just half the going rate. Although there is some doubt as to the correctness of these latter statistics, the government is undeniably defaulting on its promise of its "Universal Pension" to a significant number of elderly New Zealanders. NZ Pension Abuse maintains that it is at least 25% of New Zealanders.

MSD has confirmed that 85% of persons subject to the direct deduction policy have lived and paid taxes in New Zealand for at least thirty years, and more.