The Nation Betrayed

A Review of NZ Superannuation,
Shrouded in Secrecy

Following the 1999 election of the Labour Government, senior officials from the Ministry of Social Development (MSD) met with Minister of Finance Michael Cullen and Minister for Social Development Steve Maharey. The ministers were warned that with serious problems affecting NZ Super, the system was in dire need of a major overhaul. The MSD officials were asked to prepare and submit to the ministers a Review of New Zealand Superannuation Portability.

The Review lasted 7 years; in all, nine government departments were involved. The cost in conducting this Review has never been disclosed. The first report was submitted in November 2001, the second in February 2003 and a third in May 2004. The two ministers refused to accept the recommendations of these three reports and insisted on "more modest options". A fourth report was delivered in November 2005, the fifth and final report delivered in October 2007. The final report amounted to nothing more than an appeasement, for politicians anxious to avoid taking any form of responsibility.

In spite of requests, access to these reports was denied to opposition parties and members of the public. However, the second report (February 2003) was accidentally sent by Mr Maharey's office to a private citizen who sent copies to the leaders of opposition parties. Many people could now see for themselves the seriousness of the flaws in the state retirement program, and the recommendations that were being made to the government to reform the system.

For the next 4 years, attempts were made to obtain copies of all subsequent reports under the Official Information Act. The assistance of the Ombudsman was invoked. The office of the Minister for Social Development denied all requests with the repeated claim that releasing such highly sensitive material would put the security of the nation at grave risk. Every conceivable delaying tactic was used by the minister's staff; with four changes during this period to the appointed minister, each time the minister changed, his/her office insisted that the application process for information begin all over again!

A new tactic emerged, the minister's office claiming that releasing the material would jeopardize the ability of cabinet ministers to work through the issues with the NZ First Party under a Supply and Confidence agreement. Presented with evidence that the office of the Minister for Social Development was not working through the issues with NZ First, and had falsely asserted that the United States was opposed to social security arrangements with New Zealand, the Ombudsman instructed the minister to release the reports.

Instead, the office of the minister (now Ruth Dyson) released a two page "summary" seriously misrepresenting the 2004 and 2005 reports. Although the Ombudsman's authority was once again invoked, the minister procrastinated, finally releasing the reports a few weeks before the 2008 elections.

What the Government was Told it Needed To Do.

The first reports warned that NZ Super, after being developed over the years in an ad hoc manner, was no longer stable or sustainable in its present form. The problems could not be ignored any longer: the system was outdated, cumbersome, unfair, and inequitable, involving significant costs to the Crown. The discriminatory nature of NZ Super put the government at serious risk of being challenged under the Bill of Rights Act. The present system was out of step with retirement programs operating in other countries, it failed to achieve genuine cost-sharing and it was damaging to New Zealand's international relations.

The earlier reports proposed a cohesive international social security framework that would be equitable, at the same time providing a single, uncomplicated portability system that would facilitate the free inbound and outbound flow of migrants and labour. It would be fiscally acceptable, ensure genuine cost-sharing and assist NZ to negotiate social security agreements with other countries including the United States. It would be simple to administer, resolving existing administration difficulties.

To achieve these objectives various options were proposed, the most logical a proportional system (Package "A") similar to that of most other developed nations, with safety nets to ensure no one is left disadvantaged. Package "A" would have fiscal advantages over the present system, be easier to administer, provide equity, remove the widely condemned Section 70 (deduction of overseas pensions) and bring an end to the Spousal Provision.

In achieving genuine cost-sharing, Package "A" would pave the way to social security agreements with many other countries which currently refuse to enter agreements with NZ because of its perceived unfair policies. It would remove the application restrictions on NZ Super, overcome the barriers to social security arrangements with the US and result in considerable financial advantages for NZ.

Every government department in New Zealand supported and recommended the adoption of the proportional system of NZ Super known as Package "A".

Failure to address the problems associated with NZ Super now, the reports warned, risks a more complicated and expensive resolution for future governments.

The "Official" Version of the Review

In June 2008, Minister for Social Development Ruth Dyson unveiled her government's seven-year Review of NZ Superannuation Portability.

There was no mention of the various reports, their warnings or their recommendations. Instead, the government's "Review" maintained that NZ Super is working well in its current form, cherished by all New Zealanders, and that "the treatment of overseas pensions is sound". Ms Dyson nevertheless recommended three changes to be considered by the Labour Cabinet.

First, the wording of Section 70 should be rewritten in plain English in order to convey a more positive message (in other words, obscure its real meaning): "The current wording of Section 70 has a negative connotation because it clearly states that the amount of overseas pensions reduce (or are deducted from) the rate of NZ Super…a more positive message about the policy being a top-up rather than a deduction could be conveyed."

Secondly, the payment of NZ Super should be made on a proportional basis to eligible veterans and others overseas (not on a universal basis as government departments had urged).

Thirdly, the Spousal Provision should be discontinued. This was encouraging news for Ruth, and the several hundred other New Zealanders penalized under the Spousal Provision.

Cabinet approved discontinuing the Spousal Provision - but axed the proposal in the Budget of May 2008. Ms Dyson, Dr Cullen and Prime Minister Helen Clark decided that $2.7 million per annum (the estimated revenue loss from discontinuing the Spousal Provision) would be better redirected, with elections approaching, towards offering tax cuts to voters.

It was only after the Ombudsman secured the release of the various reports that the enormity of the Labour Government's deceit was exposed.

The nation's elected representatives are the only persons who have the power to make or change laws. When there is unanimous support throughout the public service for changes in the law that are determined beneficial to the nation, and senior civil servants advise the government of the day to enact those changes, it is inconceivable that a responsible Cabinet would not act on their recommendations.

Instead, Ministers of the Crown lied, denying the existence of any problems and went to extreme lengths to prevent the content of the reports from becoming public knowledge.

In 9 years of almost unprecedented prosperity, a time when every political party had signaled their support for meaningful reforms to NZ Super, the Helen Clark Government did nothing to address a problem of major national importance. In failing to accept the urgent recommendations that had the support of all government departments, the irresponsibility and dishonesty of the Labour Government have cast a shadow over its place in the political history of New Zealand.

As soon as the reports were released, a concise summary was prepared and sent to every Member of Parliament. Although each political party had pledged support for a more equitable retirement program, with pre-election frenzy, the nation's politicians were no longer interested.

Government irresponsibility and dishonesty on this scale would dominate the news in the United Kingdom, the United States and most other democratic countries. Unfortunately in New Zealand there was no interest from journalists - and consequently the public.

Every Member of Parliament has been made aware of the reports submitted to the previous government, and the way they were handled. Except for Green MP Sue Bradford, who is no longer in Parliament, no one has raised the issue. Those National MPs who, prior to the last election signaled their intent to rectify injustices in NZ Super if National became the next government, and who were sympathetic towards Ruth and her situation, have since closed ranks and abandoned their earlier pledges - in the same manner as Labour MPs did a decade ago. "The recession" has now become the convenient excuse.

To view the 2004 report submitted to the government, in its entirety, refer: Review of New Zealand Superannuation Portability: Report 2004.