What the government was told it needed to do

 

The superannuation review began by focusing on rectifying injustice.

 

In the course of the review conducted by the Ministry of Social Development to address serious problems affecting the state retirement program, two key reports in 2003 and 2004 highlight “the unfair treatment of overseas pensions”.

 

The report submitted in May 2004 is the most significant of the whole review.  More comprehensive than its predecessor, it warns the government of grave problems with the state’s retirement policies which cannot be ignored - and outlines exactly what needs to be done to resolve those problems.

 

The report reaffirms the ambitious objective the Ministry had set itself the previous year:

“to propose a cohesive international social security framework that

o        is equitable

o        ensures genuine cost-sharing

o       facilitates the free flow of migrants and labour

o      improves the interface between the social security system of New Zealand and those of other countries

o        provides a single, easy-to-understand portability system

o        assists New Zealand to negotiate social security agreements with other countries, including the US

o        is fiscally acceptable to the government

o       is simple to administer.”

 

The report starkly exposes New Zealand’s social security problems.

 

The 2004 Report warns the government that New Zealand’s social security policies are inequitable, unstable, unsustainable and damaging to New Zealand’s international relations:

 

"New Zealand's policies on payment of New Zealand Superannuation overseas and of overseas pensions into New Zealand are out of date and inequitable.  Because these policies have been developed in a largely ad hoc manner they have become inequitable with one another, and in some cases have diverged from their original policy intent.


“The dollar-for-dollar deduction of an overseas pension from a person’s New Zealand benefit entitlement (is) an often unfair method of sharing social security costs between countries.  It is customary overseas for each country in which a person has been resident to share a proportional ‘burden’ of that person’s social security costs.  The direct deduction policy means that the New Zealand government often avoids doing so.  As a result, a number of countries do not wish to negotiate a social security agreement with the New Zealand government.


“We are significantly out of step with the ‘seamless’ provision of social security adopted in Europe and many other countries overseas, which impacts negatively on other New Zealand government priorities concerning positive ageing and immigration.


“There are considerable administrative problems with the current system.


“The current system involves significant costs to the Crown.”

 

The reports recommend a logical solution to the current system’s problems.

 

The 2003 and 2004 reports recommend an internationally-acceptable framework (“Package A”) which keeps the universal age-pension but pays it at a proportionalized rate that depends on the number of years a person has lived in New Zealand between the ages of 20 and 65.

 

The proposal allows for New Zealanders to spend up to five of those years traveling or studying overseas, with full NZ Super paid to people who have 40 years’ adult residency in New Zealand.  A means-tested safety net provides for those whose proportionalized NZ Super is insufficient.  The direct deduction of overseas pensions from NZ Super payments is abolished.

 

The Ministry considers that Package A:

 

The Ministry of Social Development concludes its 2004 Report:

 

"New Zealand's international social security policies are inequitable.  We believe they are not sustainable.  We recommend that you select Package A.  All government departments support Package A."

 

The full 2004 Report spells out the truth about New Zealand’s international social security policies - a truth conspicuously absent from the Ministry’s website.

 

The Social Development and Finance ministers of the last government rejected Package A and succeeded in suppressing the report for four years while misleading the nation with claims that New Zealand's international social security policies are "sound" and "operating well".  That decision continues to cost New Zealand taxpayers dearly.

 

The 2003 and 2004 reports both affirm that abolishing direct deduction would significantly reduce the cost of New Zealand Superannuation.  The Ministry of Social Development affirms that it is the current policy - not the series of reform proposals - which is financially unsustainable:

 

“We believe that the current system involves significant costs to the Crown, as follows:

 

o      the 10 years’ New Zealand residence required for NZ Super is not limited to working age residence (ie that between 20 – 65 years of age).  Older people therefore arrive under, say, the Family Parent immigration policy and wait 10 years until they qualify for full NZ Super, despite making a limited contribution to New Zealand society.

 

o      Government pays full NZ Super to people who would normally have entitlement to an overseas pension because our current policy settings mean these countries will not negotiate a social security agreement with us (eg the US, Germany, Austria and Switzerland; unpaid overseas pensions totalling approximately $21 million per annum).

 

“Migration forecasts indicate that we can expect sustained high migration flows for some time to come, which will exacerbate the problem.  New Zealand will therefore have to address these issues at some point in time.  The longer we wait, the harder and possibly more expensive they may become to resolve.

 

“(One of) the main advantages of Package A (is that) Government receives potentially significant fiscal gains: while we would be paying more pensions overseas, we estimate this will be more than offset by paying less than the full rate of NZ Super to people with less than 45 years’ working life residence in New Zealand.

 

“Treasury have been fully consulted on this paper and agree with the recommendations.”

 

In rejecting the recommendations of these key reports, the former government chose to make the task of reform the burden of a future parliament.  But Cabinet Ministers, Members of Parliament and the New Zealand public no longer have any reason to accept the assertion that reform of New Zealand Superannuation (including the treatment of overseas pensions) is too costly an option for New Zealand to consider.

 

Crown Ministers betrayed their contempt
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