Is the direct deduction policy a fair way to target some benefits?

Residents of New Zealand receiving age-pensions from overseas are not the only targets of section 70 of the Social Security Act 1964.  The direct deduction policy affects persons on any benefit (as well as their spouse or dependents).

NZ Pension Abuse accepts the reasonableness of having pre-retirement benefits and allowances targeted by section 70.  In many ways it is logical that New Zealand does not pay an unemployment, sickness, widow’s or invalid’s benefit to someone who is already receiving a similar type of pre-retirement benefit or allowance from overseas.  The international portability of such benefits and allowances is rare and often subject to medical checks, work-tests and a raft of conditions designed to prevent extended payment and/or abuse.  Because they usually relate to persons younger than retirement age, they automatically cease when the retirement age is reached.

Is targeting age-based pensions unjust?

The similarity between New Zealand’s pre-retirement benefits and overseas provisions for similar life-changing events is quite easy to determine.  But age-benefits and pensions paid to persons above retirement age are not analogous to New Zealand Superannuation in many respects, some having been purchased, some granted, some paid for from after-tax income and accrued under supervised governmental programs like KiwiSaver and the Canada Pension Plan.

Many people abhor the effect that section 70 has on their age-benefits and pensions because of the restricted way in which it tests whether the overseas pension is paid for the same reason or contingency as any New Zealand benefit.  If the contingency of “age” is the main “similarity” then any overseas age-pension (including private and government-supervised provisions for retirement) can be caught by section 70.

In other words, the contingency of “age” is a too general a criterion to test similarity between New Zealand Superannuation and an overseas pension.  Similarly, the fact that an age-pension scheme is set up, supervised, or otherwise operated by a government agency does not necessarily mean that the pension or benefit payable to a natural person is analogous to NZ Super and therefore fully deductible.  KiwiSaver is set up by the New Zealand government but is not deductible from NZ Super.  Why then should the Canada Pension Plan and other government-supervised programs from overseas be caught by the direct deduction policy?

The two test criteria of age and agency status, and a stubborn reluctance by a series of Social Development Ministers to recognise the unfairness that the direct deduction policy generates, have resulted in the policy being questioned in many legal battles and electorate offices throughout New Zealand.  It is obvious that unreasonable targeting of age-based pensions causes much unfairness in many situations.

The review was used to excuse inaction.

For many years, New Zealand’s politicians and officials pointed towards an “ongoing” review of the direct deduction policy.  The review’s mere existence enabled authorities to fend off any complaints by saying that the public would have to wait until the review is complete and the policy decisions are made.  This is not a democratic procedure: there was no provision in this review process to hear submissions from interested parties as is normally done when a submission process takes place.  There is no evidence that any of the submissions that were made by members of the public had the slightest effect on government policy.

NZ Super is not secure.

New Zealanders have no guarantee that a future government will not decide that NZ Super is unaffordable and apply some form of surcharge (such as the one in effect until 1 April 1998) in the future, using tests on assets and/or income, including New Zealand and overseas pensions, to further claw back NZ Super payments.

NZ Super is not sustainable.

NZ Pension Abuse agrees with the analysis of a 2004 report delivered by the Ministry of Social Development in the course of its review, submitting that New Zealand’s current international social security policies:

• are out of date and inequitable
• are significantly out of step with the seamless provision of social security adopted in many countries
• are harmful to New Zealand's international relations
• impact negatively on government priorities concerning positive ageing and immigration
• are socially and financially unsustainable.

NZ Super can be reformed.

NZ Pension Abuse congratulates the Ministry for undertaking in 2004 to propose a cohesive international social security framework which would:

o        be equitable

o        ensure genuine cost-sharing mechanisms for overseas pensions

o        better facilitate the free flow of migrants and labour

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

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

o        assist New Zealand to negotiate social security agreements with other countries

o        resolve obstacles to a US social security agreement and portability of US benefits

o        be fiscally acceptable to the government

o        be simple to administer.

NZ Pension Abuse also congratulates the Ministry for obtaining the support of all government departments for its 2004 recommendation that, for all New Zealand residents, New Zealand Superannuation be:

o       retained as a universal age pension but with changed residence requirements

o        proportionalised at 1/40^th for each year of New Zealand residence between the ages of 20 and 65

o        subject to a ten-year residency requirement

o        portable

o        unaffected by overseas pensions

o        supplemented by a means-tested safety net for those whose limited New Zealand residence and small or nonexistent overseas pension means they have insufficient to live on.

NZ Pension Abuse deeply regrets that Cabinet afterwards acted as if the Ministry’s 2004 findings are invalid, by signally failing to implement a solution which would, if implemented, result in equitable outcomes for all parties.

The direction of reform is clear.

New Zealand Superannuation can once again become a source of pride for all New Zealanders rather than a source of bitterness and division.  It is clear that it must be dependable from one generation to the next, not subject to the whim of a particular government.  It is equally clear that its sustainability depends not only on funding but on a foundation of justice and universality.

NZ Pension Abuse calls on all New Zealanders at home and abroad to actively support our efforts.

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