The Direct Deduction Policy and Widening the Net

There are 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 the Universal Pension (or deny it completely) for New Zealanders as well.  However, it is the contentious direct deduction policy that is most widely used, a policy that catches thousands of people. 

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.  Foreign pensions are then directly deducted from the NZ Super entitlement.

Where the overseas income is greater than the standard amount of NZ Super, the pensioner receives nothing in the way of NZ Super regardless of his/her years of contributing to the NZ system.

In spite of repeated claims by Cabinet Ministers that New Zealand adheres to a principle of “cost-sharing” with other countries, 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 direct deduction policy is used to take money from elderly people, swelling the government’s coffers by at least 185 million dollars a year.

Spanning several decades, the direct deduction policy has provided successive governments with 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 overseas pensions is a highly unethical means of obtaining revenue (with no basis in international law); nevertheless it represents a source of income that the NZ Government has shown extraordinary zeal in safeguarding.

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 (this is how Ruth was caught).  It means that any New Zealander who marries someone drawing from a pension fund administered by a foreign government forfeits his/her right to NZ Super if the amount of the partner's overseas income exceeds the amount of the NZ Super paid to married couples.

 In 2004 the passing of the Civil Unions Bill extended the policy to same sex and de facto couples.

Further, through the international services of MSD, targets have been set to locate alleged undeclared overseas pensions for confiscation – to bring in an additional $25 million a year.  (Areas presently under scrutiny are believed to be South East Asia, China and the United States.)

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 will have taken from them $300,000 in overseas pension funds.  Generally speaking, 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.

The government is effectively “double dipping”.  And very effective it is too.

In March 2006, the entire Dutch migrant community erupted with anger after Hon David Benson-Pope, barely six months into his portfolio as the new Minister of Social Development, indicated he was dipping further into Dutch pockets.

The Netherlands Government had approved a cash payout of a tax rebate of 9.66 Euros a month for low income earners - including Dutch migrants in New Zealand receiving the AOW pension from Holland.  Mr Benson-Pope informed Dutch pensioners that, following communication with the Nederlands Sociale Verzekeringsbank, the tax rebate could be considered a cost of living increase and consequently subject to Section 70.

An unapologetic Mr Benson-Pope informed immigrants from Holland that any tax rebate granted to them by the Dutch Government would not be for their benefit - but entirely for the benefit of the New Zealand Government.

Last modified: February 21, 2007