NZ-Oz situation dumps on Kiwis

15 May 2017

Under current policy settings Kiwis lose out if retiring in Australia, argues Susan St John.

An Australian proposal to make students from New Zealand pay higher fees is the latest of many unfair transtasman policies. The Australian-New Zealand social security agreement is disturbingly stacked in Australia's favour.

Wealthy Australians can come to New Zealand and use their residency in Australia to qualify in full for New Zealand Superannuation. While they must apply for the Australian age pension to offset their NZ Super, if they don't qualify for it because they are too wealthy then the entire cost of their NZ Super is carried by New Zealand taxpayers.

On the other hand, retiring in Australia could be a very bad idea for New Zealanders. The Ministry of Social development informs that "if you don't qualify for an Australian Age Pension based on income or assets, your New Zealand Superannuation will stop from the date that we receive your application for New Zealand Superannuation payable in Australia".

Under our law, all overseas state-administered pensions are deducted from New Zealand Super entitlements. While most see it as fair that you can't get two basic pensions such as the age pension from Australia or Canada, or the UK as well as NZ Super, often overseas state-run pensions look a lot like KiwiSaver and yet they are still deducted.

On the other hand if a compulsory pension saving scheme is run by the private sector, it is not used to reduce NZ Super. Thus Australians residing in NZ can have very large superannuation savings and still get full NZ Super.

Other immigrants, such as from China, may be very wealthy yet because the Chinese state pension is not yet payable abroad, they too have no deductions.

While Australians are treated with kid gloves, woe betide other unfortunate New Zealanders who marry someone with a large overseas state pension. This affects women particularly. If there is any overseas state pension left after deduction for his NZ Super, the excess can be used to reduce her NZ Super. She may have lived and worked in NZ all her life, but get a reduced NZ Super or even none at all. This might be a second relationship, or might be more like a friendship but Winz can deem her to be in a relationship because they "look like a couple".

The 2016 Retirement Incomes Review was the three-yearly chance to explore these anomalies and other urgent policy issues of an ageing population. Government's response was muted with just two, highly simplistic proposals.

As angry attention focused on the Government's intention to raise the age for NZ Super to 67 by 2040, the second policy slipped under the radar. This increases a new immigrant's residency requirement for NZ Super from 10 years to 20 years.

Bill English said there will be grand-parented rights for people who are already New Zealand citizens or residents. So what about returning New Zealanders? Pushed out to the never-never, the residency of 20 years will affect only future New Zealand newborns who won't begin retiring until 2084.

What we have then is a 20-year rule for a tiny number of people, while ignoring major equity issues for those here now with overseas state pensions.

A paper from the retirement Policy and Research Centre, commissioned for the 2016 Retirement Review outlined four broad options for reform. None of these has been publicly discussed. One promising option is to raise residency for everyone to 25 years while abolishing all deductions of overseas state pensions.

People who are resident in NZ between the ages of 20 and 65 for 25-45 years don't have enough time to accrue a large entitlement to an overseas state-administered pension. Most are not wealthy and should keep these small additions to supplement their New Zealand Super.

When there is a Social Security Agreement, if residency in that country is used to get 25 years of residence in New Zealand only one basic pension should be payable according to the agreement. Australians who miss out on the age pension should not get NZ Super.

Where there is no Social Security Agreement, or there has been 25 or more years of residence, any overseas pension would simply be treated as additional taxable income. There are lots of details to be fleshed out. Those who do not have 25 years by age 65, may be allowed to accrue years in retirement, or might qualify for an income-tested benefit that takes any overseas pension, along with other income, into account.

Thus the issue is far bigger than just how the transtasman treatment is failing New Zealand. We deserve better than the Government's recent simplistic 20 years announcement for new immigrants that just sweeps a festering mess under the carpet.

Read the published article: NZ Herald

Susan St John

Susan St John is an Honorary Associate Professor of Economics at the University of Auckland Business School, and is Director of the School's Retirement Policy and Research Centre.



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