The alleged use of stolen identities of dead children is similar to how former Act MP David Garrett obtained a false passport.
Inspired by spy novel The Day of the Jackal, Garrett visited a cemetery in 1984 and found the gravestone of a 2-year-old boy, whose birthdate was close to his own. He copied the details, obtained the child's birth certificate, filled out a passport application and photographed himself in disguise.
Garrett was arrested in 2005 - before entering Parliament - and resigned in disgrace in September 2010 when suppression orders were lifted to reveal his conviction for passport forgery.
The identity theft was described in court documents as "akin to stealing from the grave" by the deceased child's mother.
Mike Smith, head of the MSD fraud unit, said Diedrichs' alleged use of stolen identities to claim $450,000 in pension payments over 20 years was "rare and cannot happen today".
"To commit an offence of this nature would require a person to go to extraordinary lengths in creating and carrying out a calculated plan which was methodical, determined and deliberate.
"This man has been investigated and charged with stealing from taxpayers. His case will now be exposed to New Zealanders as he goes before the courts and is held to account for his alleged offending.
"We are constantly reviewing our controls and they are considerably stronger today than 20 years ago."
Mr Smith said more robust checks were now in place to verify identity and all new benefit applications are now matched against the births and deaths register - preventing someone from stealing the identity of someone who has died. The MSD also employs data mining and data matching to check around 538 million records each year, alongside six other government agencies.
Benefit fraud was treated with zero tolerance with 700 cases prosecuted each year, said Mr Smith, with a 95 per cent conviction rate.
Assets are seized and benefit payments reduced in a bid to recoup any stolen money. In this case, Mr Smith said the MSD had worked with the police asset recovery team to freeze just over $350,000 in cash and assets. The money is the subject of ongoing court proceedings.
Benefit fraud cost taxpayers nearly $16 million last year - just 0.01 per cent of $16 billion of social welfare payments.
The Weekend Herald revealed last December that benefit fraudsters stole $1.6 million by claiming the pensions of dead family members. Widows, children and grandchildren claimed an average of $105,000 each by forging signatures on superannuation forms to show their dead relative was alive.
In some cases, the illegal pension payments went on for 15 years.
The long-running rorts were discovered last year after a nationwide "data-mining" investigation into 250,000 deaths since 1984. Criminal charges were eventually laid against 16 people, who were all convicted.
One of New Zealand's greatest fraudsters posed as pensioners to swindle the social welfare system and embarrass the MSD.
Career conman Wayne Thomas Patterson used 123 fake identities to steal $3.4 million over 2 years - or $56,000 a fortnight. He was jailed in October 2007 for eight years.
