Claire Dale and Susan St John: NZ needs to smarten up Super rules

The Government could be more lenient toward older immigrants. Photo / Thinkstock
The Government could be more lenient toward older immigrants. Photo / Thinkstock

While the Kiwi diaspora is the world's highest on a proportionate basis, our Government remains unconcerned about the net outflow of talent and its effect on the future tax base for New Zealand Superannuation.

That same Government had also remained determinedly blinkered to New Zealand's increasing popularity as a destination for retirees.

Last year, 14,826 people were approved for residence under family-sponsored migration. Of these, more than 1200 were over-50s.

There are many reasons in an uncertain world for increased immigration, especially at older ages, including grandparents providing help with childcare for young working families. But concerns have been raised around the fairness of prioritising wealthy older parents and perhaps the Government is beginning to sense the implications of this immigration for social spending.

Last month Immigration Minister Nathan Guy temporarily closed the parent sponsorship category so that migrants could no longer sponsor their siblings or close family members.

Unlike state age pensions in most countries, NZ Superannuation is not means-tested and to be entitled to it does not require a minimum period of employment or specific contributions.

To qualify for the full amount of NZ Superannuation, a person has to live in New Zealand for only 10 years, five of those years after the age of 50.

Residency can also be accrued after 65. Life expectancy at the age of 65 is 18.3 years for men and 20.8 years for women, making NZ Superannuation equivalent to a tax-free, lump sum of around $250,000 for a single person. And there are associated costs such as access to the health system and long-term care to be taken into account.

Australians retiring to New Zealand may qualify for NZ Superannuation in full, although they would miss out entirely on the means-tested Age Pension in Australia.

Under the outdated social security agreement, they can even use their residency in Australia to qualify for the New Zealand pension, and our rules ignore the massive wealth that many older Australian migrants have accumulated in their tax-subsidised, compulsory superannuation scheme.

At the same time, there is a very disgruntled group of pensioners from Canada, the UK, Ireland and the Netherlands who may have worked in New Zealand for 30 years who find their modest overseas contributory pensions (similar to KiwiSaver) are deducted from NZ Superannuation.

Under Section 70 of the Social Security Act 1964, the Government can deduct a foreign pension that looks like it is doing the same job as NZ Superannuation. That may be fair as a policy to prevent people getting dual pensions.

Unfortunately, the way it works in practice is far from equitable, and the rules around it are far from transparent, with some pensioners finding themselves in financial distress.

One option canvassed by the Retirement Policy and Research Centre to improve matters is for New Zealand to revise the residency requirements for NZ Superannuation.

If, for example, the residency requirement is increased from 10 to 25 years to be accrued only between the ages of 20 and 65, New Zealand could take a much more relaxed approach to immigrants who may also have other pensions that currently are caught in the Section 70 net.

Most New Zealanders would not be affected at all by the increased requirements and for those immigrants who do not meet the 25-year rule, the welfare system can still offer support on an income and asset-tested basis.

One egregious aspect of the present policy is that a retiree may lose some or all of their NZ Superannuation because their partner's overseas pension income is greater than their individual NZ Superannuation entitlement.

It is often a huge shock when a wife or husband applies for their own pension, sometimes when they have lived and worked all their lives in New Zealand, to find that they have apparently married the wrong person and would get more if they divorced.

At the very least, this archaic aspect of the overseas pension policy should be changed immediately.

Dr Claire Dale is a research fellow and associate professor at the Retirement Policy and Research Centre in the Business School of the University of Auckland and Susan St John is its co-director.

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