When Paeroa man Jack Pere started receiving his pension, he didn't expect his payments to be reduced to almost nothing simply because his stepchildren were receiving survivors benefits after their father died.

Pere was told he owed about $13,000 in back payments after the Ministry of Social Development decided to deduct the amount of the survivors benefits from his New Zealand pension.

The decision was reversed last week, but Pere's family have been left upset and disgusted by what his wife called "discrimination".

This will be fraud if you're asking me to use my children's money to pay for my husband's pension.

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"Things need to change," said Narissa Hawaikirangi-Pere, who went through a couple of tight months as her husband's pension was reduced to $17 per fortnight.

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Hawaikirangi-Pere had two children with her first husband, who was an American citizen. After his death, the US Government started paying her about $1200 per month, with the money to go towards the children's needs.

She later remarried to Pere, who applied for and started receiving the New Zealand pension. It wasn't until Pere went to the ministry to enquire about a disability allowance that they told him he should have been getting deductions from his pension due to the children's survivors benefits, and he would have to pay back about $12-13,000.

Spousal deduction is a policy in the Social Security Act in which deductions may be made from someone's New Zealand pension if their spouse is receiving a higher government-administered pension from overseas.

The policy has been the subject of a Human Rights Review Tribunal hearing in Wellington over the past couple of weeks, with pensioners claiming the practice breaches their human rights.

Read more: Pensioners challenge 'evil' NZ super deductions at Human Rights Review Tribunal
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Hawaikirangi-Pere must regularly sign an attestation saying the survivors benefit money is being used on the children, but said the ministry was essentially making her commit fraud in doing so.

"This will be fraud if you're asking me to use my children's money to pay for my husband's pension," she said.

"We've had people from WINZ saying 'oh my God, how can this happen', but apparently it's written into policy."

The couple asked for a review of the matter, and part way through the Tribunal hearing last week, which their evidence was unable to be included in because it was too late, they received a call from the ministry telling them the decision was reversed.

"I just burst into tears, I couldn't believe it," said Hawaikirangi-Pere.

"We can breathe now. Money was quite tight ... it was quite a short time but it was really quite stressful."

The law recognises fairness in the way all New Zealanders are treated as people with overseas pensions get the same amount as other New Zealanders.

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She believed spousal deduction in general was "disgusting".

"The pensioners, they don't need this added stress at their time of life.

"We had never heard of it before. He's a New Zealand citizen, we just expected everyone, when they turned 65, got a pension. It's like a given thing."

Kay Read, group general manager of client service delivery at MSD, said the policy means overseas pensions are deducted from the NZ super on a dollar by dollar basis.

"The law recognises fairness in the way all New Zealanders are treated as people with overseas pensions get the same amount as other New Zealanders," Read said in a statement.

"New Zealanders who qualify for overseas pensions can live outside New Zealand for many years and while they live overseas, they do not pay New Zealand tax or contribute in other ways to New Zealand."

The NZ super is funded by tax paid in New Zealand. The Government deducts $375 million for overseas pensions, but pays out $1.5 billion to this group.

"Cases involving overseas survivors benefit for children are extremely rare. We take a case-by-case approach.

Read confirmed the original decision to make deductions from Pere's pension was overturned, and any money owing was refunded.

"Narissa's case is a complex one involving children and is extremely rare. The case was reviewed as part of the ministry's normal benefit review process and had no connection to the Human Rights Review Tribunal hearing. The decision to reverse the deductions was made on 6 March 2018."