The Government is overturning a controversial policy from the 1960s that allows people's pensions to be reduced if their partner also receives a pension from overseas.

Under the Social Security Act 1964, if someone receives a higher pension from overseas, their own New Zealand pension will first be deducted, and then the balance is also taken from their partner in a process called spousal deduction.

READ MORE: Pensioners challenge 'evil' NZ super deductions at Human Rights Review Tribunal

This sometimes leaves people with no pension money at all, while their partner holds all the finances in the relationship.

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But the Government announced it was changing the rule as part of the most recent Budget.

"I think it's long overdue," said Donna La Fauci, one of three people who took the Attorney-General to the Human Rights Review Tribunal over the issue last year.

Pensioners challenging the policy in the hearing said it was "evil".

La Fauci's husband draws a US pension that is higher than the New Zealand pension. The excess is deducted from any NZ super he would have received, and what is left is deducted from her own pension.

At one point her payments dropped as low as $38 per week.

"If [my husband] was of a controlling nature I would be open to financial abuse because of this law," La Fauci told the Tribunal at the time.

"I can't believe the Government would treat me differently just because of who I married."

After hearing the policy would be abolished, La Fauci said it was "a long time coming".

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According to Minister of Social Development Carmel Sepuloni, from July 2020 nobody receiving the standard married rate of New Zealand Superannuation or Veteran's Pension will have their pension reduced because their partner is being paid an overseas pension.

"Spousal deduction will still apply for people who are still receiving other forms of assistance," she said in a statement.

La Fauci, who began suffering health problems since the deductions started, said before then she was a "fairly average, fairly fit woman".

"It's affected my health, it's affected my marriage, it's affected my emotional health."

La Fauci has been an independent woman for much of her life, raising her children alone for 15 years.

"To get to retirement age and be told by the Government, 'well, your husband can look after you', that's what's really damaging, that loss of independence, and it took me a long time to accept that."

While she was pleased the policy was finally being changed, La Fauci has been in and out of hospital with strokes and stress-related illnesses, and questioned if she'd live to see the change be made official.

"Am I going to last another year?"

Jan and Marcus McKeogh would be eligible for the Winter Energy Payment if it wasn't for the fact Jan's pension has been deducted to zero. Photo / Supplied
Jan and Marcus McKeogh would be eligible for the Winter Energy Payment if it wasn't for the fact Jan's pension has been deducted to zero. Photo / Supplied

Christchurch school teacher Jan McKeogh is another person affected by the policy.

She and her husband experience both spousal deduction and direct deduction, meaning she receives no pension at all.

Because of this, they are not eligible for the Winter Energy Payment. McKeogh hopes the removal of spousal deduction will bring her pension up enough so they can receive it.

"It's a huge relief that we have actually gotten this far just a result of a stroke of a pen," she said.

"I'm absolutely over the moon for all the people who have suffered."

The removal of spousal deduction is expected to cost the government $5.6 million over a four year period.

By 2022/23, it is estimated that 450 people will receive their full pension as a result of this change, rather than having it reduced.

Legislation still needs to be passed to remove spousal deduction from the Social Security Act and the Ministry of Social Development needs to ensure its systems are set up for the changes to be implemented smoothly and successfully, which is why the change will not roll out until July next year.

Senior solicitor at the Office of Human Rights Proceedings Greg Robins, who helped take the case to the Tribunal last year, said he was pleased the rule was being overturned.

"Our clients, and many others, have been asking for this change for years. Many New Zealanders would have been surprised to learn that their superannuation can be affected by their partner's overseas income - even if they've never worked overseas themselves - and this is a good step in the right direction."

The Tribunal decision has not been released yet.