The University of Auckland’s Susan St John argues New Zealand should get rid of the spouse pension rule which penalises people for being married to the ‘wrong’ person
Coalition talks should include policy on the number of residency years required to qualify for NZ Super, and ‘Section 70’ of the Act – which deducts state overseas pensions from New Zealand Superannuation entitlements.
While resolving many aspects of overseas pensions policy may require parties to agree to a working group or select committee process, a clear agreement should emerge to abolish the worst aspect of section 70, which sees a person’s pension docked if their spouse gets an overseas pension.
Under the current rule, which is seriously out of touch with today’s reality, some spouses find to their horror they get less or even no NZ Super, even though they have lived all their lives in New Zealand. The Retirement Policy and Research Centre (RPRC) has strongly supported the Retirement Commissioner’s recommendation in her 2016 Review of retirement incomes policies which was to: “Remove spousal/partner deductions with immediate effect.”
Unfortunately, the Government’s response to the 2016 retirement review continued the status quo. The official response released from MBIE states: “The Government does not support removing the spouse/partner deductions. The purpose of the spousal/partner deduction is to ensure that couples with an overseas pension receive the same level of government-administered retirement income as lifelong New Zealand couples.”
The problem is that apples are compared to oranges and some partners are losing out just because they are married to the ‘wrong’ person. For many, it may be a recent second or third marriage to someone who just happens to have an overseas pension.
Even worse than simply offsetting the excess overseas pension, woe betide you if you are married to someone with an overseas pension who does not get New Zealand Superannuation. The whole of their pension is deducted from yours.
The RPRC receives many letters on this and other overseas pensions issues. For example Eleanor writes: “I was absolutely horrified to discover recently that I might not be eligible to receive my National Super when I turn 65. I am married to a 70-year-old American who worked for just under 20 years in the US before he settled in NZ. He then worked full-time for a further 27 years in NZ. When he applied for NZ Super in 2011 he ended up being given US Social Security instead. I have lived all my adult life in NZ, and worked full-time for about 35 years (34 years for one employer), before retiring early in 2012, and have since worked part-time, and continued to pay tax. Now I find that I am to be severely penalised/simply because I am married to an American.”
Even worse than simply offsetting the excess overseas pension, woe betide you if you are married to someone with an overseas pension who does not get New Zealand Superannuation. The whole of their pension is deducted from yours.
The Ministry of Social Development says: “If you receive a New Zealand benefit or pension and your spouse or partner does not, any overseas benefit or pension that your spouse or partner receives will be deducted from your New Zealand benefit or pension.”
The rationale for the so-called “spousal provision” is the outmoded assumption that one spouse’s income is available to, and should be used to support, the other spouse.
Of course the deduction is highly selective, ignoring for example the large, state-subsidised ‘private’ superannuation pay-outs from the compulsory Australian scheme.
Today, while married superannuitants get a lower rate than singles, NZ Super is still an individual entitlement. The spousal deduction cuts across the individual entitlement with penalties for being married to someone getting an overseas pension. It is to be hoped that the negotiated agreement in the coming weeks scraps this unfair rule.
The best estimate from the Ministry for Social Development is that in 2016 there were 500 couples affected by the spousal provision, and the average amount deducted is $4000 per year – about $2m total per year. This is a very small price to pay to eliminate a glaring anomaly.
The RPRC’s paper on overseas pensions policies for Retirement Commissioner’s three-yearly review is available here.
