Reforming NZS – a pertinent private member’s bill

Our Members of Parliament have, at present, 72 proposed members’ bills lodged with the Clerk, each hoping that his or her own bill will be drawn in the periodic ballot that is held to determine which will get the opportunity to be debated and voted on in the House.

There was a ballot the other day.  Four bills were drawn (the list is at the previous link).  On a quick glance, three of them look quite sensible, but here I wanted to highlight just one of them.

It is the New Zealand Superannuation and Retirement Income (Pro Rata Entitlement) Amendment Bill, in the name of New Zealand First MP, Denis O’Rourke. Unusually for a member’s bill, it is designed to (and would appear to) save the taxpayer considerable amounts of money.

The policy statement at the start of Mr O’Rourke’s draft bill sets out the gist of the proposal.

This Bill proposes a pro rata entitlement (PRE) to New Zealand superannuation (NZS) based on residence and presence in New Zealand between the ages of 20 and 65 years; a period of 45 years, or 540 months.

The Bill confronts the demographic realities of an increasingly ageing and mobile New Zealand population and its impact on NZS. These global trends require fair policies for the New Zealand taxpayer, the migrant, and the expatriate Kiwi who return to New Zealand to retire.

Within the OECD, NZS is unusually generous in terms of residency requirements. For example, a migrant who lives in New Zealand for 10 years may make little or no contribution to the New Zealand economy, yet is entitled to full NZS. Under the PRE system, this migrant is entitled to 120/540 of NZS, but retains any overseas government pension which is currently deducted from his or her NZS under the direct deduction policy (DDP).

Another example is an expatriate Kiwi who has worked overseas for 30 years, contributing to another economy, and has most likely earned an overseas pension. On returning to New Zealand to re-tire, he or she is also entitled currently to full NZS. Under PRE, with 15 years’ New Zealand residency, this returning Kiwi is entitled to 180/540 of NZS, but will also retain his or her overseas pension, which is currently deducted. Within the age period between 20 and 65 years, the Bill disregards up to 2 months’ overseas travel per calendar year. The Bill also exempts an aggregate period of 5 years’ absence for those whose rite of passage may cover their overseas experience, education and training (often bringing back exceptional skills), and, of course, the well-earned extended world cruise.

I touched on this issue in a post a couple of months ago.  It is a particularly serious issue because time spent living in Australia counts towards the residential eligibility requirement for NZS.  That just seems like skewing the playing field against the New Zealand taxpayer, in favour of those who have spent large chunks of their working lives in Australia.

One could, no doubt, debate details of O’Rourke’s proposal. But, in a sense, that is what should happen.  Whatever their reservations, I hope MPs will vote this bill through a first reading and allow it to examined by a Select Committee, inviting public submissions and perspectives from experts from MSD.  Perhaps there is a better way to deal with the issue, and I wonder if O’Rourke hasn’t gone a little too far (in requiring 40 years residence after age 20 to collect full NZS) to be sustainable.  But this looks like a constructive response to a feature of our system that otherwise looks likely to be increasingly expensive.  Not being at all a fan of the SuperGold card, there is much more money at stake on this issue, than on the card.

Here is what I had to say on the issue in early May:

New Zealand has a high rate of inward migration.  The target level of non-citizen immigration is around 1 per cent of the population per annum.  Many of those people come to New Zealand young and will spending most of their working lives contributing to New Zealand and its tax system.    But to collect a full rate of NZS you need only have lived in New Zealand for 10 years (at least 5 after the age of 50), so many people will be able to collect a full New Zealand pension having been in New Zealand for not much more than a quarter of a working life.  New Zealand does enforce quite strict offset rules on those who have accumulated foreign pension entitlements, but many migrants now come from countries with little or no public provision of pensions.  Surely it would make more sense to introduce a graduated scale –  perhaps paying half the full NZS after 10 years residence, and a full rate only after someone has lived here for 30 years?

I had always assumed that New Zealanders who had emigrated to Australia in their hundreds of thousands over the last 40 years or so would be unlikely to come back to New Zealand when they were old, because they would have to live here for five years after age 50 before being eligible for NZS.    I wasn’t the only one to assume that – I was corrected recently by a public servant doing some work in the area who had just discovered that residence in Australia (and several other countries with whom New Zealand has social security agreements) counts as residency in New Zealand for NZS purposes.  It looks as though people can leave New Zealand at 20, spend an working life in Australia, accumulate significant private assets under the Australian compulsory private superannuation scheme (enough that they would not be eligible for the Australian age pension), and having cashed in those assets could return to New Zealand at 65, claiming a full rate of NZS never having worked, or paid tax, in New Zealand at all.  Indeed, one might even be able to go on living in Australia.  Perhaps I have misunderstood the rules, but this structure strikes me as pretty scandalous.  What New Zealand public policy interest is served by such a generous universal approach to people who have not lived here for a very long time?

Personally, I’m happy that we should treat quite generously people who have spent most of their life in New Zealand and have reached an age that can genuinely be considered “elderly”, but I don’t feel the same sense of generosity towards those who have migrated here quite late in life, or to New Zealanders who have spent most of their working lives (and taxpaying years) abroad.

I subsequently had it confirmed that I had interpreted the rules correctly, and it was also pointed out to me that the Productivity Commission had highlighted this feature in its report, with the Australian Productivity Commission, on trans-Tasman issues.

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