RBNZ Superannuation Fund

What does “reciprocity” mean in New Zealand laws?

Michael Reddell RBNZ Superannuation Fund, Uncategorized

Apologies for nothing much recently on New Zealand macroeconomics and related topics. My spare time is pretty much consumed at present with my Bank of Papua New Guinea responsibilities and those associated with the troubled (and troubling) Reserve Bank of New Zealand Staff Superannuation and Provident Fund. Yes, it is Orr and Quigley again.

In my last post I wrote about the scheme being cooked up to transfer the pension liabilities of the Reserve Bank scheme to the Government Superannuation Fund by means that look highly likely to be ultra vires, and in any case are extremely risky for pensioners over coming decades. The basic goal, transferring the liabilities of a small scheme to a much larger scheme, in exchange for a full and final payment from the small scheme before it itself is wound up, isn’t in question (indeed, I’ve championed the search for such a solution). But pretty illegal foundations are a poor basis for anything, most especially when it involves the Minister of Finance, our prudential regulatory agency (concerned with standards of governance and conduct in its bit of the financial sector) the Reserve Bank, and the government’s key economic adviser, The Treasury. It is all the more extraordinary when there are simple, well-grounded, legislative solutions available, which would remove most of the legal and financial risks in what is planned. Such a solution might take a couple of months, but there is simply no urgency about this resolution (and no one involved seriously claims otherwise).

Here is the relevant bit of the Government Superannuation Fund Act, a provision added many decades ago, decades before that scheme was closed to new members.

That looks like a pretty objective test to me. The Governor-General can’t just make any old regulation (Order in Council), not even as regards to superannuation. The test isn’t even whether in the opinion of the Governor-General (or her ministers) a proposed OIC might be (say) in the best interests of some people. The test is that an OIC under this section can only be made if it is giving effect to an arrangement that is intended to provide “reciprocity in matters relating to superannuation”.

In a standard conception in decades past such a (hypothetical) arrangement could have involved government department employers and the Reserve Bank (and their respective pension schemes) agreeing to recognise service with the other employer for purposes of each other’s pension scheme. Spend 35 years at The Treasury and 5 years at the Reserve Bank (or vice versa) and your service at the Reserve Bank will count towards your GSF pension (or vice versa). The way defined benefit pension schemes operate that is valuable for employees and enables a bit more labour mobility among related entities that would otherwise occur. Both sets of pension funds, both sets of employers, continued to function.

(To be clear, this is a hypothetical – there was no such historical agreement)

The scheme the Minister of Finance got her Cabinet colleagues to agree to (presumably acting on Treasury advice, although Treasury refuses to release that advice) bears no resemblance to that sort of (genuinely) reciprocal arrangement at all.

Instead, the Reserve Bank scheme would, in effect, sell its liabilities to the GSF, pay the price GSF names to take on those multi-decade liabilities, and then be wound up. All very efficient (in principle) but there is nothing reciprocal about it. And as it happens, since to close the Reserve Bank scheme the trustees have to purchase contracts that replicate the pension etc benefits that would otherwise be payable, and since there are differences between the two schemes, what is actually proposed is not that Reserve Bank pensioners are simply added into GSF (its so-called New General Scheme, a set of clauses in the GSF Act) and paid per the GSF rules. For any aspect where the GSF rules are less generous than the Reserve Bank rules, GSF is agreeing by contract to provide better benefits in those areas than it provides to its own members. Which is fairly weird given that the GSF benefits themselves are explicitly outlined in the GSF Act itself, but somehow this contract (and authorising Order in Council) are going beyond statute for this group of pensioners. Which would work out nicely for us…….except that the legal foundations appear incredibly shaky, and thus highly vulnerable. And the nature of DB pension schemes is that they run for many decades – this isn’t simply an arrangement for a year or two.

It simply isn’t providing for reciprocity at all. It is just an outright sale and purchase agreement.

It appears that section 98 has never been used before (despite 75 years in the legislation) so there are no judicial rulings on what “reciprocity” means in this context. As far as I can gather there also isn’t any authoritative legal commentary on the use of the term in New Zealand legislation.

But I thought it might be worthwhile to check all the references, with a search on the legislation.govt.nz database for how “reciprocal” or “reciprocity” is used.  Absent specific authorities on this particular section one might think a court would look not just to the dictionaries but to actual New Zealand usage, in both primary and secondary legislation.  My exercise here is simply about interpreting from context (what arrangements are being described when the operative words were used by drafters, Parliament (acts), and ministers (regulations).

I did two levels of search.  The first was to search by title, and the second by the full text of each instrument. (If you are happy to accept my word about the overwhelming weight of how those words are used, then feel free to skip ahead to the Summing Up section at the end of the post.)

Titles of Legislation

16 titles contain the word “reciprocal” and 13 “reciprocity”.   

Of “reciprocal” 13 examples are regulations made under one piece of primary legislation, the Reciprocal Enforcement of Judgments Act 1934 (which incidentally was thus in place when reciprocal/reciprocity were first introduced to what became the GSF Act). Neither “reciprocal” nor “reciprocity” is defined in the Act, but the purpose is illustrated thus

The other examples, using “reciprocal” in the title, are regulations around child support (and spousal maintenance) payments, one giving effect to an agreement with Australia and another with Hague Convention countries.  The core of these regulations is that orders in one country are “entitled to recognition and enforcement by operation of law in the territory of the other”.

What of the 13 with “reciprocity” in the title? 12 of them are health and social welfare provisions. It is quite clear that what they are describing is the parameters for arrangements under which foreigners can be treated the same as New Zealanders here (mirroring the other side of the agreement re the way NZers are treated abroad –  eg as between NZ and the UK our public health service and their NHS).

The 13th is the Law Practitioners (Victoria Reciprocity) Order 1937, made pursuant to the Law Practitioners Act. The entire order is as follows

Mutual recognition and all that.

Use in the body of legislation

What of uses of “reciprocal” and “reciprocity” in the content of acts and regulations?   There is overlap of course: legislation with one or other word in the title also tends to have it in the body.   There are 79 examples of a use of “reciprocal” in the content of acts or regulation and 45 examples of “reciprocity”.     I haven’t reproduced all these search results (easy enough to do yourself), but I have gone through and checked all examples not already covered by the review of the titles above.

Take the “reciprocal” list first:

  • The Trans-Tasman Proceedings Act 2010 seems to cover very similar ground to the Reciprocal Enforcements of Judgements law, replacing some orders (Australasian) under that law with this specific Australia-focused legislation
  • The High Court Rules also show up, but again in reference to the Reciprocal Enforcement of Judgements Act
  • Maritime Transport Act references all relate to reciprocal enforcement of judgements.
  • The Tax Administration Act has a specific provision, along the lines of mutual recognition
  • The Contracts and Commercial Law Act 2017 seems in a similar vein
  • Or the US-NZ double tax agreement 2014
  • Or the Sale and Supply of Alcohol Regulations

Those are the examples (all of them) from the first page of search results. 

I have gone through all the others and have not been able to find a single of example of a usage that is other than something akin to “like for like” (there is perhaps a partial exception in some Treaty of Waitangi settlement legislation, but there the context seems to have been one of mutual obligations over long periods of time).  Not one of the references has the sense of “one-off full and final payment of dollars for services”.  I’ll include just one more in deference to the “creative” lawyers we seem to be dealing with (whether in/for Treasury, Crown Law, PCO, the Reserve Bank, or the Government Superannuation Fund Authority), from the Lawyers and Conveyancers Act

And then I turned to uses of “reciprocity” in the body of legislation (acts and regulations), again skipping over laws already covered above.

There is the UN Convention on Refugees 1951 (made part of our law as a schedule to the Immigration Act)

The District Court rules

The Valuers Act 1948

And the 1923 international treaty on arbitral awards, a schedule to our Arbitration Act 1996.

Again, there is not a hint or a single example of “reciprocity” used in ways that might encompass a one-off payment from one entity to another in exchange for the latter assuming a bunch of obligations from the former (let alone the former entity then winding itself up and disappearing). 

It is, perhaps, telling that (as far as I can see) in not a single act or regulation are the words “reciprocal” or “reciprocity” defined, suggesting that something akin to dictionary definitions and common usage is envisaged. Here is the definition of reciprocity from my two-volume Shorter Oxford English Dictionary:

Summing Up

The last couple of sections have probably been a somewhat boring trawl through pieces of obscure legislation.  But it becomes necessary when parties –  the Minister of Finance, backed by a Cabinet committee, the Reserve Bank, and The Treasury – are content to rely on a “meaning” for the term “reciprocity” seemingly dreamed up by some lawyer or other from thin air.  There is no dictionary precedent for such a usage and nor is there anything in 100 or so years of New Zealand legislation.   It is very hard indeed to see how section 98 of the GSF Act could possibly encompass the sort of deal the Cabinet – led by the Minister – proposes to authorise their Crown entity (GSFA) to undertake. There is nothing in the dictionary to support it, nothing in a plain common reading, and nothing in the legislative history of this old previously-unused provision.

Three last points:

  • why does any of this matter?
  • is the proposed deal bad in intent? and
  • if not, is there are a better way.

It matters because lawmaking should be done properly. It certainly shouldn’t be done on a basis that happens to suit decisionmakers who themselves having nothing at stake if things later go wrong.

And what could go wrong? A court could find that the entire Order in Council was ultra vires. A future set of ministers could decide either that they don’t like one or more Reserve Bank pensioners, or just that the original OIC was bad law and probably ultra vires. Or Parliament can disallow the Order in Council (takes one member of the Regulations Review Committee and no other objection), perhaps recognising that it was bad (secondary) law. In each of which scenarios elderly pensioners could be left in limbo, uncertain as to whether they had any entitlement to a pension, but with the money (currently in the Reserve Bank pension scheme) now gone, and at best facing expensive legal action to attempt to assert any claim against someone/anyone (RB, GSFA, former trustees…..).

As I noted at the start of this post, the idea of a transfer (with full and final payment) of Reserve Bank scheme pension liabilities to the GSF isn’t a bad one (and I was, and remain, a champion of it in principle). There are genuine administration cost savings to be had (a gain to the Reserve Bank, which is thus keen on the scheme, facing no risks itself), and for anyone involved in governance of the scheme in the last 10 years also an opportunity for personal escape.

But it needs to be put on more secure legal foundations. Parliament is, of course, sovereign, and so can legislate anything it likes (for good and ill). A simple amendment to the GSF Act (rather than an Order in Council, resting on the tenuous provisions of section 98) would achieve that. Readers of my previous post may recall that the Minister of Finance told Cabinet that this wasn’t an option because it couldn’t be done until 2025. That is now a mere six weeks away (and at this point any transfer isn’t likely to be feasible before the second half of next year). Taking a punt that things will probably turn out okay simply isn’t good government, whether from ministers or officials (and not an approach they’d be likely to take if they themselves had anything at stake).

What about the trustees of the Reserve Bank superannuation scheme you might wonder (of whom I have the misfortune to be one)? All this material was presented to them as long ago as January, and they have simply refused to engage. Not only that but they have specifically and consciously chosen not to seek independent legal advice on whether there is a robust legal foundation for the transfer they propose to enter into. In doing so they appear to rely on a view that one does not need to look behind to check the bona fides of a party they are dealing with to see if they are able to enter into the proposed contract. That seems imprudent generally, but even if it were a model which might make some sense in a corporate context, when Party A can’t easily look into the private authorising documents of Party B, and might have to rely on warranties, it makes no sense at all when (a) the GSF Act is a public piece of legislation available for all to read, and b) all these issues have, more than once, been brought to their attention.

It is pretty reprehensible, but then it is what one might expect from two of Orr’s deputy chief executives (appointed to the super fund roles by Quigley’s board) and a Licensed Independent Trustee (a statutory position created a decade ago, notionally to help protect members) who has long been (a) keen to get out of the role, and b) in eight years has never displayed evidence of the slightest interest in the best interests of members and who is on record as suggesting, contrary to the statutory duties, that trustees also need to look out for the interests of the Bank.

As a bottom line, the law requires that any such OIC under the GSF Act be with a view to providing reciprocity in matters relating to superannuation. The proposed arrangement, which the GSFA cannot enter into without specific legislative authorisation (the Act prohibits new members), does no such thing, and there is thus no power for an OIC to authorise what is proposed. There is, by contrast, a better way.

Finally, note that these matters were raised, in a careful and considered manner, in a letter to the Minister of Finance months ago. I find it remarkable that the Minister has not even had the courtesy to respond, even as she and her department have blocked OIA requests on these matters. I have legal duties to our members. I would hope she senses a moral obligation, to them (former public employees) and to the cause of good, and certain, lawmaking itself.

Pretty (il)legal

Michael Reddell Governance, RBNZ Superannuation Fund

The title of this post was, of course, a reference to the efforts of former Minister of Finance and National campaign manager Steven Joyce to defend the use by National of music inspired by or copied from some overseas band’s work. It was, he claimed, “pretty legal”. The courts disagreed.

Joyce himself developed form in this area, and as Minister of Finance in 2017 appointed an acting Governor of the Reserve Bank for six months, with no legal authority whatever. It was, in many respects, a pragmatic solution (a new permanent Governor could not, under our conventions, be appointed to take office very close to election day), but instead of passing a brief technical amendment to the Reserve Bank Act, to deal with what was perhaps an unforeseen oversight in the initial drafting, he simply went ahead and made the questionably legal appointment. At the time, this blog devoted a lot of time and space to the issue (having flagged the looming issue a couple of years in advance, while officials and ministers did nothing). Eventually, through the good offices of the Ombudsman, Crown Law – CEO, one Una Jagose, who has since developed something of a reputation – released a summary of their legal advice to Treasury on the issue (discussed, with other relevant links, here). Crown Law’s case seemed to boil down to no more than “well, Parliament must have intended to enable the appointment an acting Governor of this specific sort”. Had they intended it, it would have been a simple matter for a suitable clause to have been in the act. None was. (That particular gap has been fixed in the amendments to the Reserve Bank Act in recent years).

It mattered for a number of reasons.

First, because we are supposed to be governed under the rule of law, not ministerial whim, or the fancy of officials who happen to think a particular outcome would be convenient, but can’t be bothered asking Parliament to legislate. “Pretty legal” is no sort of acceptable standard, the more so when on a plain reading (detail and legislative context), something is actually pretty clearly illegal.

There are also real risks when officials and ministers play fast and loose with the law, for their own convenience, betting perhaps that no one will be bothered with the expense and delays in access to civil justice to attempt to challenge it formally. Fortunately, Grant Spencer – who compromised a worthy career by accepting this temporary but dubiously legal appointment – doesn’t seem to have been faced with particularly contentious choices in his few months occupying the office, but the lawyers might have been gathering if there had been a very costly or contentious decision going against one or other groups of interests. In those days, all power at the Reserve Bank rested with the Governor personally.

And, frankly, this was our central bank, supposed guardian of financial stability, and prudential regulator, including around ensuring that good standards of governance exist and are upheld in banks and financial institutions. Would this sort of – pretty legal/ evidently illegal but convenient – standard have been even close to acceptable to the Reserve Bank if a supervised institution had offered it up in the context of its own appointments? And while the appointment was made by Steven Joyce, there is not the slightest sign in the documents of any unease from the Bank. Its Board was, then as now, chaired by Neil Quigley. (You may recall that Quigley – in his day job – and Steven Joyce have an economic relationship recently called out and criticised by the Auditor-General no less. They probably thought that arrangement was pretty much okay. It wasn’t.)

All that said, and bad as that episode was, it was all over in six months. A permanent Governor, lawfully appointed, took office and things moved on. Not all such “pretty (il)legal” stuff done by governments is so time-limited.

All that in the post so far was really by way of scene-setting for another example of “pretty legal” sort of thinking. It doesn’t affect many people, but does involve the Reserve Bank (Quigley again, Orr, and their very senior appointees), The Treasury, the Minister of Finance and most of her ministerial colleagues on the one hand, and a fairly small group of mostly very elderly pensioners on the other. Officials and ministers are acting as if the law simply doesn’t matter, to achieve what might otherwise in many ways be a sensible outcome, and by refusing to make simple legislative amendments are doing so in a way that leaves those pensioners and their spouses highly exposed to what could, in the wrong circumstances decades hence, be catastrophic financial risk.

I will try to keep the explanation short and clear.

The Reserve Bank established a pension fund for employees back in 1935. The defined benefit (pension) bit of the scheme was closed to new members in 1991 (and the later defined contribution bit has also been closed for a long time) and all the members of that scheme are now retired. There aren’t many left (50 or so), and as schemes shrink cost burdens tend to increase, investment options diminish, and it gets harder to find member trustees.

The scheme’s rules allow for it to be wound up. But in that event, trustees have to be able to purchase replacement pensions. There are no private annuity providers now in the New Zealand market, but decades ago a provision was included allowing for the possibility of transferring pension liabilities to the Government Superannuation Fund (not coincidentally, the provisions of the two schemes are pretty similar).

I’m a trustee of the scheme – never quite imagining in 2008 when I filled in as someone’s alternate that I’d still be there 16 years later. A couple of years ago I championed exploring whether a transfer to the GSF was really a feasible option. If it could be done in ways that replicated members’ benefits, it would lead to measurable cost savings for the Bank, and get all the compliance etc rigmarole out of our lives. I suspect that no one who has served as a trustee of this scheme in the last decade has counted it a pleasant or satisfying experience.

Anyway, my colleagues agreed and we got the Reserve Bank Board (which has the final decision on a wind-up) to agree to us exploring the issue.

There were a couple of immediate questions. If the GSF Authority wasn’t interested, we couldn’t compel them. But even if they were interested did they have the legal powers, under their own legislation, to assume our liabilities (in exchange for payment)?

People, with various degrees of creativity, looked through the GSF Act and found two possible straws to cling to. One dropped away very quickly, as everyone accepted it didn’t help.

But then there was section 98 of the Government Superannuation Fund Act.

When it was first suggested as an avenue, I scoffed. And the more I reflected on those provisions, and their legislative context/history, the more implausible it became.

The legislation dates back many decades and what evidence there is suggests it was written mainly with university lecturers in mind – many of whom in those days came from the UK. It made sense to enable agreements that recognised service in (say) UK universities for NZ university pension purposes and vice versa. What was envisaged was a reciprocal relationship.

You’ll note that the provision isn’t restricted to overseas entities. Reciprocal arrangements can be enabled, by Order in Council, with other New Zealand entities. It would, for example, have been fully in order decades ago for (an Order in Council enabling) the Reserve Bank and the GSF to have entered a reciprocal agreement to mutually recognise service in the other (eg for Treasury staff moving to the Reserve Bank, Reserve Bank staff moving to Treasury). There was never an agreement of that sort (in fact such were the restrictive practices at the Reserve Bank even when I joined in the 1980s that it was all but impossible to join the Bank if you were aged over 26).

But the critical words in that statutory provision – which has apparently not been tested by the courts – is “reciprocity” (“providing reciprocity in matters relating to superannuation”).

A few months ago a Cabinet committee, attended by 19 ministers (including the PM) and an under-secretary, decided that it was fine and dandy. A bit later Treasury pro-actively released the relevant Cabinet minute. They also released, with significant redactions, the associated Cabinet paper, presumably prepared for the Minister of Finance by Treasury but with input from various other government agencies.

It is a shoddy paper from start to finish (starting with the repeated claim that the Reserve Bank scheme is a “government” scheme – it is a fully separate legal entity, on the same footing and regulatory basis as any other legacy superannuation scheme under the Financial Markets Conduct Act, with the Reserve Bank having no powers over it, and the government itself having no powers or liabilities different from those applying to any private scheme). It is perhaps no wonder that both the Minister and Treasury refused my OIA requests for advice received on this GSF option.

It is, however, usefully clear and explicit that the main reason for such a transfer, if it can be legally done, is to save money for the Reserve Bank. That is an entirely legitimate objective, provided members’ interests and rights are robustly protected. But there is no sign that the Minister provided any such assessment to her colleagues, who presumably nodded this through. A transfer to GSF could, in appropriate circumstances, be a mutually beneficial and tidy outcome. But it simply isn’t legal on the law as it stands, and precisely because it is proposed to be done using an Order in Council, which can simply be revoked by any future minister/government, or disallowed by Parliament itself under standard secondary legislation provisions, with no recourse for pensioners, it leaves those pensioners in an extremely vulnerable position. The risk of such revocation or disallowance might seem low today, but as even the Cabinet paper notes the liabilities probably have at least 40 years to run, and no sensible person concerned about their own finances is going to approach decades-long contracts saying “oh, never mind, explicit written statutory powers will probably never be used”. You look for protections, and what the Minister of Finance is proposing to do – pretty illegal in the first place – offers none at all.

“Reciprocity” simply does not mean what it has to mean for a simple sale and purchase agreement in which the trustees pay cash to GSF to take the liabilities off their hands to count. It doesn’t mean something like that in plain English usage, and it does not do so anywhere else in New Zealand statutes (and yes, I have worked my way through every single reference). When I buy my groceries from the supermarket it is a mutually beneficial exchange, but no one thinks of it as an agreement involving “reciprocity” (which in general and statutory usage, and things like Social Security Agreements involves something much more of a “like for like” nature.) Moreover, as even the Cabinet paper notes this (pretty illegal) wheeze involves trying to use an Order in Council to get round an explicit statutory prohibition of new entrants to the GSF scheme itself.

A couple of months ago, having become aware of the Cabinet minute (although not then of the redacted Cabinet paper itself) I wrote to the Minister of Finance outlining in some detail my concerns, and proposing instead a simple and uncontroversial legislative amendment to the GSF Act, which would provide trustees and members legal certainty, and markedly reduce future risks for members (since revocation of an authorising Order in Council or disallowance by Parliament would no longer be options). I have not had a reply from the Minister. When I approached her again, a private secretary suggested that I could expect a response shortly. Nothing has since been heard, suggesting that a conscious decision has been taken to simply ignore my concerns, as someone with legal duties to scheme members.

The full text of my letter to the Minister of Finance is here.

Letter to Minister of Finance re section 98 of the GSF Act

The Cabinet paper very briefly touches on the legislative option (having provided ministers with no information on the risks and legal doubts about the approach her officials would have them take).

I guess if there is no formal legal challenge, pretty illegal stuff can be done quickly. But this is a bizarre argument more generally. Nothing in the Cabinet paper suggests any urgency about an arrangement. The scheme functions, bills are paid, pensions are paid, and although pressures will build they have not done so yet. It would be good to tidy things up, but only if it can be done robustly, and not with ministers brushed off with lines about there being nothing to worry about and only minor implications for members). As it happens, it is now late October 2024 and if a transfer happens it certainly won’t be until 2025. Doing things properly, by the book, not indulging in quick “pretty illegal” fixes, unbothered about the future vulnerabilities created, should be the way our ministers and responsible officials operate.

But I guess this is New Zealand.

You might be wondering about the other trustees of the scheme. Well, three of them are appointed by Orr/Quigley – two are among Orr’s many DCEs – and openly take the view that it is no concern of theirs whether the current law actually allows a transfer of this sort. Of course, in many commercial deals it isn’t possible for one party to look fully behind the scenes and be sure of the other party’s processes and internal authorisations. One often has to rely on warranties etc. But…..the GSF Act is a public statute, has been on the books for decades, and simply does not contemplate or allow for a deal of this sort. Judging by the time spent, some might conclude that trustees have seemed much more concerned about their own future indemnity arrangements than about robustly protecting the best interests of members.

There are simple and much more robust fixes. It is beyond comprehension why the Minister and officials are not willing to take such a route. It speaks of indifference to law, and indifference to people. But it looked quick, and perhaps “pretty legal”