Should the residency requirement increase for NZ Super?

Friday October 28 2016

Should the residency requirement increase for NZ Super?

A new paper investigates the issues around people who move to New Zealand and become eligible to receive NZ Superannuation.

It raises concerns about the length of time people need to be in the country before they can receive Super, as well as questioning the fairness of some of the other policy settings, including deductions of overseas pensions.

At the moment, NZ residents are eligible for Super if they have lived here for 10 years after the age of 20, including five after the age of 50. The average residence requirement to receive minimum benefits in OECD countries is 26 years.

The paper on overseas pensions and criteria for NZ Super was written for the Commission for Financial Capability by the Retirement Policy and Research Centre at Auckland University.

It forms part of the work being produced as part of the Retirement Commissioner’s three-yearly review of retirement income policies. Diane Maxwell will release her recommendations for policy change before the end of the year.

The paper found an increasing number of people who qualify for Super have deductions from their overseas pension. In 2016, 11.9%, or 84,000 people out of the 705,000 receiving NZ Super, had deductions from overseas pensions.

It also concluded that the spousal provision policy was unjust; this is where a person’s overseas pension is not only deducted from their own Super but any excess is deducted from the Super of their partner or spouse.

And it raised the question of whether it is fair and reasonable to include voluntary and employee contributions overseas, similar to schemes like KiwiSaver, in the overseas deduction policy.

It gives four options for reforming the current policy which can be found at the end of the paper.

Background notes and stats for Review:

• The amount deducted from overseas pensions in the year to March 2016 was $342m.

• When the Old Age Pension was first introduced in 1898 the residency test was 25 years and was later reduced to 20 years in 1938 and then 10 years in 1977.

• The number of people aged 65 and over will double in the next 30 years (by 2046).

• NZ’s dependency ratios are declining: for every person aged 65+ there are currently 4.4 people aged 15-64 years, in 2035 that number is expected to drop to 2.8.

• The Commission is considering retirement income policy settings and wants public feedback; we are inviting people to take part in a survey on the future of Super. The survey can be completed on the cffc.org.nz website.

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