Retirement Commissioner says principles of individual entitlement at risk for New Zealand Super; accuses Government of political cowardice

By Amanda Morrall

Government's latest rejection of recommended policy tweaks to New Zealand Super eligibility and rates - including a change that could save NZ$41 million a year - smacks of political cowardice, Retirement Commissioner Diana Crossan said on Thursday.

In a long overdue response to the Retirement Commission's Retirement Income Review Policy,  Crossan was informed this week that the Government had ruled out three key recommendations on policy adjustments aimed at upholding the principles of individual universal entitlement.

Cross told interest.co.nz that although the recommendations might be regarded as "minor" they were significant to the extent that they would have removed "blatantly unfair" aspects of New Zealand Super. 

"If you think politically about it, they just didn't want to touch this thing at all because once you touch it, you're up for grabs.''

The recommendations, contained in the 2010 policy review, were as follows: 

• 4. 3 To remove the non-qualified partner rate (See explanation below)
• 4.4 To equalise the unpartnered and partnered sharing rates (see also explanation below)
• 4.5 To abolish the deduction of a person's foreign pension from their partners NZ Super (see below)

Crossan said it was disappointing the Government had essentially passed the buck on issues that would eventually have to be dealt with. Another key recommendation put forwarded by the Retirement Commission (to raise the age of eligibility for New Zealand Super) was also scuttled by Government earlier this year. (See Alex Tarrant story here on John Key's refusal to budge on NZS age.)

Crossan said the Government's rejection of the above proposals -- all of which center around questions of non-income test personal entitlements -- came without so much as an explanation despite one being promised in ink. She said it was obvious the Government did not have the political will to touch the issues heading into an election.

"New Zealand Super is a treasure I think and these small things have lurked around for a long time,' she said.'

Crossan said while the number of individuals who might be affected were relatively small, the impacts were huge.

For example, under the current eligibility system, a life-long New Zealander who has worked and paid taxes until age 65, could been deemed ineligible for New Zealand Super on the basis of a spouse receiving a foreign pension exceeding the value of what a couple would get in New Zealand.

Another aspect of the system challenged by the Retirement Commission is the non-qualified partner rate option. This feature allows partners of candidates who receive NZS (who might not normally qualify themselves because they're too young or don't meet the residency requirment) to receive a reduced benefit, lower than the norm but still higher than a partnered unemployment, sickness or invalid beneficiary. The Retirement Commission regards this form of "income support" as inequitable because it is dispensed without any work search, compliance or reporting requirements.

Different rates also apply to NZS beneficiaries depending on whether they are partnered or single but sharing accomodation. The higher rate given to the later essentially works against the married couple and in favour of singles flatting. 

The Retirement Commission, in its review, rejects partnership status as fair basis for assessing entitlement. The report says that while evidence for those aged 65 and over does indicate that couples do, on average, have a higher material standard of living than single people, it "does not justify using partnership status as a way of setting payment rates within a system of individual entitlement such as NZS."

Living standards are much more likely to be related to the private income and assets of each household and, while being partnered may partially explain why income and assets are high, in general partnership status is an unfair basis for assessing entitlement."

Crossan said as long as these inconsistencies remained the principles of universal individual pension entitlement would be undermined.

Asked whether the review was a waste of time given Government's dismissal of large parts of it, Crossan was circumspect.

She insisted as a body of work, the 151-page report had plenty of material that would be studied and potentially adopted at a later time.

"The worth of the review is broader than the recommendations. Some of them we'll make progress over probably in the next while.''

However, Crossan conceded that prolonged foot dragging on the issue of retirement policy in New Zealand was troubling.

"My concern is that retirement income issues should be long-term policy.''

While New Zealand's political spectrum experimented with an accord in the early 90s, efforts to deal with superannuation in a collective fashion were shortlived.

"It's a real shame that our three-year focus gets in the way of long-term thinking," commented Crossan, adding that she planned to pursue the issue again, post-election.

Here are details on the suggestions from the Retirement Commission

What is a Non-Qualified Partner (NQP) rate?

The NQP rate is a special optional rate of NZS geared to low-income, partnered couples in situations where one partner is qualified for NZS, but the other partner (by virtue of age or residence) is not.

This situation arises most commonly where a husband is aged 65 or over and retired with little income (apart from NZS), while his wife is under 65 years and has little income, or may wish to retire at the same time as her husband.

The couple (non-qualified partner) rate of NZS is slightly less than the amount two partnered and qualified people would receive, but it is noticeably higher than any of the ‘partnered couple’ rates of

benefit normally available to somebody under the age of 65.

This non-qualified partner (NQP) option offers a partnered person under the age of 65 income support at a higher rate than a partnered unemployment, sickness or invalid beneficiary (and with no work search, compliance or reporting conditions), merely because their partner is old enough to be eligible for NZS. This is unfair.

What is the single sharing and partnered rates of NZS?

There are currently two different NZS rates that can apply to individuals who are sharing accommodation. People who are partnered receive a lower individual entitlement than those who

are not partnered but are sharing accommodation. From 1 October 2010 the weekly rate of NZS for a partnered person is $255.53, compared with $307.67 for a non-partnered person who is sharing

accommodation with at least one other person. The standard justification for this distinction is that partnered couples face lower expenses (per head) than two or more non-partnered people who are sharing accommodation. This is based on a belief that partners have a greater ability to economise on some of their living expenses, for example by sharing bedroom space, facilities and consumer durables.

Evidence for those aged 65 and over does indicate that couples do, on average, have a higher material standard of living than single people. However, this does not justify using partnership status as a way of setting payment rates within a system of individual entitlement such as NZS.

Living standards are much more likely to be related to the private income and assets of each household and, while being partnered may partially explain why income and assets are high, in general partnership status is an unfair basis for assessing entitlement.

As discussed earlier in this chapter, there are circumstances where some older people face high expenses that are difficult to manage and as a result they are at a higher risk of hardship than the rest of the older population. From the point of view of alleviating hardship, people in such circumstances may need to have a source of supplementary income assistance to help them meet these cost pressures.

There is a case for retaining the NZS living alone payment to help tailor the standard individual entitlement for the many people who live in a one-person household who might otherwise be in

financial difficulty. The rates of NZS should not however be distinguished by the partnership status of the person receiving it. There are other forms of financial assistance, including Accommodation

Supplement, Disability Allowance and so on that are available for this purpose. The way in which the sharing and partnered person rates of NZS might gradually be brought together over time would be a matter for policy decision. It could be done without eroding the purchasing power of any payment by adjusting each rate gradually using the margin between price and earnings movements.

The residence test for NZS and the overseas pension direct deduction policy

A final area where distinctions based on a person’s partnership status are inequitable is when dealing with the treatment of overseas state pensions when determining how much NZS is payable.

The direct deduction policy is an important way of dealing with the difficulty of interfacing New Zealand’s approach to entitlement with those of many other countries. It provides some fiscal offset for the fact that residents who have spent time abroad and accumulated social protection entitlements can also receive income support on the same terms as life-long New Zealand residents.

As already discussed, NZS is an individual entitlement. However, when it comes to overseas pensions, any overseas public pension payments (from a country with which New Zealand has no reciprocal social security agreement) are taken into account in assessing both partners’ entitlement to NZS. If one partner’s NZS is fully reduced to zero because the overseas public pension amount is greater than the rate of NZS, the excess amount is then applied to directly reducing the other partner’s NZS. In some cases it can mean that a New Zealand citizen who has lived and worked all their lives in this country receives no NZS because their partner receives a public pension from overseas. This is an inconsistent piece of policy that goes against the principle of universal individual entitlement and needs to be changed.

Overseas pensions – information and communication

A number of other policy and operational issues affecting the potential pension entitlements of people moving to New Zealand have been identified by people who have been through the NZS

application process. These issues include:

• The difficulty of knowing in advance whether a particular overseas pension scheme will be

treated as a ‘state pension’ for the purposes of applying the direct deduction policy.

• A perceived lack of transparency and the time taken to reach decisions with regard to specific

overseas pension schemes.

• The difficulty of obtaining accurate information and advice about the direct deduction system

ahead of a decision to emigrate to New Zealand.

• The multi-layered appeal process.

For full access to the Retirement Commission's Review of Retirement Income Policy click here.