Pension puzzles for travellers
Exports of NZ Super have now reached $225 million a year to New Zealanders who have chosen to live out their retirement, or at least part of it, overseas.
Portability arrangements for NZ Super have improved in recent years, which gives superannuitants more choice over where to pass their twilight days, but in many cases people heading overseas to live will find the amount they receive falls.
By far the largest export is to Australia, where currently $192.6 million of NZ Super is exported to more than 30,000 people (an annualised figure based on current NZ Super payments).
Kiwis do retire further afield, but only eight other countries boast more than 100 NZ super recipients, although the stats are skewed by the fact that NZ Super cannot be exported to the UK, where a social security agreement means that country picks up the bill for the basic state pension.
But while lifestyle options may sound great overseas, the choice of heading abroad to retire can be costly as it can mean NZ Super is paid at a lower rate, though there is a special arrangement which means 100 per cent of NZ Super is paid to people with 20 years residence in New Zealand before the age of 65 retiring to any one of 22 Pacific Island countries including Fiji, Samoa and Tonga.
In many cases NZ Super is exported at rates based on the length of time that a person was in New Zealand between the ages of 20 and 65.
Someone retiring to Canada after 20 years here, for example, would have earned the right to get just 20/45ths of NZ Super paid to them overseas compared to the 100 per cent if they stayed put.
Such arrangements are responsible for the relatively low levels of many of the individual payments going overseas.
The portability rules, introduced in 2009, also mean that there are at any time a number of New Zealand superannuitants roaming around the world. Anyone travelling for 26 weeks or less no longer even has to tell Winz. Those travelling for longer do, but can still receive their full NZ Super.
Currently, there are 116 Winz clients on multi-year travels.
But while New Zealand exports a large chunk of NZ Super, it is also in the business of importing pensions to reduce the NZ Super bill here.
Figures released by Winz show the extent of the imports of pensions which are caught under the controversial Section 70 of the Social Security Act which allows $1 for $1 reduction of NZ Super for recipients of pensions deemed to be part of an overseas government's retirement income programme (see tables).
The annualised figure is currently $241.5m a year and as reported in recent weeks, many of the recipients are crying foul over some of those deductions. Many of the 64,000 or so people affected have been in New Zealand for decades and say some of the pensions being deducted were built up with contributions from their salaries and employer contributions and so should be viewed as personal savings.
Despite the large headline sum, the amount being deducted from most people is small, though for those relying purely on NZ Super and foreign pensions, those sums can mean the difference between scraping by and getting on okay, if they have no other capital or income.
While there is a rough symmetry between the imports and exports of pensions, there is little symmetry between the way New Zealand treats pensions coming in from overseas and the way overseas countries treat pensions coming their way from New Zealand.
A Canadian the Sunday Star- Times spoke to, who has spent decades here, but who on retirement here receives both a Canadian age pension and a pension from a compulsory contributory scheme called the Canada Pension Plan, will have their NZ Super payments reduced by the amount of income they have coming in from those plans.
If that Canadian moved back to Canada, they'd get NZ Super calculated at 1/54th for each year they spent in New Zealand qualifying for NZ Super as well as receiving both Canadian pensions.
There are pros and cons to retiring overseas, they include:
PROS Excitement and adventure. Better weather. The cost of a pleasant existence can be cheaper in some countries. Portability rules mean you could spend a few years overseas and still return.
CONS Distance from family can be hard. Exchange rate risk can result in rising and falling NZ Super payments. There can be issues around access to, and quality of healthcare. Your NZ Super payments can be cut. There's a cost to moving offshore.
- © Fairfax NZ News
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