Overseas pensions deductions

Eligibility and deduction of overseas pensions

Definition of an overseas pension

An overseas pension means a pension, benefit or periodical allowance that:

  1. forms part of an overseas programme that provides pensions, benefits and periodical allowances for any of the circumstances for which New Zealand benefits and pensions would be paid (including old age, invalidity, death of a spouse); and
  2. is administered by or on behalf of the Government of the country from which the pension, benefit or periodical allowance originates.

It doesn't matter whether the overseas pension is funded by general taxation or by compulsory contributions. For example, the Canada Pension Plan pension is funded by compulsory employer and employee contributions, but it is still subject to direct deduction.

  • What is Direct Deduction?

    For every one dollar you receive from an overseas pension, your NZ payment is reduced by one dollar.

    The Social Security Act 2018 (sections 187-191) sets the criteria that the Ministry must use when deciding whether an overseas pension should affect your New Zealand Superannuation or other benefits (referred to as NZ payments).

    This process is known as 'direct deduction' and if your overseas pension meets the criteria, your NZ payment will be reduced by any overseas pension you receive or are entitled to receive.

  • When we deduct overseas pensions

    An overseas pension is deducted from your NZ payment when it meets the criteria in the definition of overseas pension.

    Some overseas payments are exempt from deduction. However, you should provide the Ministry with verification of any overseas payment you receive so that we can assess whether it might affect your NZ payment. Failure to do so may lead to you being overpaid.

  • Why we deduct overseas pensions

    The aim of the policy is to ensure that all qualifying New Zealand residents receive an equitable level of state pension, whether the amount of that pension is fully funded by New Zealand, partially funded by New Zealand and another country, or fully funded by another country. 'Equitable' here means having due regard for the interests of both pensioners and taxpayers.

    The policy means that New Zealanders who have lived in New Zealand all their lives are not disadvantaged compared with others who have worked overseas, or immigrants to New Zealand who have entitlement to overseas state pensions.

    To qualify for New Zealand Superannuation, an applicant needs only to be 65 years old, a permanent resident of New Zealand, and to have lived here for a minimum of ten years since the age of 20, with five of those years since age 50.

    When a person migrates to New Zealand, or returns home after a period overseas, they may bring with them a pension entitlement from another country. In some instances, the overseas pension amount can be quite substantial, especially where a person migrates or returns to New Zealand later in life. If a person were to receive their overseas pension entitlement as well as the full rate of New Zealand Superannuation, they would be financially advantaged compared to people who have lived in New Zealand all their lives.

    One pension principle

    The direct deduction policy is also underpinned by the 'one pension principle', which means that a person should not be able to receive two forms of state financial assistance for the same or similar circumstances. As an example, a veteran over the age of 65 cannot receive both a Veteran's Pension and New Zealand Superannuation, despite the fact that they may meet the qualifying criteria for both. This same principle extends to the treatment of overseas state pensions.

    Many other countries operate proportional pension schemes where pension amounts are generally built up gradually, either by contributions or residence, with a full pension becoming available only after 30 to 50 years of contributions or residence. Under proportional pension schemes, the maximum amount of pension is reduced to take into account the period that a person has not made contributions to the scheme or has not been present in the country.

    Generally, when workers move between countries with proportional payment pension schemes, they cease to be subject to the first country's scheme and begin to be covered by the second country's scheme. Their pension entitlements in the first country will be less than those of workers who have spent their whole working lives in the first country. However, when their pension entitlements from the first and second country's schemes are added together, the applicant will receive what is equivalent to one full pension (hence the "one pension principle").

    The one pension principle operates easily where people move between countries with proportional payment pension schemes. However, the New Zealand Superannuation scheme is not structured this way. The direct deduction policy is a mechanism to ensure those who have lived both overseas and in New Zealand receive an amount equivalent to one pension, and no more.

  • How we deduct overseas pensions

    We take the following steps when deducting an overseas pension from your NZ payment:

    1. Check whether the overseas pension meets the two criteria above.
    2. Convert the amount of your overseas pension to New Zealand dollars (NZD).
    3. Work out the weekly amount.
    4. Reduce your NZ payment by the amount of your overseas pension.

    Tax is deducted from the NZ payment after it is reduced by any overseas pension.

    See examples "one" and "two" further down the page.

  • You don't get an overseas pension but your spouse/partner does

    Your NZ payments may also be affected if your partner receives an overseas pension but you don't. If your partner receives a NZ payment and an overseas pension, it will only affect your payments if their overseas pension is more than their NZ payment (see example three below).

    If your partner is not entitled to NZ payment, and receives an overseas pension, it will be deducted from your payments in full (see example four below).

  • Example One

    The following examples are based on common circumstances where we deduct overseas pensions. The rates of New Zealand Superannuation shown are current as at 1 April 2019.

    Actual payments can vary after a person's individual circumstances are taken into account, such as supplementary payments, differing tax rates or obligations and repayments of debts.

    The exchange rates used are examples, and in practice may often vary from the specific rate used on the day the overseas pension was paid.

    Example One

    Mr A is married and receives both New Zealand Superannuation and an overseas pension from the United Kingdom (UK) of £46.82 per week.

    Mr A's partner only receives New Zealand Superannuation.

    The gross (before-tax) rate of New Zealand Superannuation for a married couple is $360.42 each per week.

    Mr A's overseas pension is deductible for the following reasons:

    • It is administered by the UK Government.
    • It is a part of the UK's programme of benefits, pensions and periodical allowances.
    • The UK's programme includes payments for old age/retirement, which the New Zealand programme does also.

    Step one: converting to New Zealand dollars

    We convert the UK pension to a New Zealand dollar amount (£ x exchange rate = NZD)

    Weekly UK pension (£)

    Exchange Rate

    Weekly UK pension (NZD)

    £46.82

    2.3166

    $108.46

    Step two: applying the deduction

    We deduct the amount of the overseas pension in NZ dollars from the New Zealand payment (NZ payment - UK pension = the NZ payment you receive).

    Gross NZ Superannuation (before deduction of UK pension)

    Gross UK Pension in NZD

    Gross NZ Superannuation (after deduction of UK pension)

    $372.27

    $108.46

    $263.81

    The combined gross amount of Mr A's UK pension and gross amount of New Zealand Superannuation (after deduction) adds up to $372.27.

    This is equal to the gross amount of New Zealand Superannuation that married superannuitants who don't get an overseas pension receive.

  • Example Two

    Mr B is a single person who lives alone and receives New Zealand Superannuation and an overseas pension from Australia of AUD$5,642.12 per year. The current gross (before-tax) rate of New Zealand Superannuation for a person who is single and living alone is $475.42 per week.

    This pension is deductible for the following reasons:

    • It is administered by the Government of Australia.
    • It is a part of Australia's programme of benefits, pensions and periodical allowances.
    • The Australian programme includes payments for old age/retirement, which the New Zealand programme does also.

    Step one: converting to New Zealand dollars

    We convert the Australian pension to a New Zealand dollar amount (AUD x exchange rate = NZD)

    Yearly Australian Pension (AUD)

    Exchange Rate

    Yearly Australian Pension (NZD)

    $5,642.12

    1.0944

    $6,174.74

    Step two: changing to a weekly amount

    Divide the NZD amount of the overseas pension by 52 to calculate the weekly amount.

    Yearly Australian Pension (NZD)

    Weekly Australian pension (NZD)

    $6,174.74

    $118.74

    Step three: applying the deduction

    We deduct the NZD amount of the overseas pension from the New Zealand payments of the person who receives the overseas pension.

    Gross New Zealand Superannuation (before deduction)

    Gross Australian Pension in NZD

    Gross New Zealand Superannuation (after deduction)

    $490.73

    $118.74

    $371.99

    The combined gross amount of Mr B's Australian pension and gross New Zealand Superannuation (after deduction of the Australian pension) adds up to $490.73. This is equal to the gross amount of New Zealand Superannuation that single superannuitants who live alone, who don't get an overseas pension receive.

  • Example Three

    Mr C is married and receives an overseas pension that is higher than his New Zealand Superannuation. His partner, Mrs C, only receives New Zealand Superannuation.

    Mr C's Netherlands Old Age pension is €1,208.55 per month and the current gross (before-tax) rate of New Zealand Superannuation for a married couple is $360.42 each per week.

    This pension is deductible for the following reasons:

    • It is administered by the Government of the Netherlands.
    • It is a part of the Netherlands programme of benefits, pensions and periodical allowances.
    • The Netherlands programme includes payments for old age/retirement, which the New Zealand programme does also.

    Step one: converting to New Zealand dollars

    We convert the Netherlands pension to a New Zealand dollar amount (€ x exchange rate = NZD)

    Monthly Netherlands Old Age pension (€)

    Exchange Rate

    Monthly Netherlands Old Age pension (NZD)

    €1,208.55

    1.6258

    $1,964.86

    Step two: converting to a weekly amount

    We change the NZD amount of overseas pension from a monthly rate to a weekly amount by multiplying the monthly amount by 12 and then dividing by 52.

    Monthly Netherlands Old Age pension (NZD)

    Weekly Netherlands Old Age pension (NZD per week)

    $1,964.86

    $453.43

    Step three: applying the deduction to Mr C

    We deduct the NZD amount of the overseas pension from the New Zealand payments of the person who receives the overseas pension.

    Mr C's weekly gross New Zealand Superannuation (before deduction of Netherlands pension )

    Weekly gross Netherlands Old Age Pension in NZD

    Weekly gross New Zealand Superannuation (after deduction of Netherlands pension)

    $372.27

    $453.43

    $0 (as the Netherlands pension amount exceeds the rate of New Zealand Superannuation by $81.16)

    Step four: applying the excess amount of overseas pension to Mrs C

    As the amount of Mr C's overseas pension is higher than their rate of New Zealand payment, we deduct the excess amount of that overseas pension from Mrs C's New Zealand payment.

    Weekly amount of overseas pension left over after deduction from Mr C's payment (excess)

    Mrs C's New Zealand Superannuation

    Mrs C's New Zealand Superannuation (after deduction)

    $81.16

    $372.27

    $291.11

    The combined amount of Mr C's overseas pension and reduced New Zealand Superannuation and Mrs C's reduced New Zealand Superannuation adds up to $744.54

    This is equal to the gross amount of New Zealand Superannuation that married superannuitant couples without an overseas pension receive

  • Example Four

    Mr D is married and receives New Zealand Superannuation at the gross (before-tax) rate for married couples of $372.27 per week.

    Mrs D does not receive New Zealand Superannuation, but does get an overseas pension from Canada of CAD$788.62 per month.

    This pension is deductible for the following reasons:

    • It is administered by the government of Canada.
    • It is a part of the Canadian programme of benefits, pensions and periodical allowances.
    • The Canadian programme includes payments for old age/retirement, which the New Zealand programme does also.

    Step one: converting to NZ dollars

    We convert the Canadian pension to a New Zealand dollar amount (CAD x exchange rate = NZD)

    Monthly Canadian pension (CAD)

    Exchange Rate

    Monthly Canadian pension (NZD)

    $788.62

    1.1410

    $899.82

    Step two: converting to a weekly amount

    We change the NZD amount of overseas pension from a monthly rate to a weekly amount by multiplying the monthly amount by 12 and then dividing by 52.

    Monthly Canadian pension (NZD)

    Weekly Canadian pension (NZD per week)

    $899.82

    $207.65

    Step three: applying the deduction

    We deduct the NZD amount of the overseas pension from Mr D's New Zealand payment.

    Mr D's Gross New Zealand Superannuation (before deduction of the Canada Pension)

    Mrs D's Gross Canadian pension amount

    Mr D's New Zealand Superannuation (after deduction)

    $372.27

    $207.65

    $164.62

    The combined gross amount of Mrs D's Canadian pension and Mr D's gross amount of New Zealand Superannuation (after deduction of the Canadian pension) adds up to $372.27. This is equal to the gross amount of New Zealand Superannuation that married superannuitants without an overseas pension receive