New Zealand Super

New Zealand Superannuation (often referred to as just NZ Super) is a state pension paid by the New Zealand government to all eligible persons.

It is an age-related universal pension paid without any means testing (asset or income) and paid for life by the New Zealand Government. 

The income is taxable with the after-tax weekly rate for a couple currently set each year on 1 April at 66% of the net average after-tax (ordinary time) wage, and the rate for a single person living alone is set at 66% of this married couple rate. 

Upon reaching age 65 and providing you are a New Zealand citizen or permanent resident who normally lives here at the time of applying, you may be eligible for NZ Super. To qualify you must have also lived in New Zealand (or a country New Zealand has a social security agreement with) for a total of 10 years since you turned 20 (5 of those years must be since you turned 50). Special eligibility conditions apply to Australian citizens.

In November 2021, the New Zealand Government passed a bill that means that, over time, individuals will have to have lived longer in New Zealand before they qualify for NZ Super. 

Currently, individuals need to have lived in New Zealand for at least ten years after age 20 to qualify. However, starting in July 2024, this residency period will gradually increase to 20 years by July 2042. Individuals will still need to have lived in New Zealand for at least five years since they turned 50.

As of the 2023-24 tax year the rates of NZ Super are as follows:

New Zealand Superannuation – Annual Rates   from 1 April 2023	Gross	Net*
Single living alone	$30,091	$25,811
Couple – only one qualifies (and the other is excluded)	$22,869	$19,854
Couple – both qualify	$45,738	$39,708
* Assuming no other taxable income

Direct Deduction Policy (DDP) for Overseas Government Pensions 

As part of New Zealand’s superannuation rules any foreign government pension entitlements will be subject to a Direct Deduction up to the value of NZ Super. 

If an individual is entitled to an overseas pension that is of the same nature as NZ Super (administered by a government and covering the same sort of circumstances), then under the DDP, the gross amount of this overseas pension entitlement will be deducted from your gross NZ Super entitlement. 

Deferment of overseas pensions does not avoid the DDP, and all reasonable steps must be taken to obtain any overseas pensions entitlements, even if the actual receipt of these entitlements is deferred for other reasons (maximise benefits, minimise tax etc). 

International Comparison

To highlight how benefits can differ across countries, we provide an overview of the state pension benefits available from US, UK, and Australia below.

US Social Security

US Social Security is a federal social insurance program that provides financial support to eligible individuals and their families. It was established in 1935 as part of the Social Security Act and is administered by the Social Security Administration (SSA).

To qualify for retirement benefits, individuals generally need to have worked and paid Social Security taxes for a minimum number of years (usually 10 years or 40 quarters). The benefits are based on the individual’s average lifetime earnings and the age at which they start claiming benefits. 

You can take your US Social Security from age 62, but waiting until Full Retirement Age (FRA), results in a much higher benefit.  FRA is based on your year of birth and is slowly rising from 66 to 67.  You can also delay taking benefits until age 70.  

By comparison to many developed economies, the US has a relatively low life expectancy.  When this is factored in, delaying taking benefits until age 70 often results in the highest lifetime of income payable.  Therefore, if you are in good health, this is often the best strategy.

In 2023, the maximum benefit at FRA is $3,627 USD per month.  This is the equivalent of $43,524 USD per annum.  Converted into New Zealand dollars this equates to gross income of around $70k per annum (based on a $1USD = $1.6NZD exchange rate) and therefore substantially higher than NZ Super.

Social Security benefits are subject to periodic cost-of-living adjustments to keep up with inflation and rising living costs.

Under the current US-NZ Double Taxation Agreement (DTA), US social security benefits are not taxable in NZ.  However, US social security remain taxable in the US. 

US citizens residing in NZ are serviced by the SSA Federal Benefits Unit (FBU) located in the US Philippines embassy in Manila.  Their contact details are provided below.

Ph: (632) 301-2000 ext. 9

Fax: (632) 708-9723 and (632) 708-9714

E-mail: FBU.Manila@ssa.gov

Website: www.ssa.gov

UK State Pension

The UK state pension is a government-funded pension scheme that provides retirement income to eligible individuals who have reached the state pension age.

The state pension system aims to provide a basic level of income for retirees. It is not means or asset tested and is available to all eligible individuals.

The state pension age is the age at which individuals become eligible to claim the state pension is currently 66 but is gradually increasing to 68 for those born on or after 5 April 1977. 

To be eligible for the full state pension, individuals need to have accrued a certain number of ‘qualifying years’ of National Insurance contributions or credits. Qualifying years are the years in which you paid National Insurance contributions or received credits (e.g., due to unemployment or caring responsibilities). 

To receive the full state pension, individuals typically need to have at least 35 qualifying years. If you have fewer than 35 qualifying years, your state pension amount will be reduced proportionally. If you have more than 35 qualifying years, the additional years do not increase the pension amount further.

For the tax year 2023/2024, the full state pension was £203.85 per week. This is the equivalent of £10.5k per year or around $21k NZD gross per year (assuming a £1GBP to $2NZD exchange rate).

If you are living in New Zealand, your UK state pension payments are ‘frozen’, meaning that you will not be entitled to any inflation adjustment, which will erode the value of your benefits over time.

In many cases the income from the UK State Pension will be lower than the NZ Super.  In which case you will be entitled to a top up by the NZ Government, assuming you meet the NZ eligibility criteria.  If don’t qualify for NZ Super at age 65, you can still claim your UK pension, and then make a claim for NZ Super at a later time when you meet the NZ residency requirements.

For the latest information and to request a statement of benefits please check the UK government’s website  https://www.gov.uk/new-state-pension 

Additional information on the payment of UK pensions is also available online from New Zealand’s work and income website https://www.workandincome.govt.nz/ 

Australian Age Pension

Most pensions in Australia are provided by the private sector, with mandatory levels of contributions. As such the State Pension (referred to as the ‘Age Pension’) is intended to provide a basic safety net. Payment is based on three tests for residency, income and assets.

• Residency test. Have been an Australian resident for at least 10 years in total. For at least 5 of these years, there must be no break in your residence.
• Income test.  The Age Pension will start to reduce if your income is above a threshold. As of 2023, if you were a couple and your combined income is above the cutoff point of around $93k AUD per annum, you would receive no Age Pension.
• Asset test. Similarly to the income test there is also an asset with a cutoff point of around $1m AUD where you would receive no Age Pension (the exact rate depends on whether you own a home or not). 

The maximum basic rate for a single person (before any reductions for income or asset testing) is just over $25k AUD gross per annum and around $38k AUD gross per annum for a couple combined.

For the latest information please refer to the Australian government website https://www.servicesaustralia.gov.au/age-pension 

Comparison and Summary 

As shown in the table below, UK, New Zealand and Australia all provide similar benefits.  The US is the standout with the potential to provide much higher level of benefits (based on your earnings and social security record).

Notes: Details as of August 2023. Chart shows the maximum benefits for a single person living with another person. All figures are in NZD and before the deduction of tax.

 

More information and Professional Advice

Seeking professional advice from a tax expert with knowledge of both New Zealand’s tax laws, your home country’s tax regulations and the impact of these agreements, is highly recommended to ensure compliance and ensure you organise your affairs efficiently 

You can find more information on New Zealand’s tax system, including a range of tax guides can be found from New Zealand’s Inland Revenue Service (IRD) www.ird.govt.nz.

 

Please note that the information contained in this note is general in nature and should not be considered as individual advice.  If you would like to discuss your individual situation with an adviser, or have any questions, please contact a member of the Pacific Wealth team.