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Huge money at stake in ‘super’ issue

Wednesday September 27, 2017 Written by Published in Local

Cook Islanders who must compulsorily contribute to the Cook Islands National Superannuation Fund and who also qualify for New Zealand Superannuation pension will find themselves hugely disadvantaged when it comes time to collect their Kiwi entitlement.


A number of local accountants and lawyers who have been pursuing the little-known “Cook Islands superannuation abatement issue” for the last 11 months, believe thousands of Cook Islanders are affected, a figure that will soar as more become eligible to collect New Zealand superannuation as well as their Cook Islands “super”.

They say many millions of dollars are at stake.

The CINSF has 5232 active members who contribute to the compulsory fund. A further 4612 are “dormant” members who have not contributed to the fund in the three months leading up to June 2017.

The CINSF office does not have data on the composition of the dormant members – how many are Cook Islanders or foreign workers, and how many are still living in the Cook Islands or living overseas.

However, it’s believed most are Cook Islanders who have moved overseas, mainly to New Zealand.  Many of those are now living in New Zealand working to further themselves and to fulfil the residential criteria to qualify for the New Zealand Superannuation pension, say CINews sources.

Speaking in a private capacity, former government Tax Collector and chartered accountant Geoff Stoddart says there is a serious problem for the 4612 people who have contributed for years to the CINSF and are now living in New Zealand.

“Anything they get as a pension out of the Cook Islands National Superannuation Fund is deducted dollar-for-dollar off their NZ superannuation which many of those 4600 members would have got anyway. So for most of the 4600 (47 per cent of CINSF members) who made the compulsory contributions to the CINSF, it was all in vain.”

Local lawyer and trust company general manager Taki Anaru agrees. 

“All Cook Islanders are New Zealanders. Therefore, all have an entitlement to receive New Zealand superannuation if certain residential criteria are met.  The net effect of the NZ Ministry of Social Development’s (NZMSD) advice is that CINSF members who are also entitled to New Zealand superannuation will not be one cent better off financially when they retire. All CINSF contributions from both employer and employee will be deducted from New Zealand payments at a rate of 100 per cent. In effect, all those funds are lost to Cook Islanders by way of set-off against New Zealand superannuation. It’s a financial disaster for Cook Islanders”.

In addition, CINSF members who collect the New Zealand pension will be further exposed to a double taxation.

All members of the CINSF are taxed on their gross income, then five per cent is removed as their compulsory contribution to the CINSF. Upon qualifying for New Zealand super at age 65, those CINSF members will then have any amount they receive from their savings into CINSF deducted.

Furthermore, all of their CINSF contributions are taxable in New Zealand. The board of CINSF were not able to give an assurance at last week’s annual general meeting in Rarotonga that this would not be taxed. Thus double taxation will occur for many of the 4600 former contributors to the CINSF who have moved away.

The fact that 47 per cent of CINSF members are currently “massively disadvantaged,” with more set to be in the same position, has prompted Stoddart and others to call for change for the past 11 months, with no success.

Their concerns over what they believe to be a punitive system for Cook Islanders, have resulted in little more than letters from the NZMSD, which will not budge on the decision to abolish the dollar-for-dollar deductions that it says it based on its Social Security Act, “to ensure that New Zealanders are not placed at a financial disadvantage when compared with others who have entitlement to overseas pensions.”

That excuse adds to the failure of the New Zealand government to allow retirees from the realm countries, Cook Islands, Niue and Tokelau, the right to collect their NZ pensions without the five after 50 rule, believes NZ First leader Winston Peters.

Peters has long advocated for the controversial rule to be abolished and realm countries given the same rights.

To make the issue even more complex, the NZMSD says, “the New Zealand Superannuation is reduced by the full amount of the payment from the Cook Islands National Superannuation Fund.

The fact that the programme (CINSF) is funded from personal contributions rather than by the government does not exempt it from deduction.”

No legal basis was given by the NZMSD for its stance.

Subsequent attempts by the NZ Public Trustee Office to have the ministry office review its position were rebuffed, say sources.

The NZ Public Trustee Office is the trustee and acts on behalf of almost 10,000 members and its duties and powers are set out in the trust deed establishing the CINSF.

In this instance, the NZMSD is not applying the law logically, say sources. It has been argued the ministry should only be deducting from the New Zealand super what Cook Islands welfare pensions are paid out to New Zealand superannuation recipients.   The welfare pension administered by Rarotonga’s Ministry of Internal Affairs is the equivalent of the New Zealand universal pension known as “National Super”, though the rates are quite different. 

Critics say the NZMSD has failed to understand for over seventeen years that the CINSF is a privately-funded superannuation scheme, not a government-funded pension scheme.

The CINSF office has approached the NZMSD through the New Zealand High Commission here, but their position has remained the same.

CINSF chief executive Damien Beddoes says what needs to happen now are government-to-government discussions that will encourage the NZMSD to review its position.

The minister responsible for the CINSF, Mark Brown, has been asked to comment on the issue. It has been pointed out to him that it could not have been the intention of parliament in 2000 when the superannuation scheme was initiated, that Cook Islands individuals and employers would contribute to the CINSF for years and then effectively lose it all when they qualified for NZ superannuation.

This year, strong representations have been made to the board to amend the CINSF scheme to avoid the NZMSD abatement.

This would have required amending legislation and the Trust Deed so that Cook Islanders can withdraw their total contribution before reaching 65 to avoid the NZMSD deduction.

Stoddart says the CINSF board flatly refused this recommendation. “The question must be asked” says Anaru, “why wouldn’t the Board be proactive to ensure that Cook Islanders could receive their full entitlement to both and NZ superannuation? In my view it was a complete dereliction of duty”.

At present, members reaching 60 can withdraw up to 25 per cent of their funds from the CINSF or all of their funds if they only had $15,000 or less.

 The rest must be received as a pension and if the recipient moves to New Zealand or even gets their NZ Super paid in the Cook Islands, then then their NZ Superannuation pension is  lost by way of deduction of the CINSF pension.

Which is where the CINSF scheme is shown to be a lemon for retirement purposes for Cook islanders who are eligible for both.

It has also been suggested that instead of just being able to withdraw 25 per cent, CINSF members aged 60 or more be able to withdraw their total contribution.

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