Retiring to New Zealand? What Canadian Expats Need to Know About CPP and OAS

New Zealand is an increasingly popular retirement destination for Canadians. With its stunning landscapes, mild climate, excellent healthcare, and relaxed lifestyle, it’s easy to see why. But before you pack your bags, there’s one big question you need to answer: What happens to your Canadian pensions when you move?

The good news is that both the Canada Pension Plan (CPP) and Old Age Security (OAS) can be paid to you in New Zealand. The not-so-good news is that New Zealand has its own pension system that may affect how much you actually keep. Here’s what you need to know.

Your CPP Follows You Anywhere

The Canada Pension Plan is based on your contributions during your working years. If you paid into CPP while working in Canada, you’re entitled to those benefits no matter where you retire. CPP is fully portable worldwide, including to New Zealand.

Your CPP payment amount stays the same whether you live in Calgary or Christchurch. Service Canada will deposit your monthly payment into your bank account, and you’ll receive an NR4 tax slip each year showing what you received.

One thing to be aware of: Canada will withhold 15% tax from your CPP payments. This is the standard non-resident withholding tax rate under the tax treaty between Canada and New Zealand. You can claim this as a credit when you file your New Zealand tax return.

OAS Has a Residency Test

Old Age Security works differently. Unlike CPP, which is based on contributions, OAS is based on how long you lived in Canada.

Here’s the key rule: To receive OAS while living outside Canada permanently, you need to have lived in Canada for at least 20 years after turning 18. If you meet this requirement, your OAS payments will continue for life, no matter where you live.

If you haven’t lived in Canada for 20 years, there’s still hope. Canada and New Zealand have a Social Security Agreement that can help. Under this agreement, your years of residence in New Zealand can count toward the 20-year minimum required to receive OAS outside Canada. However, the actual payment amount is still based only on your Canadian years. For example, if you lived in Canada for 15 years and New Zealand for 10 years, you’d qualify for OAS abroad but receive 15/40ths of the full pension.

If you don’t meet the 20-year requirement (even with New Zealand years counted), your OAS payments will stop six months after you leave Canada. They’ll resume if you return.

Like CPP, OAS payments to New Zealand residents have 15% tax withheld at source by Canada.

What About the Guaranteed Income Supplement?

Unfortunately, the Guaranteed Income Supplement (GIS) cannot be paid outside Canada. If you currently receive GIS, those payments will stop once you’ve been out of the country for more than six months. This is true regardless of how long you lived in Canada. GIS is only for low-income seniors who live in Canada.

The Big Catch: New Zealand’s Direct Deduction Policy

Here’s where things get complicated, and this is something many Canadians don’t realize until it’s too late.

New Zealand has its own universal pension called NZ Superannuation (NZ Super). It’s available to anyone aged 65 and older who has lived in New Zealand for a minimum number of years. A single person living alone receives roughly NZ$28,000 per year after tax.

But here’s the catch: New Zealand has a “direct deduction policy” that reduces your NZ Super dollar-for-dollar by any overseas government pension you receive. This includes both your CPP and your OAS.

Let’s say you’re entitled to NZ$28,000 per year from NZ Super, and you receive the equivalent of NZ$20,000 per year from CPP and OAS combined. New Zealand will reduce your NZ Super by NZ$20,000, leaving you with only NZ$8,000 from NZ Super. Your total pension income would still be NZ$28,000 – the same as someone who never worked overseas.

If your Canadian pensions exceed the NZ Super amount, you don’t owe anything back – you simply receive no NZ Super at all. But you also don’t get to “top up” your Canadian pensions with NZ Super.

This policy applies to both OAS (which is similar to NZ Super in that it’s residence-based) and CPP (which is contribution-based, like a savings plan). Many Canadians find this frustrating, especially regarding CPP, which they view as money they personally earned and saved. But that’s how New Zealand’s system works.

Qualifying for NZ Super

To receive NZ Superannuation, you need to meet residence requirements that are changing. For people turning 65 before July 2024, the requirement was 10 years of residence in New Zealand since age 20, with at least 5 of those years after age 50. However, New Zealand is gradually increasing this to 20 years by 2042.

The exact requirement depends on your birth date. Someone born in the late 1960s might need 14-15 years; someone born after July 1977 will need the full 20 years.

The Social Security Agreement between Canada and New Zealand can help here too. Your years of CPP contributions in Canada can count toward meeting NZ Super’s residence requirements. So if you need 15 years and have lived in New Zealand for 10, your Canadian work history could make up the difference.

Tax Considerations

When you become a New Zealand tax resident and give up Canadian tax residency, your Canadian pensions are taxed as follows:

Canada withholds 15% at source from your CPP and OAS payments. This is automatic under the tax treaty.  You can file a special return to reduce your Canadian tax in some situations.

New Zealand will also want to tax this income as part of your worldwide income. However, new migrants to New Zealand get a break: for the first 48 months (four years), foreign pension income like CPP and OAS is exempt from New Zealand tax under the “transitional resident” rules. After that, it becomes fully taxable in New Zealand, but you can claim a credit for the Canadian tax already paid.

Planning Tips

Consider taking CPP early. Since any CPP you receive after age 65 will simply offset your NZ Super, some planners suggest taking CPP as early as age 60 (with the standard reduction). At least that way, you keep those payments during the years before NZ Super kicks in at 65.

Think about deferring OAS. On the flip side, since OAS after 65 just offsets NZ Super anyway, you might defer OAS to age 70 to get the 36% increase. If your circumstances change later, that higher OAS could be valuable.

Keep your Canadian paperwork in order. Maintain records of all your years of Canadian residence and CPP contributions. Update your address with Service Canada when you move. Make sure you’re set up for direct deposit to avoid payment delays.

Declare everything to New Zealand. When you apply for NZ Super, you must declare any overseas pension entitlements. Failing to do so can result in overpayment recovery and penalties.

The Bottom Line

Moving from Canada to New Zealand doesn’t mean losing your Canadian pensions. Both CPP and OAS can be paid to you overseas, and the Social Security Agreement between the two countries helps ensure you don’t fall through the cracks.

However, New Zealand’s direct deduction policy means your Canadian pensions will reduce any NZ Super you might receive. You won’t necessarily end up worse off than a New Zealander who never worked abroad, but you won’t end up better off either.

Before making the move, sit down with a financial planner who understands both countries’ pension and tax systems. The rules are complex, and getting them wrong can be costly. With proper planning, you can enjoy your New Zealand retirement knowing exactly what to expect from your pensions.

 

While every effort has been taken to compile this information reliably, we take no responsibility for actions taken based on this information.  It is provided for informational purposes only.  Your unique circumstances may be different from what is assumed in this general information.  You should always seek professional advice from an experienced tax practitioner. 

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