Sanctions hit 420 Kiwi pensioners
An unintended consequence of sanctions on Russia’s financial institutions has meant more than 400 Kiwis have been unable to access a portion of their pension payments.
Without a social security arrangement with Russia or a law change, the Ministry of Social Development (MSD) says its hands are tied until sanctions lift – a move that will be reviewed in 2025, but in reality may never happen.
The Ministry of Foreign Affairs and Trade (MFAT) has released new guidance to New Zealand banks, essentially saying it never meant for these pensioners to become collateral damage.
The guidance said banks could accept transfers from Russian financial institutions in order to pay out what’s owed to those pensioners living in New Zealand.
This comes after 30 of the 420 people affected contacted MSD, with four laying formal complaints over their inability to access their pension money, which is stuck in Russian bank accounts.
MSD estimates the annual value of these pension payments to be $1.5 million, as of the start of April. The average value per person receiving Russian pension payments is about $3700 a year.
Of course, the amount fluctuates with the value of the Russian ruble, which has taken a hit due to factors associated with the invasion of Ukraine, but has recently rebounded.
MFAT spokesperson Susan Pepperell said the foreign ministry had been in contact with MSD and the New Zealand Embassy in Moscow over the issue.
The new guidance to banks made it clear the sanctions were not intended to capture individuals in New Zealand who were eligible to receive Russian pension payments, and that the payments could continue to be received.
Ahead of the new guidance being issued, the Russian Embassy said all the financial commitments relating to pensions had been ‘‘thoroughly fulfilled’’ by the Pension Fund of Russia.
However, the sanctions against Sberbank of Russia – the bank carrying out pension wire transfers – were ‘‘increasingly affecting payments to the pensioners residing in New Zealand’’, the embassy said. Until the issue was settled, the payments were being deposited into pensioners’ Russian bank accounts.
MSD deputy chief executive of policy Simon McPherson said the department was working with MFAT to further understand the disruption of payments and what support might be available to those affected.
Those who contacted MSD were told that under law the department was unable to remove the deduction from their payments, and instead pay them full NZ Super.
Those facing hardship, and in immediate need of support, might be eligible for MSD assistance through hardship provisions. However, these payments are meanstested at a high threshold, and are often just one-off payments.
McPherson said beyond its discussions with MFAT and possible hardship grants for eligible people, there was nothing else the department could do to change the way it administered the pension scheme.
‘‘We encourage people to get in touch to discuss their situation and check what support they may be eligible for. This would need to be assessed on a case-by-case basis,’’ he said.
The government’s direct deduction scheme means those eligible for both NZ Super and an overseas pension will have their overseas pension payments deducted from the total NZ Super amount.
In this case, 420 people who live in New Zealand are eligible for NZ Super, but they are also eligible for at least some Russian Federation pension payments, because they have lived or worked in Russia.
The scheme saves the government money in NZ Super payments – in 2020, the country saved about $450m by deducting overseas pensions.
The issue in this case is that the portion of the pension these people usually receive from the Pension Fund of Russia is being stopped short of its transfer into New Zealand bank accounts, due to the sanctions on financial institutions, including Russia’s SberBank which carries out the wire transfers to New Zealand accounts.
When New Zealand imposed the sanctions, Foreign Minister Nanaia Mahuta said: ‘‘These sanctions are designed to impose an economic and political cost, specifically targeting organisations that finance the continued invasion of Ukraine.’’
New Zealand was joining countries around the world which had imposed heavy penalties on Russian President Vladimir Putin and the system financing his illegal invasion, Mahuta said.
But it appears the Government had not thought through all the ways in which the sanctions may affect those living in New Zealand, leaving banks to interpret and implement the sanctions without further guidance. It’s expected the new guidance will lead to a change in banking practices, allowing those 420 Kiwis to again access their full pensions.