In my last post I wrote about the scheme being cooked up to transfer the pension liabilities of the Reserve Bank scheme to the Government Superannuation Fund by means that look highly likely to be ultra vires, and in any case are extremely risky for pensioners over coming decades. The basic goal, transferring the liabilities of a small scheme to a much larger scheme, in exchange for a full and final payment from the small scheme before it itself is wound up, isn’t in question (indeed, I’ve championed the search for such a solution). But pretty illegal foundations are a poor basis for anything, most especially when it involves the Minister of Finance, our prudential regulatory agency (concerned with standards of governance and conduct in its bit of the financial sector) the Reserve Bank, and the government’s key economic adviser, The Treasury. It is all the more extraordinary when there are simple, well-grounded, legislative solutions available, which would remove most of the legal and financial risks in what is planned. Such a solution might take a couple of months, but there is simply no urgency about this resolution (and no one involved seriously claims otherwise).
Here is the relevant bit of the Government Superannuation Fund Act, a provision added many decades ago, decades before that scheme was closed to new members.
Here is the relevant bit of the Government Superannuation Fund Act, a provision added many decades ago, decades before that scheme was closed to new members.
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That looks like a pretty objective test to me. The Governor-General can’t just make any old regulation (Order in Council), not even as regards to superannuation. The test isn’t even whether in the opinion of the Governor-General (or her ministers) a proposed OIC might be (say) in the best interests of some people. The test is that an OIC under this section can only be made if it is giving effect to an arrangement that is intended to provide “reciprocity in matters relating to superannuation”.
In a standard conception in decades past such a (hypothetical) arrangement could have involved government department employers and the Reserve Bank (and their respective pension schemes) agreeing to recognise service with the other employer for purposes of each other’s pension scheme. Spend 35 years at The Treasury and 5 years at the Reserve Bank (or vice versa) and your service at the Reserve Bank will count towards your GSF pension (or vice versa). The way defined benefit pension schemes operate that is valuable for employees and enables a bit more labour mobility among related entities that would otherwise occur. Both sets of pension funds, both sets of employers, continued to function.
(To be clear, this is a hypothetical – there was no such historical agreement)
The scheme the Minister of Finance got her Cabinet colleagues to agree to (presumably acting on Treasury advice, although Treasury refuses to release that advice) bears no resemblance to that sort of (genuinely) reciprocal arrangement at all.
Instead, the Reserve Bank scheme would, in effect, sell its liabilities to the GSF, pay the price GSF names to take on those multi-decade liabilities, and then be wound up. All very efficient (in principle) but there is nothing reciprocal about it. And as it happens, since to close the Reserve Bank scheme the trustees have to purchase contracts that replicate the pension etc benefits that would otherwise be payable, and since there are differences between the two schemes, what is actually proposed is not that Reserve Bank pensioners are simply added into GSF (its so-called New General Scheme, a set of clauses in the GSF Act) and paid per the GSF rules. For any aspect where the GSF rules are less generous than the Reserve Bank rules, GSF is agreeing by contract to provide better benefits in those areas than it provides to its own members. Which is fairly weird given that the GSF benefits themselves are explicitly outlined in the GSF Act itself, but somehow this contract (and authorising Order in Council) are going beyond statute for this group of pensioners. Which would work out nicely for us…….except that the legal foundations appear incredibly shaky, and thus highly vulnerable. And the nature of DB pension schemes is that they run for many decades – this isn’t simply an arrangement for a year or two.
It simply isn’t providing for reciprocity at all. It is just an outright sale and purchase agreement.
It appears that section 98 has never been used before (despite 75 years in the legislation) so there are no judicial rulings on what “reciprocity” means in this context. As far as I can gather there also isn’t any authoritative legal commentary on the use of the term in New Zealand legislation.
But I thought it might be worthwhile to check all the references, with a search on the legislation.govt.nz database for how “reciprocal” or “reciprocity” is used. Absent specific authorities on this particular section one might think a court would look not just to the dictionaries but to actual New Zealand usage, in both primary and secondary legislation. My exercise here is simply about interpreting from context (what arrangements are being described when the operative words were used by drafters, Parliament (acts), and ministers (regulations).
I did two levels of search. The first was to search by title, and the second by the full text of each instrument. (If you are happy to accept my word about the overwhelming weight of how those words are used, then feel free to skip ahead to the Summing Up section at the end of the post.)
Titles of Legislation
16 titles contain the word “reciprocal” and 13 “reciprocity”.
Of “reciprocal” 13 examples are regulations made under one piece of primary legislation, the Reciprocal Enforcement of Judgments Act 1934 (which incidentally was thus in place when reciprocal/reciprocity were first introduced to what became the GSF Act). Neither “reciprocal” nor “reciprocity” is defined in the Act, but the purpose is illustrated thus
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The other examples, using “reciprocal” in the title, are regulations around child support (and spousal maintenance) payments, one giving effect to an agreement with Australia and another with Hague Convention countries. The core of these regulations is that orders in one country are “entitled to recognition and enforcement by operation of law in the territory of the other”.
What of the 13 with “reciprocity” in the title? 12 of them are health and social welfare provisions. It is quite clear that what they are describing is the parameters for arrangements under which foreigners can be treated the same as New Zealanders here (mirroring the other side of the agreement re the way NZers are treated abroad – eg as between NZ and the UK our public health service and their NHS).
The 13th is the Law Practitioners (Victoria Reciprocity) Order 1937, made pursuant to the Law Practitioners Act. The entire order is as follows
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Mutual recognition and all that.
Use in the body of legislation
What of uses of “reciprocal” and “reciprocity” in the content of acts and regulations? There is overlap of course: legislation with one or other word in the title also tends to have it in the body. There are 79 examples of a use of “reciprocal” in the content of acts or regulation and 45 examples of “reciprocity”. I haven’t reproduced all these search results (easy enough to do yourself), but I have gone through and checked all examples not already covered by the review of the titles above.
Take the “reciprocal” list first:
- The Trans-Tasman Proceedings Act 2010 seems to cover very similar ground to the Reciprocal Enforcements of Judgements law, replacing some orders (Australasian) under that law with this specific Australia-focused legislation
- The High Court Rules also show up, but again in reference to the Reciprocal Enforcement of Judgements Act
- Maritime Transport Act references all relate to reciprocal enforcement of judgements.
- The Tax Administration Act has a specific provision, along the lines of mutual recognition
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- Or the US-NZ double tax agreement 2014
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- Or the Sale and Supply of Alcohol Regulations
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Those are the examples (all of them) from the first page of search results.
I have gone through all the others and have not been able to find a single of example of a usage that is other than something akin to “like for like” (there is perhaps a partial exception in some Treaty of Waitangi settlement legislation, but there the context seems to have been one of mutual obligations over long periods of time). Not one of the references has the sense of “one-off full and final payment of dollars for services”. I’ll include just one more in deference to the “creative” lawyers we seem to be dealing with (whether in/for Treasury, Crown Law, PCO, the Reserve Bank, or the Government Superannuation Fund Authority), from the Lawyers and Conveyancers Act
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And then I turned to uses of “reciprocity” in the body of legislation (acts and regulations), again skipping over laws already covered above.
There is the UN Convention on Refugees 1951 (made part of our law as a schedule to the Immigration Act)
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The District Court rules
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The Valuers Act 1948
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And the 1923 international treaty on arbitral awards, a schedule to our Arbitration Act 1996.
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Again, there is not a hint or a single example of “reciprocity” used in ways that might encompass a one-off payment from one entity to another in exchange for the latter assuming a bunch of obligations from the former (let alone the former entity then winding itself up and disappearing).
It is, perhaps, telling that (as far as I can see) in not a single act or regulation are the words “reciprocal” or “reciprocity” defined, suggesting that something akin to dictionary definitions and common usage is envisaged. Here is the definition of reciprocity from my two-volume Shorter Oxford English Dictionary:
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Summing Up
The last couple of sections have probably been a somewhat boring trawl through pieces of obscure legislation. But it becomes necessary when parties – the Minister of Finance, backed by a Cabinet committee, the Reserve Bank, and The Treasury – are content to rely on a “meaning” for the term “reciprocity” seemingly dreamed up by some lawyer or other from thin air. There is no dictionary precedent for such a usage and nor is there anything in 100 or so years of New Zealand legislation. It is very hard indeed to see how section 98 of the GSF Act could possibly encompass the sort of deal the Cabinet – led by the Minister – proposes to authorise their Crown entity (GSFA) to undertake. There is nothing in the dictionary to support it, nothing in a plain common reading, and nothing in the legislative history of this old previously-unused provision.
Three last points:
- why does any of this matter?
- is the proposed deal bad in intent? and
- if not, is there are a better way.
And what could go wrong? A court could find that the entire Order in Council was ultra vires. A future set of ministers could decide either that they don’t like one or more Reserve Bank pensioners, or just that the original OIC was bad law and probably ultra vires. Or Parliament can disallow the Order in Council (takes one member of the Regulations Review Committee and no other objection), perhaps recognising that it was bad (secondary) law. In each of which scenarios elderly pensioners could be left in limbo, uncertain as to whether they had any entitlement to a pension, but with the money (currently in the Reserve Bank pension scheme) now gone, and at best facing expensive legal action to attempt to assert any claim against someone/anyone (RB, GSFA, former trustees…..).
As I noted at the start of this post, the idea of a transfer (with full and final payment) of Reserve Bank scheme pension liabilities to the GSF isn’t a bad one (and I was, and remain, a champion of it in principle). There are genuine administration cost savings to be had (a gain to the Reserve Bank, which is thus keen on the scheme, facing no risks itself), and for anyone involved in governance of the scheme in the last 10 years also an opportunity for personal escape.
But it needs to be put on more secure legal foundations. Parliament is, of course, sovereign, and so can legislate anything it likes (for good and ill). A simple amendment to the GSF Act (rather than an Order in Council, resting on the tenuous provisions of section 98) would achieve that. Readers of my previous post may recall that the Minister of Finance told Cabinet that this wasn’t an option because it couldn’t be done until 2025. That is now a mere six weeks away (and at this point any transfer isn’t likely to be feasible before the second half of next year). Taking a punt that things will probably turn out okay simply isn’t good government, whether from ministers or officials (and not an approach they’d be likely to take if they themselves had anything at stake).
What about the trustees of the Reserve Bank superannuation scheme you might wonder (of whom I have the misfortune to be one)? All this material was presented to them as long ago as January, and they have simply refused to engage. Not only that but they have specifically and consciously chosen not to seek independent legal advice on whether there is a robust legal foundation for the transfer they propose to enter into. In doing so they appear to rely on a view that one does not need to look behind to check the bona fides of a party they are dealing with to see if they are able to enter into the proposed contract. That seems imprudent generally, but even if it were a model which might make some sense in a corporate context, when Party A can’t easily look into the private authorising documents of Party B, and might have to rely on warranties, it makes no sense at all when (a) the GSF Act is a public piece of legislation available for all to read, and b) all these issues have, more than once, been brought to their attention.
It is pretty reprehensible, but then it is what one might expect from two of Orr’s deputy chief executives (appointed to the super fund roles by Quigley’s board) and a Licensed Independent Trustee (a statutory position created a decade ago, notionally to help protect members) who has long been (a) keen to get out of the role, and b) in eight years has never displayed evidence of the slightest interest in the best interests of members and who is on record as suggesting, contrary to the statutory duties, that trustees also need to look out for the interests of the Bank.
As a bottom line, the law requires that any such OIC under the GSF Act be with a view to providing reciprocity in matters relating to superannuation. The proposed arrangement, which the GSFA cannot enter into without specific legislative authorisation (the Act prohibits new members), does no such thing, and there is thus no power for an OIC to authorise what is proposed. There is, by contrast, a better way.
Finally, note that these matters were raised, in a careful and considered manner, in a letter to the Minister of Finance months ago. I find it remarkable that the Minister has not even had the courtesy to respond, even as she and her department have blocked OIA requests on these matters. I have legal duties to our members. I would hope she senses a moral obligation, to them (former public employees) and to the cause of good, and certain, lawmaking itself.
Michael Reddell spent most of his career at the Reserve Bank of New Zealand, where he was heavily involved with monetary policy formulation, and in financial markets and financial regulatory policy, serving for a time as Head of Financial Markets. Michael blogs at Croaking Cassandra - where this article was sourced.
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