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Investment approach refocuses entire welfare system

12 September 2012.

Further detail on the investment approach and the actuarial valuation of the welfare system has been announced

Social Development Minister Paula Bennett has announced further detail on the investment approach and the actuarial valuation of the welfare system.

“The lifetime cost of the current beneficiary population has been put at $78 billion by experts,” says Mrs Bennett.

“The investment approach will change the entire focus of the welfare system so that support is invested where it will make the biggest difference.”

To understand where best to target support, an actuarial valuation (future liability appraisal) has revealed the lifetime costs of those on different benefit types and the effect of policy changes on individuals within the benefit system.

“We’re reforming the benefit system so it actively targets support to those who are capable of working, but are most likely to become long-term welfare dependent without some help,” says Mrs Bennett.

The old welfare system passively expanded to meet demand, with interventions aimed almost exclusively at those on Unemployment Benefits.

“The valuation tells us those on Unemployment Benefits make up a very small proportion of lifetime costs on welfare (5%) when compared to sole parents (23%) and those on Sickness (9%) and Invalid’s Benefits (24%).

“So Unemployment Beneficiaries represent just 5% of the lifetime costs of welfare, but receive the lion’s share of support to get off welfare into work.”

“We can do much better than this, by providing more support to sole parents and others who’ve historically received very little help to get off welfare.”

The actuarial valuation found the current lifetime cost of those on welfare to be $78.1 billion and the group with the highest lifetime costs on welfare are those who go on benefits before age 18.

“This underlines why the Government’s first stage of welfare reforms were rightly focused on ensuring young people don’t become welfare-dependent.”

The valuation shows that just 4,000 16 and 17 year olds on benefits account for $1 billion of the lifetime costs.

Actuaries can also chart policy effects like the Government’s Future Focus reforms which the valuation shows reduced Unemployment Benefits by 15%.

“This kind of detailed information will help the Work and Income Board identify which interventions will make the biggest difference to different cohorts.”

The Board will oversee the investment approach as trials are developed and implemented to help different cohorts within the system.

An investment based approach takes a long-term view of each individual given their needs, challenges and prospects of a quick return to work.

“This approach forces the Government to spend taxpayers’ money where it will have the biggest impact,” says Mrs Bennett.

That might mean getting treatment for a back injury, or access to mental health services or help to manage a pain related condition.

“It means intervening earlier, investing in more support for those who’re capable of working but are likely to remain on benefit long-term without help.”

“Taxpayers spend $22 million a day on welfare payments and want to know we’re managing the needs of individuals as well as the costs of this system.”

To read the full actuarial valuation go to: www.msd.govt.nz

Media Contacts:

Sia Aston 04 817 8238 or 021 677729

Luke Goldsmith 04 817 6904 or 021 564909

Actuarial advice of feasibility: A long-term investment approach to improving employment, social and financial outcomes from welfare benefits and services

The Feasibility report provides a technical perspective on how the investment approach can bring a long-term perspective to financial control of the benefit system, through a primary focus on improving employment outcomes.

Business people reading the Social Report.

Documents

Taylor Fry valuation key findings and background facts

Taylor Fry baseline valuation report - 30 June 2011

Frequently asked questions - Taylor Fry baseline valuation report

Technical briefing presentation - Taylor Fry baseline valuation report

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