Welfare valuation confirms policy focus

Social Development Minister Paula Bennett has welcomed the latest actuarial valuation of the welfare system, which confirms policies are well-targeted.

The June 2012 valuation shows the current lifetime liability1 is $86.8 billion.

Leaving aside the effect of interest rates adding $13.4 billion, we have actively reduced the liability by $3 billion due to fewer people being on benefit. 

The Government has invested more than $470 million over the last two Budgets to maintain the momentum built through $88 million Future Focus (2010) changes, and continues to intensively support people into work.

The June 2012 valuation, following the 2011 baseline valuation, says sole parents spend an average 15.8 years on benefit with a lifetime cost2 of $234,000. Youth spend an average 18.9 years on benefit, costing $239,000.

The average young beneficiary has a 43 per cent chance of being on benefit in 15 years’ time and 25 per cent of youth are expected to be on a benefit 40 years after the valuation date.

“We’ve focused welfare reforms on these two groups, with better support to help sole parents and young people to move off welfare into work earlier.”

The total liability for benefit types includes $21 billion for Sole Parent Support, $20.5 billion for Jobseeker Support, $18 billion for Supported Living Payment, $705 million for youth and $18 billion for non-beneficiary support.

The lifetime liability reduction of $3 billion coincides with Future Focus policies refocusing expectations and introducing new work expectations.

On average, 1,500 benefits are cancelled every week because people get work, with another 2,000 cancelled weekly for a variety of other reasons.

The total current liability has increased from $78 billion to $87 billion, largely due to the discount rate3, which alone caused a $13.4 billion increase.

Once this accounting reality has been stripped out, factors within the Ministry of Social Development’s control resulted in a $3 billion liability decrease.

The valuation includes the future lifetime costs of those on a benefit at any time in the twelve months up to June 2012.

This detailed valuation says, 30-34 year olds first going on benefit aged 16-19 will cost four times as much as those who first go on benefit aged 30-34.”

Sixty per cent of those now aged 30-39, came onto benefit aged 16-19 and contribute 77 per cent to the liability for the current 30-39 year old age group.”

“That’s deeply concerning but totally justifies our focus on youth.”

In Budget 2011 an extra $287 million was targeted to young people on benefits, including childcare assistance for teen parents.

Budget 2012 included another $188m for reforms providing more support.

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

“Welfare reforms actively target support to those who can work, but are at risk of becoming long-term welfare dependent without help,” says Mrs Bennett.

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

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

1Lifetime liability: All future lifetime costs of benefit payments and associated expenses for those receiving benefits in the 12 months up to and including the effective date of the valuation.

2Lifetime cost: All expected future benefit payments to age 65 discounted to the valuation date.

3The Discount Rate: The time value of money. In other words – in today’s money – how much money we would need to put aside now to pay that liability, assuming that amount would earn interest. e.g. $10 in today’s money is worth more now, than $10 five years later.

Media Contact: Sia Aston 021 677729 or Pip Rawson 021 473152

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