Key findings and background facts 2014

Background

This is the second internal actuarial report produced in relation to the forward liability of the benefit system. The purpose of the report is for the Chief Actuary to independently:

• Review experience over the year of exit rates, numbers of new clients and clients transitioning between benefits
• Review overall performance of the welfare system and the effectiveness of investments made to reduce benefit dependency
• Review and comment on the valuation of the forward liability
• Identify areas for attention to assist in managing long-term benefit dependency

Some of the analysis in this report relies on the liability calculations performed by Taylor Fry Consulting Actuaries and detailed in their report titled “Valuation of the Benefit System for Working-age Adults as at 30 June 2014” which was publicly released in February 2015. Prior liability calculations were also performed by Taylor Fry for the years ended 30 June 2011, 30 June 2012 and 30 June 2013.

Highlights of the performance report

This report highlights the potential value of broadening thinking beyond just a client’s history of benefit receipt. A person’s interactions with different social sector services at different stages of their life are correlated. There is merit in taking a more holistic view, recognising that a person’s likelihood of using a particular social sector service can be influenced by their experience long before they become eligible for that service. For example, benefit dependency is impacted by a person’s family benefit history and whether they were supported by Child, Youth and Family (CYF) during childhood. Equally, the impact of a particular agency working with people may extend beyond that agency and/or have intergenerational effects. For example, Work and Income’s success in supporting sole parents into employment is likely to reduce the chance of their children being long-term benefit dependent.

A shift in focus of early intervention from late teens to earlier childhood and a greater ability to work with family or household units will help support wider reaching and more sustainable positive outcomes. Also, a more holistic view will help us better understand the drivers of long-term welfare dependency and increase the likelihood that the new Better Public Services (BPS) 1 target is met.

To achieve the goal of reducing long-term welfare dependency, the Government has implemented an Investment Approach to welfare. The value gained from applying this approach to the benefit system can be replicated across other social sector services. A coordinated and consistent approach across government ministries and agencies administering social sector services will create synergy.

Impact of Childhood Experience on Benefit Dependency

Intervening early to minimise the likelihood of long-term benefit dependency was the key purpose of establishing the Youth Service. A person’s likelihood of future benefit receipt is impacted by earlier childhood experience and characterised through their interaction with other government services. We have investigated the impact of family benefit history and CYF interaction on benefit dependency.

74% of under 25 year old clients (88% for youth benefit clients) were supported by parents (or a parent) on benefits while they were a child. 35% (51% for youth benefit clients) were supported by parents (or a parent) on benefits for over 80% of their teenage years.

Clients with family benefit history have higher average lifetime costs (liability). They are less likely to exit benefits than other clients, and if they do exit are more likely to return to benefits at a future date. Family benefit history is a factor influencing higher liability for Māori.

Average liability is $20,000 (10%) higher for clients with CYF-Care and Protection (CYF-CNP) history. This difference increases the more significant the interaction with CYF-CNP, and increases with the age of a client (20% higher liability for 30-34 year olds).

Household View of the Benefit System

40% of main benefit clients live in a household with two or more people receiving a main benefit.

The more people in a household receiving a main benefit, the higher the per person average liability. This is the case across all benefit categories, suggesting that clients living in households with more than one person receiving a main benefit may experience different barriers to employment. Those living in multi-beneficiary households are also likely to be younger on average.

Approximately 50% of primary Housing New Zealand (HNZ) tenants receive a main benefit, with a further 21% receiving NZ Super. Primary HNZ tenants in receipt of a main benefit have higher liabilities than other main benefit clients. Higher investment in benefit system clients in social housing may be justified.

Beneficiaries with Criminal Convictions

Nearly one-third of clients receiving a main benefit have some form of Department of Corrections (Corrections) history. Conversely, approximately one-quarter of people with a Corrections history are receiving a main benefit. Average liability is consistently higher for people with a Corrections history across benefit categories, genders and ethnicities. In particular, JS clients with a Corrections history have a 29% higher liability than those without.

Better Public Services Targets

The Better Public Services Result Area 1: Reducing Long-Term Welfare Dependence target was to reduce the number of beneficiaries continuously receiving Jobseeker Support for more than 12 months by 30%, from 78,000 in April 2012 to 55,000 by June 2017.

The target has been reviewed and altered, to broaden the scope to include a wider range of clients and greater proportion of the liability. The new target also combines the intent to reduce the number of people dependent on benefit and reduce the liability.

The new target is to ‘reduce the total number of people receiving benefit by 25 per cent, from 295,000 in June 2014 to 220,000 by June 2018, and reduce the long-term cost of benefit dependency by $13 billion as measured by an accumulated Actuarial Release, by June 2018’. ‘Actuarial Release’ is a liability measure that reflects the impact of the collective government’s management of beneficiary numbers.

The following chart shows progress towards achieving the previous BPS target:

As at 30 June 2014, the number of Jobseekers on benefit for more than one year was 67,531. This was 7,028 lower than at 30 June 2013.

The following chart shows the new target with back history context:

While MSD is on course to achieve the previous target, the new BPS target is undoubtedly a more challenging one. In order to achieve the target and sustain lower levels of people dependent on benefits into the future, the following is likely to be required:

• Favourable labour market conditions at, or very near to full employment.
• Operational investment in Health Conditions & Disabilities (HCD) clients without shifting focus away from the current client focus areas (particularly Sole Parent Support clients).
• Work focused policy change to support operational investment in HCD clients.
• A shift in focus of early intervention from late teens to earlier childhood, where core factors influencing benefit dependency are developed.
• A greater ability to work with family or household units as a mechanism for better understanding clients’ barriers to employment and ultimately to support more sustainable outcomes.
• A coordinated and consistent cross-government approach, recognising that a person’s interactions with different social services at different stages of their life are correlated.