in the New Zealand Social Welfare ContextRedefining Public Value in the NZ Social Public Value in the NZ Social Welfare Context

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1 Measuring Tomorrow s Outcomes Today RRedefining Public Value in the NZ Social Welfare The Evolution of an Investment Approach Redefining Public Value in the NZ Social Welfare Context in the New Zealand Social Welfare ContextRedefining Public Value in the NZ Social Public Value in the NZ Social Welfare Context We help New Zealanders to help themselves to be safe, strong and independent Ko ta mātou he whakamana tangata kia tū haumaru, kia tū kaha, kia tū motuhake

2 Building the Investment Approach System Annual Actuarial Valuations Highlights areas of concern/focus Accountability Work and Income Board External Monitor (quarterly reporting) Level 1 - Measuring Performance Level 2 Client Information CLIENT SEGMENTS (Further data analysis) BPS Targets (Better Public Services) KPI Framework ROI Framework INVESTMENT DECISIONS MCA (Multi-Category Appropriation) Service Delivery Model 2 Streaming Services Trials

3 Current client liability ($b) Measuring performance by Reducing Lifetime Costs $2.2b reduction in the liability under management influence Change Expenses Non YOU SLP SPS JSS Overall there was a $7.5b reduction in liability (for current clients vs. the 2013 liability) Changes to economic factors reduced 2013 liability by $2.6b We expected (conditional on latest UR) a $2.2b reduction from 2013 to 2014 due to more exits than entries An additional $2.2b reduction is potentially attributable to MSD (policy and operational changes) There is a further reduction of $0.5b due to improved accuracy from including new variables Note: Improvements to models is primarily the new indicator of previous benefit type - gives better insight into transitions, including probability of re-entry (which has an impact on the liability estimate) Had the same indicators been in the previous valuation, we would have expected the 2013 valuation to be lower by a similar amount (no year-over-year impact)

4 Oth Joins Non-ben Youth SLP Sole parents Jobseekers Understanding Who We Are Impacting and By How Much Unpacking the $2.2b decrease due to experience, by segment as at June 2013 WR<1 WR>1 HCID<1 HCID>1 Ch 0-2 Ch 3-4 Ch 5-13 <1 Change on expected liability from Roll-forward ($m) Slight hardening of Jobseeker exit rates, offset by lower numbers SPS lifetime costs reduces as a result of earlier exits, but also entering JS earlier Ch 5-13 >1 Carer Partner HCID YP YPP SUP<1 SUP>1 OB Recent exits Existing SLP clients behaving as expected Slight decrease in Youth forecast lifetime cost Exits more sustained than expected Marginally more entries than expected

5 Understanding Changes in Each Segment Young parent payment (<19) Youngest child 0-2 Youngest child 3-4 Child 5-13, >1 year SLP-HCID Child 5-13, <1 year Youth payment (<18) Carer JSS-HCID, >1year JSS-HCID, <1 year Work-ready, >1 year Partner Orphan only Work-ready, <1 year Sup only, >1 year Recent exits, <1 year Sup only, <1 year Average liability per client, ($k) Youth lifetime cost decreased SPS lifetime cost decreased Some change in order of average liabilities (for youth and sole parents)

6 Understanding Where Those Changes Occurred Unpacking the $2.2b decrease due to experience, by region as at June 2013 Recalibrating the 2013 estimate to reflect regional unemployment rates enables a regional breakdown of experience The 4.0% decrease in liability compared to expected is spread relatively evenly, with a few exceptions: An almost $1b decrease in Auckland liability explains almost half of the overall decrease The Canterbury region had a very large decrease, likely due in part to the strong recovery post-quakes The Central region was the only region that fared (very slightly) worse than expected Comparing actual to expected (right column) controls for population size

7 Client Transitions in the Benefit System Lifetime projection as at 30 June 2013 for Jobseekers Both Work Ready and HCD Lifetime projection as at 30 June 2014 for Jobseekers - Work Ready and HCD If a snapshot is taken at 5 years from the valuation date: The 2013 valuation predicts that: Approximately 10% of Jobseeker clients (both WR and HCD) would be in receipt of JS WR 20% in receipt of JS HCD The 2014 valuation predicts that: Almost 20% of JS WR clients and approximately 5% of JS HCD clients would be in receipt of JS WR 10% of JS WR and 30% of JS HCD clients would be in receipt of JS HCD

8 Demonstrating Results: Youth Package Early days but the trends are very good A key indicator of success is whether youth clients are less likely to age into working age benefits. The charts on the right look at former Youths status a year after aging out of the Youth segment (age 19 for YP, and age 20 for YPP), and related projections. We see that: 51% of clients who were YP at 17 are off benefits when they turn 19 (projected for 2013/14, compared to just 31% in 2010/11 This is driven heavily by lower entry into SPS, but also better JS outcomes 19% of clients who were YPP at age 18 are off benefits by age 20 (projected for 2013/14), compared to 12% in 2010/11 Status for 17 year old IYB/YP clients when they reach age % 80% 60% 40% 20% 0% 100% 80% 60% 40% 20% 0% Aug 2012 Quarter of 17 year old IYB/YP snapshot Youth prog impact Projection NOB SPS/Other Status for 18 year old DPB/YPP clients when they reach age 20 Aug 2012 JSS Youth prog impact Projection NOB JSS/Other SPS Quarter of 18 year old DPB/YPP snapshot

9 Understanding Inter-generational Benefit Receipt Three-quarters of clients aged up to 25 came from beneficiary families The 2014 valuation includes a new dataset which (for clients aged up to 25) indicates: Whether they had a parent on benefits while they were a child ( Benefit match ) - If yes, then we also calculate the % of time that parent was on benefit while the client was aged ( teenage years ) Whether they are matched to a non-beneficiary parent ( Other match often to family tax credit) Whether there is no match to a parent (no match) The level of benefit match is very high No match 15% Other match 11% Benefit match 74% 35% of current beneficiaries under 25 had a parent on benefit for almost all their teenage years Parent on benefit >80% of teenage years 35% Parent on benefit <20% of teenage years 20% Parent on benefit 20%-80% of teenage years 19%

10 How has MSD Applied this Approach to Housing? The social housing valuation will have three components that will inform how MSD can optimise its spend under its different roles in social housing in order to support those in greatest need: pathways to independence lifetime housing cost matching people to places forecasting demand and purchasing optimal supply reducing unmet need register management Accordingly, the social housing valuation will not have a single metric that covers the whole system We help New Zealanders to help themselves to be safe, strong and independent Ko ta mātou he whakamana tangata kia tū haumaru, kia tū kaha, kia tū motuhake

11 Challenge: the aggregate IRRS liability won t behave like the welfare liability Year 1 High-needs applicant $$$ $$ $ Total IRRS cost year 1: $ x 6 Year 2 $$$ $$$ $$ Lower-needs tenant now housed independently Total IRRS cost year 2: $ x = 8 Alternative total cost year 2: $ x 6 1 = 5

12 Clients remaining after 12 mths Actual vs optimal configuration The net difference between people s current housing and their appropriate housing gives insight into what optimal purchasing intentions would be for today ; based on the current configuration of households. Actual supply Jun 2015 Optimal supply Jun 2015 Good fit Unchanged Too big Made smaller Too small Made bigger Other (location, quality)

13 Notional (unmet need) + actual (met need) lifetime costs Year 1 $$$ High-needs applicant $$$ High-needs applicant $$$ $$ $ Total IRRS cost year 1: $ x (unmet) = 12 Year 2 $$$ High-needs applicant $$$ High-needs applicant $$$ $$$ $$ Lower-needs tenant now housed independently Total IRRS cost year 2: $ x (unmet) = 11