NZCTU economist Bill Rosenberg has debunked the supposed “financial crisis” facing ACC that Nick Smith is relying on to gut cover and entitlements to set it up for privatisation.
Here’s Rosenberg’s take on it:
ACC’s reserves are now above forecast by $739 million (5.4 percent), a further improvement over last month,” said CTU Economist and Policy Director Bill Rosenberg. “The strong performance of ACC’s investment portfolio shows that the Government’s claims of blowouts and financial mismanagement are completely inaccurate.
Yep, just what Kevin Hague and before him Sue Bradford have been saying all along as the Green ACC spokespeople. The poor investment results last year were consequent on the global financial crisis. The financial markets are recovering, and so, therefore, is the value of ACC’s investments.
ACC’s claim liabilities, above forecast largely because of changes in the assumed interest rate used to estimate it, are now just 0.6 percent ($166m), more than forecast, again an improvement over last month. These numbers are driven largely by constantly changing market valuations and by actuarial assumptions.
The main problem is the full funding of future claim payments which means ACC accounts will always be susceptible to large apparent variations which in reality may have little practical consequences for the ACC scheme. A pay as you go scheme with a prudent level of reserves could be much more stable.
Hey, exactly what the Green Party has been saying too. While it is tempting in a time of financial instability to move ACC completely to pay as you go and pull the entire $11 billion of ACC reserves to stimulate an economy in recession, to do so would not be a good look for the security of the ACC scheme.
But move away from the policy of fully pre-funding future entitlements on past claims, while maintaining some reserves to smooth the possibility of future levy increases to meet the cost of those entitlements, then levies can fall while entitlements to rehabilitation and compensation for injured people can be maintained.