✨ Explanatory Notes on ACC Levy Rates
NEW ZEALAND GAZETTE, No. 22 — 11 MARCH 2016
anticipated. In addition, projections for claim durations have been increased to reflect recent trends in rehabilitation performance. 2016/17 claim costs are projected to increase compared with the current 2015/16 estimate because of medical and rehabilitation cost inflation (above the Labour Cost Index (LCI)). Allowance has also been made for a projected increase in claim numbers above population growth.
Appendix C: Explanatory Notes
Funding adjustment
Adjustments to levy rates, which are used to move the funding ratio of an Account towards the funding target. The impact of funding adjustments is that levy rates will be higher or lower than the level needed to fund the cost of new year claims (including administration costs).
Funding ratio
The funding ratio is the ratio of each Account’s assets to liabilities. It is a measure of whether the Accounts have sufficient assets to meet the outstanding claims liability. Solvency is another term for funding ratio.
The liability for incurred but not reported work-related gradual process disease and infection claims is included when calculating the Work Account funding ratio.
Funding target
ACC’s funding target is a funding ratio of 105%. This is the midpoint of the funding band of 100% to 110%.
Investment returns
The expected returns are based on current strategic asset allocations and are consistent with ACC’s long-term expected returns for the various asset classes that make up the total investment reserves. They allow for ACC’s tax status.
Labour Cost Index (LCI)
The Labour Cost Index measures changes in salary and wage rates for a fixed quantity and quality of labour input.
Residual levy (or residual portion)
Until the 2016/17 levy year, the Earners’, Work and Motor Vehicle Levies each consisted of two parts:
- A current portion; and
- A residual portion.
The purpose of the residual levy was to fund the ongoing costs of claims that occurred before 1 July 1999 when the Scheme was funded on a pay-as-you-go basis. Under pay-as-you-go, levies were sufficient to cover only the annual expenditure on injuries.
The government has decided to cease collecting the residual levy from 1 April 2016 for the Work and Earners’ Accounts and from 1 July 2016 for the Motor Vehicle Account. This will avoid any future levy inequity between Accredited Employer Programme (AEP) and non-AEP employers, and make clearer the link between the Work Account levy and the underlying costs of new work claims for all businesses.
Discontinuing residual levies will change the distribution of Work Account levies across businesses.(4)
Risk-free interest rates
The risk-free interest rate is the theoretical rate of return of an investment with zero risk. It represents the nominal return an investor would expect from an absolutely risk-free investment over a given period of time.
(4) More information can be found at www.shapeyouracc.co.nz/documents/.
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NZ Gazette 2016, No 22
✨ LLM interpretation of page content
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Report in Relation to Rates of Levies Prescribed in the Accident Compensation (Work Account Levies) Regulations 2016 and the Accident Compensation (Earners' Levy) Regulations 2016
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🏥 Health & Social WelfareLevy rates, Accident Compensation, Work Account, Earners' Account, Financial projections, Funding policy, Levy stability, Funding stability, Claims experience, Investment returns, Risk-free interest rates, Economic conditions, Funding ratios, Work Account levy rates, Earners' Account levy rates