The residual portion of your levy will be removed
In 2015, four years ahead of schedule, we reached the funds milestone needed to support people who were injured before privatisation occurred in 1999.
The Accident Compensation (Financial Responsibility and Transparency) Amendment Bill was passed into legislation, allowing the Minister for ACC Hon Nikki Kaye to remove the residual portion of your levy.
The change will come into effect from:
• 1 April 2016 for the Work and Earners’ Accounts
• 1 July 2016 in the Motor Vehicle Account.
What is the residual portion of your levy?
Up until now the Work, Earners’ and Motor Vehicle levies have all been made up of two parts:
• a current portion (changes each year)
• a residual portion (needs to collect a fixed amount by 2019).
The current portion of the Work levy funds the total cost of work injuries expected to occur between 1 April 2016 and 31 March 2017.
The residual portion of the Work levy covers the cost of claims that were made prior to 1999.
Your risk determines your levy rate
Both the current and residual portion of the levy an employer pays depends on their industry or levy risk group. We group similar businesses into levy risk groups so that each group’s levy aligns with the costs of the claims from that group.
When the residual portion was established, different levy risk groups paid different rates depending on the expected remaining cost of claims for each group.
Up until 2005, we adjusted this rate each year in line with the expected outstanding claims experience for the pre-1999 claims of each levy risk group.
What happens when the residual portion is removed?
We adjust the current portion each year to ensure that the total levies paid by employers is enough to cover the cost of claims during that year.
This means that the levies you pay won’t automatically decrease.
Any changes to your Work levy rate once the residual portion is removed will depend largely on your levy risk group and how its performance has changed since 2005.
What happened to rates from 2005?
From 2005 we fixed the rate for each levy risk group. This made sure that the industries responsible for the original claims contributed the most towards their costs.
The residual portion of the Work levy for employers was based on their levy risk group’s pre-1999 claims experience as assessed in 2005. The current portion of their Work levy is based on their current levy risk group’s claims experience.
If a levy risk group’s claim experience has improved since 2005, its levies are likely to decrease. Equally, if the claims experience of a levy risk group has got worse, its levies are likely to increase.
This year the average Work levy rate is going down. This means that even if your level of risk has increased, your levy could go down because it will be offset by the overall reduction to levy rates.
What’s the history of the residual portion of the levy?
Until 1999 the Employers’ Account (now the Work Account) was funded using a pay-as-you-go model, collecting only enough levies to cover the cost for claims in each year.
In 1999 the Government opened the Employers’ Account to competition. The self-employed could choose to have their work-related injuries covered by ACC or a private insurer; employers needed to take out cover with private insurers.
In line with private markets, we used a fully funded model for injuries covered by ACC. A fully funded model needs enough money collected in each year to cover the full lifetime costs of claims that occur in that year.
We still needed to collect levies to support people injured before privatisation and not covered by the new market. The Government set a goal to collect the total amount by 30 June 2014 even though some claims could need our support for more than 40 years.
Each year until 2005 we adjusted the residual portion of the levy rate in line with the predicted claims cost for each industry, based on their level of risk (levy risk group).
From 2005 the Government fixed the proportion that each levy risk group would pay. The industries responsible for the original claims then contributed the most towards their costs, and levy stability improved across all groups.
In 2010 the Government amended the Accident Compensation Act 2001, changing the way the residual portion of the Work levy was calculated. The amendment set the final dates for reaching the funds milestone needed to support people who were injured before privatisation occurred in 1999.
The milestone dates were:
• 31 March 2019 (for the Work and Earners’ Accounts)
• 1 July 2019 (for the Motor Vehicle Account).
In 2015, four years ahead of schedule, we reached the funds milestone needed to support people who were injured before privatisation.