Australian Priority Investment Approach to Welfare

The Australian Priority Investment Approach to Welfare is about using the best available evidence to ensure vulnerable Australians have a better future.

About the approach

Our welfare system ensures our most vulnerable will always have help. Through the Priority Investment Approach and by intervening early, we will be able to give those with capacity the opportunity to develop life skills and to participate economically and socially through work.

The Priority Investment Approach allows us to look into the future and see where we are headed. Investing in early intervention now keeps people from falling into the welfare trap and in the long run it saves money which can be used to help people in other ways.

How it works

The approach uses actuarial analysis to estimate Australia’s overall future lifetime welfare costs, and the cost of future payments to various groups within the population.

The Baseline Valuation Report was publicly released on 20 September 2016.

The Baseline Valuation Report gave us a foundation to begin the investment process. Subsequent valuations build on the baseline findings and provide further insights into how the current Australian population is likely to use welfare in the future:

The findings of these valuations will help us to develop evidence-based policies and programs and to direct them where they best deliver results. Read more about the Try, Test and Learn Fund.

History of the approach

The review of Australia’s welfare system recommended that Australia adopt an investment approach to help ensure funds are invested in those groups of people with the largest future lifetime costs and the capacity to move to self-reliance.

The approach was established as part of the 2015-16 Budget. Funding included $20.7 million for the actuarial services, ICT capital, verification of the actuarial model and departmental resources. A further $13.1 million was also spent to maintain four longitudinal studies which will form part of the evidence base supporting the approach.

Frequently asked questions

Question Answer
Why has Australia adopted an investment approach?

An investment approach to welfare was a key recommendation of the McClure review. Specifically, the review recommended that actuarial analysis should be used to identify groups at high risk of long-term welfare dependency. This analysis would provide an evidence base for investments that will improve people’s life chances and to get people who can work, into work.

Australia’s welfare system ensures our most vulnerable will always have help, and by intervening early we will be able to give those with capacity a better opportunity to find work.

Employment has significant health and social benefits. Having a job also helps individuals build financial independence, and reduces welfare costs.

The Priority Investment Approach allows us to look into the future and see where we are headed. Investing in early intervention will keep people from being trapped in the welfare system.

What is actuarial analysis?

As recommended by the McClure review, the Priority Investment Approach is underpinned by annual actuarial valuations.

The valuations estimate the future lifetime cost of welfare payments to the Australian population and groups within it. This method is similar to the way that insurance companies estimate their future costs.

These valuations and accompanying analysis helps us to tailor investments to address barriers to employment for people who would be able to work with extra assistance, including building their capacity to work in the future if they can’t work now.

What is a future lifetime cost?

There are three different types of future lifetime cost estimates in the Priority Investment Approach valuations:

  1. 1. The total future lifetime cost is an estimate of the overall amount that the Government is expected to spend on welfare over the lives of the Australian resident population at the valuation date.
  1. 2. A future lifetime cost for a group of people, such as current Carer Payment recipients, is an estimate of the amount that the Government will spend on all welfare payments for the people who were in that group at the valuation date, over the rest of their lives.
  1. 3. A future lifetime cost for a welfare payment category, such as the studying payments category, is an estimate of the amount that the Government will spend on payments in that category over the lives of the Australian population at the valuation date.
What will Government do with the findings of the actuarial valuations?

The findings will help build better understandings of specific groups and their transition pathways into and through the welfare system.

This enables the development of tailored responses which improve people’s life chances and helps build the skills and experience they require to find work.

Will the Government cut support for people who are not able to work to reduce their future lifetime costs?

Our welfare system is there to support those who are most in need. It should also encourage people to build the skills, knowledge and experience required to find work and in doing so, reduce the risks of intergenerational welfare dependency.

We are using the Priority Investment Approach to identify groups at risk of long-term dependence on welfare who have the capacity to work and who would benefit from additional help. For these people, the right policy supports at the right time could increase their prospects of getting and keeping a job.

Who performs the actuarial valuations?

PricewaterhouseCoopers (PwC) was contracted to undertake the actuarial analysis in 2015 and provided four annual valuation reports of the Government’s future welfare costs, based on data at June 2015 (also called the Baseline), 2016, 2017 and 2018.

From 2019 onwards, the Department is working with the office of the Australian Government Actuary (AGA) to continue providing annual valuations. The AGA is providing actuarial oversight of the valuations.  As part of their contract, and to support the transition, PwC is transferring knowledge and skills to the Department and the AGA.

Why perform regular actuarial valuations?

Each annual valuation will enable more sophisticated analysis and more detailed understandings of the pathways into and through the welfare system.

This will allow for further identification of opportunities to provide vulnerable Australians tailored support at critical points in their life.

This is a long-term investment in Australia but if we are to change our current system and break the cycle of welfare dependence we need to start now.

What are the data sources for the actuarial valuations?

Underpinning the Priority Investment Approach actuarial valuations is the social security administrative data from the Department of Human Services. This data is supplemented by other data sources such as Australian Bureau of Statistics population data, and data from the Household, Income and Labour Dynamics in Australia Survey.

Will the data used in the actuarial valuations be released?

To help foster innovative ideas, insights from the analysis will be shared with both government and non-government experts.

In addition, the Government has released a subset of the Priority Investment Approach data with consideration of the differing levels of user need and experience through two data access projects. The data covers a series of point-in-time quarterly snapshots from July 2001 to June 2015. These projects include:

  • enabling research via a remote-access research gateway for accredited academic and government researchers. Details about how to access this data are available on the AIHW website, and
  • access to a synthetic version of the Priority Investment Approach dataset, which transforms the real data to remove any connection to individuals, alleviating confidentiality and privacy risks. Access to this data is available on the ADA website.

The entire Priority Investment Approach dataset will not be made publically available.

The Department will follow strict security and confidentiality protocols when providing access to de-identified data.

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