Correction: "Blowout started when redemptions stopped"

RELEASE DATE 18/03/2008

The following statement was made to the Leon Byner Program on 5AA radio on Tuesday, 18 March 2008.

I write to you in regard to comments made by, or attributed to, the Hon Rob Lucas MLC on your program of 17 March 2008. It was stated that the “real blowout of the scheme's unfunded liability started when redemptions were stopped”. This statement is incorrect. These comments do not accurately reflect the evidence that was given at the Parliamentary inquiry last week, which can be confirmed by reference to Hansard.

The first point to understand is that redemptions have not been, and never were, stopped and this was the evidence given to the Parliamentary inquiry. The way in which redemptions are used and the claims to which they are applied is a matter of Board policy. It has never been the policy of this Board, or previous Boards, to cease redemptions. To assert that the liability started to increase when “redemptions were stopped” is incorrect.

In my evidence to the Parliamentary inquiry, I explained that the deterioration of the Scheme’s funding position was, in hindsight, becoming evident in the late 1990s. This fact was confirmed by workers compensation expert, Alan Clayton in his recent review of our Scheme. He noted that the warning signs were beginning to show despite the Scheme appearing to be operating in a healthy manner at the time. Refer to pages 8 and 9 of Alan Clayton’s report.

The key driver of the liability increase was that more people were staying on the Scheme for longer. People were not returning to work and redemptions became the most common way that people left the Scheme.

The actuary saw that redemptions were creating a lump sum culture and affecting behaviour, resulting in people staying on the Scheme for longer. It is worth noting the large quantity of expert advice about redemptions that exists in Australia and internationally that warns against overreliance on the use of redemptions.

At no time were redemptions stopped, as evidenced by the table overleaf.

I would appreciate if you could communicate these facts to your listeners. As mentioned, this evidence can be viewed in full in Hansard. My full statement to the Parliamentary inquiry will shortly be published on the WorkCover website, www.workcover.com.

Regards,

Bruce Carter
Chairman, WorkCover Board

Enquiries: Danielle Martin, WorkCover SA – (08) 8233 2381 or 0418 295 324

TABLE 1: Redemptions paid by WorkCoverSA 1995/06 to 2007/08.