The big assumptions behind ACC’s $25 billion turnaround plan

Saturday, 7 February 2026

ANALYSIS Has the Accident Compensation Corporation really found a way to dig itself out of its financial hole?

Last year the Government seriously considered courting huge controversy by wiping responsibility for about $3 billion of potential claims related to sexual abuse from the books of ACC.

The Cabinet performed a U-turn, but only after getting as far as partly drafting legislation that would have retrospectively nixed the rights of thousands of people, mostly women, to seek compensation for lost income from the state-owned insurer.

Earlier, ACC Minister Scott Simpson had gone as far as questioning whether ACC was the right vehicle to support people who had experienced mental health injuries more generally. Treasury estimated it could save $8.3b by ditching that obligation.

Read more:

• Government considered cutting more than $3b of ACC sex-abuse claims

• ACC vows tougher line on claims as it seeks to plug funding hole

• ACC paid for surgery, then pulled the plug: Woman faces up to $40k bill or years of pain

There is a view circling around the traps that the U-turn has merely put off a day of reckoning, in much the same vein that the Treasury frequently suggests the country can’t put off decisions on raising the superannuation age forever.

All the more surprising, perhaps, that ACC announced last month it had a “turnaround plan” that could transform its balance sheet position.

ACC’s finances are supposed to be based on the goal that it has enough invested to pay for the future cost of all its current claims, so future generations don’t risk having to pick up the tab for injuries that have already happened.

But in its Half Year Economic and Fiscal Update (Hyefu), published in December, the Treasury forecast the difference between ACC’s assets and its liabilities would blow out from an accumulated deficit of nearly $14b, to $23b in the year ending June 2030.

ACC deputy chief executive Stewart McRobie says it has now modelled a scenario that could see that turned around into a surplus of $2b.

It is hoping for a huge leg up — a massive one-off $14b improvement to its accounts in fact — from a new international accounting standard, IFRS17, and what it describes as other technical changes that will essentially allow it to be less conservative about the financial risks that it currently needs to account for.

None would change the real nature of ACC’s finances, just their appearance.

The plan also assumes levy income will rise substantially and that this and the next government will continue to increase their own funding for ACC by the maximum allowed, 7.5% a year.

The government contribution goes into ACC’s so-called “non-earners’ account”, which is the part of ACC that is massively underwater ($10b in deficit), and which funds treatments and compensation for people who aren’t covered by its various levies, such as children, retirees and people who are unemployed at the time of injury.

In dollar terms, the turnaround plan would see ACC’s levy income rise from about $4.3b to $6.7b in the year to June 2030, and the annual government contribution to the non-earners’ account jump from $2.1b to $3b.

ACC also assumes annual returns on the funds it has invested to pay for the future cost of current injury claims will continue to grow at the same average rate that they have done in the past, chipping in another $2.9b annually by the end of forecast period. The actual contribution is of course almost entirely at the mercy of the financial markets.

On top of that, McRobie makes clear its hoped-for surplus assumes it can make real savings of $14b over the period up to 2030 by improving its own performance. About $3b of that has been built into the Treasury’s forecasts to date.

Essentially, ACC is promising to do better performing tasks it has been carrying out for decades and should be very experienced at, such as screening claims, purchasing supplies and getting any paperwork done to allow people to return to work.

Chairperson Jan Dawson argued last month that while some seemingly huge cost challenges — wage inflation, pressures in the wider health system that delay people returning to work, and court decisions expanding the scope of ACC’s coverage — are outside its control, “many” others could be addressed through operational action.

It is picking its annual operating expenses will only rise by about 3% a year over the five-year period, to $11.2b.

Lots more money in, not much more money out, and the “mother of all accounting gifts” to balance the books.

The proposed savings, in particular, seem heroic, and the Treasury appears somewhat sceptical.

In its Hyefu, it described the targets ACC has proposed to meet in its new service agreement with the Government as “ambitious”.

No harm in having lofty goals, but even ACC itself doesn’t sound super-confident.

McRobie stresses the $2b surplus is a “modelled figure based on a set of assumptions”.

“It has not been finalised into ACC’s actual financial forecasts and is subject to change, including if future costs and revenue are different from assumed, or due to the impact of economic factors outside of ACC’s control.”

Another consideration is that the bulk of any savings ACC does generate would need to come from the expenses it incurs compensating people whose injuries are paid for through the non-earners’ account, if it is actually to hang on to them.

That’s because it is not allowed to plug a deficit in that account by using higher levies to build up a big surplus in the funds intended to pay for work-related or vehicle-related injuries.

All told, ACC’s hoped-for surplus appears highly aspirational.

Hence the lingering assumption that Kiwis may not have heard the last of what are often euphemistically called “scope changes” — meaning proposals to reduce ACC coverage.

Withdrawing ACC cover for mental injuries caused by sexual abuse appears to be based on the concept that the scheme should retreat to funding good old-fashioned injuries you can poke a stick at, like a broken wrist or a second-degree burn.

But there would be other options to get ACC on an even keel if the turnaround plan doesn’t achieve that.

The most obvious, but least fiscally-appealing, would be for the Government to remove the 7.5% annual cap on increased contributions to the non-earners account and simply fund ACC more generously.

Another option might be to remove cover for injuries that stemmed from risky activities that people intentionally engaged in, such as Saturday rugby and winter skiing trips, perhaps at the same time reintroducing some right to seek compensation through litigation.

Some politicians have been suspicious that there are a sizeable number of ACC claimants who are choosing to prolong staying on ACC, rather than return to work, because it pays 80% of their wages — even though foregoing 20% of an income might be no small thing for most Kiwis in practice.

If that is the concern, one response might be to look at reducing the payout ratio to perhaps 75% or 70%.

A more politically-palatable option, at least for the left, might be to freeze or reduce the cap on ACC compensation, which is currently set at $109,235 a year before tax.

But by appearing to predict a return to a $2b surplus, the insurer may have pushed back any political urgency around such difficult decisions.

If so, we may be in a bit of a holding pattern while we wait to find out how the turnaround plan really pans out and, before that, how seriously the Treasury takes it when finalising its fiscal forecasts in the Budget.