PENSION FUNDS.

Auckland Star, Volume LXIII, Issue 208, 2 September 1932, Page 5

PENSION FUNDS.

MONEY DRAINED AWAY. GOVERNMENT'S MISTAKE EEEPLY-BOOTED WEAKNESS. PAYMENTS FOR BACK SERVICE. (No. II.) A pension fund should grow rapidly in iti early years, and every effort should lie made to build up its strength. In later years the money will be needed to meet a heavy drain for pensions, and the contributions of members should be set aside until that demand arises. The mistake in New Zealand has been to allow part of the contributions to be diverted, thus causing weakness. This explains the present condition of the State pension funds. Their original liability was a large sum on account of the back service of the original members, and this liability, instead of being wiped out by annual subsidies, has been carried on to some extent as a continuing liability. The Government Actuary, who reports on the funds about once every three years, has emphasised frequently the need of larger subsidies. "The portion of the retiring allowances computed in respects of the back service of contributors," he states in one report, "is a liability of the public funds, but the subsidy already paid not only provides nothing for any Government liability in respect of the contrib"tory portion of a member's service, but is less than the amount actually paid out of the fund as retiring allowances for back service." Government's Liability. This comment was made on the teachers' fund. The Actuary pointed out that the Government's liability was large, but most of it was necessary to provide for the charge on the State, which was incurred when the fund was started —the liability in respect of back service. If this sum were provided the subsidy otherwise required, to meet the retiring allowances, it was stated, would be much less than that required under the existing condition of the fund.

* To understand the position, it is i necessary to consider the relation bej tween the Government subsidy and the I contributions of members. This is I shown in the following tabulation, which t deals with the three funds:— 1 Superannuation Funds. ' NUMBER OP CONTRIBUTORS. 1910. 1920. 1930. Teachers 3,247 5,174 9,909 Public Service ... 8,371 15,387 18,197 Railways 9,000 10,800 13,870 AMOUNT OF CONTRIBUTION'S. 1910. 1920. 1930. £ £. £ Teachers . 36,989 87,526 143,392 ' Public Service . 89,290 227,620 271,686 - Railways 60,809 118,889 170,680 ! GOVERNMENT SUBSIDY. 1910. 1920. 1930. £ £ £ ■ Teachers 7,000 43,000 126,106 Public Service . 22,500 106,000 101,361 Railways — 75,000 170,000 AMOUNT PAID IN PENSIONS. 1910. 1920. 1930. I £ £ £ Teachers 12,419 66,658 235,902 • Public Service . 56,010 118,806 346,548 : Railways ...... 51,576 109,981 269,602 Position Becomes Worse. i It should be noted that the Government subsidy to the teachers' fund was , increased largely in 1930, and the previous year had amounted to only £71,r 830. As far back as 1924 the Government Actuary recommended that the subsidy should be £137,000 a year; but the amount paid annually as subsidy for the next three years was £68,000. In 1928 the position was much worse than it had been four years earlier, and the amount short-paid was £270,000. If the Government continued the rate of subsidy which it was then paying, the Actuary stated that the deficit would increase at the rate of £69,000 a year. The payments out of the fund up to that time on account of the back service of teachers, were considerably more than the total subsidies paid in by the Government. This meant that the State still had a portion of the original liability to meet, although the fund had been running for 22 years. No part of the Government contribution had been available up to that time to supplement the contributions of teachers. Income Falls, and Outgo Rises. The income was behind, and the outgo was ahead of the Estimates. This applied to all three funds. The failure of the Government to pay the full subsidy recommended by the Actuary at his periodical investigations had the same effect in each case and made it necessary to take a portion of the contributions to pay pensions. A continuance of this process of using for current needs what should be allowed to accumulate at interest would lead in time to the bankruptcy of the funds. Several other factors have weighed the balance still further in the wronf direction. One of these has been the tendency for the mortality rate among pensioners to fall. Another was the post-war rise in salaries which began to show its effects on the pension funds about six years ago, and was expected to be more apparent in the years that followed. Some idea of the increased liability is to be gained from the fact that tlie average normal pension grant for retired teachers between 1924 and 1927 was £233 a year, as compared with £189 during the previous three years. (To be continued.)