SUPERANNUATION

Evening Post, Volume CXVI, Issue 131, 30 November 1933, Page 14

SUPERANNUATION

SERIOUS POSITION

SACRIFICES NECESSAEY

MINISTER'S STATEMENT

CONFERENCE BEING HELD

The necessity for sacrifices being made by both contributors and annuitants in order to place the State superannuation funds on a sound basis was stressed today by the Minister of Finance (the Rt. Hon. J. G. Coates) in an address to a conference of representatives of different State organisations which has been called together to discuss ways and means of stabilising the funds. Mr. Coates outlined the position of the funds and asked for the co-operation of the conference in the efforts to re-establish the funds on an actuarially sound footing. "I fully realise you are most deeply interested in. the matter that has caused you to be called together, that is, the financial position of the various superannuation, funds affecting the State employees of the Dominion," stated Mr. Coates. "As you are probably aware the position of the funds was brought prominently under notice by the report of the National Expenditure .Commission.. That Commission dealt fully with the history of the funds and" the causes of their present financial instability, and made .certain recommendations' which, after, careful consideration and consultation, it advised would result in putting the funds on a sound financial basis. ' COMMISSION'S CONCLUSIONS. "It may be appropriate to set' out briefly the' effect of its conclusions and recommendations:— •1. That the actuarial ■ deficiency in' the ; superannuation funds is £23^000,000, and-, unless action is taken to reconstruct tho funds ttys .'liability must1 eventually be faced'by the State. 2.,' That the interest oji this deficiency amounts to over £1,000,000 per annum, and the Cpinraissipn is of the opinion that this annual sum is beyond the present capacity of the ' country to meet. .It suggested, in effect, that the burden be approximately halved between the State and its employees. 3. That the sacrifice to be made by ' . the employees should consist of a reduction of benefits, and it is proposed to extinguish roughly one-half of'the deficiency by reducing the liabilities of the funds as follows:—(a) To modify contributors' rights to-retire, and generally tighten up early retirement provisions; (b) to base the pensions of existing contributors on the average salary of the last seven or ten years instead of three years as at present; (c) to review the annuities paid to present pensioners (excluding those who retired prior to March 31, 1921) so as to bring them into line' with what is recommended in (a) and (b) above for present contributors, and thus avoid anomalies; ' (d) to strengthen the Railway Fund by increasing by .2 per cent, the future contributions of certain officers in ,order, to bring them into line with the remainder of the Railway Service and with contributors to the other funds f-(e) to make the proposed future pound-for-pound subsidy rero- ■ spcetiv.e in respect of the trading departments. t 4. The report also recommended the removal of the arbitrary pension limitation of £300 to officers joining the service after December 24, 1909, thus bringing them into line with officers joining before that date. 5. The suggested contribution to be made by tho State in liquidation of the balance (roughly one-half) of the deficiency was: —(a) A pound-for-■pound subsidy of the employees' contributions; and (b) a guarantee of ■ net effective interest yield of 5 per cent, on the funds.. - EFFECT OF PROPOSALS. "It will be seen from the foregoing that, if effect were giveji to the proposals, a number of the existing annuitants would require to accept smaller pensions, present contributors "would have to subimTto a general tightening •up of conditions, particularly in respect of early retirement provisions, and the Goverm-nent wduld need to subsidise the funds to a larger extent than at present. "In connection with the proposed . pound-foivpound subsidy on contributions,'so far as the Railway Superannuation Fund.is concerned the amount at present . being paid, £170,000 per annum, exceeds what would be payable under the pound-for-pound subsidy; although I am advised by the Government Actuary that this amount in itself is not sufficient to place the" fund on a sound actuarial basis. "As regards .the other two funds, Public, Service and Teachers', the position may be' set out as follows:— Present Pound-for-normal pound ■' JFund. subsidy. subsidy. ' ' ' £ - £ ■• Public Service ...., 86,000 225,000 , leachers' 43,000 114,000 •' :•':.' £129,000 £339,000 "The additional subsidy to these two funds would, therefore, amount to £210,000 per'annum. : GOVERNMENT'S LIABILITY. ~'' In regard to the recommendation of the Commission that' Government should pay, by. way of special subsidy, any amount by which the interest earnings of the funds fall short of 5 per cent, per annum, an idea of the possible extent of Government's liability under this heading may be gained from the fact that a fall to 4 per cent, in the interest income would involve-an - additional subsidy of £54,000 per annum. Tho reason put forward in favour of this guarantee of interest earnings was that in addition to the other proposed alterations it would be necessary for the funds to earn a net rate of 5 per cent, before they would be in a solvent position. "I recognise that no State service can be retained at tho highest standard of efficiency unless a sound'superannuation scheme is provided ensuring that officers may be retired on pension after Jong and faithful service, and I am ari'xious that this cenfefbnee may result in the adoption of some practical scheme within the resources of Government designed to place the funds in a secure financial position. • "Although these extra amounts •which I have referred to are large, payment would be justified by the resultant stability of the funds,, and should not be beyond the financial resources of the State provided the other recommendations of the Commiseion were given effect to. BILL OF LAST SESSION. "As you are aware, a Bill embodying practically in toto the recommendations of the National Expenditure Commission was drafted last session and introduced into the House. The Bill was, however, not treated as a Government policy measure,, and was referred tn a Select Committee - for report. The

Committee heard voluminous evidence, but reported at the end of the session that the time at its disposal was insufficient to enable it to make a complete investigation of the proposal contained in the Bill and to consider the many alternatives placed before' it. It was recommended by the- Committee that the Bill be not allowed to proceed that session. "Tho objections raised to the Bill „ were mainly from members of your te organisations, and I think they can be briefly summarised that to make any alteration would be a moral breach of faith or contract. . ' a "Whether there is any such moral breach of faith or not (and the present h Instability of the funds cannot be laid ir at the door of the present or any other w Government in particular) contributors V and annuitants must face facts, how- ti ever, unpalatable they may be, and w realise that financial considerations h will not allow of the funds being IV stabilised on the basis of present bene- d fits and privileges, particularly in re- ir gard to early retirements, and that if n the funds are to be made solvent sacrifices must be made by contributors and AJ annuitants. " UNACCEPTABLE PROPOSALS. *{ "The alternative proposals made to \\ the Committee for stabilising the 0 : funds, without any diminution of bene- £ fits to contributors and annuitants, in- oi volved1 the issue of Government stock bi to the amount of approximately £4,000,000, and are quite unaccept- tl able under present conditions. hi "I cannot too strongly, impress on C you, and I can assure you the Govern- ft ment realises, the seriousness of the present instability of the- funds, and w the impossible position that will arise tl at an early date unless some definite 'W steps are taken, and taken at once, to f( stabilise tho funds. "Already the income of the funds is m insufficient to meet outgoings. For w example, the experience of the Teach- tl ers' Fund for the year ended January tc 31, 1933, was as follows: — fii Income. n £ W Contributions 113,120 ti Government subsidy 43,000 | v Interest GI.IIT .' Miscellaneous 63S . —^——^ ti £217,881 fc Outgoings. , v t £ x Tensions and allowances 279,718 t0 Refunds on withdrawal 33,478 ai Expenses 3,709 c l Provision for loss on investments .. 7,500 '.'■■' - £324,405 Zi ; DISTURBING FACT. a( ■•. "This discloses the very disturbing fact that for the year the total income . fell, short, of the outgoings by £106,524, and the assets of the fund were diminished to this extent. In other words, n thC fund was unable to -carry on with- a] out liquidating capital securities, which , should be available for future pensions, i* as the following table illustrates: — jj^ January 31. Decrease, pi Assets. 1932. 1933. for year. L ££ £ 1 Government se- ". curltles .. 108,800 10,800 92,000 CS Rural Advances c< Bonds, Rural > fi I.C. Bonds . 135,041 -135,011 — , local body de- C! bentures, etc. 58.980 52.150 G.SOO Mortgages ... 884,354 S7/,IUO 8,894 o j Balance of as- '• sets. .. ... 991 2,101 *1,170 Funds ..-£1,218,166 £1,111,642 £106,524 SE •Increase. <■ " in "From the above it will be seoa that this fund was forced to realise £92,000 °,s of Government securities, and in addi- ie tion there has been a fall of approxi- m niately £16,000 in local body deben- m tures and mortgages. \ "It is apparent this cannot go on for »' very long, as the bulk of the funds are ** now in mortgage securities which are C 1 practically unrealisable at present. POSITION ACUTE. " "The position is so acute that, in ti order to avoid selling securities on the m open market, the fund, although only w portion of the year has elapsed, has al- tl ready drawn upon the Treasury to the •, full extent of the Government subsidy of £43,000, which normally would not . be payable until January 31, 1934. ™ "In regard to the other funds, the a assets of the Railway Fund last ,^'ear P were diminished by £120,928. The Pub- ls, lie 'Service Fund last year was not forced to realise any of its assets, large- °- ly owing to the fact that it received ° unexpected assistance to the extent of sl £54,000 by. way of additional subsidy P1 on contributions and interest. Y1 - "It is also well to-realise that the ±'< finances of the funds are really worse tl than as disclosed by the above figures, m which assume that interest due and out- di standing amounting to £108,700 will c; be collected in full. in A SUMMARY. dl "Briefly, the position can be thus ¥ summarised:— m ' (a) That the funds are at present m actuarially unsound, and some defi- f ( nite steps must be taken to. deal with ]i, the position; ' s i < (b) That.it is beyondithe financial tl resources of the State to put the pi funds- on a sound financial basis and oJ still give contributors the samo oi rights, liberal conditions, and privi- bi leges they have at present; ai (c) That the funds can be put on a sound financial basis and the resources of the State should be made ti sufficient to provide the necessary in- w creased subsidy if contributors and la annuitants will accept the lesser ti benefits recommended by the National V i Expenditure Commission and em- w bodied in last year's Bill. N "You have been called together for cc the purpose of putting before you the oJ position as represented to the Govern- fii ment, and enabling you to discuss the al matter fully and frankly among your- « selves; and it is felt that, with a due fe sense of the seriousness of the posi- hi tion, you will realise the- necessity of fiJ making a determined effort to stabilise pi tho funds. ■ l 0 "It is in'your own interests, both m superannuitants and contributors, to do ti so. I feel that after you have given the m matter your careful consideration you e^ will recognise the necessity for a cer- oJ tain amount of sacrifice on your part, and I shall be pleased to be advised of hi the result of your deliberations in due di course." •