SUPERANNUATION

Evening Star, Issue 20312, 22 October 1929, Page 15

SUPERANNUATION

GOVERNMENT PAYMENTS EARLY RETIREMENT FACTOR OTHER FUNDS COMPARED No. 11. 'Every third year the Superannuation Fund is examined by an actuary—the last report published was for the triennial , period ended March 31, 1927 who' reports the amount of State aid required tj meet the liabilities falling due in the ensuing three years without affecting or having recourse to the actuarial reserve , appertaining to the contributors’ contributions, says Mr F. W. Millar, secretary of the New Zealand Public Services Association, in his statement on the superannuation scheme. This means that moneys in the fund belonging to existing contributors must not be used to meet any part of the liabilities for pensions, but should be allowed to accumulate at compound interest to meet future liabilities. If the full amount reported by the actuary as required to be paid by the State is not paid, then some of the money in the fund belonging to existing contributors must be used to meet liabilities on account of persons who have retired, and to that extent the fund is insolvent. The evil effect of the position is cumulative. Not only is the actuarial reserve reduced in amount, but also its compound interest earning power is weakened, and the ultimate result would be either absolute insolvency or a huge accumulated liability to be discharged by the State at some future date. THE PRESENT SUBSIDY. The present subsidy to the Public Service Fund of £86,000 a year would appear to be a handsome gift to the fund and a dead financial Toss to the State. But is it so? When the fund was established there was a liability for compensation to certain public servants on their retirement amounting in the aggregate to £555,000, which ceased to accumulate when these persons joined the fund. This amount and its accretion is a proper set off against any sums actually contributed by the State. . The following statement will explain the matter more clearly:— Total amount contributed by the State to March 31, 1929 ... £1,462,500 Liability assumed by the fund for compensation to contributors who have been retired on pension, computed to June 30, 1908 £555,105 Further accretions to compensation had the fund not been establiMled ■ 135 ’._ 688,605 Difference ••• ••• £773,895 The net amount, spread over the period 1908 to 1929 inclusive, gives an average of £36,852 a year, winch may fairly be said to be the true amount contributed to the fund by the State in reduction of liabilities under the Act. OTHER SUPERANNUATION FUNDS. In the schemes approved under the Local Authorities Superannuation Act, 1908, the contributions and benefits under which are identical with those of the Public Service scheme, save that pensions for hack service are payable by the employer, the least subsidy paid is equivalent to 4 per cent, of salaries. The schemes and subsidies arc as follow': Wellington Harbour Board.—Subsidy 65 per cent, of members’ contributions, equivalent to 4 per cent, of the salaAuckland Harbour Board.—Subsidy 60 per cent, of members’ contributions, equivalent to 4 per cent, ot the salaries. Gn Duller County Council—Subsidy bO per cent, of members’ contributions, equivalent to 7 per cent, of the salaries. A subsidy of 4 per cent, of salaries to the Public Service Fund would be equivalent to a subsidy of £184,8*-. a year. . Banks, life insurance companies, and shipping companies in the dominion have established superannuation schemes with benefits equal to, if not more liberal than, the Public Service scheme. The rates of contribution payable by members are in two cases per cent, of salaries, in one case 3 per cent., in two cases 3? per cent., and in one case 4 per cent. In the latter case contributions cease at ago sixty. These schemes are liberally subsidised by the employers out of profits and in some instances a high minimum rate of interest on the accumulated fund is guaranteed. LIMIT OF £3OO SINCE 1909. The Public Service scheme was established on sound actuarial lines, continues Mr Miller, the contributions by members are as high as justice will allow, and the Government subsidy was intended to be sufficient to meet any State liability as it arose. In 1909 the Government of the day passed legislation limiting retiring allowances to future servants to £3OO a year, without reducing the amount of members’ contributions in any way. The effect will be that in some cases the total contributions paid will bo more than sufficient to purchase the benefits enjoyed; in other words, the State will make a profit out of the contributor, a situation which the Public Service Association in common fairness hopes to have remedied. Under the Finance Act. 1920, the fund was used for retrenchment punposes. which was never contemplated when the scheme was established. Besides this, a large number of contributors have been retired compulsorily after forty years’ service or less at comparatively early ages. This applies primarily to the Post and Telegraph Department. Contributors have been retired from that department on pension at ages ranging from fiftv years to fifty-five years, who would have continued in the service for a larger period had they been permitted to do so. The effect of this on the fund is illustrated in the case of a contributor who is retired at age fifty-five on an allowance of £250 a year after forty years’ service. This 'amount is, if anything, below the average of allowances after that length of service. The capital value of his allowance would be £3,074. If that contributor had been allowed to remain in the service until he reached ago sixty-five and retired on the same pension, the capital value would be only £2,235. The difference (£839), multiplied by the number of retirements, represents an extra burden on the. fund which can be met only by (1) using the capital belonging to existing contributors instead of investing it to purchase their future benefits, or (2) by Government snbsidv.

COST OF EARLY RETIREMENTS. As the contributors have no voice in deciding at what age retirements shall be made, they, cannot be held respon-

sible. If the Government chooses to retire an efficient officer at age fiftyfive on a pension of £250 and replace him by another officer at the same salary, then the Government should foot the bill for the luxury. There is certainly no economy in. retiring an officer in receipt of, say, £375 a year on a pension of £250 a year, of which the Government must, or should, find approximately £l5O a year, and filling his place with another officer at the same salary. It looks as if the cost of the position had been increased to £525 a year, and that a comparatively efficient person had been condemned to idleness or forced into the labour market to undersell his labour because of the advantage his pension gives him. The purpose of Mr Millars review is to remove any impression there may bo in the minds of the general public that the public servant is a specially favoured person, who is given superannuation benefits at the expense of the State' to a degree denied to any member of the general public. This false idea, he says has been nourished and spread by persons utterly ignorant of the true position and indifferent of consequences.