SUPERANNUATION FUND

Manawatu Standard, Volume LIII, Issue 313, 1 December 1933, Page 8

SUPERANNUATION FUND

ACTUARIAL DEFICIENCY. FINANCE MINISTER’S REVIEW. WELLINGTON, Dec. 1. That the State superannuation funds are at present aetuarially unsound, and that some definite steps must be taken to deal with the position, was the pronouncement made by the Minister of Finance (Rt. Hon. J. G. Coates) in addressing a conference yesterday of representatives of various State organisations which had assembled. to discuss the possibility of stabilising the funds. ' “It may be appropriate,” said Mr Coates, “to set out briefly the effect of the National Expenditure Commission’s conclusions and recommendations:—

1. That the actuarial deficiency in the superannuation funds is £23,000,000, and unless action is taken to reconstruct the funds this liability must eventually be faced by the State. 2. That the interest on this deficiency amounts to over £1,000,000 per annum, and the commission 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 wliat 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; (e) to make the proposed future pound-for-pound subsidy retrospective in respect of the trading departments. 4. The report also recommended the removal of the arbitrary pension limitation of £3OO 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 the 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 a net effective interest yield of 5 per cent, on the funds. THE FUNDS’ POSITIONS. “In connection with the proposed pound-for-pound 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 normal £1 for £1 subsidy. subsidy. „ £ £ Public Service ... 86,000 ... 225,000 Tc'achers’ 43.000 ... 114,000 £129,000 ... £339,000 “The additional subsidy to these two funds would, therefore, amount to £210,000 per annum. “The alternative proposals made to the committee for stabilising the funds, without any diminution of benefits to contributors and annuitants, involved the issue of Government stock to the amount of approximately £4,000.000, and are quite unacceptable under present conditions. “I cannot too strongly impress on you, and I can assure you the Government realises the seriousness of the present instability of the funds, and the impossible position that will arise at an early date unless some definite steps are taken, and taken at once, to stabilise the funds. “Already the income of the funds is insufficient to meet outgoings. . For example, the experience of the Teachers’ Fund, for the year ended January 31, 1933, was as follows: - INCOME.

• £324,405 “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, the fund was unable to carry on without liquidating capital securities, which should be available for future pensions, as the following table illustrates: — January. 31, Decrease 1932. 1933. for year.

“From the'above it will be seen that this fund was forced to realise £92,000 of Government securities, and in addition there lias been a fall of approximately £16,000 in local body debentures 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 practically unrealisable at present/ “I feel that after you have given you will recognise the necessity for a certain amount of sacrifice on your part, and I shall be pleased to be advised of the result of your deliberations in due course,” Mr Coates concluded.

£ Contributions 113,126 Government subsidy 43,000 Interest 61,117 Miscellaneous 638 £217,881 OUTGOINGS. £ Pensions and allowances 279,718 Rotunds on withdrawals 33,478 Expenses Provision for loss on invest3,709 7,500

Assets. £ £ £ Govt, securities . Rural Advances 108,800 16,800 92,000 Bonds, Rural IC. Bonds ... 135,041 135,041 _ Local body de 6,800 bentures, etc. 88,980 82,180 Mortgages Balance of as884,354 875,460 8,894 991 2,161 *1,170 Funds 1,218,166 1,111,642 106,524 ‘Increase.