Superannuation and the State

Manawatu Times, Volume LV, Issue 7007, 17 November 1932, Page 8

Superannuation and the State

ji Payment of Debt by Stock Suggested •* ri .... Public Servants’ View : {?' '• ' . Special to Times, |; WELLINGTON, Last Night. The payment of the debt of £3,660,000 by the issue of inscribed stock to provide the three Government superannuation funds with an assured income was advocated by the New Zealand Public Service Association when registering a protest against the Government Superannuation funds Bill to-day to the Select Committee of the House of Representatives. The payment could be allocated to each fvmd in proportion to the respective deficiencies, the association said. Such a course, it was contended, was the ]j * cnly one which could be followed with, honour to the State, and its h adoption would mean that the State would have met its financial iiabili- >• ties to the funds to date.

"When a retirement system is created to pay benefits to present employees in respect to past service, it obviously starts with a large deficit, because neither the Government nor the employees have been paying the premiums that would have been necessary to accumulate an actuarial reserve sufficient to meet the prospective retirement claims/’ stated Mr. F. W. Miller, secretary of the association. “Two possible courses may be mentioned as deserving attention in this regard: (1) Paying off the deficit on the instalment plan; or (2) the creation

annual amount required to pay those annuities was roundly £158,000, out of a total annuities bill (widows’ and children’s allowances excluded) of £-130,000. "The number of similar retirements from tho Railways Department is approximately 460, and tho amount of such annuities is £IOS,OOO out of a total amount of £346,000. Thus, permissive retirements represent approximately 1160, or 22 per cent, of the total number of annuitants (5821) of the three service superannuation , funds, and they absorb annual retiring allowances cf £258,000, which represents 23J per cent, of tho total retiring allowances (£1,099,891).” State’s Failure. “The State’s failure to provide subsidies recommended by the actuary from time to time has, in the case of tho Public Service Fund, resulted in a shortage of £1,776,357, which amount includes £475,357 accrued interest to March 31, 1931. In the case of the Teachers’ Superannuation Fund, the shortage is £1,023,136, including aociued interest to the extent of £287,885. The Railways Superannuation Fund, as has been explained to the committee, is backed' by a State guarantee, with nc provision for paying into the funa such sums as may be recommended by the actuary. However, for the purpose cf assessing the shortages in ail funds to date, wo refer to the fact that in 1929 the actuary, after investigation of the Railways Fund, recommended that an annual amount of £340,000 should be paid into that fund from the year 1927 to meet the deficiency. Actually, payments have been made from that date at the rate of £170,000 per" annum, so that the shortage in tho Railways Fund to March 31, 1932, may be assumed to be in the vicinity of £550,000 —subject. to confirmation by the actuary. In round figures, therefore, the shortage in the three funds js £3,650,000.

of a perpetuity. , "Under the first scheme arrangements are made whereby each year the Government pays either (a) a fixed amount, which is used to pay the inter- . est on the debt and then to reduce the l principal, or (b) a fixed amount to reduce the principal and the interest due ion the unpaid balance. The payments should be so figured that the deficit will be wiped out in about 60 years. Under the perpetuity plan the deficit is never wiped out. The Government issues bonds for the amount, which are turned over to the Superannuation Fund. Under this system the Government always has to pay the interest, but is never called upon to pay the principal unless the retirement system | is wound up.” Additional Liabilities. Eeferring to additional liabilities imposed upon the funds, he said that in 1009 the conditions of retirement were relaxed by the Government without reference to the existing contributors and without regard to their interests. To meet the circumstances of the Defence Department (in which retirement was compulsory at 55 years of age, irrespective of service) legislation was passed to enable all male contributors to any of the funds to retire on superannuation: (a) After 35 years of service, or (b) after 30 years of service combined with 55 years of age-, with the consent of the Minister, who had power to make such conditions as fie thought fit. “Thus were created permissive retiring points never contemplated in the original schemes. No restrictive conditions have ever been imposed under this section so far as the Public Service and Railways Superannuation Funds are concerned, neither has the State recompensed the funds by the necessary payment from the Consolidated Fund to meet this heavy extra burden.

"The State guarantee in the case of the Railways Fund means that no question of breach of contract arises unless the State (a) removes the guarantee, (b) alters the original conditions of tho contract, or (c) fails to meet the benefits provided in the contract. In the case of the Public Service and Teachers’ Funds, however, a definite breach of tho legislative contract has already occurred by the State’s failure to pay from time to time the subsidies recommended by the actuary.

Tor Retrencnment. Dealing with, funds used for retrenchment purposes without State recompense from the Consolidated Fund, he said that in 1921 (Finance Act, .No. 72, section 28) the qualification was reduced by three years to meet special cases. “This operated from July 1, 1921, to December 31, 1922, and was deliberately designed to facilitate retrenchment, but, again, no provision was mado for State recompense to the lunds. In 1930, statutory provision was made to permit the granting of allowances to certain retrenched members of the Defence Department (who otherwise were unable to qualify) within live years of a permissive miring point, for an allowance under the relaxed conditions of retirement. Not one of the additional burdens enumerated were at the instance of the Public Service organisations —they emanated solely from the State. “The superannuation funds have also been deprived of savings provided in the original statute (see section 33 of the Consolidated Act of 1927), which laid down that the remuneration of any retired officer on pension wffio may be re-employed by the Government must not exceed his annual rate of salary at the timo he retired. If it did, his superannuation allowance should abate accordingly. During the period 1915-31, no less than 40 individual officers have been granted exemption by legislation, while in 1919 and 1920 a general exemption was granted for such officers whose remuneration did not exceed a fixed rate. . . .

The Subsidy. “Ignoring the fact that we estimate that nearly £1,000,000 of the State’s total deficiency (£3,(550,000) in payment of subsidies is represented by accrued interest, and assuming that the -full deficiency were paid by the State, tho sum of this deficiency and what has actually been paid would, even then, be equivalent to a subsidy of less than £1 for £1 —in fact, 17s 9d to the £l. Deducting the £1,000,000 represented by interest, the combined subsidy (paid and unpaid) is 15s (id to the £l, and this is the real indication of the Stato assistance required by the funds to date. Thus, the funds have borne all the burdens and stresses wo have featured iu this statement, and the heavy lead of past service prior to tho creation of the funds, for which no contributions were received, and has still required considerably less than a £1 for £1 subsidy to make them actuarially sound to the present time. 1 ‘ Wo submit that the only right and reasonable step for the existing administration to take is immediately to pay its present debt (£3,650,000) to the funds by the issue of inscribed stock to that extent, to be allocated to each fund in proportion to the deficiency therein. This would provide the funds with an assured annual income of £164,250 (calculated at 4i per cent.). Incontrovcrtibly, such a course, we contend, is the only one that can be followed with honour to the State, and its adoption would mean that the State would have met its financial liabilities to the funds to date. In practice, this transaction would involve book entries only as between the Government and the respective funds, the State’s cash liability being confined to meeting the annual interest (£164,250) on the stock issue. “We submit further that the payment of the present debt in the manner suggested above, . together with future regular payment of an adequate subsidy, either: (a) in accordance with the actuary’s recommendations as to the sums required from time to time as provided in the original Acts; or (b) a flat annual subsidy (possibly £1 for £1) as may be determined by tho actuary as necessary to meat the future.

It w r as not until last year that the first practical effort of the Government to effect retrenchment without added liability to the funds was made. At that stage the Finance Act, No. 1, 1931, provided that, within five years of a permissive retiring point, officers could bo retrenched on a retiring allowance computed actuarially. In. reference to the financial aspect of added burdens, he said that in tho Public Service Fund alone tho number of contributors who retired before attaining the full qualification of age or length of service, and who were still repeiving retiring allowances, was over 700, approximately one-third of the total number .of annuitants, whilst tjhe

liability over a period of, say, 50 years, will result in the respective funds, in the years to come, gradually becoming financially stabilised, provided the . abnormal burdens are lifted as we suggest. “In connection with the suggested £1 for £1 subsidy, we stress that superannuation authorities almost universally advocate a subsidy on that basis, that private businesses in New Zealand follow this course, that the National Expenditure Commission makes the same suggestion, and that the present administration itself proposes this in the Bill under discussion. Again we repeat that neither of our proposals regarding payment of subsidies requires any amendment of the existing law.I’’ 1 ’’ The position of the staffs of mental hospitals was explained by Dr. T. G. Gray (Director-General of Mental Hospitals), who expressed the opinion that the length of service as suggested by the Bill was too long in regard to the special circumstances of the staffs of hospithls under his control. The committee adjourned till 10 a.m. to-morrow.