PAPERS FOR THE TIMES.

New Zealand Mail, 27 August 1902, Page 56 (Supplement)

PAPERS FOR THE TIMES.

£All Rights Reserved.]

in. OLD AGE PENSIONS. (By Sir Robert Stout, K.C.M.G., C'lnef Justice of New Zealand.) Our old age pension scheme is not popular. Many refuse to take the pension. It is really charitable aid for old people, for the pension is not awarded at a certain age and on a certain residence in the colony. The other qualification insisted on is poverty. The annual expenditure on pensions is increasing. It already exceeds £-UO,tkA) a year and it will soon be £300,000 a year. There seems little chance of the pension, therefore, being made universal. An ideal pension scheme is no doubt a pension to all at a certain age. provided the character of the recipient lias been good, and no inquiry being made as to the means that may have been accumulated. But this ideal pension system seems impossible of attainment. The question may therefore well be raised whether the Government might not encourage a system of voluntary pensions. There was a time when life assurance was rare in tins colony. We are now as well assured a people as any in the world, though the amounts insured are not so large as in the I’nited States. I believe wo might have voluntary pensions or annuities as common and popular as life assurance policies. There are two systems that could be adopted, the Tontine annuity system, and the life assurance pins annuity system. (1) Let us see how the Tontine annuity scheme would work.

If 1000 persons (or a less number may bo taken) pay in one year £2O each when they are twenty years of age, and this sum is accepted by the Government and interest calculated on a four per cent, basis, the Government would be able to give each person that lived to 65 £25 per year or about 10s per week. I arrive at that result as follows:—.Mr Leslie, the Assistant Actuary in the Government Assurance Department. has calculated that of 1000 persons living at twenty in New Zealand. 565 will be living at 65. This is in excess of the calculation made in Victoria. It was calculated by Mr Burridge that of 1000 persons alive in Victoria at the age of twenty only 478 would be alive at 65. The value of £2O paid at twenty will be in 45 years £116.824. But at 65 there will be 435 who are dead. The accumulations of their payments will be £50.818.44. This divided amongst" the living would give £89.1)44 to each person living at 65. and added to their own accumulations would make £206.768 for each person alive. Or the calculation may be made thus:— The accumulations of £2O each paid by 1000 persons in one year would in 45 years amount to £116,824, and this sum divided by 565. the number alive would be £206.768. Now what annuity would £206.768 at 65 on a 4 per cent, basis buy? According to the British Government, Annuitants Table the amount would be £24.885 or £24 17s Bd. nearly £25.

So long as the amount that could be obtained as an annuity was small, it would pay the Government to give annuities on a four per cent, basis, as the voluntary annuities would tend to reduce the old age pensions vote, which I do not propose should be abolished. But suppose a 35 per cent, basis is taken, and that is the interest paid to investors in New Zealand Consols, and suppose £25 instead of £2O was paid at twenty years of age the result would be as follows: —The value of £25 in 4-5 years on a 34 per cent, basis would be £117.56, and if 435 out of a thousand die there would be £51.133.6 to be divided amongst the 565 survivors. This would give £90.51 to be added to the accumulation of each, which would give £208.07. Taking again the British Government Annuitants Table at 3.}- per cent., the result would be a'pension of £24 4s per annum. If, therefore, a person paid £25 at twenty, at 65 he should get a pension of 9s 33d a week on a Tontine scheme. I would not limit the annuity to 10s a week. I think it would be quite safe for the Government on a 34 per cent, basis to give" annuities up to £IOO a year. Above that the basis might be 3 per cent., and much higher 2* per cent. The Government have paid recently from 31 to 4 per cent, for the moneys they have borrowed, and as ting system would tend to promote thrift, and tend to lessen the okl age pensions expenditure, it is not unfair to ask that a system of voluntary annuities sliof.ild be started on a 3i per cent, basis. - But the system of annuities should be popularised at all ages, and they should be obtainable at every Post Office in the colony. All that would be necessary would be some- proper proof of age. Suppose a man at the age of thirty had £5 or £SO to spare, the Government Annuity Office should be open to him to get a peiision at 50, 55, or 60, or 65, and there should bo printed tables exhibited at every office stating what pensions at these ages the sum of from £5 to £IOOO could buy. Suppose a man at thirty years of ago had £SO to spar'S and he said, “I wish to have an annuity at 65, if I survive to that time,” he

would be entitled to get- £l6 6s 4d as a yearly pension. He would be entitled to this, not on the Tontine scheme, but he could have it coupled with an in suranee scheme, so that if he died before 65 the amount with interest would go to his family. £SO in 35 years at 35 per cent, would amount to £140.35. According to the British Government Annuitants Table tliis at 65 would entitle him to £l6 6s 4d nor annum. And if he did not reach 65 his family would he entitled to £SO and accrued interest, less perhaps some small charge for management.

(2) This leads up to an annuity plus insurance scheme. To get the money plus interest in case of death before 65, or before GO if that date was fixed on (and I think it a much better date), the pension would of course be less than under a Tontine scheme. But both systems could be worked together. Tables showing what a pension at a certain age would cost in both systems could be prepared and exhibited. And the interest basis would be if the pension sought was more than £IOO a year three per cent, and might be less if the annuity sought was much larger than £IOO.

I understand the annuities granted by the Government Insurance Department. and the Australian Mutual Provident Society are on a three per oem. basis and this up to any amount. The annuities granted by the Australian Mutual Provident Society are at 55 at the rate of £7 13s 9d pe r cent; at 60, £8 17s 9d; and at 65, £lO 10> 3d. The Government Insurance Department grant at these years annuities at the following rates: £7 12s 4d. £3 15s Bd, £lO 7s Bd. but I understand in the case cf the Government Department the annuities are apportionable to the day of death. It may be asked—How can our working people afford to pay £2O or £25 at tho ago of twenty? Suppose a parent' put by one penny every day for a child and invested it at 3 per cent., this would give more than the required trim. At 25 per cent, the amount at twenty would come to £3B 17s 7d, and is that too much to ask a parent to endow a child with? Suppose a man only set aside one penny a day during 240 days in the year from the birth of his child and he invested it in the savings bank he would have when the child became twenty the sum of £25 10s 106. There are. I believe, many who have sometimes £5. £lO. or £2O to spare, who, if they knew they could go to the nearest Post Office afid buy a pension, would invest money in tiTat way. How many of our young lads are able to buy bicycles, etc? Might not many of them be induced to invest in annuities and thus be enabled to look forward to their old age being free of want? Further, as I have already said, they could adopt that system that provides for insurance in case of death before 60 or 65. Or could not many parents pay £5 on the birth of a child that would enable a small pension to be obtained at 65? What is required is that there should ho either a new Department established in connection with the Government Insurance to press forward an annuity scheme, or that tho Insurance Department should vigorously take the matter up and be as anxious to obtain “annuities” as “lives." Perhaps also the many insurance societies in cur midst, might vigorously prosecute the selling of annuities ; at present no effort is made to sell annuities. The Annuity Department of the Government oould be kept apart from the ordinary Life Insurance Branch, just as the Accident Insurance Branch is kept separate. If the provision was that all funds received by the Annuity Branch were to be invested in Government Debentures at o] per cent., tho Government might well agree to guarantee the annuities and pay the small charge (if any) for the management of the Annuity Branch. Annuities over £IOO a year, being on a 3 per cent, basis, would, I believe, enable the branch to be conducted without any lass and without any demand being made on the Government for the cost of management.

If annuities became common and were popularised, the comfort of the people would be greatly enhanced, and the prosperity of the colony placed on a firm foundation. There are hundreds uow past 60 suffering the strain and stress of life, who. if they could have foreseen the future, coukl have easily under some annuity scheme provided for their present requirements. They have not had the opportunity. The opportunities for obtaining pensions arc even now not what they should be, and it is time that the possibilities of voluntary annuities were realised.

I have not referred to the gain to the Government in obtaining moneys at 34 per cent, from our own people and not, being liable to foreign bond-holders and bound to pay them interest, nor to the expense of raising foreign loans. This is, however, an aspect of the question that should not be overlooked. It would be a double gain to our Treasury. It would tend to reduce the old age pension expenditure so long as the pension requires the recipient to be poor, and it would give us money for present requirements for public works, land settlement, etc., at a reasonable interest. And our Government creditors would not be resident in Europe and America, but in New Zealand. We are sending millions a year out of the colony to pay interest 011 Government, municipaUand private loans. How much better "oft would wo be if our creditors,

public and private, were resident in New Zealand?