THE PUBLIC SERVICE.

Otago Witness, Issue 3833, 30 August 1927, Page 6

THE PUBLIC SERVICE.

SUPERANNUATION FUND.

INCREASE OF STATE SUBSIDY PROPOSED.

WELLINGTON, August 24.

Interesting observations on the operation of the Public Service Superannuation Fund are made in the annual report of the actuary' (Mr A. T. Traversi), which was presented to Parliament to-day. The report says that the fund presents, even to a superficial examiner, some symptoms calling clearly for closer inspection. The following table, for example, conveys a suggestion that the outgo for benefits is rapidly overtaking the combined contribution and interest income: — Combined contribution and interest income (exclusive of State subsidy) per £lOO Year. of outgo for benefits.

This table shows that where the income was more than treble the benefit outgo some 15 years ago the two are now nearly equal, so that the outgo is increasing much more rapidly than the income. The valuation of the fund shows a total State liability of £5,554,173 as compared with. £4,142,939 at the last valuation, giving an increase of £1,391,184. This increase is due partly to the accumulation at interest- of that part of the State’s liability which is unprovided for, partly to the normal expansion of the service, and partly to the enforced retirement of officers with long service. The last-men-tioned item is casting a considerable liability upon the fund, and it is understood that the statutory subsidy of £86,000 has been increased to £136,000 on this account.

The actuary says that in accordance with the requirements of the Act he has calculated that the minimum annual subsidy required for the three financial years 1924-25, 1925-26, and 1926-27, is £232,000 per annum, plus the annual appropriation for staff salaries and other office expenditure. This sum has been calculated on the assemption that each year’s subsidy will be paid during the year it falls due, so that in the event of the payments not being made on the due date it will be necessary to add interest at 4 per cent, to the date' of payment. A further sum should be added on account of the additional liabilities falling upon the fund by reason of section 29 of the Finance Act of 1925, which provides for the inclusion of house allowance, etc., as salary for superannuation purposes. It is not practicable to estimate this at the present time in the abencc of complete dttta. These

additional liabilities have not been taken into account in making the valuation. Members’ contributions in the same periods are calculated at £70,747, £75.006, and £80,333.

Discussing the method of arriving at the State subsidy, Mr Traversi says: — “The Act appears to lay down a certain method of arriving at- the State’s subsidy, the principle being that while members contribute upon the basis of paying their share of the liabilities as they are incurred the State pays only as they mature. That is to say, tne State subsidy is based on the principle of deferring payment to the last possible moment, and in the past the State has even lagged behind this low standard. Apart from any addition to the liabilities due to the possible continuance of a policy of compulsory retirements at the end of 40 years’ service and without reckoning the additional liabilities due to the inclusion of house allowance, etc., the State’s liability in respect of present members is (at 4 per cent.) equal to a subsidy of £221,367 per annum in perpetuity. As the Act aims at extinguishing the liability for present members during their lifetime the subsidy thereunder will clearly have to amount to a higher figure than £232,000 before long, and it is certain that with the present deliberative method of fixing the subsidy trouble will constantly arise. The subsidy should bo placed upon an automatic basis, as, for example, a percentage of the contributions made by the members. In this connection I would recommend as a commencement the figure of 110 per cent, of members’ r-mtributions which would give a subsidy for the year ended March 31. 1925, of £255,000. The modern tendency in these schemes is to apportion the cost equally between the employer and employees, and the foregoing suggestion virtually proceeds on this basis. With some allowance for arrears on the part of the State it would amount to about (>'? per cent, of the salaries, a not unreasonable amount. To pay a subsidy of 110 per cent, on the contributions of members would not immediately enable the Budget to be balanced, but though the I State's payment would be increased somewhat from the outset there would be a considerable gain in steadiness in regard to the amount of subsidy as well as in I point of ease of working. Provided the liabilities were not unduly inflated by the granting of additional benefits this subsidy would no doubt suffice in time to right the fund.” In general remarks Air Traversi suggests that the limitation of £3OO as the maximum amount of pension that say now be earned should be removed, as the limitation tends to defeat the chief objects of the fund.

1909 £570 1914 186 1919 149 1924 114