SUPERANNUATION FUNDS

Taranaki Daily News, 3 October 1932, Page 9

SUPERANNUATION FUNDS

RADICAL CHANGE NEEDED

HUGE POTENTIAL LIABILITY;

I CONDITIONS TOO LIBERAL.

In its report on State Superannuation Funds, the National Expenditure Commission expresses the opinion that unless the State is able to make good its obligations to the funds, some radical alteration must be made in the basis of calculation of retiring allowances if the interests of the present contributors are to be conserved. It draws special attentipn to the huge potential liability on the State in regard to the funds, a liability from which it cannot honourably escape. Of the total contributions to the Public Service, Teachers and Railways Superannuation Funds, £4,083,000 has been contributed by the State, as against £8,940,000 coming from employees.

The commission finds that the potential liabilities of the Public Service Superannuation Fund have been added to from time to time without provision being made to meet these additional liabilities. It is estimated. that the Government’s actuarial liability to the fund on its inauguration in respect of “back service” was approximately £1,816,700, but the then Government elected to postpone payment of this liability, providing by Statute for the payment of subsidies. Up to March 31, 1927, the shortages in the statutory subsidies totalled £804,000, apart from interest. This and other factors have led to a present actuarial deficiency in the Public Service Superannuation Fund exceeding £8,000,000. THE TEACHERS’ FUND.

The Teachers’ Superannuation Fund commenced operations with an initial deficiency estimated at £BOO,OOO, and the actuarial deficiency is now approximately £6,000,000. The actuarial deficiency in the Railways 'Superannuation Fund to-day approximates £9,000,000. There was a large initial liability on the fund, and no provision has been made by successive Governments to meet it. The liability for annuities arising from service prior to the initiation of the funds is now being met from current contributions of employees. It seems clear that the actuarial liability of the Government in respect of the three funds is approximately £23,000,000. In times of stress the funds have been unwisely used as a means for facilitating retrenchment, continues the report, and the conditions of retirement have been liberalised from time to time with disastrous results. The commission considers that annuities should have been based on the average salary over a period of at least seven or ten years. A reasonable limit must be placed on the age of retirement, but the commission believes that the present right to retire after 40 years’ service, irrespective of age, is too liberal.

RIGHTS OF CONTRIBUTORS.

It may be stated that an alteration in the rights of /present contributors is in. the nature of a breach of contract, but, be that as it may, it is undoubtedly in the interests of the present contributors to the funds that steps be taken to place the funds on a sounder basis. ' The commission therefore recommends modifynw the present right of members to retire l>y length of service by limiting It to those who have attained the age of 60 in the case of males and 55 in the case of females and by increasing by five years the age or length of service at which a female contributor has the right to retire. It further recommends eliminating all options to retire earlier than these ages, save that there is provision for special cases of hardship; either altering the basis of calculation of final salary to the average salary of the last seven Or ten years or disregarding .for annuity and contribution purposes any salary increases after a specified ago, say, 55; the Government to guarantee a net effective interest yield of 5 per cent, on the funds; and the alteration of the method of paying the Government subsidy, say, to a basis of pound for pound. The commission is of opinion that the trading departments should undoubtedly contribute pound for pound on officers’ contributions, and that such subsidies should date from the inauguration of the funds. It considers it just that those who have retired from the service under the too liberal provisions of the law should have their annuities reviewed in line with the.recommendations concerning future annuities. It adds provisos that annuities.,below £lOO shall not be interfered with, that in no. case shall a reduction below £lOO he .made or a reduction greater than 20 per cent. ARBITRARY £3OO LIMIT. The commission unhesitatingly recommends the abolition of the arbitrary £3OO limit as operating quite unfairly against those officers who, by industry and ability, have risen to the higher positions in the service. “Were the three funds put into liquidation,” states the commission, “and were existing annuities treated as preferential claims, there would be nothing whatever available to refund to existing contributors any portion of their contributions. The position is even worse, in that on an actuarial basis the present funds would be insufficient to meet the present annuities; and taking the three funds as a whole, the present annuitants could obtain only a dividend of 12s 9d in the pound of their annuities or allowances, while contributors still in the service would forfeit all the contributions they have paid into the funds. We feel that these facte should be brought home to the Government and the community generally, as the position is so serious that there should be no delay in effecting remedial measures.”

BILL TO BE INTRODUCED. REFERENCE TO A COMMITTEE. By Telegraph.—Press Association. Wellington, pct. 1. As soon as possible the Prime Minister (the Hon. G. W. Forbes) proposes to introduce a Public Service Amendment Bill dealing with superannuation allowances. Mr. Forbes states the provisions of the amending legislation will closely ■ follow the recommendations made on the subject by the National Expenditure Commission. Immediately following its introduction the Bill will be referred to a Parliamentary committe for the hearing of evidence from those affected by the contemplated changes. By this means Mr. Forbes says, full opportunity will be given for representations.