INTEREST AND BONUS

Wairarapa Daily Times, 19 June 1931, Page 5

INTEREST AND BONUS

AUSTRALIAN LIFE OFFICES. Tile determination of the life offices' of Australia to consent to the proposed reduction of interest on public debt provided the whole of the reconstruction plan is carried out, brings info voluntary acceptance of the plan the class of financial institutions holding the largest amount of public seurities, states the “Sydney Morning Herald.” The decision will be of greatest assistance to the Government in carrying through the whole plan.

But policy-holders will be affected. Australian assets of life offices amounted on June 30th, 1930, to £134,598,975, and this amount included £70,578,790 of Government and municipal securities, £34,632,357 of loans on mortgage, and £13,864,243 of loans on life policies. A reduction to 4 per cent in the interest on Government loans would cause a material reduction in the surpluses of life offices, and so a material reduction in the yearly bonuses, and still heavier would be the reduction in surpluses, and so in bonuses, if all other interest earned were reduced by 224 per cent. Bonuses declared in the past would not be affected. They would be payable on maturity in the amounts already declared. It is future bonuses which would be so much reduced.

The surplus out of which the bonus is paid arises from two sources: (1) Erom the favourable mortality experience, and (2) from the interest earned on funds. The interest earned last year was up to £5 14s per cent. A reduction to 4 per cent would probably reduce future bonuses by at least 25 per cent.