POLICE PROVIDENT FUND: ACTUARIAL EXAMINATION FOR THE PERIOD ENDED ON 31st MARCH, 1906.

Appendix to the Journals of the House of Representatives, 1906 Session II, H-16b

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Session 11. 1906. NEW ZEALAND.

POLICE PROVIDENT FUND: ACTUARIAL EXAMINATION FOR THE PERIOD ENDED ON 31st MARCH, 1906.

Laid before Parliament in pursuance of Section 29 of "The Police Provident Fund Act, 1899."

REPORT by the Actuary appointed by His Excellency the Governor to make the Actuarial Examination of the Police Provident Fund for the Triennial Period ending the 31st March, 1906, as provided by Section 26 of " The Police Provident Fund Act, 1899." Wellington, 29th September, 1906. 1. I have made an actuarial examination of the Police Provident Fund as on the 31st March, 1906, in accordance with the provisions of "The Police Provident Fund Act, 1899," which states that the result of such examination shall be so prepared as to show — (1.) The state of the fund at the close of the period; and (2.) Its expectant state at the close of the next ensuing triennial period, having reference to the prospective receipts and charges during such period. 2. The somewhat complicated benefits provided by the Act, together with the contributions, will be found in Table lof the Appendix hereto. It will be seen that three-fourths of the contributions are returned to members voluntarily resigning " after ten and not exceeding twenty-five years' service." Thus, a member who entered the Force at age 35 will after ten years' service receive back three-fourths of his contributions to the Fund on retirement at any time before attainment of the pension age, whereas another member entering at age 25 will receive nothing whatever should he retire between ages 50 and 60. This anomaly probably arose from an oversight when the Bill was framed. It would be set right by repealing the words " and not exceeding twenty-five," and I think this should be done. 3. The details of the experience of past and present members were supplied by the Police Department on cards prepared for the purpose. I have arranged these statistics, to show the progress of the Fund from the commencement, in the following Tables, which appear in the Appendix : — . Table 11, Statement of Progress of Active Membership, showing the number, salaries, and contributions of new members, increases by promotion, decreases by discontinuance, and total in force for each year. ~,.,. , , Table 111, Particulars of Discontinuance of Active Membership, showing the number retiring each year from different causes, together with the benefits granted each year. Table IV, Statement of Progress of Pensions, showing the number and amount of pensions granted, discontinued, and remaining in force each year, under the various sections of the Act. Table V, Present Annual Pay and Contributions, with Prospective Pensions to Officers now in the Service, showing these particulars separately for each year of age attained. Table VI, Classification of Pensions granted, showing the ages at which pensions have been granted under the various sections of the Act since the initiation of the Fund. From this table it may be ascertained that the average age at retirement of the ordinary pensioners (section 13) was 64-1; of pensioners medically unfit (section 12, (3)) and injured on duty (section 14), 51-8 ; and of all classes of pensioners combined, 57-4. 4. The number of pensioners on the Fund at the 31st March, 1906, was fifty-seven, and the number of contributors at the same date 651. 5. The progress of the Fund itself is best illustrated by the following Consolidated Revenue Account, showing the summaries' of actual income and outgo for (1) the first period, ending the 31st March, 1903, and (2) the second period, ending the 31st March, 1906, together with (3) a summary of the estimated income and outgo for the current triennium ending the 31st March, 1909.

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Consolidated Revenue Account.

The Valuation. 6. The foregoing Consolidated Revenue Account shows that the Fund possesses a balance in hand, or accumulated fund, of £67,121; but in order to ascertain the state of the Fund by an actuarial examination as demanded by the Act it is necessary to make a valuation of the assets and liabilities. This valuation is required to determine whether the accumulated fund of £27,121 is sufficient, together with the future receipts from interest and from members' contributions, to discharge the various claims as they arise, so far as existing members are concerned. 7. The net results of the valuation are summarised in the following valuation balance-sheet, which contains — (1.) On the left-hand side, the discounted liabilities—viz., the sums expected to be paid, less interest for the time it is estimated they will be deferred; (2.) On the right-hand side, the discounted contributions—viz., the amounts expected to be received, less interest for the time until they fall due. Valuation Balance-sheet as at 31st March, 1906. Liabilities. £ j Assets. £ Value of 57 peneions already granted, for < Accumulated funds at 31st March, 1906 .. 27,121 £5,037 per annum .. .. .. 50,120 Value of future contributions .. .. 87,868 Value of 651 prospective pensions, for £73,548 Deficiency .. .. .. .. 214,168 per annum, to offioers in the service (including thirty-three over age 60, who are entitled at any time to pensions already accrued, amounting to £3,115 per annum) 256,227 Value of return of contributions at death .. 22,810 £329,157 I £329,157 8. The balance-sheet reveals that the accumulated funds should amount to £241,289 to be sufficient for the purpose explained in paragraph 6, thus showing a deficiency of £214,168. 9. Nothing very definite can be reported about the Fund in reference to " its expectant state at the close of the next ensuing triennial period, having reference to the prospective receipts and charges during such period," quoting from the Act. The utmost I can do is to make an estimate of the income and outgo for the current trienniuin, and this is given in the Account shown in paragraph 5. Therefrom it will be seen, as might be expected, that the income from contributions increases very slowly while the outgo for pensions and allowances increases very rapidly. The following table shows the past yearly increases in the fund, and the estimated increases during the next three years : —

Income. Outgo. Actual. Estimated. Act La). Estimated, 1900-3. 1903-6. 1906-9. 1900-3. 1903-6. 1906-9. Fund at beginning of period Contributions Miscellaneous ... Interest £ 3,257 18,418 £ 27,121 Pensions and other allowances Commission Fund at end of period £ 5,322 £ 13,273 £ 21,800 19,272 109 1,207 19,341 169 2,567 20,080 240 3,884 105 18,418 101 27,121 105 29,420 23,845 40,495 51,325 23,845 40,495 51,325

Year ending. Funds at End of Year. Yearly Increase in Funds. Percentage of Increase on Funds of Previous Year. £ 3,257 9,186 14,579 18,418 21,794 24,876 27,121 £ 5,929 5,393 3,839 3,376 3,082 2,245 Per Cent. list March, 1900 1901 1902 1903 1904 1905 1906 1820 58-7 26-3 18-8 14-1 9-0 Actual. 1907 1908 1909 28,726 29,470 29,420 1,605 744 - 50 59 2-6 Estimated. Decrease

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10. Estimates like these, dealing with such a small portion of the future lifetime of members as the next three years, are necessarily subject to great fluctuation because, to take only one possible cause of disturbance, a single death more or less in the short period would make a material difference to such a small fund. They must therefore be looked upon merely as furnishing a rough approximation to the actual results, and the only definite statements I am prepared to base upon them are that— (1.) The accumulated funds will still continue to increase slowly for two or three years longer, they will then attain their maximum, and afterwards will diminish year by year, in an increasing ratio, until they cease to exist. (2.) The actuarial deficiency will certainly be found to have increased when the next valuation comes to be made three years hence. 11. I do not think it can be said that I have erred on the side of severity in making the foregoing valuation. Farr's Healthy English Mortality Table has been used, and 3% per cent, is the rate of interest upon which I have based the calculations. Although the Board has recently been authorised to invest the funds on mortgage of freehold security, thus materially improving the yield from interest, in my opinion a higher rate would not have been justified for valuation purposes, because, in the first place, there is, apart from temporary fluctuations, a general tendency for the rate of interest to fall, and the bulk of these pensions will continue as outstanding liabilities into the distant future ; and, secondly, it is quite possible that a portion of any surplus revenue from interest may be required to make up for the admittedly low mortality of people living in New Zealand. In fact, as an illustration of the leniency with which I have treated the question, I may point out that £50,120 has been taken as the liability on account of the fifty-seven existing pensioners on the Fund, drawing £5,037 per annum ; but it would require a payment of between £51,000 and £52,000 to reinsure these pensions with either the Australian Mutual Provident Society or the Government Insurance Department. 12. The benefits have been valued as if the pensions were payable at the age of 63—viz., three years after members have the right to retire. Although it is optional for members of the Force to retire at 60, it is compulsory for them to do so not later than 65, and I am satisfied that it would understate the liability to assume that they will, on the average, remain in the service later than age 63. 13. The necessary allowances have been made for the usual increases in salaries, as well as for the return of contributions up to the date of death as provided by the Act. 14. I have not made a special reserve for any additional liabilities which may result from future premature retirements through medical unfitness, as I think practical justice will be done by setting against them the profit which will arise from members voluntarily resigning before attainment of the pension age and leaving all, or part of, their contributions in the Fund, and which will greatly diminish, if it does not entirely obliterate, this liability. 15. Finally, I have to draw attention to the fact that the Government has saved, since the passing of the Police Provident Fund Act, the retiring-allowances which they were formerly in the habit of paying. According to the last annual report on the Police Force the relief so avoided, and which has therefore fallen upon the Fund, amounted to £14,933, and if this were recouped the liability would of course be correspondingly reduced. 16. Having concluded a rather unpalatable task I may be permitted to say that I have no fault whatever to find with the form of the Provident Fund itself, which I look upon as suitable and satisfactory in every way, and very similar to what is provided for in many other bodies of employees in other parts of the world. It is, however, seldom possible for the employees themselves to pay the whole of the heavy contributions necessary to purchase the benefits provided by such funds. That the contributions in this particular case are insufficient for the purpose is plainly evident from the fact that the whole of the accrued funds are not nearly enough to meet the well-understood liability connected with the few pensioners who have already come upon the Fund. In connection with schemes where the Government pays the benefits as they arise from year to year without building up a fund from contributions, thus assuming the whole of the liability, it is not customary to periodically estimate the capital value of that liability. As examples there may be taken the English Civil Service Superannuation, the yearly payments for which by the Government were £1,600,000 in 1888-9 and had increased to £2,035,000 in 1902-3, and the New Zealand old-age pensions, the annual outgo in support of which was £254,000 for 1905-6. In neither of these cases is it considered necessary to make an actuarial valuation in order to assess the present capital value of these (increasing) yearly payments, although that might easily be done. Where, however, the members of a Fund contribute towards its support, and a periodical actuarial investigation is required by law, it can only be supposed that the object sought to be attained by such investigation is to ascertain whether the contributions of the members will prove sufficient in themselves to liquidate the liabilities which accrue. This can only be done by reporting the excess of, or deficiency in, the funds which have accumulated in consequence of the contributions, whether too high or too low, being more than sufficient to meet the comparatively few claims falling in during the early years of the Fund. Unfortunately I have been compelled to report a deficiency in the accumulated funds, thus showing that the contributions are not in themselves sufficient, and that assistance will be required from the Government at some future date. But the assistance that will then be necessary, besides being deferred, will not of course be nearly so great as would have been the case had no contributions been payable by the members. Bespectfully submitted. Moebis Fox, Actuary to the Government Insurance Department.

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APPENDIX.

TABLE I The Benefits and Contributions Provided for by the Act.

V. , _ ~:Note— The and pensions are payable monthly, and the pensions are computed on the salary at retirement, unless there has been promotion within five years, when the average salary for the last seven years is taken as the basis.

TABLE II. Statement of Progress of Active Membership.

The contributions vary according to the age at the time when the first contribution becomes payable, and are as follows :— • Age 30 and under 5 per cent, of pay. ■ontributions -j Over 30 and not exceeding 40 6* Over 40 and not exceeding 50 ... ... 8 „ Over age 50 ... • • ■ • • • ... 10 „ I. On Attainment of Pension, Age 60. 1 To members who have served for twenty-five years, pensions of onesixtieth of yearly salary for each year's service, with a limit of thirtysix sixtieths (three-fifths) of salary. (Section 13.) 2. Or, in lieu thereof, the option of a return of total contributions. (becti'on 19, (2).) II. On Retirement before Pension Age {on the grounds of being medically unfit for future duty). 1. With less "than five years' service, a refund of contributions. (Section 12, (1).) , , , , „ 2. Between five and fifteen years' service, one month s pay for every full year s service, not exceeding twelvemonths' pay. (Section 12, (2).) 3 After fifteen years' service, a pension of one-sixtieth of annual salary for each year's service, with a limit of three-fifths of salary. (Section 12, (3).) 4 In 'any ease where the unfitness for duty is caused by injuries received on duty a pension may be granted, with a limit of three-fifths of salary. Jenefits ... -I ( Section 14 -> Benefits III. On Retirement before Pension Age {on other grounds than medical unfitness). 1. On dismissal for any cause, the return of not exceeding one-half of tota contributions. (Section 17.) 2 On voluntary resignation, after ten and not exceeding twenty-five years service, the return of three-fourths of total contributions. (Section 18 ) IV. At Death. 1. At death before pension entered upon, the return of an amount not exceeding total contributions. (Section 16.) ,"',,.- . 2 At death after pension entered upon, the return of the difference between pension received from and contributions paid to the Fund. (Section 19, (3).) . . . D , 3. In the case of a member dying from injuries received on duty, the tfoard may grant pensions as follows : — (a.) £18 per annum to widow during widowhood. (h ) £13 „ to each child until attainment of age 14.

[ew Membi >rs. Increase motii by Pro>n. Discontinued. Total in Force at End of Year. Year. Number. Annual Contributions. (4) Salaries. Annual v, lrn _ Oontri- Salaries. buttons. Der, (6) (7) (8) Annual Contributions. (9) Number. Salaries. Annual Contributions. (12) Salaries. (11) , (5) (10) 1899-1900 .. 1900-1 1901-2 1902-3 1903-4 1904-5 1905 6 575 44 24 49 45 50 76 £ 88,213 5,632 3,099 6,272 5,833 6,400 9,728 £ 6,595 285 163 I 321 300 326 496 & 530 734 1,430 881 1,530 2,383 7,488 £ 38 55 102 61 108 166 9 28 23 38 25 28 61 1,596 4,463 3,715 6,113 3,851 4,011 8,749 £ 131 354 303 476 292 260 575 566 582 583 594 614 636 651 £ 86,617 88,316 88,433 90,023 92,886 96,805 100,167 100,167 £ 6,464 6,433 6,348 6,295 6,364 6,538 6,625 6,625 863 I 125,177 8,486 530 212 32,498 2,391 651 Totals

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TABLE III. Particulars of Discontinuance of Actual Membership.

TABLE IV. Statement of Progress of Pensions.

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By E (Sec (All C but: retui )eath ). 16), Jontriions fned). ' By mil ; (Sec, (Half ( but retui Disssal . 17), Jontri ions :ned). By Voluntary Retire- B _. Be (Sec. 18), M Ef' (Three- "tfi? quarters .„ "' Contribu- ( i O S / 5 tions 1A (<: returned.) Pi Retire- •% a o By Pei )nt §3? 0) Or ically .5f-g£ (Sec lflt SWS (2) Me 12 and M „■§ Unfit ( (2))- £° (3), a ineion — rdiuary c. 13), sdically [Sees. 12, md 14). By Di (Sec. (Fron jury Dm (Fan Pensi each • 15), n Int on cy) nily ions.) Total Discontinued. Year. CO g. ■■g's Is si (8) m i g£ o (5) L a e iZ5 O (6) (7) s |g S 8 3 3 O w i 3 3 O S5 a (9) I (10) (11) a a> CO 32 = gisg (14) 09 a i II & S s a o s I o^ a 1 o (15) I (Iβ) fl g = I 1 (17) ill S5 (3) s •?, (1) I a B (8) I* J12)_ ■I a •a (13) 1899-1900 1900-1 1901-2 1902-3 1903-4 1904-5 1905-6 2 3 ■2 4 3 1 5 £ 30 46 133 107 62 399 8 4 4 9 24 £ 9 43 56 95 252 455 1 1 1 1 £ ; £ 6 '.. .'. 14 .. 40 2 149 34 1 146 2 175 .. i 1 134 5 11 7 15 6 11 18 2 10 12 12 9 5 13 £ 295 990 999 1,330 715 559 1,073 1 £ 57 9 28 23 38 ! 25 28 61 £ 45 60 365 343 332 785 £ 295 990 1,056 1,330 746 559 1,073 1 31 Totals 20 777 44 4 94 6 604 73 63 5,961 2 88 212 1,930 6,049

Attainment of Pern !ion Age (Section 18). Be til ■ed Medically Unfit (Sections 12, (3), and 14). Qn mted. Void iy Death. In Force. Gr ,nted. Void by Death or Expiry. In Force. Year. N b u - Pension. (6) (7) (1) Number. Pension. Number. Pension. Number. Pension. Number. Pension, 1 ' Pension. (11) I (12) (13) (2) (3) W (5) (8) (9) (10) £ £ £ £ 295 234 513 490 312 217 684 £ £ 295 289 688 1,077 1,285 1,502 2,104 .899-1900 .900-1 .. .901-2 .. .902-3 .. .903-4 .. .904-5 .. L905-6 .. 6 5 6 4 3 4 756 486 840 403 342 389 "'I 1 194 71 6 11 15 18 21 24 756 1,242 1.8S8 2,220 2,562 2,858 2 4 7 8 6 2 g 1 a 2 I 240 114 101 104 82 2 5 10 14 18 20 28 1 93 1 Totals 28 3,216 358 24 2,858 85 2,745 641 28 2,104 Death from Injuries on ] (Bβ )uty. (Pi !. 15.) imily Pi visions.) Total 'ensions. Gri ited. Void b; Expiry. In 'oroe. Gri tnted. oid. In 'oree. Jiear. Number. Pension. Number. Pension. Number. Pension. dumber. Pension. N ™- (21) J (22) Pension. Number. Pension. (14) (15) (16) (17) (18) (19) (20) (23) (24) (25) £ £ £ £ 295 990 1,056 1,330 746 559 1,073 £ £ 295 1,045 1,987 3,022 3,580 4,139 5,037 1899-1900 1900-1 .. 1901-2 .. 1902-3 .. 1903-4 .. 1904-5 .. 1905-6 .. 4 2 57 31 i 13 4 4 5 5 5 57 57 75 75 75 2 10 Iβ 12 11 5 18 1 2 4 8 240 114 295 188 2 11 36 88 41 46 57 'a 175 Totals 6 88 18 75 69 6,049 ia 1,012 57 5,037

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TABLE V. Present Annual Pay and Contributions, with Prospective Pensions to Officers now in Service.

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Age Attained. Number. Present Annual Pay. Present Annual S' 08^' 1 ™ « . ,l .. tensions at Contributions. Age 63 W ' i (5) Age Attained. (?)_ (1) (2) (8) £ 69 65 64 63 62 61 60 59 58 57 56 55 54 53 52 51 50 49 48 47 46 45 44 43 42 41 40 39 38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 1 4 4 2 9 6 7 4 5 8 16 13 14 18 11 12 11 18 17 20 10 6 9 9 8 10 23 16 17 24 26 25 27 29 26 34 24 26 25 18 20 21 9 1 £ 164 794 656 374 1,568 1,203 1,213 803 988 1,428 3,511 2,734 2,444 3,656 1,842 2,195 2,008 3,125 3,124 3,403 1,862 1,556 1,059 1,351 1,287 1,332 1,543 3,460 2,291 2,520 3,496 3,662 3,479 3,663 3,883 3,418 4,487 3,162 3,382 3,209 2,304 2,560 2,688 1,152 128 £ 16-4 79-4 65-6 37-4 156-8 1203 121-3 80-3 98-8 142-8 287-1 218-7 195-5 292-5 1474 175-6 160-6 250-0 249-9 272-2 127-1 1011 68-8 87-8 83-7 86-6 100-3 224-9 148-9 163-8 184-9 186-9 179-8 187-0 194-2 176-7 224-4 158-1 169-1 1605 115-2 1280 134-4 57-6 6-4 68 445 314 186 814 627 661 457 484 732 2,013 1,590 1,400 2,189 1,108 1,324 1,296 1,933 2,025 2,151 1,247 1,054 747 882 855 965 1,131 2,574 1,749 1,983 2,775 2,947 2,832 3,085 3,299 2,901 3,902 2,809 3,045 2,918 2,095 2,328 2,444 1,048 116 69 65 64 63 62 61 60 59 58 57 56 55 64 58 52 5] 50 49 48 47 46 4 r, 44 48 42 4] 40 89 88 37 ye. Sβ 84 aa a^ 81 30 29 28 27 26 25 24 23 22 Totals I i 651 100,167 6,624-8 73,548 Totals.

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TABLE VI. Classification of Pensions Granted (Showing the Ages at which Pensions have been granted since the Initiation of the Fund).

Approximate Coat of Paper.—Preparation, nil; printing (1,500 copies), £6 10s.

By Authority: John Maokay, Government Printer, Wellington.—l9o6.

Price 6d.l

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Attainment of Pension Age (Sec 13). Medically Unfit and Injured on Duty (Sees. 12, (3), and 14). Widows and Children (See 15). Total. Age at which Pension granted. Num- Amount of ber. Pension. (2) (3) Number. Amount of Pension. Num- Amount of ber. Pension. (6) j (7) Number. Amount of Pension. (1) (8) (9) (i) (5) £ s. d. 240 0 C 87 12 C 213 6 6 1,294 4 1C 184 6 6 748 17 2 159 19 3 288 7 C £ s. a. £ e. a. £ s. d. 240 0 0 87 12 0 213 6 8 1,294 4 10 184 6 6 748 17 2 159 ]9 3 619 8 6 257 12 7 65 14 0 198 9 4 276 15 10 82 2 6 145 1 9 73 0 0 123 12 10 295 16 0 152 11 8 123 3 9 147 16 6 49 2 5 98 4 10 72 15 0 70 0 3 63 17 6 13 0 0 26 0 0 13 0 0 75 67 66 65 64 63 61 60 59 58 57 56 55 54 53 52 51 50 49 47 46 45 44 42 33 12 9 7 1 1 1 11 2 7 2 3 --.. 2 a i 2 8 1 2 1 2 4 2 2 2 1 •2 1 1 1 331 1 6 257 12 7 65 14 0 198 9 4 276 15 10 82 2 6 145 1 9 73 0 0 123 12 10 295 16 0 152 11 8 123 3 9 147 16 6 49 2 5 98 4 10 54 15 0 52 0 3 63 17 6 1 1 1 11 2 7 2 5 3 1 2 8 1 a i 2 4 2 2 2 1 2 2 2 1 1 2 1 ... 1 1 18 6 0 18 0 0 1 2 1 13 0 0 26 0 0 13 0 0 Totals Returned to duty whilst receiving allowance 28 3,216 13 5 33 2 2,590 18 3 153 15 0 6 88 0 0 67 2 5,895 11 8 153 15 0 otal pensions granted 2rt 3,216 13 5 35 2,744 13 3 6 88 0 0 69 6,049 6 8