1.—15.

In his memorandum to you dated 24th February, 1932, the Government Actuary has fully set out the existing deficiencies in the various superannuation funds, and has clearly shown that these deficiencies are due in the main to the following causes : (a) The failure of the Government (mainly since 1919) to pay into the funds each year the amount of subsidy reported by the Actuary in terms of the Superannuation Acts to be necessary to meet the State's share of the pensions falling due during the ensuing year (mainly in respect of back service) : _ . . (ib) The accumulation of the loss of interest on the subsidies (referred to m (a)) not paid into the fund by the Government: (c) The large number of retirements of comparatively young officers with long service. In addition, there is the effect of the post-war rise in salaries. Those officers who have retired on pension since the year 1921 have received a material pension benefit while they themselves have made very little contribution to that increase. This is, however, a temporary phase, the general effect of which on the fund will be diminished as a result of reduction in the scale of salaries and by the effluxion of time. , Due to the fact that pensions are calculated on the average salary for the last years >. service, fluctuations in salary scales and accelerated promotion near the close of an officer s official career result in the granting of pensions quite disproportionate to the amount contributed by the individual. The pension should be based on the average salary over a period of at least seven to ten years if no over the whole period of service. This is, however, only one of several and anomalies which exist in the various funds, and which are to be considered by a special committee set up tor that purpose. The matter of adjustment is not a simple one, and, as I have already indicated, any decrease or limitation in existing pensions would create anomalies and hardship difficult to overcome. (e) Conclusion.—After consultation with the Government Actuary, I submit the following summary of proposals, which, if given effect to, would considerably strengthen the various Government Superannuation Funds: — •. x xi (1) Modify the present right of members to retire by length of service by limiting it to those who have attained a specified age-e.g., age 60 in the case of males, and age 55 in the case of females ; with a further increase by five years in the age or length of service at which a female contributor has the right to retire. Males. Present Rights. Proposed Rights. (a) After age 65. ( a ) After age 65. , (b) After forty years' service. (b) After age 60 if combined with forty years service. (c) At any age if medically unfit. (c) At any age if medically unlit. Females. (а) After age 55. ( a ) After age 60. ) (б) After thirty years' service. (b) After age 55 if combined with thirty-five years service. (c) At any age if medically unfit, (c) At any age if medically unfit, (2) Eliminate all options to retire (with the Minister's consent, &c.) earlier than above ; but, m order to avoid hardship in the case of those compulsorily retired through no fault of their own, make provision for an actuarially reduced pension that will place the Superannuation Fund m the same financial position as if the contributor had been retained m the Service to the earliest date at which he could have retired as of right—i.e., on similar lines to section 14 of the Finance Act, 1931 (JNo. 1). Present Options. , Proposed Options. (a) After age 60 (females, age 50). Actuarially reduced pensions only if com(b) After age 55 if combined with length of pulsorily retired through no fault of their own service of thirty years. after twenty-five years' service, or attainment (c) After thirty-five years' service. of age 50. (3) (i) Alter the basis of calculation of " final salary " to the average salary of the last seven or ten years instead of three years as at present, or . (ii) Disregard for pension (and contribution) purposes any salary increases after a specified age, say age 55. Of these two alternatives, the former has the merit of correlating to some extent the retiringallowance and the average salary received in the years preceding retirement, while from the viewpoint of the fund the latter alternative has the advantage of being as effectual as the former m minimizing violent fluctuations in the pension liabilities due to salary increases immediately preceding retirement, and at the same time does not penalize those retiring medically unfit to the same extent as the former basis wold e Govemment tQ guarantee a Ee t effective interest yield of 5 per cent, on the funds. This would enable valuation of the funds to be made at 5 per cent.,_ and in effect be equivalent to a deferment of subsidy as the funds should for many years earn considerably more than 5 per cent. (5) Alter the method of paying the Government subsidy, which at the present time bears no relation to the actual deficiency in the fund, but is merely an average annual proportion of the ac.ual pensions falling due during the next triennium which the fund is unable to provide from its own

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