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(5) Inadequate contribution scales, particularly in the Railways' Fund. I give hereunder a brief survey of the Public Service Fund. There is very little difference in the constitution of the three funds, but any special points of interest in connection with the Teachers' Fund and the Railways Fund will be briefly referred to later. Public Service Superannuation Fund. This Fund was established on the Ist January, 1908, and while the scheme was compulsory in respect of all public servants joining after that date, all persons employed in the Service at the date of the Act were given the option to join or to remain outside the scheme. In this latter connection it is important to note that the older officers joining the scheme and subsequently drawing a retiringallowance forfeited certain compensation rights under previous Acts, and that the effect of this reduction in the State's liability on the retirement of such officers has a very important bearing on the aspect of Government subsidies to the superannuation scheme. In commencing any staff pension scheme the greatest difficulty is to deal with the older employees. It is clear that with their few remaining years of service they would find it impossible to. pay for their own pensions, quite apart from any subsidiary benefits. As an example, I might state that even if back service were not allowed to count for pension purposes, the contribution for a pension of one-sixtieth of salary for each year of future service would range from about 12 per cent, at age 55 to 15 per cent, at age 64, and if provision were made for subsidiary benefits equal to those of our Government superannuation schemes in respect of widows' and children's allowances, refund of contributions on withdrawal or death as a bachelor, the total contributions of an old employee would range from, say, 17 per cent, to about 50 per cent, as the age approached the standard retiring-age of 65. If, in addition, the cost of back service had to be met by the contributor, the contribution chargeable would be prohibitive. Under the circumstances, this problem of cost, which constitutes the chief stumbling-block in the way of establishing a staff pension fund, usually results either in the older members being denied admission to the scheme or in the employer having to make a substantial capital payment to cover the cost of benefits granted in excess of what is provided by the employees' contributions. Frequently a middle course is chosen —namely, to allow the older employees only quarter or half benefits in respect of back service, with a consequent diminution in the employer's subsidy. The New Zealand Government in establishing its schemes decided to allow officers a full rate of pension in respect of each year of back service prior to the inception of the Fund —a very generous provision—even allowing for the fact that a large proportion of such officers had to surrender in effect the bulk of their compensation and other rights under previous Acts. This gift meant that many officers were almost immediately in a position to retire on the full forty-sixtieths of their average salary for the last three years after contributing only for a few months. As such back service ranged from a few days to over forty years, it may be said as a rough approximation that an average period of twenty years' service was allowed to count for superannuation purposes, and the original contributors as a whole only contributed for one-half of their pensions and received the other half as a gift. In addition to this the employees' contributions, ranging from 5 per cent, to 10 per cent, according to age, were insufficient to pay even for future, service, and were framed so that portion of the cost of widows' and children's allowances and the provision for return of contributions upon death or withdrawal was to be met by Government subsidy. Mr. Morris Fox, in giving estimates as to the cost of the proposed scheme, stated that the initial deficiency due to the two causes above mentioned was £1,816,220. It has to be pointed out, however, that this estimate was based on data supplied giving the number of persons eligible to join the proposed Superannuation Fund, whereas it was found subsequently that many of those eligible did not elect to join the Fund, while on the other hand a large number of Civil servants were afterwards brought within the scope of the Bill. There can be no doubt, however, that the initial deficiency was not less than one and a half million sterling. As the State definitely incurred this liability in making a gift of that portion of the pension based on service prior to the establishment of the Fund, and was aware of the cost involved, the soundest plan would have been to have paid the full capital sum into the Fund, or, alternatively, to have provided for its redemption within a specified period, say twenty or thirty years, and to have made a small additional annual subsidy to assist the contributions of new entrants. Instead of this, the subsidy method adopted was based on the principle of deferring meeting any portion of the liability till the pensions had actually emerged, and then the pensions were in effect divided into two parts : —■ (а) That portion of the pensions provided by the contributors ; and (б) The balance which was to be met by the State. It will be seen, therefore, that the principle underlying the Act was that members were to contribute upon the basis of paying their share of the liabilities immediately, while the State deferred payment of its share to the last possible moment. It will be obvious that the longer a financial liability is deferred the greater the amount of money that will ultimately have to be provided by reason of the operation of interest. It has also to be remembered that the annual subsidies themselves would increase rapidly by reason of the number of new pensioners coming on the Fund. The provision for making the Government subsidy is specifically set out in sections 49 and 50 of the Public Service Superannuation Act, 1927, the relative portions of which read as follows :— " 49. (2) The Actuary shall set forth the result of such examination in a report, which shall be so prepared as to show . . . the possible annual sums required by the Fund to provide the retiring and other allowances falling due within the ensuing three years without affecting or having recourse to the actuarial reserve appertaining to the contributors' contributions. " 50 (1) In the month of January in every year the Minister of Finance shall pay into the Fund and out of the Consolidated Fund, without further appropriation than this Act, the sum of ... , together with such further amount (if any) as is deemed by the GovernorGeneral in Council, in accordance with the aforesaid report of the actuary, to be required to meet the charges on the Fund during the ensuing year."

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