1.—15.

Government Actuary's Office, Wellington, Bth November, 1932. Memorandum foe the Chairman, Superannuation Bills Committee, House of Representatives. With reference to questions raised regarding subsidy " shortages " in the Government Railways Superannuation Fund, the following table may be of interest: —

I should, however, like to amplify what I stated in evidence before the Committee—i.e., that the difference between the annual subsidies recommended in actuarial reports on the Railways Fund and those actually paid into the fund are not " arrears " in the same sense as in the Public Service and the Teachers' Funds. In the Public Service and the Teachers' Funds the subsidy recommended by the Actuary is in accordance with the provisions of the statute (sections 49 and 111 of the Act), and is merely the amount necessary to cover the liability of the State year by year in respect of current pensions. It has no connection with the actual deficiency in the funds. In the Railways Fund there is no similar provision for a statutory subsidy, nor does the Act require an actuarial valuation. As set out in my memorandum of the 2nd instant (page 13) the first actuarial examination of the Railways Fund, as at 31st March, 1912, disclosed a deficiency of £1,776,851, and the Actuary stated that an annual subsidy of £50,000 was necessary in respect merely of pensions and allowances in possession or accruing within the ensuing three years. This was on the lines of the subsidy method prescribed for the Public Service and the Teachers' Funds. No subsidy was paid to the Railways Fund for the years 1903-10, inclusive, and with the exception of one year, 1915, when £50,000 was paid, an annual subsidy of only £25,000 from 1911 to 1919 was paid. Accordingly, for the seven years ended 31st March, 1919 —the period covered by the second actuarial investigation—the fund received £150,000 less than was recommended, and also lost the benefit of interest accretions on that amount. It is clear that, had this amount been paid, the deficiency disclosed at the second valuation would have been less by £150,000 (and interest thereon) than the amount of £3,959,455 shown in the actuarial report. As the Actuary was dealing only with the actual facts, and not with the position as it might have been, and as he was not limited by any statutory provision as in the case of the other funds, the recommendation that the future annual subsidy be £170,000 (made up of £158,378 to cover interest at 4 per cent, on the deficiency and £11,622 to provide for the ultimate redemption of the deficiency over a long period of years) had the effect of blotting out the past and starting with a clean sheet from 1920. Similarly, the difference of £490,000 between the subsidy recommended of £1,360,000 (that is, eight times the annual rate of £170,000) and the amount of £870,000 actually received for the period 1919-27 was reflected to the extent of that amount and interest thereon in the deficiency of £6,810,204 disclosed at" the third valuation as at the 31st March, 1927. The Actuary's recommendation that the future annual subsidy be equal to 10 per cent, of the pay - roll (equivalent to £306,459, being interest at 4J per cent, on the deficiency and an amount, commencing at about £33,541, to gradually redeem the deficiency and make some provision for new entrants) would, under present conditions, if given effect to, provide for all time and would automatically counteract the shortcomings of the past. In the five years that have elapsed since the last valuation the fund has received £850,000 less than the amount recommended, and unless the Working Railways Account makes a substantial increase before the next valuation the deficiency then disclosed will show a corresponding increase, and a still higher subsidy will be required in the future. ' Summing up, it will be seen that the Actuary reporting on the Government Railways Fund is given a free hand in making recommendations, and by basing his computation of future subsidies on the deficiency shown by valuation he is able to make adjustments for previous years. This aspect is very important when comparing the subsidies to the Railways Fund with those to the Public Service and the Teachers' Funds. In each of the latter funds the subsidy bears no relation to the actual deficiency disclosed by valuation (vide pages 8 to 10 of my memorandum of the 2nd instant), but is the amount merely to cover the State's current liability year by year in respect of the pension outgo of the three years succeeding the valuation date. It will also be seen that, while the subsidy recommended for the Railways Fund will, if given effect to, definitely check and ultimately extinguish the deficiency, the statutory method at present prescribed in connection with the Public Service and the Teachers' Funds will, for many years to come, be powerless to prevent the deficiency from increasing, and that any failure to keep up with the weak standard provided in the Act will only accelerate the growth of the deficiency. I trust the above explanation will eliminate any possibility of confusion between the " actual deficiency" in the Superannuation Funds and the " subsidy arrears " of the State to these funds, and will make it clear that the terms are not synonymous, as would appear to be the impression in some quarters.

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iss» ™g dby s * b «vt m re TS dby Subsi^r uaiiy £ £ £ £ 1903 .... * Nil 1904 .... * Nil 1920 .. .. 170,000 75,000 1905 .... * Nil 1921 .. .. 170,000 75,000 1906 .... * Nil 1922 .. .. 170,000 75,000 1907 .... * Nil 1923 .. .. 170,000 75,000 1908 .... * Nil 1924 .. .. 170,000 125,000 1909 .... * Nil 1925 .. .. 170,000 105,000 1910 .... * Nil 1926 .. .. 170,000 170,000 1911 .. .. * 25,000 1927 .. .. 170,000 170,000 1912 .. .. * 25,000 1913 .. .. 50,000 25,000 1928 .. .. 340.000 170,000 1914 .. .. 50,000 25,000 1929 .. .. 340,000 170,000 1915 .. .. 50,000 50,000 1930.. .. 340.000 170,000 1916 .. .. 50,000 25,000 1931 .. .. 340,000 170,000 1917 .. .. 50,000 25,000 1932 .. .. 340,000 170,000 1918 .. .. 50,000 25,000 1919 .. .. 50,000 25,000 * Wo actuarial valuation was made prior to 1912.