H.—l4.

In regard to (2), all new appointees are placed on probation for a period of not less than two years and quarterly progress reports are obtained as to the manner in which the duties are being performed and the officer's suitability for the position. As to (3), reasonable security of tenure is secured to officers who know that they are not likely to bo dispensed with without cause if they continue to give loyal and efficient service. The Act, however, provides that all officers are three-monthly servants and if any staff should become excess this section can be brought-into operation if it is not possible to utilize it elsewhere. The matter of promotion by merit (4) has been dealt with already. In regard to (5), pensions on retirement are provided in accordance with the provisions of the Public Service Superannuation Act, but the financial position of the fund is far from satisfactory, and unless some improvement is effected it would appear that in the near future the fund will not be able to meet its obligations, and it may be necessary for it to be wound up. One cannot contemplate such a possibility with any degree of equanimity, for it is, I think, fully appreciated that a sound pension scheme is necessary in any State Service, even if it be only for the purpose of promoting the efficiency of the Service by facilitating the removal from office of those who, as the result of age or medical unfitness, have outlived their usefulness. It is, I think, admitted by all who have given any real thought to the question of the stability of the Superannuation Funds that some action is necessary to improve matters, but it is difficult to secure any unanimity as to the methods to be adopted to secure this end. This is unfortunate, as world experience has shown that a sound pension scheme is essential to the well-being of any large Service. The matter was investigated by the National Expenditure Commission in 1932 and their conclusions and recommendations may briefly be summarized as follow : — (1) The actuarial deficiency in the Superannuation Funds is £23,000,000, and unless action is taken to reconstruct the funds this liability must eventually be met by the State. (2) The interest on this deficiency amounts to over £1,000,000 per annum, and the Commission is of the opinion that this annual sum is beyond the present capacity of the country to meet. It suggests, in effect, that the burden be approximately halved between the State and its employees. (3) The sacrifice to be made by the employees consists of a reduction of benefits, and it is proposed to extinguish roughly one-l)alf of the deficiency by reducing Hie liabilities of the funds as follows : — (r<) Modify contributors' rights to retire, and generally tighten up early retirement provisions. (b) Base the pensions of existing contributors on the average salary of the last seven or ten years instead of three years as at present. (c) Review the annuities paid to present pensioners (excluding those who retired prior to the 31st March, 1921) so as to bring them into line with what is recommended in (a) and (b) above for present contributors. (<l) Strengthen the Railways Fund by increasing by 2 per cent, the future contributions of certain officers in order to bring them into line with the renin i> of the Railways Service and with contributors to the other funds. (e) Make the proposed future pound-for-pound subsidy retrospective in respect of the trading Departments. (4) The report also recommends the removal of the arbitrary pension limitation of £300 to officers joining the Service after the 24th December, 1909, thus Wringing them into line with officers joining before that date. (5) The suggested contribution to be made by the State in liquidation of the balance (roughly one-half) of the deficiency is— (a) A pound-for-pound subsidy of the employees' contributions ; and (b) A guarantee of a net effective interest yield of 5 per cent, on the funds. It will be seen from the foregoing that if effect were given to the proposals most of the existing annuitants would require to accept smaller pensions, pi contributors would have to submit to a general tightening-up of conditions, particularly in respect of early retirement provisions, and Government would need to subsidize the funds to a larger extent than at present. A Bill based on the recommendations of the National Expenditure Commission was drafted last session and introduced into the House. The Bill was, however, not treated as a Government policy measure, and was referred to a Select Committee for report. The Committee heard voluminous evidence, but reported at the end of the session that the time at its disposal was insufficient to enable it to make

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