12 to 15 per cent, compensations apart," in order to pay pensions. Including compensations, he figured the postponed charge at 20 per cent, the same assumption made by Sir Robert Hamilton in his memorandum. As this assumption underlies all the agitation that has hung around the words "deferred pay," and as it is persistent to this day, Sir Reginald's explanation of its origin is important. Said he:

I came across the other day some evidence which I have not seen anywhere else. It was an attempt made by the then actuary of the Government to estimate what the future normal charge of the present pension system would be. It was not an official paper; it was a semiofficial paper, and the date of it is 1869. He took 10 of the big ordinary clerical offices, such as the Customs and the Inland Revenue. I am not quite convinced that his salary list would not be subject to reconsideration and some alteration, but I may say generally that what he arrived at was this. Take the salaries of any offices as they stand, go forward from thirty to thirty-five years, and you will find the normal noneffective charge on the present pension scale will be from 12 to 15 per cent of the salaries of the thirty years previously. That was his estimate of the normal cost to the State of the present pension law-leaving out compensations. (")

This is a perfectly reasonable conclusion for the actuary to have reached, for there is always a definite relationship between existing pensions and the salaries of a generation ago, since the pensioners of to-day are those who were on the active pay roll thirty years ago. In other words, the effective vote of to-day becomes the noneffective vote of to-morrow, allowance being made on one hand for deaths, resignations, and reduction of the pension by the amount which it is less than the salary, and on the other hand for increases in salary, a total diminution roughly estimated amounting to about 80 per cent. That the ratio of the existing pensions and compensations to past salaries amounted to 20 per cent in 1869 is therefore highly probable. This important statement was not, however, fully understood by all who referred to it, as will be seen later on.

ASSUMPTION THAT POSTPONED CHARGE IS MADE BY THE STATE TO PAY PENSIONS ACCEPTED BY SIR HERBERT MAXWELL.

That Sir Herbert E. Maxwell, Sir Reginald Welby's colleague in the Treasury, had also given the subject of superannuation very careful study is evidenced by his testimony. Like Sir Reginald and Sir Robert Hamilton, he thought a complete change in the pension system was desirable. Sir Herbert prepared for the use of the commission a memorandum on the origin and development of superannuation and retired allowances in the civil service, with an analysis of

a Second Report of Commission on Civil Establishments. 1888. Minutes of Evidence, p. 402.

the alternative remedies against the growth of the ineffective vote. Like Sir Reginald, he was clear as to the principles which should be laid down in the solution of the problem but admitted his inability to see how the details could be worked out satisfactorily. He was also pessimistic as to whether or not the most ideal system would be proof against probable assault, on political grounds, from Parliament. Said he:

If it were possible to provide any guarantee for the permanence of a superannuation fund, it is difficult to see what objection could be raised against it. But in view of the fate which befell the last fund, it is only too probable that the same forces which prevailed against it would prevail again, namely, pressure on and by members of Parliament. (a)

Questioned by the commission as to his views he declared:

*

*

I have a very strong opinion that the reestablishment of a superannuation fund would be to the advantage not only of the public, but also of the service. In the first place, the estimates of the year would show the liabilities of the year, and there would not be deferred liabilities, as there are under the present system. * They do not show the prospective additions (as well as the retrospective). * They do not show, for example, the liabilities that are incurred by a reorganization. I think Sir Robert Hamilton gives an illustration of. that.(')

*

Contending that the estimates should bear the whole charge, both effective and noneffective (that is, both salaries and pensions) incurred in that year, he said:

That would be the result of establishing a superannuation fund. You would pay a servant so much, and you would deduct so much as a contribution to the fund, and that money would be invested for him by the State, and on his leaving the service, either by death or by retirement or by superannuation, would be handed over to himself or his representatives, plus the interest. That seems to me. the most direct and the most advantageous plan. It would make pensions what they profess to be now, but are not, literally deferred pay. It is only overshadowed by one great difficulty-parliamentary pressure.

"You are clearly of the opinion that anything which brings before the public and the taxpayers of the country prominently, the fact that pensions are deferred pay, would be a good thing?" queried the chairman.

"Yes;" answered Sir Herbert, "because that is the only warrant for pensions now. That is the ground on which they are based." (")

He pointed out other advantages of a superannuation fund, as he saw it, such as "a right to compel to retire on the one side, and a right to retire on the other with some sum which represented deferred pay which had been earned," and the disappearance of the distinction

a Second Report of Commission on Civil Establishments. 1888. Appendix, p. 423. Idem. Minutes of evidence, p. 154.

between established service and temporary service, a distinction. which caused great difficulty in the administration of all departments. From his experience at the Treasury he declared also that he would indorse Sir Robert Hamilton's statement, "I should extend commutation to all pensions. It costs the Government nothing, and is a benefit much prized by the service."

The practical question of how to proceed to put into practice the principles he felt to be the correct ones that should underlie a proper superannuation system he confessed himself unable to answer. Said he:

I think the alternative is a triple one, if I may say so, either the abolition of pensions altogether, the employment of men at full pay and washing your hands of all responsibility for their future after they have done their work, or secondly making them contribute to a superannuation fund by which they should be under an arrangement which would entitle them at cessation of service to receive their full amount of contributions, plus interest; or, thirdly, making them contribute to this fund and receiving a pension as under the present system. It involves such a deal of actuarial calculation that of course I hesitate to offer an opinion as to the requirements of the last two alternatives. (")

A member of the commission hereupon queried: Would the first of the last two alternatives require an actuarial calculation? You would simply pay back the man what he paid in?

"No, it would not" answered Sir Herbert, "but if you undertake the annuity instead of handing over the lump sum, it would. Of course the first of those two is the simpler, but it is attended with this disadvantage, that when you get down to the lower grades, when you get to artisans and copying clerks and so on, if they leave the service and they receive a certain amount of that money, you have no guarantee that they will invest it properly or that they will not fall into very distressing circumstances and so reflect discredit on their former employers." (")

The chairman then asked Sir Herbert if it was his idea that deductions should be made from present salaries, or if he agreed with Sir Robert Hamilton in thinking that present salaries should be raised in order to get that fund. To this Sir Herbert replied:

Of course if you proceed on the assumption that the present salaries are calculated on a lower rate in consequence of the prospective advantages, you would have to raise the salaries if you make the people provide their own prospective advantages; but that is a very large question. I should think, as a matter of fact, that in a great many cases the rate is not lower in the Government than outside. (")

a Second Report of Commission on Civil Establishments. 1888. Minutes of evidence, p. 155.

CONFUSION IN SIR HERBERT'S MIND AS TO AMOUNT OF POSTPONED CHARGE.

It should be noted that, in assuming that pensions were deferred pay, Sir Herbert misinterpreted the statement of the actuary of 1869 that the postponed charge of present pensions was from 12 to 15 per cent of past salaries. Since his interpretation of that statement seems to have become current, and is referred to in a subsequent inquiry conducted by a royal commission in 1902, it is important to know just what his error was. He said:

The contribution which would have to be levied from pay and salaries to support a fund for the payment of superannuation on the present scale and conditions, has been variously estimated at from 12 to 16 per cent. There exists a difficulty in calculating the precise deduction necessary, owing to the fluctuating rate of promotion in the departments and the consequent uncertainty as to the rank which may be attained at a given age. (")

Asked for his authority for this statement, Sir Herbert said: “I believe it was an actuarial computation which Sir Reginald Welby obtained." The statement of Sir Herbert is not, however, implied by that of the actuary of 1869, for although the normal cost of existing pensions might be 12 to 15 per cent of past salaries it would take much less deduction of salaries than 12 per cent to pay for the pensions, since the operation of compound interest over a long period of years is a factor which has a very important bearing on the subject, but which Sir Herbert overlooked entirely.

DISAPPROVAL OF SIR ROBERT HAMILTON'S PROPOSAL EXPRESSED BY MR. MOWATT.

Probably the most conservative opinions in regard to alteration of the existing scheme were held by a witness whose testimony was of importance because of his official position and because certain statements made by him were misunderstood and later misquoted. He was Mr. Frank Mowatt, the permanent officer at the Treasury who was principally responsible for the granting of pensions. Mr. Mowatt took the view and expressed it in half a dozen ways, that the civil servant was better off and better satisfied to have his salary "at the full market rate of wages" and to be "left to manage his own pecuniary concerns" in whatever manner he thought best, than to be given a pension, but that it was impossible practically to carry on the government service in that way without pensions, because when the time for retirement came the Government would be "forced to provide him with a pension, not on the equity of the case so much

a Second Report of Commission on Civil Establishments. 1888. Minutes of evidence. Appendix, p. 423.

as because he would appeal so directly to the sentiment of compassion." In his view, therefore, pensions were necessary, but existed "not so much for the benefit of the public servant as for the benefit of the public." In another place he said: "I think the best arrangement is to pay the civil servant the full market rate of his wages and leave him to provide for himself on his retirement.".

Although he implied in these statements that the civil servant, because of his pension, was paid less than "the full market rate of wages," Mr. Mowatt was unwilling to admit that pensions were deferred pay. He refused to admit it apparently because the conclusion it led to was one he did not care to entertain. Said he:

I think the definition of deferred pay, though convenient, is not exact; because if it were adopted it would carry with it some consequences which are not recognized in our present system. If pension were a deferred pay it would be the absolute property of a civil servant. You must give it to him whenever and for whatever cause he retires, or if he should die in the service it would belong to his estate; again, if it were deferred pay, it must be calculated, not upon the salary upon which he retires, but on the salary which he has received from year to year. (")

Asked if he saw no advantage in granting the recipient the rights implied in the theory of deferred pay he simply said he would rather not do so, but gave no reason for his preference. He said that Sir Robert Hamilton's suggestion was practically a proposal to commute all pensions, but he did not say why that should in his opinion not be done. He said he would define pension "as a payment made by the State to entitle it to retire the officer, or to discontinue his services whenever the interest of the State requires it."

He was averse to making changes in the existing system. He thought the scale of pensions very fair, and he held that abolition terms were necessary in order to facilitate reorganization. Asked if

he did not think it would be advantageous to have the pension bear some proportion to the amount of years served at each rate of salary, in other words to be calculated on the mean instead of the ultimate salary, he said:

I see no advantage in the change; because as I have said, I regard the pension as the sum paid by the State to enable it to get rid of its inefficient officers; and so long as the um is sufficient to induce the controlling authority to act, it is immaterial which way you calculate it. (b)

One reform he did stand for staunchly, and that was compulsory retirement at age sixty-five. He would not even permit the retention in office of exceptional men after they had reached that age.

a Second Report of Commission on Civil Establishments. 1888. Minutes of evidence, p. 156.

Idem, p. 158.