were more than sufficient to pay the pensions-and they thought 16 to 20 per cent of salaries would be-then they believed the difference. should go into an insurance fund for the benefit of their dependents. If those deductions were not sufficient for the grant of both pension and insurance then they held that the system should be so revised, even if it did cost a little more, as to make that possible. Asked by the chairman of the commission what he meant by saying that pensions are deferred pay, Mr. Moir said: We understand that pensions are not mere addenda, charitable contributions, or anything of that kind, added by the Government, but that in fixing salaries and scales of pay the Government has in all cases made some pretty definite deduction from what we might call the market rate, and, having made that deduction, it is really equivalent to the Government having given the larger or full market rate of salary, and having asked the civil servant himself to contribute the amount of the deduction. That amount then represents pay deferred. In every case when the Government takes on temporary servants and puts them on the establishment they make a reduction in the rates of pay, because a person going on the establishment will ultimately be entitled to a pension. For instance, in the War Office, it occurred that certain draughtsmen were brought on from what was then known as the temporary establishment to the permanent establishment. It occurs also in all the dockyards, when the workmen, who are temporary and non-pensionable, are brought on the establishment. In every case the deduction is made. In the Post-Office, also, whenever they bring on from the temporary to the established service, they make a deduction. These are general illustrations of what takes place regularly in the civil service. As you are aware, sir, there are two classes, what are called temporary or unestablished civil servants and established civil servants. The temporary civil servant presumably gets the full market rate of wages or pay for the work he does. The established civil servant does not get it, and so when there is a transposition from the one class to the other, a deduction is made a definite, absolute deduction-because of the prospective pension that comes to the man if he lives to a certain age. (") Arguing that if deductions were generally made, then the system operated unfavorably in the case of those civil servants who did not live to gain a pension, Mr. Rolfe said: * * * I am afraid when the present pension act was passed the whole subject of a pension system was not fully considered. That is our own impression, and it was considered sufficient at that time to provide a pension for the persons who remained in the service of the Crown for the ordinary period of 40 years, but the desirability of providing for those who dropped out of service before the natural termination of their service was not considered. () a Report of Commission on Superannuation in the Civil Service. 1903. Minutes of evidence, p. 12. b Idem, p. 13. In further explanation of their contention that the existing system was really "a system of chance" and full of inequities, Mr. Moir said: It works badly, in this way, that the man who does not live to gain a pension gains nothing from the proportion which has been deducted, assuming a deduction from his actual pay. One man, for instanceand we could give you many cases-may live to serve the Crown for 40 years, and be just about to draw a pension, and may die and get nothing. Another man may have served the Crown for the same or for a longer or shorter period; he may not have served the Crown so well, and yet he may live for 20 years to draw a pension. We think that any system which allows such an inequality in its operation is not satisfactory.(a) To this Mr. Rolfe added: Of course, we can bring any number of specific instances, if they are desired, to illustrate this. For instance, we could give an instance of a man who previously served the Government in an unestablished capacity at a salary of £365 ($1,776.27) a year, and who was put upon the establishment at a salary of £300 ($1,459.95), and who lived for five years and then deceased, and who consequently lost about £60 ($291.99) a year for a period of five years. (a) On the chairman's contending that, if the representatives of men dying in active service should receive the deferred pay which had been deducted from the civil servant's salaries an additional charge would be made on the State, Mr. Ellis said: Well, then, even granting that, sir, as I said just now, that does not get rid putting the case from our point of view-that does not get get rid of the inherent injustice of the present system. The way you put it is this-that if a man dies on active service, and his money is not returned to his widow, the money goes to swell or to maintain the pensions of his more fortunate colleagues who live beyond the pensionable age. That does seem to us to be a gross injustice.() * * * At another hearing when Sir Ralph Knox, a member of the Commission, reminded Mr. Moir that "only the same charge is to be incurred," whatever the revision, Mr. Moir replied: I may say, sir, we came to this commission with a view of trying to persuade them that the civil servants were entitled to something more because of the method upon which the Treasury have framed the scale of salaries on the basis of deduction of something like 16 to 20 per cent. Of course, if that is ruled entirely out of the terms of reference, we find the position is a little more difficult. We can not, of course, press that aspect of the question too much; still, we would like to ask the commissioners to consider it, with a view of making some report in this way, that although it may be very satisfactory for the Government to revise the pension system without costing anything, it would be very much more favorable from the civil servants' point of view that it should be revised, even though it did cost a little, sir. u Report of Commission on Superannuation in the Civil Service, 1903. Minutes of evidence, p. 14. Idem, p. 43. Mr. ROLFE. And not only desirable, but equitable, sir. Mr. ROLFE. We base our claim for a reconsideration of the pension system to a large extent, upon the inequality of the present system. (") REQUEST OF CIVIL SERVANTS THAT THEORETICAL CONTRIBUTIONS BE FUNDED. * * * The specific request of the deferred pay committee, as voiced by Mr. Rolfe, was that the pension system for the government employees should be "put upon a definite footing similar to schemes which exist outside." They held that the existing pension system was "archaic," "old-fashioned," and less desirable than superannuation schemes developed since the adoption of the government system in 1859, by organizations like the Bank of England, the London and Northwestern Railway, the Cunard Steamship Company, and the Liverpool and the Manchester corporations. The characteristic features of all these superannuation schemes, as distinguished from the Government's pension system, was that they had a superannuation fund made up of contributions from the salaries of the employees and contributions from the employing body. The following quotations from the testimony of Messrs. Moir and Rolfe showed the reasons advanced by the civil servants for desiring that their theoretical deductions be funded in similar manner: The whole system hitherto has been so vague, we think it would be very desirable to get it on a definite footing. A fund such as we contemplate would have that advantage, because, practically, a personal account would be kept of every man's own position in relation to the fund. * * * All these funds that we know anything of have got definite statements and definite accounts with their employees; an employee knows at any moment what his own title is exactly how he personally stands. * * * Then, again, sir, the creation of an actual fund would have the advantage which these funds we have referred to have, that from time to time the possibilities of the fund might be reviewed. * * * It appears in their cases that they are able, as they value and examine their funds, to increase the benefits they can give. * * * Our chief view of the advantage of a fund is based on the existing funds of the railways, and so on. They seem to us to be very satisfactory to the recipients as a rule, and it was mainly on that ground we thought it would be desirable that the Government should also establish an actual fund. (') The desire of the civil servants that the Government should put their imaginary deductions into a fund which should be invested for their benefit undoubtedly had its origin in the feeling that it was unjust for this "deferred pay" to be withheld from their dependents in case of their not living to receive themselves the pension their contributions would have earned. They thought that widows and a Report of Commission on Superannuation in the Civil Service. 1903. Minutes of evidence, p. 17. b Idem, p. 16. orphans would have a claim that could not be denied on a fund to which the deceased civil servant had been a recognized contributor, the amount of his contributions and the accrued interest being definitely known and a matter of record. Mr. Moir stated that the most important thing that they wanted to guard against, in addition to destitution in old age, was "death during service" or "the leaving of widows and orphans." It was pointed out that one of the causes which led originally to the pension system was the fact that "the public would hear with very great regret of civil servants being destitute in their old age" and that "the Government should extend that feeling to the widows and orphans of all servants who die by the way." REQUEST OF CIVIL SERVANTS FOR INSURANCE OUT OF SURPLUS THEORETICAL CONTRIBUTIONS. It was assumed by the representatives of the Deferred Pay Committee that the amount which they believed to be deducted from their salaries was more than sufficient for the payment of pensions. There is, of course, no mathematical difficulty in calculating a proper deduction from a monthly salary or other salary that will create a fund only sufficient to pay a deferred annuity to the survivors. From an insurance point of view, the forfeiture of premiums by those who die prematurely is not inequitable, since the premium paid contemplates that forfeiture. Nevertheless, the assumption of the employees shows most conclusively the impracticability of any arrangement, in a general superannuation scheme, which carries with it a forfeiture by an employee. Their assumption was perfectly reasonable, too, in view of their belief that that deduction amounted to from 16 to 20 per cent of salaries. They knew that many of the superannuation funds maintained by railway systems were financed on a deduction of 24 per cent from salaries and 2 per cent from the employing body, making a total of only 5 per cent against the reputed deduction of 16 to 20 per cent by the Government. It was not strange that they should think, allowing even for the more limited pensions of the industrial schemes, that the difference between the amount presumably deducted by the Government and the amount presumably necessary should be sufficient to give them the additional insurance benefit. "You want a sum at death and a sum on retiring from the service. Well, now, can you expect that in addition to what we have already given?" asked Mr. Bunn, a member of the commission. "Yes, we do," was the answer, "the ground of our claim being that the Government have calculated the pension to be worth more than it really is, and have fixed the salaries accordingly, and in readjusting that, we want them to readjust it so as to provide funds for widows and orphans." (a) a Report of Commission on Superannuation in the Civil Service. 1903. Minutes of evidence, p. 25. After the review of first principles which the commissioners had had, a few days before, with Mr. Heath, of the Treasury, they were, of course, not inclined to accept without question the assumption of the Deferred Pay Committee that from 16 to 20 per cent of the civil servants' salaries was withheld in order to maintain the pension system. They remembered that Mr. Heath had said he knew of no actuarial calculation having been made to determine "what addition to a man's pay or deduction from a man's pay would produce the normal charge for pensioning him." "Do you think you can prove, as a matter of history, that there has been a deduction of that kind contemplated?" said the chairman of the commission to the representative of the Deferred Pay Committee. "Yes," answered Mr. Moir. "We rely largely upon the evidence given before the Royal Commission on Čivil Establishments in 1886 * * by representatives from the Treasury, Sir Francis Mowatt and Lord Welby. * * * Sir Francis Mowatt said, for instance, that when they gave a man £100 [$486.65] a year they practically considered a charge of £118 [$574.25] a year was being undertaken. That, as far as the taxpayer is concerned, so to speak, it was really a charge of £118 [$574.25] a year." "Can you tell us what that is founded on?" asked the chairman. "That is our difficulty sir," returned Mr. Moir. "Throughout the Ridley Commission we find statements of that kind, varying in places from time to time, and with different speakers, but, as far as we can gather, the Treasury mind is that there is some deduction or that the proportionate value of the pension is 16 to 20 per cent. The statements varied in different places, but as far as we can get them together they form somewhat of a general statement to that effect. Undoubtedly the Treasury mind was apparently a little vague as to the exact proportion." "You can not suggest upon what basis those figures are given?" "We are not in an absolute position to say that," said Mr. Rolfe, "but we are in a position to say that Lord Welby stated that he had had a calculation made, and that his statement as to the proportion of deferred pay to actual salary was based upon that calculation. Of course we are not aware of the details of that. "There is also a Treasury letter," added Mr. Moir, "written on the 1st of July, 1891, to the Board of Trade, where this passage occurred. * * * 6 The conversion of temporary into permanent appointments, without any alteration of salary, involves an addition of 15 to 20 per cent to the charge.' * * * "You have no knowledge on what that is founded? "No, no actual knowledge." "Have you any opinion yourself upon that? "Well, my impression, sir, for what it is worth, is that it is founded on the relation between noneffective and effective charges for the year. "You think that it is a just method? "No, I do not, but if the Treasury have allowed it to operate, I think we are entitled to rely upon the fact that that is what has been actually taking place. |