fund had become "the sport of political necessities," and wholesale additions to the pension list been made in furtherance of a retrenchment policy. His conclusion was that " in the main points that make for safety the fund is essentially unsound. It came into being overshadowed by an accrued, albeit unperceived debt, and carried the seeds of further insolvency in its constitution, while the treatment to which it has during its short life been exposed, and which would severely try the strongest growth, has only hastened the early demise to which it was predestined."

REMEDIAL MEASURES RECOMMENDED.

So serious did Mr. Coghlan find the condition of the fund, with a deficiency of nearly three million sterling ($14,599,500), which was increasing at the rate of £120,000 ($583,980) a year, that he did not think any assistance the state could reasonably be expected to afford would be of material service at that late day. To remedy conditions within lines of the existing act he found the only course open to be a reduction of allowances. The extent to which such a reduction would have to be made was striking evidence of the hopeless condition of the fund. Existing pensions and all prospective pensions would need to be reduced by fully 65 per cent in order to bring about a condition of solvency. As an alternative Mr. Coghlan suggested the following changes in the Civil Service Act, believing that they would establish the fund on a sound foundation, and would make 4 per cent a safe deduction for all ages under 30 years: "

(1) That the pension age be postponed from 60 to 65 years, and that payments from the fund be restricted to persons who have attained the pension age or who, through infirmity, are forced to an earlier retirement.

(2) That all payments to persons whose retirement is due to retrenchment or public policy be a charge on the Consolidated Revenue until the attainment of 65 years of age, when the fund might take over the liability.

* * *

(3) That no person be hereafter admitted as a contributor who is above the age of 35 years unless back contributions as from that age, with compound interest at 4 per cent, be first secured to the fund. (4) That pensions be computed on the average salary for the seven years of service previous to retirement."

* * *

(5) That no gratuities be paid to the relatives of deceased officers, but that the fund grant insurance for limited amounts at pure premium rates; premiums to cease at the pension age, and the reserve

a Civil-Service Board, New South Wales (Report on an Actuarial Examination of the State and Sufficiency of the Civil Service Superannuation Account), March 1, 1895, p. 12.

Mr. Coghlan stated that it would doubtless be more scientific to make the average salary for the whole period of service the basis for the pension.

thereon to be returned should the insurer retire from the service before being pensioned.

Mr. Coghlan said:

On the foregoing lines I estimate that the deduction of 4 per cent will provide a margin beyond requirements at all ages under 30 years, with a possible reduction for male contributors at the lowest ages, and for females of all ages.

The adoption of these reforms would establish the fund on a sound foundation. It is true the accumulated deficit would not be entirely removed, but it would be reduced to such modest dimensions that Parliament might see fit to assist in its gradual extinction by means of an annual allowance.

In conclusion, I would strongly press upon the Board the necessity of closing the fund to new entrants, unless under 35 years of age, until steps are taken to reform the superannuation system in the direction I have indicated, or in some other efficient manner.

FINAL RECOGNITION BY CIVIL SERVICE BOARD OF INADEQUACY OF PLAN.

After digesting this last actuarial report, which so strongly confirmed all that the two former actuaries had said, the Civil Service Board finally became convinced not only that the fund established by the Act of 1884 was insolvent but that the plan itself was unsound.

Up to this time the Board had been unwilling to concede any serious weakness in the principles underlying the Act of 1884. Forced to admit the insolvency of the fund, they had still clung to the idea that the plan itself was inherently sound and that all would have been well but for the acts of the Government in loading up the fund unexpectedly with pensions for officials dispensed with before they had reached the retirement age. But in forwarding Mr. Coghlan's report to the Chief Secretary on March 1, 1895, the Board said:

The enormous dormant liability so clearly and forcibly illustrated in the report furnished by Mr. Teece is made even more apparent by the extended experience at the command of Mr. Coghlan. The complete inadequacy of the original scheme is shown most clearly, and the wonder is that the words of warning have been so long neglected.

Mr. Coghlan's report, confirming all that Mr. Teece and Mr. Trivett had previously said both as to the insolvency of the fund and the structural weakness of the scheme, seems to have finally opened their eyes to the true situation. The unfortunate history of the case was then well summarized by them in their report to the Chief Secretary. Said they:

There is abundant evidence that the fund was established on an unscientific basis. The original bill was conceived in a liberal spirit,

• Civil Service Board, New South Wales (Report on an Actuarial Examination of the State and Sufficiency of the Civil Service Superannuation Account), March 1, 1895, p. 3.

and Parliament was prepared to act generously in dealing with the measure, but the accrued liabilities to officers in the service at the time it was passed were not sufficiently provided for, and the benefits conferred by the act were quite out of proportion to the payments made to the fund by the officers concerned. It was at first proposed that the fund should have a perpetual endowment of £10,000 [$48,665] per annum, and an unlimited claim upon the Consolidated Revenue of the colony, should the amount of the endowment prove insufficient. The calculations of the advising actuary were made on this basis, and the present condition of the fund in no way reflects on the advisers of the Government at the time. The bill was afterwards shorn of its equitable provisions in reference to its endowment by the Government, but no commensurate reduction was made in the scale of pensions and gratuities, so that the fund was started in an overweighted condition, viz, accrued liabilities inadequately provided for, and retiring allowances authorized on a scale beyond the power of the contributions to provide. Added to this the Government, immediately after the passing of this act, commenced a system of reorganization and retrenchment, by which they made large apparent savings of the salaries of officers dispensed with, but charged upon the fund the pensions of such dispensed-with officers, and thereby have undermined the whole fabric.

The aspect of the situation that seemed to appeal most strongly to the Board was the position of the civil service employees who had been contributing for years to the fund in the expectation of some day receiving a pension, and in recommending Mr. Coghlan's report to the Chief Secretary "for most favorable consideration" they emphasized that phase of the problem. Said they:

The Board are of opinion that the fund has been very unfairly treated throughout. The Government have been relieved from the payment of salaries to a number of persons it has been thought desirable to remove from the service, and the fund has afforded a convenient means by which their removal has been effected. It is not too much to assume that in the absence of the fund most of the public servants removed would have remained longer in the service, drawing annual salaries from the Treasury.

Taking into consideration the large interests created by the establishment of the fund, the number of persons drawing pensions therefrom, and the almost entire reliance of a very large number of officers upon the expectation of pensions for which they have long contributed, it would be a cruel and inexpedient proceeding to sweep away a fund having invested assets amounting to nearly a half a million and an income of more than £90,000 [$437,985] per annum.

Civil Service Board. New South Wales (Report on an Actuarial Examination of the State and Sufficiency of the Civil Service Superannuation Account), March 1, 1895, p. 7.

HESITATION OF GOVERNMENT TO ATTEMPT RECONSTRUCTION OF FUND.

The Government accepted the conclusion of Mr. Coghlan that a reduction of 65 per cent of allowances was practically repudiation of its contract with the civil servants, and that such repudiation would be wrong, but it was not willing to take the steps for reconstruction of the fund declared by Mr. Coghlan to be necessary, if a sound contributory plan of retirement was to be maintained. The legislation that resulted from this third triennial investigation, therefore, was merely a recognition of the fact that the fund was doomed and an attempt to prevent further increases in the deficiency. This legislation took the form of the Public Service Act of 1895.

PUBLIC SERVICE ACT OF 1895.

OPTION OF DISCONTINUING PAYMENTS ALLOWED CONTRIBUTORS.

Part V of the Public Service Act of 1895, having to do with pensions and gratuities, made a complete change in the system of granting retiring allowances. The option was given contributors of discontinuing their payments to the fund on giving notice to that effect within a period of twelve months after the passage of the act. Their interest in the fund ceased thereupon save in respect to their previous payments, the return of which, improved at 3 per cent interest, was to be granted at the termination of their official lives or at death if it occurred before retirement. In lieu of a pension those who ceased to contribute to the fund received, besides return of their contributions with interest, a gratuity of one month's pay for each year of service, based on the average salary during the whole term of employment. Liability with respect to these gratuities was transferred to the Government. Their original pension privileges were preserved to those who had not availed themselves of the right of discontinuing their contributions. Finally the fund was divested of its continuing principle, the term of its existence being confined to the lives of the current contributors. No pensions were to be paid to officers appointed after the commencement of the act. No new entrants to the service were allowed to contribute to the fund, but they were required to assure their lives according to stated conditions. This was the only provision in the act looking toward the solution of the original problem of superannuation.

ENDOWMENT ASSURANCE REQUIRED OF NEW ENTRANTS.

It seems not unreasonable to suppose that this provision sprang from Mr. Coghlan's recommendation, previously cited, that "no gratuities be paid to the relatives of deceased officers, but that the fund grant insurance for limited amounts at pure premium rates; pre

miums to cease at the pension age, and the reserve thereon to be returned should the insurer retire from the service before being pensioned." This plan was regarded with favor by the Civil Service Board. In transmitting Mr. Coghlan's report to the Chief Secretary, they said:

The proposal to substitute a plan of insurance in place of the present objectionable system of gratuities is worthy of careful consideration. Policies at pure premium rates would cost very little, the amount assured need not in any case be great, and it could be made to vary with increases of salary. It would also be possible to conduct this new feature of business in connection with the fund by accepting the policies of members assured in public companies in lieu of extra payments to the fund, with a condition that any such policies should not be impoverished by obtaining loans or advances of any kind or be subject to assignment."

The endowment assurance which the new entrant was required to effect on his life was for alternative benefits: A lump sum in case of death or an annuity in case he lived to reach the age of 60. The section in the Act of 1895 (now consolidated with other enactments into the Public Service Act of 1902) which made this provision reads as follows:

No probationer shall have his appointment confirmed until he shall have effected with some life assurance company carrying on business in New South Wales an assurance on his life providing for the payment of a sum of money at his death, or at the age of sixty, whichever event shall first happen. Such insurance shall be continued and the amount thereof fixed and increased from time to time in accordance with regulations made as herein provided in that behalf, and no policy of insurance so effected shall during the time such person remains in the public service be assignable either at law or in equity, and the property and interest under such policy of the person insured shall during the time aforesaid be wholly exempt from the operation of any laws now or hereafter to be in force relating to bankruptcy, and shall not be liable to be seized, levied upon, or sold, upon, by, or under any legal process: Provided, That if such person shall be unable to insure his life, or shall be unable to insure his life without a loading of five years or more being made upon his age, and in such latter case shall be unwilling to insure his life, he shall not thereby be disqualified for appointment or promotion, but a prescribed deduction shall be made at prescribed times from such person's salary, which deductions shall be invested and accumulated in the prescribed manner, and such accumulations shall be protected as hereinbefore provided with respect to policies of insurance, and shall be paid in full, without any deduction, and with all interest accumulated thereon, to such person on his leaving the public service, or to his representatives on his death, whichever shall first happen.

a Civil Service Board, New South Wales (Report on an Actuarial Examination of the State and Sufficiency of the Civil Service Superannuation Account), March 1, 1895, p. 6.

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