The effect of various rates of interest on the value of an annuity of $1, based on the annuity experience of the British offices, is shown in Table XI.

TABLE XI.-Showing the value of an annuity of $1, at various ages, based on the British offices' select annuitants' experience, with different rates of interest. Annuity payable quarterly.

The probable future course of the rate of interest is discussed in Chapter V, page 204.

ANNUITIES.

The plan of retirement under discussion proposes that the civil employee shall be able to withdraw his savings, on retiring from the service, in the form of an annuity or a cash sum.

ANNUITY ALWAYS 13 PER CENT OF AGGREGATE SALARY.

Starting with the amount of the annuity as a fixed quantity, as explained at the beginning of this chapter-that is, 1 per cent of salary (a known sum) for every year of service from the age of entrance to the age of retirement (a definite number of years)—it is easy to compute what deduction from salary will be enough, with

interest at 3 per cent, compounded annually, to create a fund sufficient to buy that annuity. The amount of the annuity being thus fixed by the amount of salary, the amount of the deduction from salary remains unchanged as long as the salary remains unchanged. Only when the salary is increased or decreased is the deduction from salary changed. (See Table XXIII.) The point is that in the proposed plan of retirement the annuity is the fixed quantity (fixed according to salary and length of service), and the deduction from salary is the factor to be determined. In all flat-rate assessment plans the reverse holds true, a fixed percentage of salary being agreed upon as the proper deduction from salary for employees of all salaries and all entrance ages. The logical problem, then, should be to compute the annuities that the fund thus created will buy, but seldom do these plans follow logic in this respect. The Canadian plan, with its savings-bank idea based on a flat-rate deduction of 5 per cent from salaries, is the only known instance of a uniform assessment plan in which the several annuities are restricted to the sums which the individual contributions will purchase. To the extent to which it is logical the Canadian plan is satisfactory, its failure arising not from its adherence to the savings-bank idea but from its adoption of the idea of a uniform percentage of salary as the proper deduction from salary for all ages of entrance. With most flat-rate assessment plans the amount of the annuity is determined arbitrarily in advance, as well as the percentage of salary required from the employee. There being no direct relation between the two factors, the usual result is that the fund created by the deductions from salary is insufficient to provide the benefits that are agreed upon or that are ultimately granted, and the Government is accordingly called on to make up the deficit. The practical result in the Canadian instance is the same a deficiency-with this difference, that the annuitants rather than the State are made to feel the hardship of an arrangement which retires the aged on inadequate allowances. In such a case the State will, of course, ultimately be made to carry the burden, if the friends of those thus inadequately retired are sufficiently numerous and influential.

ANNUITY OF 1 OR 2 PER CENT OF AGGREGATE SALARY POSSIBLE BUT NOT

ADVISABLE.

Some other per cent than 1 per cent of the salary for each year of service might have been used as a basis for the annuities. Half pay after 50 years of service would be 1 per cent for each year of service, but as the majority of people serve the Government much less than 50 years annuities computed on the basis of 1 per cent would be inadequate, and the evils of inadequate annuities have just been pointed

out in the case of Canada. On the other hand, annuities equal to full pay after 50 years, that is, 2 per cent for each year of service, would only be possible through excessive deductions from salary. The difference in the practicability of these several bases of computation1, 14, and 2 per cent for each year of service is shown in Table XII.

TABLE XII.—Showing differences in practicability of several bases of computation for annuities, 1, 14, and 2 per cent of annual salary for each year of service.

Provision is made in the bill for three optional settlements on retirement from the service. These three provisions are set forth in section 6 of the bill, which reads as follows:

That upon retiring at the age of retirement or thereafter the employee may withdraw his savings, with the increment of interest as herein provided, under one of the following options:

*

*

Option I. In an annuity payable quarterly throughout life.

Option II. In an annuity payable quarterly throughout life, with the provision that in case of the death of the annuitant before he has received in annuities the amount of his savings, plus the interest credited thereon, the balance shall be paid to his legal heirs. In determining at his death the amount due to his heirs no account shall be taken of the annuities paid to him by the United States under section 11 of this act.

Option III. In one sum.

Which is the best option for the employee depends entirely on his personal circumstances. The first option is the most desirable for an employee who has no one but himself to consider and is willing to sink his capital in order to secure the largest possible income while he lives to enjoy it. It ceases, however, with his death. If others are dependent on him and his health is poor on reaching the retirement age, he might more properly take Option II, which will give him a smaller annuity, but will assure to his heirs, in case he dies before the amount of his savings, plus interest, has been returned to him, the sum

still to his credit. The third option is a necessary and logical alternative in a savings-bank scheme. The amount of the annuity that may be received under the two options is shown in Table XIII.

TABLE XIII.—Showing amount of annuity granted for a given sum of money under Option I and Option II of the bill.

Option I.-Amount of deposit necessary at age stated to purchase a life annuity of $1 payable in quarterly installments, first payment three months after reaching given age:

Age 60.

Age 65.

Age 70.

$10.815

9.177

7.595

Amount of yearly annuity payable quarterly that following deposit will provide under above:

Option II.-Amount of deposit necessary at age stated to provide a life annuity of $1 payable in quarterly installments, first payment three months after reaching given age, with provision granting return, in case of death, of balance of deposit not received in annuities:

Age 60

Age 65.

Age 70

$12.675

11.125

9.625

Amount of yearly annuity payable quarterly that following deposit will provide under above:

ADVISABILITY OF CASH SETTLEMENT AS WELL AS ANNUITY SETTLEMENT.

The desirability of allowing the employee to withdraw his savings on retirement in the form of a cash sum instead of an annuity has been questioned by some persons. It is asserted that the superannuated employee who retired from the service with a cash sum might be tempted to invest it unwisely and in a short time be in no better condition than if his savings had not been accumulated for him. It has been suggested, therefore, by some persons that the options on withdrawal from the service at the age of retirement should be limited to the annuity settlements. The objection to this is that there would be no age at which an employee leaving the service could withdraw his savings plus interest in a cash sum and it certainly would not be desirable, in all cases, either for the employee or the Government, that the employee should take the money to his credit in the form of an annuity. If the employee retiring at age 70 is forced to take an annuity, then why should not the employee retiring at age 69, at age 65, at age 60, at age 50, at age 40, and so

on down be required to take an annuity instead of a cash sum on leaving the service? There would seem to be no age at which the cash settlement might logically be allowed in preference to the annuity settlement, and yet an annuity settlement would not be desirable in the case of an employee who left the service after only two or three years with only enough money to his credit to buy an annuity of a few dollars. Where the employee has only a small amount to his credit it is much simpler to allow him to take his money in cash, and section 7 of the bill accordingly provides that whenever he leaves the service before reaching the age of retirement he shall withdraw his savings plus interest in that form unless the amount to his credit is at least $1,000, in which case he may, if he so desires, take an annuity such as his money will buy at his attained age.

Since it is impossible to determine with justice to every individual at what age or after what period of service the employee should be restrained from taking his savings in the form of cash, the only practical thing to do is to make the annuity settlements as attractive as possible, so that aged employees may be influenced, on retiring from the service, to take one of them in preference to the cash settlement. Toward that end it is provided that the surplus earnings above the guaranteed interest rate may be divided among annuitants who remain in the service until the age of retirement. Those who withdraw the money to their credit in a lump sum will not be allowed to participate in the division of any surplus. If, in spite of the greater attractions of the annuity settlements, the employee insists on having his money in cash and then squanders it, the Government can certainly not be held responsible for his folly. It would seem to have done its part when it has provided a way whereby he may be retired at a proper age on a competence.

It will be some time, however, before this problem will be at all pressing, since the Government's payments, under Part II of the plan, on services rendered prior to its adoption will only be in the form of annuities. It will be many years before those retiring would have to their credit any considerable sum of their own saving, which, under the terms of the bill as it now stands, could be drawn out in cash, and in the interval, if it is found advisable, the bill might be modified in accordance with any pronounced general sentiment or with any experience that had developed in regard to the wisdom of limiting the division of surplus earnings to annuitants or restricting settlements to annuity settlements.

Apart from any theoretical consideration there is one very real practical objection to the idea of limiting the options on retirement to annuity settlements. An employee might be in very poor health on reaching the age of retirement, and, certain of living only a few years longer, might prefer to take his savings in the form of a cash sum and buy all the comfort possible during the short time left him,