contributions of present employees to pay pensions on account of past services to old employees that most contributory schemes have come to grief, because it always happens finally in such cases that when those who have been paying for years want to retire there is no money for them, as it has all been paid out as fast as it came in, instead of having been set aside and accumulated for them. The Perkins, Gillett, and Austin bills all provide that the annuities for services rendered prior to the adoption of the plan shall be paid by the Government, the contributions of present employees to be kept undisturbed for them until they are ready to retire. The New Zealand law likewise provides that employees' contributions are not to be used for paying annuities on back services, but that those annuities are to be paid by the Government, which agrees to start the scheme with an annual payment of £20,000, the subsidy to be increased if necessary.

While similar in these important essentials to the plan discussed in this report, the New Zealand plan is widely different in detail. from that here proposed. The benefits under the plan would seem to be greater, in many cases, than the contributions of the individual employee would buy, and there is evidently no expectation that the plan will ever be self-sustaining, nor no very clear idea of what it is going to cost. It is not, therefore, a savings-bank scheme, but a civil pension to the extent of the Government subsidy. The superannuation fund consists of contributions from the employees, the annual subsidy, fines levied on public servants, and the interest on the fund. Out of this benefits are provided not only for the employees but for their widows and orphans as well. While thoroughly sound in principle, the objection may be brought against this plan, as against any other which looks to the Government for partial support, that the way lies open, as long as the Government is expected to make up a deficit, whatever it is, for abuses in administration that may lead to very great expense to the Government.

PAYMENT OF A LIBERAL RATE OF INTEREST THE GOVERNMENT'S BEST CONTRIBUTION.

The present sentiment in Canada would seem to be toward the modification of the retirement system of that country in such a way as to call on the Government, as in New Zealand, to pay part of the expense. To the courtesy of Mr. M. D. Grant, of Liverpool, Nova Scotia, formerly Government actuary, the author is indebted for a memorandum concerning the Canadian situation, in which the following paragraph occurs:

Anyone who will analyze the commission bill or the Senate bill will be convinced that 5 per cent will not provide the benefits guaranteed. It is generally accepted as sound doctrine, however, that inasmuch as an effective retirement system benefits the employer no less than employed, the former should equi

tably contribute. That is to say, the industry or business itself should stand its share of the cost; and the modern trend is in the direction of making the respective shares contributed 50 per cent each. The 5 per cent from the service, therefore, is intended to be supplemented by 5 per cent from the Government, or, what would amount to the same result, the Government may guarantee the actuarial solvency of the fund by lump contributions. Personally I am much opposed to these indefinite guarantees as contrary to the best interests of the public; the more definite and known public financing is the better for all concerned. As to the view that no matter whether the employer contribute or not, the employee has always in the long run to bear the full cost of his own retirement, I believe that this is stretching an economic principle to the breaking point; but, admitting this, I believe it to be good policy that the reciprocal nature of the benefits derivable from a proper retirement system should be recognized by employers in some direct financial manner.

It is difficult to see wherein this scheme has any marked superiority over that embodied in Canada's superannuation act of 1870, which was so grossly abused, as explained above, for political purposes. What is to prevent a similar situation developing again? Conceding that "the reciprocal nature of the benefits derivable from a proper retirement system" should be recognized by the Government, the author feels that this can be done much more wisely and safely than by fixing a flat and arbitrary assessment rate and then calling on the Government to supply the deficit, which is sure to result when there is no established and scientific relationship between contributions and benefits. The Government can do its part in a way that will be fairer to the taxpayer and more helpful to the civil servant than any direct contribution would be. It can make its contribution in the form of a liberal rate of interest on the deduction from salary set aside by the employees. In this respect both the Perkins and Gillett bills could, in the opinion of the author, be greatly improved, for 3 per cent can surely not be called "a liberal rate of interest." By doing this the Government not only keeps the plan self-supporting-doing away with the opprobrious term of "pensioner" and fortifying the selfrespect of every contributor-but it shuts the door on all the possibilities of abuse and corruption that will surely creep in if direct contributions from the Government are allowed. Most important of all, the Government's help will be most bestowed where it is most deserved on those employees who have been longest in the service, since the results of compound interest are much more marked after a long term of years than after a short period.1

The payment of a liberal rate of interest would also be much more economical for the Government than the direct appropriation of lump sums. By reason of the fact that with the help of compound interest at the rate of 3 per cent per annum the sum of a given contribution per annum will double itself in the course of a service of

1 See interest chart, p. 102.

42 years, and at 3 per cent in 36 years, and at 4 per cent in 31 years, it follows that the total contributions of an employee who serves 40 years need be less than half the amount required by direct appropriation from the Treasury to give the same pension. The Canadian or American Government could, therefore, far better afford to increase salaries by the amount of the contributions that will be necessary under a bill like Senate bill 1944, requiring the employees to meet unaided the full cost of their retirement, than to make direct appropriations to supplement the flat-rate contributions of the employees.

SAVINGS AND ANNUITY PLAN ADOPTED BY ENGLISH FRATERNAL ORGANIZATION.

While no government, in the opinion of the author, offers a model retirement plan which it would be safe to follow in all respects, the record of at least one actual experiment with a savings and annuity plan, which seems to be identical with the plan here proposed for the civil employees of the United States Government, is available. An account of this very humble and obscure experiment is given in an article by John Martineau, entitled "Pensions and voluntary effort: a suggestion and an experiment," which is contained in a volume of short papers on old-age pensions, published in London and New York in 1903. The contributors to the volume were all members of a committee on old-age pensions formed of persons interested in the controversy then going on in England with respect to the introduction of an old-age pension bill. All had had a large personal and practical experience in the administration of friendly societies, of poor-law relief, or of charity. They were generally strongly averse to the movement for old-age pensions, and many of their reasons for opposing such a policy are stated in this book. The introduction sets forth some of the arguments advanced by friends of the movement, and then continues thus:

But while such arguments as these are widely circulated, and schemes for old-age pensions are so frequently discussed and in some countries set on foot, it is hardly surprising that the attention of the people should be diverted from the consideration of the methods by which they might themselves create the funds required to provide for old age. What might be done is shown, for instance, by the Sheffield and Hallamshire district of the Ancient Order of Foresters. That district has undertaken to provide an old-age pension fund for its own members. At the commencement of 1901, 428 members were contributing to the fund; at the close of it there were 468. Several courts having valuation surpluses have seen the desirability of converting their courts into pension courts, and 19 of these have voluntarily required all future entrants to subscribe for "old-age pensions" as a condition of membership. There are now 637 members in Sheffield assured of old-age pensions.1

* *

*

1 See Old-Age Pensions: A Collection of Short Papers, 1903, p. 4.

The members of the Ancient Order of Foresters above referred to are most of them agricultural laborers, whose weekly wage generally does not exceed 10 shillings a week. * * *

But, though wages are low, the district is healthy, * and what is very important, the lodge is being very well managed. At the beginning of 1896, after an existence of 32 years, it found itself with 166 members, and after all liabilities, present and future, were provided for, with a certified surplus of £1,072. * * Should the contributions be diminished? Or should the money be taken out and shared among the members?

*

A new departure was suggested. Could not the surplus be made the foundation for an old-age pension fund? It would not, of course, be enough of itself. The contributions must be raised to augment it. Was this practicable?

And then came the difficulty. How about the older members? Three were over pension age already, and would be unable to contribute anything. Others were approaching it more or less nearly; their contributions would not amount to much, and if all alike were to have a pension at a certain age an unfair and impossible burden would be thrown upon the younger members. To meet this difficulty an honorary member of the society offered to provide such a subsidy as would suffice, when added to the surplus, to enable every member, no matter what his present age, to receive a pension of 5 shillings at 65, without making an excessive addition to the contributions, and the addition being the same for all members, old or young. * * *

The secretary thereupon prepared an elaborate statement of the assets and liabilities of the lodge, showing each member's interest therein separately, and the case with all its figures was submitted to Mr. Thomas Abbott, actuary, of Sheffield.

His report is too long to quote in detail, but briefly the conclusion he arrived at was that, by the help of the surplus, increased by a subsidy of £1,200 from the honorary member, a pension of 5 shillings a week at the age of 65, and also immunity at that age from further contributions, might be secured to every member, no matter what his age, by raising the existing contributions rather less than 20 per cent.

* *

*

New members entering the club do not benefit by the accumulated surplus, or by the subsidy by which it has been increased. Their contributions have to be such as are sufficient, unaided, to provide a pension. The necessary amount to be appropriated to the pension fund by new members was certified by Mr. Abbott to be: For persons entering at 18, 12s. 4d. a year, increasing, according to a scale for age, to 38s. 9d. a year for members entering at 39-the highest age at which a member can be admitted.

The scheme was formally submitted to a general meeting of the members, in September, 1896, and adopted. It was also made henceforth compulsory on all new members to contribute for a pension. On January 1, 1897, the new scheme came into operation, and the three members who were over 65 came at once into the receipt of their pensions.

The scale for new members for securing first-class benefits ranges from 2s. d. per lunar month for a person entering at 18 to 4s. 8d. for a person entering at 39. This secures 12s. a week during sickness for 26 weeks; 6s. for the following 26 weeks; 4s. during the remainder of the sickness; a pension of 5s., with cessation of contributions, at 65; and £12 for funeral."

It will be observed that the principles followed in the development of this rural English experiment are exactly those laid down in the

1 See Old-Age Pensions: A Collection of Short Papers, 1903, p. 181.

construction of the savings and annuity plan discussed in this report. The contributions are based on entrance age, and are sufficient to provide the necessary allowance in each case at the required age. A separate account is kept with each individual. Allowances to the older members already past the pension age are paid out of a subsidy furnished by a friend, who corresponds in this British scheme to the Government paying annuities for back services under Part II of the plan for the United States civil servants.

It is gratifying to learn, therefore, that, in 1908 when the subject of old-age pensions was agitating all England, an article by Sir William Chance appeared in the London Financial Review of Reviews in which the writer deprecated as unsound and unwise the proposed legislation, and called attention to the success of the rural scheme described above. Sir William Chance was chairman of the Council of the British Constitutional Association and is the author of many works upon the administration of the Poor Law. He said:

Old age is undoubtedly a cause of destitution, but there is much evidence to show that the wage-earning classes have it in their power to provide against the time when they will be unable to work for their living, just as they have hitherto provided against sickness and death. When outdoor relief to the ablebodied was put an end to by the Poor Law Act of 1834 there were many who said that it was out of the power of these to make themselves independent. But history has shown that the anticipations of the Reformers of 1832 have been entirely fulfilled. The Friendly Societies have grown out of the ruins of the old Poor Law. It is well known that just about the time when Mr. Joseph Chamberlain made old-age pensions a political cry, the societies were on the point of working out a scheme for providing old-age pensions for their members, as they could easily have done. Indeed, certain courts and lodges of the Manchester Unity and Foresters have made it obligatory on their members to insure for old-age pay as well as for sick pay and for death, and these courts and lodges have become most popular. But whenever they have made an effort to get their system applied over the whole of these two great Friendly Societies—and they have tried to do this more than once-they have at any rate up to the present, been met with the answer, "What is the use of it, when the State is going to provide the pension?"1

ADVANTAGES OF PROPOSED PLAN.

It should be plain from the foregoing explanations that the savings and annuity plan here proposed of retiring civil-service employees is in no sense a pension scheme, since it does not look to the Government for support. It is self-sustaining, making no demand on the Government beyond the guaranty of a reasonable rate of interest on the money held by the Government and the expense of administering the plan. It will improve the service by putting into the hands of administrative officers power to remove the incompetent

1 See "The cost of old-age pensions: Does foreign experience justify an English experiment?" By Sir William Chance, Bart. (The Financial Review of Reviews, London, Feb., 1908, p. 9.)

74196°-S. Doc. 745, 61-3-6