Cornell University Library JK 791.A56 1912 Retirement from ttie classified civil ser mill' III! IIII1MII1IIII1IIIIII THE LIBRARY OF THE NEW YORK STATE SCHOOL OF INDUSTRIAL AND LABOR RELATIONS AT CORNELL UNIVERSITY Cornell University Library The original of tiiis book is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924002403867 ^^^ 46 — — — — — — — — i j /' i 1 - — 4f ! / ! 1 \ n Yf 1 1 i\\ 3S DM6/?/Jni 1 30 5iKmHS rne Ptecef/rof s^i/my e/iKMeo / 1 \ BtisfDO/tiXfliinrMEfmicpoifn, mo me PfRCCNnKSs remo by eMOunnoif V lEOCHD v^ \\ V riRiraumifTm^iuacAimntB). V \ \v .- \ [ ii ^ n J » «c s 9i * BEPOBT TO THE PRESIDENT ON RETIREMENT ALLOWANCES. 45 it was also assumed that employees, on the average, were six months older than the ages reported. For calculating the probability of living from the various ages to age 70, the American Experience Table of Mortality was used because that table was thought to represent fairly the probable mortality among Government employees up to age 70, but for calculating the probability of living from age 70, the Combined or Actuaries' Table of Mortality was used because it shows a greater expectation of life after the age of 70 than does the Ameri- can table and was therefore a more conservative basis for the calcula- tion. The following table shows the annual loss which the Government wiU sustain during the next 36 years if no plan of retirement is adopted : Table VIII. — Showing the annual loss that vrill he sustained by the Government during the next 36 years if no plan is adopted for retiring employees now in the classified civil service in the District of Columbia when 70 years of age. Year. Amount. Year. Amount. Year. Amount. 1 $228, 387 253,019 278,604 303,163 320,751 332,943 342,297 349,276 354,325 357,967 360,367 362,970 367,308 13 $370,481 375,040 381,338 390,221 403,111 417,749 432,277 444,267 453,885 463,181 474,234 489,358 504,507 26 $520,864 542,952 565,615 1 ... 14 27 2 15. 28 3 16 29 680,885 592, 148 606,004 617,826 4 17 30 5 18. 31 6 . 19 32. 7 . . 20 33. 627,915 8 21 34 36 637, 618 9 22 23 645,448 10 36. 651,641 11 24 12 25 1 The amount of the loss reported by the departments and independent Government establishments is shown at the bottom of Table VI, on p. 38, a.? 8220,954. This amount represents the annual loss on Nov. 30, 1911, while the loss shown above represents the loss that will take place during the following year. The difference in the amoimts represents the increase that will take place during the year. Commission's Effort to Determine What Expense the Gov- ernment IS Justified in Incurring to Avoid Loss from Super- annuation. Having ascertained the amount of the loss which the Government will sustain among employees 70 years of age and over if no plan of retirement is adopted, the next step was to determine what expense the Government may reasonably incur in order to avoid that loss. Very little study of the problem suffices to show that the amount of loss sustained by the Government from superannuation is not gi-eat enough to justify the enormous expense of a straight pension system, especially when the effect on the service is considered. Although the loss due to superannuation will increase as long as the service continues 46 REPORT TO THE PRESIDENT ON RETIREMENT ALLOWANCES. to grow, the cost of a straight pension will increase much more rapidly, being twice as great the first year as the loss from superannuation and continuing to grow at a greater rate than the loss from superannua- tion. There are in the departments at Washington 951 employees 70 years of age or older who would be ehgible for retirement immedi- ately. If each of these employees were pensioned at half pay with a maximum of $600 a year, the cost the first year would be approxi- mately $468,960, while the loss, as shown in the foregoing table, is only $228,387. This additional outlay of $240,573 the first year, and an Increasing amount each year thereafter, can not be justified on any ground, when the abuses sure to result from a civil pension are considered. It is probable, of course, that the losses reported by the departments were greatly understated, but even if the loss is twice as great, or $456,774 a year, it still would not warrant the estab- lishment of a plan of retirement the probable future cost of which can not be calculated. A straight-pension plan being dismissed from consideration, the alternative is a contributory plan. We have seen that even a con- tributory plan that will ultimately be self-supporting can not be established without some expense to the Government. The Gov- ernment will have to incur expense in two ways : (1 ) In retiring employees who are at or above the retirement age when the plan takes effect, who will have no time to save the money on which to retire themselves; and (2) in assisting in the retirement of employees who are below the retirement age when the plan takes effect, and who will not have enough time to accumulate the whole of the amount necessary to retire themselves. In considering the amount that the Government can properly appropriate for such a purpose, two fac- tors besides the loss from superannuation must be taken into account. They are the maximum deduction which can reasonably be withheld from the employee's salary and the minimum annuity which must be provided the employee on retirement in order to make practicable his elimination from the service when he reaches the age at which inefficiency usually begins to show. In the opinion of thp commission, 8 per cent of salary is the maxi- mum amount which should be withheld from employees already in the service. Employees entering hereafter should be required, how- ever, to lay aside whatever per cent of salary is necessary to provide the required retiring allowance. Reference to Table XI, on pages 51 and 52, will show that the deductions from the salaries of new en- trants will not be burdensome except in the case of those who enter at advanced age. The commission thinks that the entrance of aged people into the service should be discouraged. In the opinion of the commission the minimum annuity which should be adopted is half pay, with a maximum of $600. The com- REPORT TO THE PRESIDENT ON RETIREMENT ALLOWANCES. 47 mission believes that a scale of annuities governed entirely by salary and length of service would in many cases retire employees who entered the service late in life on annuities wholly inadequate for their maintenance, however simple their needs might be, while on the other hand, employees who had received large salaries for long periods might be retired on annuities considerably in excess of the amounts necessary to maintain them. The commission believes that a plan of retirement should be merely a means to an end, and that that end is greater efficiency in the public service through the retirement of employees after they have passed their period of greatest usefulness, and that this should be accomplished with as little tax upon either the employees or the Public Treasury as is possible. It is not the duty of the Government to assume control of the finances of the employees beyond the point that is necessary to protect itself against the reten- tion through sympathy of employees who are no longer capable of earning their salaries. The commission believes that a fair annuity on which employees may be retired if retained in the service to age 70 is one-half pay, with a maximum annuity of $600. While $600 is not sufficient to purchase the luxuries of life, it is nevertheless sufficient to save the employee from destitution, even if he has been so unfortunate as to make no other provision for his declining years. Plan Presented by the Commission. Having determined the amount of loss which the Government is now sustaining through the inefficiency of the aged, and settled on the maximum deduction from salaries which can be required, and the maximum annuity that should be provided, the problem was to show what it would cost to establish a savings and annuity plan with such limitations and to compare that cost with the present loss through superannuation. The plan therefore provides for the retirement of all classified civU-servicc employees in the District of Columbia, at the age of 70, on half pay, with a maximum annuity of $600, the annuity to be paid by the Federal Government in the case of those retiring immediately, but by contributions from their salaries in the case of all others, the Government to pay 4 per cent interest on all con- tributions, and the contributions never to exceed, in the case of those now in the service, 8 per cent of salary, the Government to provide the difference whenever such deduction is not sufficient to provide the annuity. (For the deductions from salary at various ages, see Table XI, p. 51 .) The total cost of such annuities, minus the amount . contributed by the employees, would be the amount which the Gov- ernment would be required to contribute. The table following shows these three items. 48 EEPORT TO THE PEESIDENT ON KETIEEMENT ALLOWANCES. Table IX.— Showing the total maximum cost of retiring at age 70 all employees now in the classified civil service in the District of Columbia on annuities equal to one-half pay {maximum, $600), maximum deduction from salary, 8 per cent. Age. Total annuity payments. Total annuity payments provided by employees. Total appropria- tions.' Age. Total annuity payments. Total annuity payments provided by employees. Total 95 S440 1,831 2,840 2,743 3,815 8,633 12,829 18,834 19, 103 45, 987 66,406 96,767 120,603 150,596 248, 374 288,289 377,877 440,793 682,419 821,822 870,826 860,220 908,883 883,662 663,669 $440 1,831 2,840 2,743 3,815 8,533 12,829 18,834 19,103 45,987 66,406 96,767 120,603 150,596 248,374 288,289 377,877 440,793 682,419 821,822 861,711 831,181 856,791 812,279 593,636 64 $699,769 645,381 685,290 604,578 669,234 594,045 721,696 718,241 729,886 804,545 799,299 978,348 988,731 1,011,781 915,718 867,145 866,990 819, 300 788,195 902,360 700,869 764,682 656,828 686,733 675,422 $91,916 96,897 124,296 127,394 167,831 163,116 227,740 244,931 277,896 341,960 362,722 486,694 545,409 618,021 556,412 656,588 598,878 579,828 582,994 709,016 572,033 646,633 572,463 633,866 563,628 $607,853 89 63 548,484 88 62 500,995 87 61 477,184 85 60 501,403 84 69 430,928 83 58 493,966 82 67 473,310 81 66 451,990 80 65 64 462,586 79 436,678 78 63 492,754 77 62 443,322 76 51 393,760 75 60 359,307 74 49 310,557 73 48 47 46 45 44 43 268,112 72 239,471 71 206j201 70 193,343 69 S9,115 29,038 52,092 71,382 70,034 128,836 68 118, 049 67 42 84,365 66 41 40 61,867 65 11,894 1 For net cost to Government after deducting future loss from superannuation, see Table X, p. 50. COST OF ESTABLISHING PROPOSED PLAN. The foregoing table shows merely the aggregate appropriations required of the Government during the next 50 years, distributed according to the present age of the employees who are to receive them, and takes no account of the saving that would result from the removal of the superannuated. In considering any plan of retire- ment it is but fair to consider not only the expense which the Gov- ernment must incur to establish the plan, but also the saving resulting from its establishment. The total appropriations given in the pre- ceding table are shown in the table that follows, distributed according to amount required each year until the plan is finally self-supporting, and as an ofTset to these appropriations is given the loss that will result each year from superannuation if no plan of retirement is established. In the last column of this table is shown the maximum annual cost over the loss from superannuation, or the actual cost of es- REPORT TO THE PRESIDENT ON RETIREMENT ALLOWANCES. 49 tablishing the proposed plan. With each year, following the twentieth, the annual appropriation required for the plan will be less than the amount that the Government will lose through superannuation if no plan is adopted. The amounts prefixed by a minus sign ( — ) in the last column of the table are the annual and increasing gains to the Gov- ernment under the plan. At the end of 36 years the saving under the plan will exceed the amount advanced in excess of the loss from superannuation during the first 20 years. With each succeeding year the saving will increase, because the appropriation required will diminish, until finally, at the end of 50 years, the plan will be self- supporting and no further appropriations will be required. On the other hand, if no plan of retirement is adopted the loss from super- annuation will increase as long as the service continues to grow. It should be remembered also that the estimate of loss from super- annuation is based on the very conservative returns made by depart- ment chiefs, and the commission believes that in fact the loss from superannuation will equal the cost of the proposed plan in possibly 8 or 10 years instead of in 20 years, and that the Government will have saved the entire cost of the plan in the course of 20 years instead of in 36 years. 50 KEPOKT TO THE PBESIDENT ON KETIRBMBNT ALLOWANCES. Table X.Shou'ing (a) the maximum amount required to be appropriated by the Govern merit to retire 23,764 employees now in the permanent classified civil service in the Die trict of Columbia on annuities equal to half pay (maximum annuity, f600), provide< each employee below 10 years of age be required to deposit with the Government monthh such sum as will, with interest at 4 per cent, compounded annually, provide such annuity on reaching age 70, provided that no monthly deposit by any employee now in the servia shall exceeds per cent of the monthly pay (where such monthly depodt of 8 per cent, wit) interest, will not provide the required annuity, the Government to provide the difference), (b) the amount of salaries paid but not earned that would be saved if all employeet were retired at age 70; and (c) the net cost to the Government of establishing the plan and the gain to the Government from its establishment. In years. Maximum annual appropria- tion. Annual loss from superan- nuation if no plan of retirement is adopted. Net annual cost over loss from superan- nuation (a)- (6). In years. Maximum annual appropriar tion. Annual loss from superan- nuation if no plan of retirement is adopted. Net annual cost over loss from superan- nuation Q (a) 3468,960 532,516 567,460 610,584 643,904 048, 172 651, 903 646,901 642, 127 626,873 614, 183 593, 564 580,957 566,555 550,577 637,099 521,838 514,463 302, .525 486,369 468,058 446,161 421,085 390,424 369,837 344,615 m S228,387 253,019 278, 604 303,163 320,751 332,943 342,297 349,276 354,325 357,967 360,367 362,970 367,308 370,481 375,040 381,338 .390,221 403, HI 417,749 432, 277 444,267 453,885 463, 181 474,234 489,358 504,507 (c) 8240,673 269,497 288,856 307,421 323,153 315,229 309, 606 297,625 287,802 268,906 263,816 230, 694 213,649 196,074 175, 537 166,761 131,617 111,354 84,776 54,092 23,791 - 7,724 - 41,496 - 77,810 -119,521 -159,892 26 (a) $314,697 286,656 257,606 227,781 196,617 167,364 141,271 118,195 97,944 80,331 66,156 52,219 41,317 32,242 24,786 18,747 13,930 10,151 7,238 5,035 3,406 2,231 1,407 849 486 $520,864 542,952 565,616 580,885 592,148 606,004 617,826 627,916 637,618 645,448 661,641 -$206, 16i 1 27 - 256, 39f 28 - 308, lOS 3 29 - 363,1m 30 - 396,63] 31 - 438, 6S (i 32 - 476,55! 33 - 509,721 34 - 539, 67< 9 36 - 666, IIJ 10 36 - 586,486 11 37 12 38 ■--. 13 39 14 40 15 41 16 42 17 43 18 44 m 19. 45 20 46 21 47 22 48 23 49 24 60 25 1 The increasing annual loss that will take place if no plan of retirement is adopted can not be shown beyond the thirty-sixth year because of the large number of persons who will hereafter enter the service at ages above 34, and hence reach the age of 70 (from which age the loss is calculated) within the next 36 years. 3 The gain to the Government from the establishment of the plan will continue to increase because the Goverrmient will be relieved of the increasing burden of superannuation, while the appropriation required to put the plan into operation will diminish until finally at the end of 50 years it will cease. The following table shows the deductions that are required at various ages to provide the annuities of half pay, with maximum annuity of $600. The deductions are based on the Combined Experi- ence Table of Mortality and interest at 4 per cent, compounded BEPORT TO THE PRESIDENT ON RETIREMENT ALLOWANCES. 51 annually, and are sufficient to permit (1) the return to an employee leaving the service prior to the age of retirement, of all contribu- tions with interest at 4 per cent, compounded annually; and (2) the return to the legal representatives of an employee dying after retire- ment, of any balance of the amount on hand at the date of retirement not paid in annuities. These rates are made possible by the use of 4 per cent interest instead of 3^ per cent interest, and the elimination of optional settlements with retiring employees under which a selec- tion wotdd be exercised against the Government, since employees in poor health would take cash and employees physically above the aver- age would take annuities. Under the proposed plan all employees remaining in the service to age 70 are required to take the one form of annuity settlement. Table XI. — Showing the amount required to he deposited monthly from various ages to age 70 to provide an annuitij payable quarterly during remainder of life (first payment in 3 months after reaching age 70), such annuity to equal half pay (maximum annuity, $600), with provision for return at death of annuitant of balance on deposit at date of retirement and not thereafter paid in annuities. [Combined Ejcperieuce Table of Mortality; interest at 4 per cent, compounded annually.] $9.10 (purchase Monthly de- price of an an- A 711(11111 f +n duction (ad- nuity of SI , justed to near- Age of retire- ment. Age of entrance to serv- ice. Years of serrice. Amount of anmiity.i payable quar- terly, first pay- ment in 3 months, with provision for return at death of bal- ance of pur- chase price not paid in an- VVlllL.il a Uc posit of SI per month will accumulate at 4 per cent in- terest com- pounded an- nually, in yearj shown in col- umn (c). Monthly - deduction from salarv (f)-(/). est tenth of a dollar) from salary of em- ployee. (For employees.in service when law takes ef- fect, maximum deduction lim- ited to 8 per nuities) XJ600. cent of salary .)2 W (6) (c) W (t) (/) (9) (ft) 70 20 50 $600. 00 $5,460.00 $1,871.48 2.917 2.90 70. 21 49 600. 00 5,460.00 1,787.71 3.054 3.10 70 22 48 600.00 5,460.00 1,707.16 3.198 3. 20 70 23 47 600. 00 5,460.00 1,629.72 3.350 3.40 70 24 46 600. 00 5,460.00 1,555.26 3.511 3.50 70 25 45 600.00 5,460.00 1,483.64 3.680 3.70 70 26 44 600.00 5, 460. 00 1,414.79 3.859 3.90 70 27 43 600.00 5,460.00 1,348.59 4.049 4.00 70 28 42 600. 00 5,460.00 1,284.94 4.249 4.20 70 29 41 600. 00 5,460.00 1,223.73 4.462 4.60 70 30 40 600.00 5,460.00 1,164.87 4. 6S7 4.70 70 31 ' 39 600.00 5,460.00 1,108.28 4.927 4.90 70 32 38 600.00 5,460.00 1,063.87 5.181 5.20 70 33 37 600.00 5,460.00 1,001.55 5.452 5.50 70 34 36 600.00 5,460.00 951.24 5.740 5.70 70 35 35 600.00 5,460.00 902.87 6.047 6.00, 70 36' 34 600. 00 5,460.00 856.36 6.376 6.40 70 37 33 600.00 5,460.00 811.63 6.727 6.70 For annual salaries above 1 For annual salaries of 81,200 or less the annuity will be 50 per cent of salary. $1 ,200 the annuity wiU be $600. ' 2 For aimual salaries of $1,200 or less the figures shown In column (ft) are per cents of salaries. For annual salaries above $1,200 the figures are dollars. 52 REPORT TO THE PRESIDENT ON RETIREMENT ALLOWANCES. Table XI. — Showing the amount required to be age 70 to provide an annuity payable quarterly monthly from various ages to remainder of life, etc. — Con S9.10 (purchase , ,' Monthly de- price of an an- Amount to duction (ad- nuity of $1, justed to near- Age of retire- ment. Age of entrance to serv- ice. Years of service. Amount of annuity.! payable quar- terly, first pay- ment in 3 months, with provision for return at death of bal- ance of pur- posit of $1 per month wul accumulate at 4 per cent in- terest com- pounded an- nually, in years shown in col- umn (c). Monthly deduction from salary («)-5-C/). est tenth.()f) (c) W (0 (/)' (?) ■ 1 70 38 32 S600. 00 S5,460.00 $768.63 7.104 7.10 70' 39 31 600.00 5,460.00, 727.28 7.507 7.50 70 40 30 600.00 5, 460. 00 687. 52 7.942 7.90 70 41 29 600.00 6,460.00' 649. 29 8.409 8.40 ' 70 42 28 600.00 5,460.00 612.53 8.914 8.90 70 43 27 600.00 5,460.00 577. 18 9.460 9.50 70 44 26 600.00 5,460.00 643.20 10. 052 10.10 70 45 25 600.00 6,460.00 610.62 10. 695 10.70 70 48 24 600.00 5,460.00 479. 10 11.396 11.40 70 47 23 600.00 5,460.00 448.88 12. 164 12.20 70 48 22 600. 00 6,460.00 419.83 13.005 13,00 70 49 21 600.00 5,460.00 391. 90 13. 932 13.90 70 60 20 600.00 5,460.00 365. 04 14.957 15.00 70 51 19 600.00 6,460.00 339.21 16. 096 16.10 70 62' 18 600.00 5,460.00 314. 38 17.368 17.40 70 63 17 600.00 6,460.00 290.60 ] 18.795 18.80 70 54 16 600.00 6,460.00 267.54 ; 20.408 20.40 70 55 15 600.00 5,460.00 246.46 22.243 22.20, 70 56 14 600.00 5.460.00 224.23 24.350 24.40' 70 67 13 600.00 6,460.00 203.82 j 26.788 26.80 70 58 12 600.00 5,480.00 184. 19 j 29.643 29.60 70 69 U 600.00 5,460.00 166.32 33.027 33.00- 70 60 10 600.00 5,460.00 147.18 , 37. 097 37.10 70 61 9 600.00 6,460.00 129.73 42.087 42.10 70 62 8 600.00 5,460.00 112.95 48.340 48.30 70 63 7 600.00 5,460.00 96.82 56.393 56.40. j 70 64 6 600.00 6,460.00 81.31 67. 160 67.20 ' 70 65 ' 5 600.00 5,460.00 66.40 82.228 82.20 70 66 4 600.00 5,460.00 62.06 104.879 104.90 : 70 67 3 600.00 5,460.00 38.27 142. 670 147.70 70 68 2 600.00 5,460.00 25.01 218. 313 218.30 70 69 1 600.00 5,460.00 12.26 445. 351 446.40 ' For annual salaries of 31,200 or less the annuity will be 50 per cent of salary. For annual salaries, above $1,200 the annuity will he $600. 2 For annual salaries of $1,200 or less the figures shown in colunm (A) are per cents of salaries. For annual salaries above $1,200 the figures are dollars. Recommendations of the Commission. As a result of its investigation, the commission makes four rec: ommendations, the first three referring respectively to those at the age of retirement when the plan goes into effect, to those remaining in the service after the plan goes into effect, and to those who shall come into the service after the plan goes into effect. The fourth REPORT TO THE PRESIDENT ON RETIREMENT ALLOWANCES. 53 recommendation merely limits the application of the plan for the present. The recommendations are given below with the reasons for each: (1) Every employee who is 70 years of age or over should be retired at once on an annuity paid from the Federal Treasury equal to half pay, the maximum annuity to be $600. It has been shown that the age of 70 is the one most suitable as the general age of retirement for members of the civil service of the country. All employees at that age or over when a retirement plan goes into effect should be retired at once in order that the benefit to the service from the establishment of a retirement plan may begin at once. The improved efficiency of the service is desired now, not a generation hence. The Government must assume all liability for annuities payable to these employees, because there is no other way of retiring them. They can not provide for themselves at this late date, and it would not be just to tax the younger employees for their benefit. Besides, the Government itself is the principal beneficiary from their retirement. (2) Every employee remaining in the service after the law takes effect should be required to lay aside monthly such sum as will, with interest at 4 per cent, compounded annually, provide an annuity of half pay on retirement at the age of retirement, the maximum annuity to be $600, such monthly deduction, however, to be in no- case more than 8 per cent of the employee's salary, and in case the fund accumu- lated by the employee by this deduction is not sufficient to provide the annuity of half pay, with a maximum of $600, the Government should make up the difference between the sum so accumulated and the amount necessary to provide the annuity. In the case of em- ployees who retire before the age of 60, their contributions should be returned to them with the interest credited thereon in one sum. In the case of employees who retire after the age of 60 but before reaching the age of 70 years, their contributions when in excess of $600 should be returned to them with the interest credited thereon in not less than 10 annual installments.' In the case of employees who remain in the service to the age of 70, their contributions should be returned only in the form of an annuity with a payment at death of the difference between the amount on deposit at the date of retirement and the amount paid in annuities. The annuity has been Hmited to $600 a year because of the com- mission's behef that the only interest which the Government has in cooperating in the establishment of a retirement plan is to relieve itself from the inefficiency due to superannuation, which is at present causing it considerable loss and will inevitably cause it much greater loss as the number of its aged employees increases. The commission is of the opinion that, after the Government has protected itself 54 REPORT TO THE PRESIDENT ON RETIREMENT ALLOWANCES. against this loss by making retirement at a given age compulsory under conditions which make the destitution of the employee impos- sible (and such would be the case on an annuity of $600 a year), it has, on the one hand, little if any interest in compelling its employees to save money, and, on the other hand, a very questionable right to force those employees to make an investment which may be less profitable than some of them can themselves make. The per cent of deduction has been limited to 8 per cent of salary because the commission believes that any greater deduction would be very burdensome to many employees. The commission's reasons for recommending the three methods of settlement stated above, and only those three, at the various ages are: That employees retiring before reaching the age of 60 years are ordinarily fully capable of managing their own affairs, and if they should, through unwise investment or otherwise, lose their savings, they are still young enough to secure employment; that the amount to the credit of employees between the ages of 60 and 70 would be con- siderably larger than at the earlier ages, and its loss at those ages would probably be a far more serious matter than at an earlier age, and be more likely to result in an effort on the employee's part to reenter the service; that the amount to the credit of employees retiring at age 70 should be paid only in the form of a life annuity, with return a.t death of -any balance of deposit not received in annuities, (a) because cash settlements undoubtedly would, in many cases, result in the loss of the employee's savings through unwise investments, so that the employee would finally be worse off than if no plan of retirement had been provided; (6) because if a straight annuity were granted in which the employee forfeited his entire principal in case of death soon after entering on the annuity, great dissatisfaction would result among the families of employees who elected to take such settlements, and possibly claims might be presented to the Government for the refund of the money paid for such annuities, on the ground that the employee was incompetent at the time of making the selection; (c) because by requiring all employees 70 years of age to accept this settlement, the so-called "selection" against the Government — through robust employees taking annuity settlements and employees in poor health taking cash — would be removed, and the rates charged the employees as a whole could safely be based on a mortality table that contem- plated a somewhat higher rate of mortality, and consequently a lower price fixed for the annuities. (3) Persons entering the service after the law takes effect should be required to lay aside the full amount necessary, with interest at 4 per cent, compounded annually, to provide their own annuities of half pay with a maximum of S600. The methods of settlement on retirement for this group of employees should be the same as for those- employees already in the service as described in the preceding section. REPOBT TO THE PRESIDENT ON EBTIEEMENT ALLOWANCES. 55 To limit the deduction from the salary of a person entering the service after the law takes effect to 8 per cent would place a continu- ing burden on the Government, the amount of which could not be calculated in advance, and put a premium on old people entering the service. On the contrary, by Hmiting the aid from the Government to those already in the service now ehgible for retirement and to those already in the service who can not provide the full annuity for them- selves before reaching the age of retirement, the total maximum cost to the Government can be definitely known in advance. The increas- ing deduction required with advancing age of entrance to the service would practically prohibit aged people from entering the service, and this is, the commission beheves, as it should be. (4) This retirement plan should be restricted in the beginning to employees in the District of Columbia. As superannuation is very much greater in the District than it is outside the District, the need of a retirement plan is much more urgent there than elsewhere. The statistics collected by the commission show that of the 22,754 employees in the classified service in the District of Columbia on November 1, 1911, 2,024 were 65 years of age or over, or a Jittle less than 1 in 1 1 . Employees 70 years of age or over numbered 951 . Aside from the fact that a retirement law is more needed in the District of Columbia than elsewhere, the advisabihty of thus restricting the plan at the outset is urged on the ground that it is desirable to proceed slowly in the inauguration of new measures. If the operation of the system adopted proves to be successful, it will be comparatively easy to extend its application, with such modification in detail as may seem desirable, to the Government service as a whole. The commission believes that the proposed savings and annuity plan meets all the objections that may be brought against it, and that the cost of establishing it is kept within the sum which, it has been shown in the course of this investigation, the Government will have to lose in the next 36 years through superannuation if no plan is adopted. In 20 years the annual loss from superannuation, which is an increasing amount, will equal the annual cost of estabhshing the retirement plan, which is a decreasing amount. In the last 16 years of that 36-year period the saving to the Government will equal the cost in the first 20 years. The commission presents as a result of its investigation the draft of a bill based on the same fundamental principles set forth in the preceding recommendations : Draft of a Bill for the Bbtirement of Employees in the Civil Service in THE District of Columbia. Section 1. That beginning with the first day of July next following the passage of this act there shall be deducted and withheld from the monthly salary, pay, or com- pensation of every officer or employee of the United States to whom this act applies 56 BEPOET TO THE PRESIDENT ON RETIEEMENT ALLOWANCES. an amount computed to the nearest tenth of a dollar that will be sufficient, with interest thereon at four per centum per annum, compounded annually, to purchase from the United States, under the provisions of this act, an annuity, payable quarterly through- out life, for every such employee on arrival at the age of retirement, as hereinafter provided. The deductions herein provided for shall, in the case of employees who are in the service of the Government at the time this act goes into effect, not exceed eight per centum of the said salary, pay, or compensation; and shall be based on such annuity table as the Secretary of the Treasury may direct, and interest at the rate of four per centum per annum, compounded annually, and shall be varied to correspond to any change in the rate of salary, pay, or compensation of the emjiloyee. Sec. 2. That the amount so deducted and withheld from the salary, pay, or com- pensation of every employee to whom this act applies shall be deposited in the Treas- ury of the United States and shall be credited, together with interest at four per centum per annum, compounded annually, to an individual account of the employee from whose salary, pay, or compensation the deduction is made, and the Secretary of the Treasury is hereby directed to invest and reinvest such funds or any portion of such funds in any of the following securities, viz: Bonds of the United States, bonds or other interest-bearing obligations of any State of, the United States or any legally authorized bonds issued for municipal purposes by any city or town which has been in existence as a city or town for a period of twenty-five years, and which for a period of ten years previous to such investment has not defaulted in the payment of any part of either principal or interest of any funded debt authorized to be con- tracted by it, and which has at such date more than 25,000 inhabitants as established by the last national census and whose net indebtedness does not exceed five per centum of the valuation of the taxable property therein, to be ascertained by the last preceding valuation of the property for the assessment of taxes; or any legally author- ized bonds issued for municipal purposes by any city or town in the United States which has been in existence as a city or town for a period of twenty-five years, and which for a period of ten years previous to such investment has not defaulted in the payment of any part of either principal or interest on any funded debt authorized fo be contracted by it, and which has at such date more than 200,000 inhabitants as established by the last national census, and whose net indebtedness does not exceed seven per centum of the valuation of the taxable property therein, to be ascertained by the last preceding valuation for the assessment of taxes. In this clause the words "net indebtedness" mean the indebtedness of any city or town, omitting debts created for supplying the inhabitants with water and debts created in antici- pation of taxes to be paid within one year and deducting the amount of sinking funds available for the payment of the indebtedness included. The moneys deducted from salaries and the income derived therefrom shall be held and invested, as above described, by the Secretary of the Treasury until paid, as is hereafter provided. Any deficiency in the fund hereby created to carry out the pro- visions of this act shall be paid out of any money in the Treasury not otherwise appropriated. For the purpose of aiding the Secretary of the Treasury in investing the funds created by this act, a board of investment is hereby created, composed of the Treasurer of the United States, the Comptroller of the Currency, the person appointed by the Secretary of the Treasury to enforce, under his direction, the provisions of this act, and two persons to be designated by the President from among the employees of the classified civil service. The members of the board of investment shall be sworn and shall hold office until others are appointed and qualified in their stead. Sec. 3. That the retirement age herein -referred' to shall be seventy years, and that after this act takes effect no employee to whom it applies shall be permitted to remain in the service of the United States after attaining the age of retirement. REPORT TO THE PRESIDENT ON RETIREMENT ALLOWANCES. 57 Sec. 4. That upon absolute separation from the classified civil service covered by this act prior to the age of sixty years, and only upon such separation, the employee may withdraw his savings in one sum, together with interest at four per centum per annum, compounded annually, then credited to his account, as hereinbefore provided. In case of the death of an employee while in the service, the amount of his savings, together with the interest then credited thereon, shall be paid to his legal repre- sentatives. Sac. 5. That upon separation from the classified civil service prior to the retirement age, but after reaching the age of sixty years, the employee shall be entitled to receive the amount of his savings, including the interest credited thereon. In one payment, but if the amount exceeds six hundred dollars payment shall be made in ten annual installments, the first (to be paid one year after separation) being one-tenth, with one year's interest at four per centum per annum, and each installment thereafter being one-tenth and interest at the same rate for the preceding year on the balance to his credit at the beginning of the year. In case of the death of an employee so sepa- rated from the service, the amount of his savings, together with the interest then credited thereon, shall be paid to his legal representatives. Sec 6. That in case of reinstatement in the classified civil service any person who at the time of his separation therefrom received a refund under section four of this act shall for the purposes of this act be deemed to be a new entrant to the service and the monthly deduction from his salary shall be computed from the date of such reinstatement, unless he shall within ninety days after reinstatement pay to the Treasurer of the United States the amount refunded to him, with interest at four per centum per annum, compounded annually, in which case the same shall be placed to the creditof his account and the former period of service shall be counted. Sec. 7. That beginning with the first day of July next following the passage of this act every employee to whom this act applies who, at that time, shall have reached the retirement age shall be retired from the service and shall receive from the United States during the remainder of his life an annuity (payable quarterly) equal to one- half of the average annual salary, pay, or compensation received during the five years immediately preceding the taking effect of this act, such annuity not to exceed a maximum of six hundred dollars and to cease and determine at his death. Sec. 8. That beginning with the first day of July next following the passage of this act every employee who shall remain in the service to which this act applies shall, on reaching the retirement age, be retired from the service and shall receive such annuity, payable quarterly, as can be purchased from the United States with the de- ductions theretofore made from his salary, pay, or compensation, and the interest credited thereon as heretofore provided; and in case such annuity is less than one- half of his average annual pay during his entire period of service, an annuity equal to the difference between such annuity purchased from the United States and an annuity equal to one-half of his average annual salary, pay, or compensation during his entire period of service shall be paid to him by the United States during the remainder of his life, but the one annuity or the sum of the two in no case to exceed six hundred dollars. On the death of a person receiving an annuity under the provisions of this section the annuities shall cease and determine; provided, that in case he shall not have received in annuities sums equal to the amount of the de- ductions from his salary, pay, or compensation, with interest as hereinbefore pro- vided, the United States shall pay to his legal representatives the balance remaining to his credit. Sec. 9. That every employee to whom-this act applies who shall enter the service of the United States after the first day of July next following the passage of this act shall, upon reaching the age of retirement, be retired from the service and shall receive from the United States during the remainder of his life an annuity, payable quarterly, equal to one-half of his average annual salary, pay, or compensation which he shall 42245— H. Doc. 732, 62-2 5 58 EEPORT TO THE PBESIDENT ON E.ETIEEMENT ALLOWANCES. have received during his entire period of service, such annuity not to exceed a maximum of six hundred dollars. In case of the death of such an employee prior to the payment to him in annuities of sums equal to the amount of the deductions from his salary, pay, or compensation, with interest as hereinbefore provided, the United States shall pay to his legal representatives the balance remaiaing to his credit. Sec. 10. That every employee to whom this act applies who shall continue in the classified service after the passage of this act, as well as every person to whom this act applies who may hereafter be appointed to a position or place, shall be deemed to consent and agree to the deductions made and provided for herein and shall receipt in full for the salary, pay, or compensation which may be paid monthly or at any other time, and such payment shall be a full and complete discharge and acquittance of all claims and demands whatsoever for all services rendered by such person during the period covered by such payment, except his claim for the benefits to which he may be entitled under the provisions of this act, notwithstanding the provisions of sections one hundred and sixty-seven, one hundred and sixty-eight, and one himdred and sixty-nine of the Revised Statutes of the United States and of any other law, rule, or regulation affecting the salary, pay, or compensation of any person or persons employed in the classified civil service to whom this act applies. Sec. 11. That the Secretary of the Treasury shall prepare and keep all needful tables, records, and accounts required for carrying out the provisions of this act. The records to be kept shall include data showing the mortality experience of the employ- ees in the service to which this act applies and the rate of withdrawal from such pervice, and any other information pertaining to such service that may be of value and may serve as a guide for future valuations and adjustments of the plan for the retire- ment of employees. The Secretary of the Treasury shall make a detailed comparative report annually to Congress showing all receipts and disbursements under the provi- sions of this act, together with the total number of persons receiving annuities and the amounts paid them. Sec. 12. That the provisions of this act shall apply only to persons in the classified civil service in the executive departments and independent Government establish- ments in the District of Columbia whose salary, pay, or compensation is paid from moneys of the United States. No person serving in a position excepted from exami- nation as defined in the civil-service rules shall be included within the provisions of this act. Whenever any person becomes separated from the classified civil service by reason of appointment in the unclassified service, such separation shall operate te take him out of the provisions of this act, except as to payment of any amount that may be due him. The President shall have power, in his discretion, to exclude from the operation of this act any group of employees whose tenure of office is inter- mittent or of uncertain duration. Sec. 13. That none of the moneys mentioned in this act shall be assignable, either in law or equity, or be subject to execution or levy by attachment, garnishment, or other legal process; nor shall any moneys paid to any employee', or to the legal repre- sentatives of a deceased employee, be subject to the payment of the debts of such employee. Sec. 14. That for the clerical and other service and all other expenses necessary in -carrying out the provisions of this act during the fiscal year nineteen hundred and , including salaries and rent in the District of Columbia, there is hereby appro- priated the sum of twenty thousand dollars, out of any money in the Treasury not otherwise appropriated. No officer or employee receiving a regular salary or com- pensation from the Government shall receive any additional salary or compensation for any service rendered in connection with the system of retiring employees pro- vided for by this act. KEPOET TO THE PRESIDENT ON EETIBEMENT ALLOWANCES. 59 Sec. 15. That the Secretary of the Treasury is hereby authorized to perform or cause to be performed any or all acts, and to make such rules and regulations as may be necessary and proper for the purpose of carrying the provisions of this act iuto full force and effect; and his decision as to the amount to be deducted, the amount of interest to be credited, the amount of an annuity or refund to be paid, in any case, shall be final and conclusive, and shall not be subject to review by any other officer or authority. Appendixes. The commission has hot undertaken to discuss the actuarial prin- ciples involved in the statistics presented for the reason that they are fully set forth in Senate Document No. 745 (61st Cong., 3d sess.), entitled " Savings and Annuity Plan Proposed for Retirement of Super- annuated Civil Service Employees," and it was thought better to attach that document as an appendix to this report. (Appendix A.) The commission has not undertaken to review in its report the history of other countries in retiring civil employees. The expe- rience of England and two of its principal colonies in retiring their civil employees has been fully discussed in Senate Document No. 290 (61st Cong., 2d sess.), entitled " Civil Service Retirement, Great Britain and New Zealand," and Senate Document No. 420 (61st Cong., 2d sess.), entitled "Civil Service Retirement, New South Wales, Australia." It was thought better to attach these docu- ments as appendixes rather than to repeat their substance in the body of the commission's report. (Appendixes B and C.) The commission has not undertaken to discuss in detail the vari- ous bills presented to Congress for the retirement of civil employees. Copies of House bill 9242, House bill 19399, and Senate bill 5863, all of the Sixty-second Congress, are, however, attached to this report. These bills, together with the bills set forth in Senate Docu- ment No. 745, above referred to — namely, bills known as the Perkins bUl, Gillett bill, and the Austin bill — comprise the most important bills that have been before Congress relative to the subject of retire- ment allowances. (Appendix D.) The commission attaches to this report a copy of the schedule which it prepared and distributed through the offices of the civil service in the District of Columbia, calling for information with regard to each' employee. It is the information collected on the 22,754 schedules returned by the departments and independent Government establishments which formed the basis of the calcula- tion as to the amount of loss sustained by the Government through the inefficiency of its aged employees. (Appendix E.) Respectfully submitted. F. A. Cleveland, Chairman. W. F. WiLLOUGHBY. W. W. Warwick. Frank J. Goodnow. M. O. Chance, Secretary. APPENDIX A. (Senate Document No. 745, 61st Congress, 3d Session.) SAVINGS AND ANNUITY PLAN PROPOSED FOR RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES B¥ HERBERT D. BROWN. AUTHOE^S ]^OTE. The principles of the retirement plan discussed in this report with illustrative tables for representative ages were worked out by the author in 1903 and presented in 1905 to the chairmen of the Senate and the House Committees on Appropriations and the chairmen of the Senate and the House Committees on Civil Service for their consideration. Since then, elaborate statistical data have been col- lected by the Bureau of the Census, on which the tables given in the report are based. The author feels that it is not improper to state that the prepara- tion of the tables in this report has required an enormous amount of labor such as has never been undertaken, so far as he is informed, in connection with any plan considered by any foreign Government. Much space is given to what may be considered by some persons as unnecessary discussion of elementary principles. In the opinion of the author, however, this seems to be necessary, since questions frequently asked him concerning the plan indicate that many, people interested in the subject are, however, not familiar with those prin- ciples. The author desires to express his gratitude to Benedict D. Flynn, F. A. S., for reading the proof of this report and for making valuable suggestions; to Hon. George E. Roberts, Director of the Mint, for reading the proof of the chapter on investments; and to Frank J. F. Thiel, Esq., secretary to the Treasurer of the United States, for assistance in collecting the statistics contained in the same chapter. The author wishes also to give credit to Harriet Connor Brown for valuable assistance in the preparation of the report. Herbert D. Brown. Washington, D. C, May 21, 1911. TABLE OF CONTENTS. Inthoduction. Paue. Need^of plan fo^retiring superannuated civil employees 11 Lac^ of plan works injustice to aged employees • 12 Lack of plan means pecuniary loss to Government 13 Lack of plan prevents promotion of younger employees 14 Need of retirement measure expressed by administrative officiali , 14 Numerous retirement bills introduced into Congress Jt^-- - - ' ^'^ Plan embodied in Perkins (S. 1944) and Gillett (H. r!I|2014), :and Austin (H. R. 729) bills and here proposed .i.f; 27 Cost of putting proposed plan into operation 31 How this cost may be met 34 Difference between Perkins and Gillett bills 35 Statistical data contained in this report 35 Chapter I. — Principles Underlying Proposed Plan. Four fundamental principles 37 Criticism of -plans previously proposed : either civil pensions or flat-rate assess- ment plans 38 Civil pension unpopular and unsound 38 Civil pension is expensive 39 Cost of civil pension in England 40 Abuses to which pension supported wholly or in part from Public Treasury is liable which make it costly 43 Gratuities to employees leaving before retirement age 43 Compassionate allowances to dependents 44 Pensions increased on accoimt of professional qualifications 44 Retirement on abolition terms 45 Abuse of abolition terms in England 45 Abuse of abolition terms in Canada 45 Abuse of abolition terms in New South Wales 46 Probable least cost of civil pension in United States 48 Table I. — Showing comparative cost to the Government during first 35 years of retiring employees on straight pensions and under the Perkins bill (S. 1944) 48^9 Table II. — Showing comparative cost to the Government during first 35 years of retiring employees on straight pensions and under the Gillett bill (H. R. 22013) 50-51 Chart showing comparative cost to the Government during the first 35 years of savings and annuity plan embodied in the Perkins and Gillett bills and a pension giving the same benefits as the Perkins bill, but wholly at Gov- ernment expense 52 Difference between civil and military pension 53 Civil pension is demoralizing to the service 54 Difference between effect of civil pension in Government service and private business 56 Civil pension means wages below market price 58 Experience of England proves civil pension is "deterredpay" 59 5 6 CONTENTS. rage. Substitute plan a form of civil pension Flat-rate assessment plans inequitable Inequitable if annuities are based on length of service Table III.— Showing the annuity which a deduction of $5 a month during various periods of service will provide on retirement at age 70 "4 Inequitable if annuities are uniform, regardless of length of service 64 Table IV.— Showing amount required to be deducted from a monthly sal- ary of $100 (per cent of other salaries) during various periods of service, to provide an annuity of $900 a year beginning at age 70 ? ' 65 Actuarial difficulties of plans based on flat-rate assessments 65 Statements of actuaries against flat-rate assessment plans 66 History of flat-rate assessment plans a warning 66 Flat-rate assessiBent plan unsatisfactory in England 67 Flat-rate/ seessmlnt plan unsatisfactory in Australia 68 Flat-rat^'as^dfflBrent plan unsatisfactory in Canada 69 Flat-rate assessment plan unsatisfactory in France 70 Savings and annuity plan based on adequate individual contributions the ideal plan 71 Savings-bank plan approved by well-known actuaries 71 -Savings-bank plan proposed for France 73 Reasons for failure of savings-bank plan in Canada and New Zealand 74 Assessments on salary should be based on age of entrance into service 75 Two important principles observed in Perkins, Gillett, and Austin bills. .. 76 Payment of a liberal rate of interest the Government's best contribution... 77 Savings and annuity plan similar to that here proposed adopted by English fraternal organization 79 Advantages of proposed plan 81 Chapter II. — Mathematical Basis oi- Proposed Plan. Annuity the central idea of this plan 85 Value of annuity determined by means of mortality tables and interest tables. . 86 Four steps in discussion: Mortality tables; interest; annuities; deductions from salaries 86 Mortality tables 87^ Construction of mortality tables 88 Early Roman tables 90 Early German tables 90 Early English tables 91 Northampton Table 91 Carlisle Table 91 Mortality tables based on life insurance experience 91 Recent English Government tables 92 Combined or Actuaries' table 92 Actuaries' H" and H' tables 93 American Experience Table 93 British Offices' tables 94 Tables used in preparing this plan 94 Reasons for using British Offices' Select Annuitants' Mortality Table as the basis for annuity rates under Part I of plan 95 Table V. — Showing number living at all ages under various tables of mortality , . 96 Table VI. — Showing expectation of life at all ages under various tables of mortality 97 CONTENTS. 7 Mortality tables— Continued. ^^^^' Tables used in preparing this plan— Continued. Reasons for using American Experience Table of Mortality in first step of determining cost of annuities for back services 98 Table VII.— Showing probability of living from various ages to age of 70, according to different tables of mortality 99 Reasons for using Combined or Actuaries' Table of Mortality in last step of determining cost of annuities for back services 99 Interest -. |,„ Simple interest and compound interest 100 Cumulative power of compound interest 100 Table VIII.— Showing percentage of annuity contributed by employee and percentage gained through increment of interest 101 Table IX.— Showing amount returned to the employee in cash after various periods of service for each dollar deposited 101 Chart showing the amount of a deposit of $1 per annum at various rates of interest 102 Table X.— Showing the amount of a deposit of $1 per annum at vari- ous rates of interest 103 Rate of interest IO3 Rate of 3J per cent proposed IO4 Objection to low-interest rate IO4 Advantage of low-interest rate IO5 Table XI. — Showing the value of an annuity of $1 at various ages, based on the British Offices' Select Annuitants' experience, with dif- ferent rates of interest, annuity payable quarterly 106 Annuities lOg Annuity, 1 J per cent of aggregate salary 106 Annuity of 1 or 2 per cent of aggregate salary possible but not advisable. . 107 Table XII. — Showing differences in practicability of several bases of computation for annuities, 1, 1^, and 2 per cent of annual salary for each year of service 108 Two forms of annuities granted , 108 Table XIII. — Showing amount of annuity granted for a given sum of money under option I and option II of the bill 109 Advisability of cash settlement as well as annuity settlement 109 Annuity rates used in proposed plan 112 Table XIV. — Showing how the value of an annuity is determined 112 Present value of an annuity of $1, for a male, begiiming at age 70 113 Illustration 113 Present value of an annuity of $1, for a female, beginning at age 70. . . 114 Table XV. — Showing the present value of a life aimuity of $1, for males and females, payable quarterly, beginning at various ages, first payment in three months after purchase 115 These rates conservative, as shown by comparison with Canadian Govern- ment rates 115 Table XVI. — Showing immediate annuity rates of Canadian Govern- ment, annuities payable quarterly, first installment three months after purchase 116 Influence of longevity on annuity rates 116 Table XVII. — Showing the deaths in the registration area per 1,000 of population in 1890 and 1900, and the decreases and increases in the rates 118 A lite annuity is the converse of a life policy 119 8 CONTENTS. Page. Deductions from salaries r 120 How to determine the amount of deductions from salaries 121 Table XVIII.— Showing the amount to which a deposit of $1 a month (first payment immediate) will accumulate at 3 J per cent per annum compound interest at the end of a given term of years 121 Table XIX.— Showing amount required to be deducted from a monthly salary of $100 (per cent of other salaries) to provide an annuity at age 70 equal to IJ per cent of annual salary for each year of service 122 Percentage of salary deducted varies with retirement age 123 Table XX. — Showing per cent required to be deducted from a monthly salary of $100 (per cent of other salaries) to provide an annuity at age 65 equal to IJ per cent of annual salary for each year of service 124 Table XXI. — Showing per cent required to be deducted from a monthly salary of |100 (per cent of other salaries') to provide an an- nuity at age 60 equal to IJ per cent of annual salary for each year of service 125 Percentage of salary deducted varies with entrance age, but not with salary. 125 Table XXII. — Showing amount of cash Accumulation at end of various years of service payable to employee on resignation or to his legal heirs in case of death; and life annuity that may be granted on resignation in lieu of cash 126 Amount of deduction from salary varies only with change in salary 127 Table XXIII. — Showing how deductions from salaries may be adjusted to correspond to promotions 128 Average rate of deduction from salary only 5 per cent 129 Advantage to the service of increasing deduction with increase of entrance age 130 Chapter III. — Minor Provisions op the Proposed Bill. Provisions for separation from the service 131 In case of retirement because of superannuation 131 Ages of retirement, according to severity of occupation 132 Modes of procedure for retirement 132 Continuance in service after retirement age 135 Various options on retirement 135 In case of resignation 136 Interest allowed on savings after six years' service 136 Annuity on separation from service before retirement age in case sav- ings amount to $1,000 137 In case of dismissal 137 Superiority of this plan over civil pension illustrated 137 In case of death 140 In case of disability 140 Disability provision in so-called Keep bill 141 Necessity of determining cost of disability benefit 141 Difficulty of determining cost of disability benefit 141 German disability experience best available , 142 Table XXIV. — Showing rates based on German disability experience to provide an annuity of $1 (first payment immediate) to age of retire- ment upon occurrence of total and permanent disability 143 Estimated cost of disability provision in so-called Keep bill 143 CONTENTS. 9 . . . Page. Provisions tor separation from the service — Continued. In case of disability — Continued. Table XXV. — Showing cost of limited disability provision in Keep bill. 144 One-year term rates used in calculation 145 How cost of disability provision can be met 145 Desirability of more liberal disability benefits 146 Estimated cost of liberal disability benefits. 147 Table XXVI . — Showing cost of a liberal disability provision 148 Separate records should be kept of superannuation and disability 149 Disability clause in proposed bill 150 Provision for reinstatement in service 152 Provision for payment of annuities for back services 153 Miscellaneous provisions of the proposed bill 153 Provision for keeping statistical records 153 Provision limiting operation of plan to District of Columbia 154 Provision making moneys under the act nonassignable and nonattachable . 154 Provision for cost of administering the plan 154 Enacting clause 154 Chapter IV. — Cost of Plan. Cost of putting plan into operation under Perkins bill 155 Experience of New Zealand 156 Cost dependent on number of employees included 157 Two calculations of maximum cost of putting plan into operation for entire classified service 159 The first calculation 159 Table XXVII. — Showing maximum cost of annuities for back services for 103,030 employees, based on census of employees as of June 30, 1903 '. 159 The second calculation 159 Table XXVIII.— Showing maximum cost of annuities for back serv- ices for 170,228 employees, based on census of employees as of June 30, 1907, under Perkins bill 160 Method followed in preparing tables of cost 161 Tables XXIX and XXX. — Showing the method by which the data were drawn off and the percentages of salaries determined 162-165 Comparison of two calculations shows agreement 166 Greater number of employees included in last calculation 166 I excluded from first calculation 168 1 excluded from second calculation 168 Earlier retirement ages in last calculation 169 Test of accuracy of two calculations 169 Probable cost much less than maximum ' 170 Because calculation makes no allowance for resignations 171 Because calculation is based on present salaries instead of average salaries 172 Because calculation makes no allowance for retention in service past age of retirement 172 Calculation includes payment on back services to all present mem- bers of service 173 Cost of putting plan into operation under Gillett bill 173 Comparison of cost of Perkins and Gillett bills 174 Table XXXI.— Showing comparative cost to the Government of establish- ing plan for retiring employees under terms of Perkins and Gillett bills. 174-176 10 CONTENTS. Coat of putting plan into operation under Gillett bill— Continued. Page, Chart showing comparative cost to the Government of establishing the savings and annuity plan embodied in the Perkins and Gillett bills 177 Table XXXII. — Showing by classes the per cent of employees whose annui- ties would be reduced by the $600 limit provided by the Gillett bill 178 Calculation of maximum cost of putting Perkins bill into effect for classified service in District of Columbia ^ 178 Table XXXIII.— Showing estimate of maximum cost the first year of annuities 178 How the coat of putting the plan into operation may be met 179 Plan can be put into operation without additional appropriation by the Government 180 Cost of administering the plan 185 Chaptek V. — Pkovisions foe Investment of Retirement Fund. Two provisions for investment of fimd 189 Not feasible at present to deposit fund in savings banks 189 Differences between eastern and western savings banks jL90 Investment of fund should be restricted to public securities 191 Savings-bank investments 191 Table XXXIV. — Showing savings banks in the Commonwealth of Massa- chusetts placed in the hands of receivers from 1834 to October 31, 1906, which have not resumed business 193 Public bonds safe investments 194 Federalbonds 194 Various issues of Federal bonds 194 Table XXXV. — Showing principal outstandingbonds of the United States. 195 Federal bonds now issued to pay for public works 196 Federal bonds safest of investments 196 Rate of interest on Federal bonds low 196 Federal bonds attractive to life insurance companies during war 197 State bonds 198 State bonds now safe holdings 198 Rate of interest on State bonds not high 199 Municipal bonds 199 Large investments in municipal bonds 200 Table XXXVII. — Showing population living in cities at each decade 200 Table XXXVIII. — Showing purposes of municipal bond issues 201 Character of municipal bonds acceptable 201 Bonds of small municipahties 201 "Net indebtedness" defined 203 Essential points in considering safety of municipal bonds 203 Rate of interest on municipal bonds 204 Probable future course of rate of interest 204 Appendixes. Appendix A. Text of Perkins bill (S. 1944, Sixty-first Congress, first session). . 210 Appendix B. Text of Gillett bill (H. R. 22013, Sixty-first Congress, second session) 215 Appendix C. Text of Austin Bill (H. R. 729, Sixty-second Congress, first session) 220 SAVINGS AND ANNUITY PLAN PROPOSED FOR RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. INTRODUCTION. The civil-service law has now been in operation over a quarter of a century. Passed by a Republican Congress, it was sternly upheld by a Democratic President. The best men of both parties have been its disinterested supporters. Its beneficent effects have been felt throughout the public service and few will be found to dispute them. NEED or PLAN FOR RETIRING SUPERANNUATED CIVIL EMPLOYEES. There is one problem of the service, however, that the law has not solved, and that is the problem of superannuation. Without provi- sion for retirement of the aged officeholder a law which in practical operation insures him a permanent tenure of office works an injustice to the Government, since it permits the retention in the service of many who have outlived their usefulness. It is true that the law does specifically provide for the removal of the incompetent on the proper record of the existence of incompetency, but such a provision has proved to be inadequate where incompetency is the result of old age. That part of the law is practically a dead letter, as is acknowl- edged in the following paragraph found in the Nineteenth Report of the Civil Service Commission: It has been' urged by opponents of the competitive system that that system, by securing comparative permanence of tenure, tends to promote superannuation In the public service. The commission calls attention to the fact that the civil- service law itself provides for no permanency of tenure. Under it any employee can be dismissed at any time. The successor of such employee, however, is no longer appointed through personal or political favor, and thus the civil-service act has taken away the motive for making arbitrary removals. To this extent the act has promoted permanency, and a very much smaller proportion of per- sons are removed from the competitive classified service than from other parts of the service. In order to secure justice in making such removals it v^as further provided by Executive order that the appointing officer must give his reasons, with proper notice and an opportunity for answer, to the person pro- posed to be removed, and that removals should only be made for such reasons as would promote the efficiency of the service. It is evident that under this rule, rigidly enforced, no person ought to be retained in the public service whose 11 12 KETTEUEMENT OP SUPEBANNUATED CIVIL-SEEVICE EMPLOYEES. dismissal is required in the interests of good administration. But it is also true that from humane considerations appointing oflBcers will be reluctant to dismiss those who have become superannuated or otherwise incapacitated where hardship is entailed upon the person so removed, and especially in cases where the employee in question has served the Government faithfully for years (p. 25). Such weight have these humane considerations that even the most sincere 3,nd active advocates of the competitive system have found it difficult to take advantage of the law in order to dismiss superan- nuated or disabled employees from office, and the introduction of modern business methods in the departments has in consequence been retarded. The majority of executive officials are undoubtedly too tender-hearted to dismiss a subordinate whose only faults are attrib- utable to his weight of years. The result is that "he is allowed to remain, quite unfit to perform all his duties, practically a pensioner, and the work he is unable to do is divided among the younger clerks. The consequence is that injustice is done the aged clerk, the service, and all clerkfe in the same office who are rated below the aged incom- petent. LACK OF PLAN WORKS INJUSTICE TO AGED EMPLOYEES. In the first place, the aged clerk suffers humiliation of spirit and discomfort of body that it ill becomes a great nation to put upon faithful employees. Pitiful cases of old employees who go to office long after their days of usefulness have passed are numerous and well known, for 1 out of every 14 Government employees in the city of Washington is over 65 years of age. Many of them are past 80, and nonagenarians have occasionally been on the Government pay roll. Paralytics are sometimes brought to office in wheeled chairs, and it frequently happens, that a wife or child escorts the head of the house to his desk each day. The provident outsider may argue that the clerk should provide for his old age. The point of that suggestion is considerably blunted, however, on examination of three stubborn facts whichgreatly affect the life and outlook of Government clerks, especially those in the District of Columbia. The first of these is the fact that the average Government salary is only $948; that is, $1,0Y9 in the District of Columbia and $928 outside of the District.^ The second is the fact that the increased cost of living, which has been noted generally throughout the country, but is especially great in the large cities, is nowhere more sharply felt than in the city of Washington. Th^ price of the essential articles of life, food, clothing, and rent, to say nothing of entertainments and the extras that make life worth living, is pitched to the highest notch that the congressional salary » See Census BuUetln 94, p. 32. RETIREMENT OP SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 13 of $7,600 a year will stand during the few months that Senators and Eepresentatives are in town, and it remains there after they have left, to the despair of the year-long residents. The inadequacy of the average Government salary of $948 or $1,079 is more apparent when one reflects that two-fhirds of the em- ployees subsisting on that salary are engaged in clerical or research work, which means that they are persons who have been brought up in some degree of comfort and refinement, and have received a con- siderable amount of education. It is fair to say that, under tlie oper- ation of the civil-service law, they are really a " select class," above the average in ability and training, a very large and increasing num- ber of them college graduates, men and women who are the intel- lectual and social peers of any official class in the world. Of the more than 1,300 employees in the Bureau of Plant Industry, De- partment of Agriculture, for instance, between 700 and 800 are doing scientific work, and 600 of those are university graduates. While $1,079 a year might not be called an inadequate salary for somei«lasses of workers, in some localities, it certainly can not be called fair or ade- quate for a person of education in the city of Washington, or com- parable with the salaries received all over the country by people of equal abilities doing similar work in business fields. Finally, the fact is plain that the Government clerk has few opportunities of making money outside of his employment or of investing his savings. His manner of life is not calculated to develop business acumen, and information in regard to desirable investments is not likely to come his way. He reaches old age more dependent than in his youth on the stipend of his office, and he usually hangs on doggedly until death releases him. LACK OP PLAN MEANS PECUNIAEY LOSS TO GOVERNMENT. In the second place, the service suffers severely by the retention of the aged in office, as less work is performed for the amount of money appropriated than would be the case if each employee did his full share. Just how much loss in actual number of dollars is sustained by the Government through the inefficiency of the superannuated it is difficult to estimate, but an attempt has been made to do so. In a report on superannuation in the civil service made by a special com- mittee of the National Civil Service Eeform League in 1906, the Civil Service Commission is quoted as authority^ for the statement that those over 70 years of age do about three-quarters of the " maximum quantity of work performed by a thoroughly efficient employee." This loss to the Government through superannuation in the depart- ments at Washington amounts therefore to about $400,000 a year. » See Special Report U. S. Civil Service Commission to the President, p. 3. 14 EETIKEMBNT OF SXTPERANNUATED CIVIL-SEBVICB EMPLOYEES. The committee of the National Civil Service Reform League con- tinues the computation as follows: There are nearly fiye times as many classified United States employees out- side Washington, but only two-fifths as large a per cent are over 70 ; therefore there are outside Washington twice as many over 70. On the same basis of efficiency tbe loss outside Washington would be $800,000, or, in the whole classified service of the United States, $1,200,000.' Since the service is now much larger than when the estimate was made, the loss to the Government is probably considerably greater. In other words, to the extent of that sum of $1,200,000 a year the Government already has a civil pension list. LACK or PLAN PEEVENTS PROMOTION OF TOUNGER EMPLOYEES. In the third place, great injustice is done the whole body of em- ployees by retention in office of the aged and infirm, since the younger clerks not only have to do the work of their elders, but are also kept from merited promotions. The great extent of the loss through superannuation is partly due to the fact that the old employees are usually drawing the highest salaries in their respective offices. This fact is well brought out in the last annual report (1910) of the Hon. M. O. Chance, formerly Auditor for the Post Office Department. Says he : An unusually large proportion of the employees in this office are persons who have passed the age of greatest usefulness. While the efficiency records of some of them are equal to those of the younger clerks, it is nevertheless a fact that the general average of efficiency among the aged clerks is below the standard. On account of their infirmities, both they and the service would be better off were they to be honorably retired on adequate annuities and their places given to younger and more active men. Many of these aged people, by reason of long service, are receiving the highest clerical compensation of the office, and thus handicap the work and the finances of the service. In a speech made at a meeting of the Civil Service Retirement Association on January 29, 1907, the late Hon. Charles H. Treat, Treasurer of the United States, said that he had never seen anything more beautiful than the way in which employees habitually carried along one of their number who had grown too old for the work, shar- ing his labors among them uncomplainingly. While such a spec- tacle may be inspiring to the idealist, its practical effect on the young and ambitious is discouraging. NEED OF BETIREMENT MEASURE EXPRESSED BT ADMINISTEATTVB OFFICIALS. These, then, are the conditions which confront every administrative official in the executive offices. Accustomed to the alertness and dis- > See Report on Superannuation In the Civil Service, 1906, p. 6. EETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 15 patch characteristic of business offices in private life, he usually plans, on first coming to Washington, to do some departmental house cleaning that shall put his office on a strictly business basis, but whatever his ability as an organizer, he soon finds himself powerless, without some means of retiring the aged members of his force, to effect any considerable reforms. A statement to this effect will be found in the annual reports for years past of Cabinet officers and chiefs of bureaus in the several departments as well as in the pub- lished reports of hearings before congressional comraittees.'^ The present Secretary of the Treasury, the Hon. Franklin Mac- Veagh, expressed himself in favor of a retiring allowance for the superannuated in his 1909 report, as follows : BETIEING PENSIONS. Any inquiry into the efficiency of administration very soon involves a consid- eration of a policy of civil-service retiring pensions. And it seems to me that the conclusion Is unavoidable that a really eificient service is out of the question without a method of honorably and justly retiring persons whose efficiency is seriously- Impaired. It is quite true that the older clerks of the service are no more likely than the younger clerks to be inefficient. Indeed, their experience and their settled relations to the service could easily compensate for the lack of some other personal equipment. But just as there are instances where the younger clerks should be disciplined or dismissed, so there are many cases among the older clerks where, in justice to both themselves and the service, they ought to be honorably relieved. The 'service is blocked in many instances by the unwillingness of the officials in charge to throw out of place worthy men and women who have given the best of their lives to the work of the Government. So that, in a very imperfect and wholly unsatisfactory manner, practically a pension system is and long has been In operation. The United States is the only nation that has no general legal retiring pension for the employees of its civil service. We have this unique position in the ^Annual Messages to Congress of William Howard Taft, President of the United States, 1909 and 1910. Reports of Franklin MacVeagh, Secretary of the Treasury, 1909 and 1910. Reports of Ethan A. Hitchcock, Secretary of the Interior, 1904 and 1905. Report of James R. Garfield, Secretary of the Interior, 1908. Reports of Richard A. Balllnger, Secretary of the Interior, 1909 and 1910. Report of Oscar S. Straus, Secretary of Commerce and Labor, 1908. Report of Charles Nagel, Secretary of Commerce and Labor, 1910. Report of Frank A. Hitchcock, Postmaster General, 1909. Report of Joseph Stewart, Second Assistant Postmaster General, 1909. Reports of Civil Service Commission, 10th, 11th, 19th, 20th, 22d, 25th, and others. Report of Committee on Department Methods (Keep Commission), 1907. Reports of M. O. Chance, Auditor for the Post Office Department, 1909 and 1910. Hearings before the House Committee on Reform in the Civil Service, 1896, 1904, 1908. Statement of E. P. Ware, Commissioner of Pensions, February 9, 1904. Statement of Gen. F. C. Ainsworth, Chief of the Record and Pension Office, War Department, February 12, 1904. Statement of William Dudley Foulke, Member of the National Committee on Super- annuation, Civil Service Reform League, February 23, 1904. Statement of Frederick I. Allen, Commissioner of Patents, February 26, 1904. Statement of W. H. Moody, Secretary of the Navy, March 5, 1904. 16 KETIEEMENT OF STJPEEANNUATED CIVIL-SERVICE EMPLOYEES. world, along with a reputation for great wealth and for otherwise liberal expenditures. The entire civilized world has shown great and growing recog- nition of pensions or retiring allowances ; and while the United States is so far behind the rest of the world in civil pensions, it has by far the largest pension list among the nations. The war and navy pensions are a recognized part of our policy, and in the civil service pensions have been extended to the judiciary. And though as a government we have halted at a general retiring allowance for civil employees, the great universities of our country and the great corporations have been taking immense steps along this very line, and the Federal Govern- ment is becoming more and more isolated. While I have spoken only of the effect upon the service itself of the lack of a system of retiring pensions, there are, as everyone knows, other claims upon the Government to establish this policy. I hope that the Congress will take up and consider favorably one of the various forms of law that are proposed. This subject has been before the coun- try and before the Government for a long while, and if the policy were to be adopted at this time it would undoubtedly give a strong impulse to that improve- ment of every branch of the service which is now so much desired by the people and which is a matter of so much interest to the Congress and to the adminis- tration. In expressing my opinion in favor of the retiring allowance, I pur- posely avoid the expression at this time of a preference for any particular plan or system. ' In his next and most recent report (1910) Secretary MacVeagh went further and declared himself in favor of the " contributory plan." Said he : I now beg to refer, as I did last year, to another requisite — another absolute requisite — of a satisfactory service. There is no practical way to put the Government service properly on its feet without' a fair and just method of civil- service retirement. This is not only a requisite, it is a prerequisite ; and unless Congres^shall give the Executive this necessary method of improving the serv- ice the country must accept a service that is not fully satisfactory and which can not be made fully satisfactory. Fortunately this retiring provision can be made — and this Is mathematically demonstrable — without the expense of one dollar to the Government. The con- tributory system of retiring allowances is not only the only system that has any chance whatever of being adopted, but it fortunately is the best system by far for the men and women of the service ; and it is, therefore, the part of wisdom for all the friends of this movement to concentrate upon this method. Of course, there must be paid by the Government the retiring allowances until the contributions by the members of the service have become sufficient to take care of the payments ; but these preliminary payments by the Government need not cost the Government anything whatever. All of the executive departments which have so far been consulted stand ready to carry out such a law without asking any addition whatever to their ordinary appropriations. The objection, therefore, that we might be introducing another pension roll has no justification. It had complete justification as long as the straight pension was in contemplation. The contributory allowance, however, is an entirely different matter and elimi- nates this objection altogether. The Government, therefore, can without any expense to itself, and by the mere passing of a law, set this whole matter right. It is only necessary to mention two things about the contributory plan, as con- trasted with the pension plan, to make clear its "advantages to the people in the service. It could never be taken as an answer to a claim for increased pay. It is a contribution of their own and not a contribution of the Government, and It is in no sense an estoppel of any argument in favor of increased pay at any RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOTEES. l*! time during its operation. On the other hand, a straight pension paid by th« Government would always be taken as an additional salary and would per petually have a tendency to estop any argument for increased compensation. The other consideration Is that under a pension system a man must not onlj live beyond the retiring age, but he must continue always In the service until that period in order to receive any pension at all; whereas under the con- tributory system, under all the accidents of life, he gets what belongs to him of the savings of the system. It is impossible not to regard a straight pension as a part of the salary, and if a man loses it altogether, owing to the accidents of life, he loses a part of his aggregate salary. The Treasury Department is engaged in the worli of increasing Its efficiencj and diminishing the relative expense of operation. It has made considerable progress, but has not nearly reached the end. At least 400 positions have been abolished. So far we have been able to talie care of all the displaced em- ployees, except in the case of the mint at Philadelphia and in other offices outside of Washington and New York, where, in the nature of the case, there were no opportunities for transfer. We have succeeded in transferring those who were displaced to places becoming vacant in the normal way, such va- cancies having been allowed to accumulate by temporary appointments. Whether it will be possible to continue to take care in this way of the employees whose positions we are abolishing I do not know. But this is clear, that any suc- cessful effort to Improve the administrative operations of a large department like the Treasury is Immediately handicapped and might well be discouraged entirely by the absence of a just method of retirement. And even when it is possible to protect these displaced clerks from being thrown into the streets it is done, in many cases, in denial of the right of an office to efficient help. Working In these improvements brings constantly to mind the hopelessness of ever arriving at a complete state of efficiency without a way of retiring clerks in a just and humane manner. I have no doubt that this very discouraging feature has in the past stood in the way of many attempts to improve the elHciency and economize the expense of operation in the departments. The Hon. Ethan A. Hitchcock, while Secretary of the Interior, said in his annual report of 1905 : It has been the policy of the department to select persons for employment therein of ability and integrity, and to insist upon the strict performance of the duties assigned them. Many branches of the service, however, have suf- fered by reason of the growing incapacity of some of the clerical force, for which there is no adequate remedy without doing injustice In many cases. On July 1, 1903, the number of employees of the department in Washington aggregated 4,166, of which 758 were between 50 and 59 years of age, and 810 60 years and over. The total number of employees of the department on the 1st day of July, 1905, was 4,082. The most recent census among the bureaus and offices of the department Is that taken in the Pension Office, which shows a total of 1,634 employees. Of this number there are 516 over 60 years of age, and the average age of all being 50 years and 3 months. This average, however, will doubtless be less at this time in other branches of the service. * * * The system now in use relative to the maintenance of the clerical force is unsatisfactory and expensive, and some provision by way of retirement shoiild be provided to meet the conditions that exist. I therefore renew the recom- mendation contained in my last annual report that appropriate legislation be enacted by Congress for the retirement from duty of superannuated clerks or aged employees. 18 RETIEEMENT OF SUPERANNUATED CIVIL-SEEVICB EMPLOYEES. In his annual report of 1908, the next Secretary of the Interior, the Hon. James Eudolph Garfield, reenforced the sentiments of his predecessor, saying : It is' to be hoped that Congress will provide for a reclassification of all the employees of the Government and a readjustment of the salaries. No one administrative change is more needed than this. It would enormously increase the efficiency of the public service. In addition to reclassification, adequate provision should be made for the retirement of employees who have given long and meritorious service.' The late Secretary of the Interior, the Hon. Richard A. Ballinger, made similar recommendations in his annual reports. In 1909 he said: The Department of the Interior in all of its bureaus in Washington is labor- ing under a great disadvantage in trying to introduce modern business methods and to keep pace with the Increasing volume of work, because of its inability to retire members of the clerical and laboring force after they have become incapacitated by age or other causes. Intermittent efforts have been made to secure congressional aid to retire them upon a basis that will recognize their long service and protect them against want. An Involuntary retirement and sustenance statute, by which all persons after arriving at a prescribed age, or for other reasons, should be required to stand an examination before a competent board as to physical and mental ability, with a fund created by national appropriation — in the first Instance, and maintained by some equitable system of contribution from salaries — would seem to me to be advisable. The need of a retirement plan for Government employees was again noted by Secretary Ballinger in his 1910 report : The appropriations for the maintenance of the service of the department and of Its buildings and grounds can be lessened only by a unification and simplifi- cation of business methods in the several bureaus and the establishment of a retirement fund for Government employees. So long as a retirement fund is withheld, the practice of pensioning superannuated and defective, though deserving, clerks by retaining them on the salary rolls must continue. This necessarily results in many competent persons receiving inadequate salaries and a reluctance to reward the highest grade of service by compensatory remuneration. The work of the Treasury and Interior Departments has probably suffered more than that of other departments through the incompe- tence of aged employees, while the Department of Commerce and Labor, being most recently organized and therefore full of "new blood," is the least hampered. Twenty-five years from now, however, when its middle-aged employees are old, lilie so many employees of the Land Office, the Pension Office, and the Treasury, the need of a retirement plan for civil employees will be as strongly felt in the Department of Commerce and Labor. It is significant, therefore, that the Hon. Oscar S. Straus, formerly Secretary of Commerce and Labor, stated in his annual report of 1908 the great need of a measure > See p. 2. EETIBEMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 19 for the retirement of superannuated employees, and drew attention to another difficulty in the way of enforcement of the civil-service law; that is, the activity of the inefficient clerks' political friends. Said he: On July 1, 1907, the chiefs of bureaus and divisions were directed to report the efficiency ratings of all persons who were shown by the ratings of 1906 to be below the required standard of ability either as to the quantity or quality of work performed. These reports showed that the effect of the warning given In January, 1907, that an immediate improvement was expected in their work, was most salutary. A number of instances were reported in which there had been a material improvement either as to quality or quantity, or both. There were some cases, however, in which there was apparently no improvement. Several of these cases have been adjusted by discontinuance without prejudice, reduc- tion in salary, or by resignation. As a rule, the persons rated below the required standard are employees of advanced age who have given many years of service to the Government. The obstacles in the way of the separation of such employees are real and not fancied. The head of the department, while not forgetful of his responsibility, finds it a difficult task to direct removal, although it is conceded that the persons are no longer rendering efficient service. This is not so much due to the sympathy of the appointing officer — although it is possible that this may have some weight — as to the great pressure immedi- ately brought to bear by public and prominent men and women to prevent dismissal. This is a condition and not a theory, and is perhaps the strongest reason for the enactment of a law for the retirement of superannuated em- ployees.' Mr. Straus's successor, the Hon. Charles Nagel, has given consid- erable space in his last annual report (1910) to the discussion of the problem of superannuation. Among other things he says : Probably no question dealing with the personnel of the service has been so seriously considered during the past year as that relating to superannuation. Most civilized countries now provide equitable means for the retirement of their employees, as do many of the State and municipal governments, as well as corporations and large industries, of this country. The problem was encoun- tered and dealt with in the United States Army and Navy 50 years ago. It is now critically present and awaiting solution in the civil departments of the Government. While many unacquainted with actual conditions have frequently approached the subject in a spirit of humanitarianism, most of those in and out of the service now look upon superannuation as an unavoidable contingency which must be met by the application of modern ideas and strictly business principles. Until this is done department officials will continue to bear the burden of an inefficient force rather than place themselves on record as remov- ing, or even reducing, a public servant who has become incapacitated while in the faithful performance of duty. Therefore, while humanitarian reasons may have at first suggested the advisability, and in fact the duty, of providing a system of retirement, it Is now being recognized quite generally that the condi- tions are such as to more than justify it from a strictly economical point of view. The retirement of aged and superannuated employees under some liberal system would likely result in a positive financial saving by creating opportunity for the employment of young men who are able to do two to three times as much work for the salaries paid. It is therefore important that the subject 20 EETIEEMENT OP SUPERANNUATED CIVIIi-SERVICB EMPLOYEES. have serious attention, to the end that the Government may be conducted In the most economical manner and at the same time provision be made for faithful servants who have devoted their entire lives to the transaction of the public business. In his last annual report (1910) the Secretary of War, the Hon. J. M. Dickinson, treats of the subject at length, quoting numerous officials of the War Department to the effect that a retirement measure for civil employees is greatly needed. Says he : I renew the recommendation made in my annual report last year that some provision be made for the retirement on annuities of employees who have be- come superannuated in the service, thus following the practice which many railroads and other- large business enterprises have found it advisable to adopt. In his annual report for 1910 the Chief of Engineers, in acknowledging the "most loyal and efficient support and assistance in the transaction of the duties devolving upon him " received from the civilian employees of his office, states : " I take pleasure in joining my predecessor in the hope that some provision will speedily be made for their financial relief when they become superannu- ated in the public service, to which many of them have devoted the best years of their lives — the salaries of the office clerks as fixed by law, and practically unchanged for 50 years, being too small, excepting in rare Instances, to permit such accumulation as will provide for their support when they become inca- pacitated for active duty." The following extracts are taken from the annual reports of other chiefs of bureaus of the War Department and of commanding generals of departments who have made similar recommendations : From report of the Paymaster General : " The present movement for the retirement of clerks with sufficient compensa- tion after they have reached an age which incapacitates them for the perform- ance of their full duties is certainly worthy of favorable consideration, and I hope that legislation will shortly be enacted which will establish a retired-pay list for Government clerks." From report of the Inspector General : " In my annual reports for several years past I have recomniended the enact- ment of legislation that will provide a system for the retirement of the faithful employees in the classified service who become superannuated. I renew this recommendation." From report of the Quartermaster General : " The need of some provision for superannuated clerks is more pressing than ever before in the history of the department. During the year it has again become necessary to demote a number of deserving clerks, for causes which can be stated only as worn out in service. For the protection of the Government's interests it will be necessary to continue this action and even to take the final step of discharging those whose capacity for service has reached the point where their retention can be no longer justified, and they will, unless some provision Is made for them by legislative action, have to be set adrift under conditions which preclude every opportunity for obtaining remunerative employment else- where." From report of the Commissary General : " I also earnestly recommend the passage of a measure providing for the re- tirement, on some equitable plan, of old and faithful superannuated employees BETIBEMENO; OP SUPEEANNUATED CIVIL-SERVICE EMPLOYEES. 21 of the Government, for the reason that It would result in marked Improvement In the service: " First, by attracting a better class of employees, a large percentage of whom by reason of the provision for old age would remain in and make the service their career, becoming expert in their particular line of work, to the distinct advantage of the Government; and there never was a time when the highest qualification and equipment were more needed in the service than at present. " Second, by the added Incentive held out to each employee to do his best In order to obtain promotion to higher grades, and later profiting by increased retired pay. "Third, by the periodic and automatic elimination of those whose efficiency has been impaired by age or Infirmity and the introduction of younger and more vigorous men, thereby maintaining an active and efficient working force and making it possible in time to transact the business with fewer employees. " Fourth, aside from all sentimental consideration, it is believed that the service would be greatly improved if it should be known to all who enter it that a provision is made for the support of themselves and their families when old age comes upon them. It would be an inducement for them not only to remain in the service, but to deport themselves in such a manner as to do noth- ing to forfeit so valuable a provision. " Fifth, because in cases of protracted illness employees worry over the pos- sibility of being discharged, and the anxiety tends to retard their recovery and return, whereas if they were free from this apprehension and felt secure of being provided for in the event of becoming incapacitated their strength and courage would be sustained and recovery assisted rather than impeded. " Sixth, because railroads, corporations, and commercial houses recognize and reward long and faithful service by retirement, and regard it as a good business investment; and other governments also make some provision for their aged and worn-out civil servants." From report of the Surgeon General: "Some discussion of the cognate question of the superannuation of civil employees may also be deemed pertinent. This office has perhaps been fortunate In having suffered little burden from its elderly and aged employees. The majority of the clerks of advanced years came into this office in the full tide of youth shortly after the close of the Civil War, nearly all of them either directly or indirectly from the Army. Their military experience and familiarity with Army customs, methods, and principles have lent the greatest value to their work. They have grown old In the service ; and age has in some instances dimmed the keenness of their faculties or diminished the vigor of their Industry. Most of them are of the highest usefulness, and by reason of their natural gifts, experience, and continued efficiency are kept in the positions of greatest trust and responsibility. Their absence record compares favorably with that of their younger colleagues, while their capacity, as a rule, remains unimpaired. In some cases it has been found necessary, in their own interest as well as in that of the service, to assign them to less onerous tasks with which their failing powers were better able to cope; and this has been accompanied by an appro- priate reduction of grade and pay, a procedure which is distressing alike to those who must cause such reductions and to those who suffer by them. But these veterans, even at the reduced pay, still were able to earn a livelihood. I am bound to admit, however, that one or two Instances have come to my notice where men enfeebled by disease and the infirmities of age have after long service been unable to continue the performance of duty of any character, and under the law have, after a brief indulgence of leave, found themselves 22 RETIBEMENT OF SUPERANNUATED CrVIL-SEBVICE EMPLOYEES. dropped from the rolls. Few men In the lower grades of public service in Washington, having due regard to the great cost of the comforts of life, of the decent maintenance of their families, and of the education of their children, are able to make adequate provision for an unproductive old age. When, there- fore, such disability comes to these old men, as it will to some, it appears a harsh reward for a lifetime's service to throw them out upon the cold sympa- thies of the world. Suitable provision for their last years is a fair call of humanity. At the same time it would serve a valuable public purpose as well, for it would attract to and retain in the service of the Government a class of employees of exceptional capacity who, without such inducement, now turn to a private career, because of the greater opportunities there found for the accumulation of a reasonable competency for their old age." From report of Brig. Gen. F. A. Smith, commanding Department of the Missouri : " • • * It is also recommended that some measures be taken to provide a pension or a system of retirement for clerks and employees who have become superannuated and who have devoted the greater part of their lives to the Government service." From report of Brig. Gen. C. L. Hodges, commanding Department of Dakota : "* • * I also recommend that steps be taken to have such legislation enacted as will provide a system of retirement for all clerks and employees of the War Department who have become superannuated in the Government service." Adjt. Gen. F. C. Ainsworth, when Chief of the Record and Pension Office, War Department, in his testimony before the House Commit- tee on Reform in the Civil Service on February 12, 1904, compared the present need of the civil service for a satisfactory retirement plan to the need of a similar measure once felt by the military serv- ice. He went so far as to say that our present system of retaining the superannuated in office amounts in effect to the maintenance of a civil pension list. Said he: In the absence of some measure of relief it is the inevitable result of per- manence of tenure of office in the civil as well as in the military establishment that there shall be an accumulation of superannuated or otherwise incompetent officials. The truth of this statement is well illustrated by the condition which existed In the Army of the United States for many years prior to the Givil War. There being no retired list at that time, officers were as a rule retained on the active list until they died. The result of this was that the Army, especially in the higher grades, was burdened with a large number of disabled or super- annuated officers, some of whom rendered no actual service for many years, and all of whom held the grades and received the salaries which should have been held and received by junior officers who actually performed the duties of these grades. At the beginning of the Civil War Congress enacted a retirement law, and this relieved the Army of the incubus which It had borne so long. A similar state of affairs exists In the civil service to-day, although, of course, the evil has not yet attained, and possibly may never- attain, very dangerous proportions. But, disguise the situation as we may, the fact remains that so long as any employees of the civil establishment are retained on the pay rolls beyond the period of their ability to render a fair return in service for the salaries paid them to that extent a civil pension list or civil retired list has RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 23 been established. Such a list, although not a large one, and perhaps a compara- tively unimportant one at the present time, is in existence to-day and wlU continue to exist until the situation is materially changed by legislation. The present Postmaster General, the Hon. Frank A. Hitchcock, dis- cussed the need of malting provision foi: the retirement of super- annuated employees in his annual report of 1909, as follows : In recent years the subject of making provision for the retirement of super- annuated employees in the civil service has received much consideration. It is believed that the interests of the employees and of the Government alike de- mand legislation to this end. The work of the postal service, like that of every great business institution, public or private, requires special training. Years of experience are necessary for the attainment of a high degree of proficiency in the discharge of the duties devolving on postal employees. The department's policy is therefore to recruit its force from young men, and to retain them until such time as their usefulness Is Impaired by advancing age. In view of the increased cost of living, the salaries paid are barely sufiicient to enable the employees to meet current needs, and the opportunity to make provision for old age is small. These conditions suggest the adoption of measures that will insure Government employees against want after they pass the period of active service. Private business establishments in this and foreign countries find that such a course brings practical returns in the increased loyalty and zeal of employees. Experience has shown that in default of such provision administrative officers hesitate to recommend the dismissal or the reduction in salary of superannuated employees who have spent their lives in the Government service. The drain on the national finances by their retention at full pay after they have become In- capacitated for eflScient service is far greater than would be the cost of a reasonable system of civil pensions. The Second Assistant Postmaster General, the Hon. Joseph Stewart, emphasized in his report of the same year the special need of a retirement measure for the benefit of the Eailway Mail Service : * • • Eecommendation has been submitted from time to time that suitable provision be made for the retirement of railway postal clerks who have become unfit for active service by reason of advanced age or physical disability. The need for this in the Railway Mail Service is more urgent, perhaps, than in other branches of the postal service, because the character of the work demands young and active men. Old men can not stand the excitement and nervous strain of service on our heavy lines, and an endeavor to retire them, as far as practicable, to lighter runs usually finds opposition because it necessarily involves a reduc- tion in salary, and in some cases the breaking of home ties by change of residence. If retained on the heavy lines the burden of performing some portion of their duties necessarily falls on younger clerks, or is met by an additional clerical force. There has been a general discussion for some years with ref- erence to a suitable provision for the retirement of civil-service employees upon terms fair and equitable to both the Government and the employees, which I favor. If such provision be made it will no doubt cover the Railway Mail Service. If, however, there is no prospect for early action it is recommended that consideration be given a provision covering the Railway Mail Service. 24 RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLPYEBS. The former Auditor for the Post Office Department, the Hon, M. O. Chance,^ has dwelt on the need of a suitable and adequate superannua- tion measure in his reports for 1909 and 1910. He states also that he has considered the various solutions offered to the problem of super- annuation and that the only plan that commends itself to him as sound and equitable is the one embodied in Senate bill 1944, the plan discussed in this report. His reasons are thus set forth : I wish to repeat, with emphasis, what I said in my last annual report In regard to the need in this office of a suitable and adequate superannuation measure * ♦ *. The various straight-pension and contributory plans of retirement proposed have received my careful attention, and I have no hesitation in saying that the only plan that commends itself to me as a thoroughly sound and equitable solu- tion of this most difficult problem is that embodied in Senate bill 1944, com- monly referred to as the Perkins bill, and found in a modified form in the Glllett bill. This bill makes provision for retiring civil employees on annuities pur- chased by themselves by means of monthly deductions from salary. It is in effect a compulsory savings scheme, the Government merely to stand back of it by guaranteeing a certain rate of interest, taking care of the small expense of administration, and providing the annuities for services rendered up to the passage of the bill. As compared with a straight civil pension paid out of the Federal Treasury, this plan has many advantages, both for the Government and for the employees. The principal obligation of the Government would be to establish the plan by providing for those already grown old in the service, an obligation that would ultimately cease ; whereas under a pension the burden on the Public Treasury would continually increase. The chief advantage to the employee m this plan over a civil pension is the fact that his contributions remain his property under all conditions, and in case of resignation from the service before the age of retirement, or in case of death, they are returned to him or his estate with compound interest. On the other hand, under a civil pension scheme only those who live and are able to remain in the service to a stated age receive any benefit This means, furthermore, that the employee works below the market price, since the pension Is invariably taken into account in fixing salaries, and unless he lives and remains in the service to pensionable age and enough longer to draw the full value of his deferred pay his family is worse off through all the years of his service than they would have been had there been no civil pension list. It is manifest also that this contributory plan would tend to stimulate strongly the independence of the individual, as it should do, while a pension paid out of public funds on condition that the employees survive and remain in the service to a stated age must of necessity have the opposite effect and destroy the independence of the employee. A straight pension would have a numbing effect also on the public service, since it would interfere with the removal of young or middle-aged employees who are Incompetent, dismissal under a pen- sion system meaning forfeiture not only of salary but of prospective pension already partly earned. For these reasons, chiefly, I most heartily Indorse the plan embodied in Sen- ate bill 1944. The subject of superannuation in the public service has received the attention of President Taft in two annual messages to Conerress. In KETIEEMENT OP SUPEEANNTJATED OrVIL-SEBVICE EMPLOYEES. 25 his message to Congress in 1909, under the caption of " Reduction in the cost of governmental administration," he recommended legisla- tion for the retirement of superannuated civil servants, coupling with it a recommendation for an increase of salaries. He said : More than this, every reform directed toward improvement in the average efficiency of Government employees must depend on the ability of the executive to eliminate from the Government service those who are inefficient from any cause, and as the degree of efficiency in all the departments is much lessened by the retention of old employees who have outlived their energy and useful- ness, it is indispensable to any proper system of economy that provision be made so that their separation from the service shall be easy and inevitable. It is impossible to make such provision unless there is adopted a plan of civil pensions. Most of the great industrial organizations, and many of the well-conducted railways of this country, are coming to the conclusion that a system of pensions for old employees, and the substitution therefor of younger and more energetic servants, promotes both economy and efficiency of administration. I am aware that there is a strong feeling in both Houses of Congress, and possibly in the country, against the establishment of civil pensions, and that this has, naturally, grown out of the heavy burden of military pensions, which It has always been the policy of our Government to assume; but I am strongly convinced that no other practical solution of the difficulties presented by the superannuation of civil servants can be found than that of a system of civil pensions. The business and expenditures of the Government have expanded enormously since the Spanish War, but as the revenues have increased in nearly the same proportion as the expenditures until recently, the attention of the public, and of those responsible for the Government, has not been fastened upon the ques- tion of reducing the cost of administration. We can not, in view of the ad- vancing prices of living, hope to save money by a reduction in the standard of salaries paid. Indeed, if any change is made in that regard, an Increase rather than a decrease wijl be necessary; and the only means of economy will be In reducing the numbef of employees and In obtaining a greater average of efficiency from those retained in the service. In his next and most recent annual message to Congress (1910) President Taft went still further and recommended a definite plan — the one discussed in this report— and a definite bill— the Gillett bill (H. R. 22013)— as the one, in his judgment, best calculated to solve satisfactorily the problem of superannuation in the civil service. He said : It is impossible to proceed far in such an investigation without perceiving the need of a suitable means of eliminating from the service the superannuated. This can be done in one of two ways, either by straight civil pension or by some form of contributory plan. Careful study of experiments made by foreign governments shows that three serious objections to the civil pension payable out of the Public Treasury may be brought against it by the taxpayer, the administrative officer, and the civil employee, respectively. A civil pension is bound to become an enormous, con- tinuous, and increasing tax on the public exchequer ; It is demoralizing to the service since it makes difficult the dismissal of incompetent employees after they 26 BETIEEMBJSTT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. Lave partly earned their pension ; and it is disadvantageous to the main body of employees themselves since it is always taken into account in fixing salaries and only the few who survive and remain in the service until pensionable age receive the value of their deferred pay. For this reason, after a half century of expe- rience under a most liberal pension system, the civil servants of England suc- ceeded, about a year ago, in having the system so modified as to make it vir- tually a contributory plan with provision for refund of their theoretical contri- butions. The experience of England and other countries shows that neither can a con- tributory plan be successful, human nature being what it is, which does not make provision for the return of contributions, with interest, in case of death or resignation before pensionable age. Followed to its logical conclusion this means that the simplest and most independent solution of the problem for both employee and the Government is a compulsory savings arrangement, the employee to set aside from his salary a sum sufficient, with the help of a liberal rate of interest from the Government, to purchase an adequate annuity for him on retirement, this accumulation to be inalienably his and claimable if he leaves the service before reaching the retirement age or by his heirs in case of his death. This is the principle upon which the Gillett bill now pending is drawn. The Gillett bill, however, goes further and provides that the Government shall contribute to the pension fund of those employees who are now so advanced In age that their personal contributions will not be sufficient to create their annuities before reaching the retirement age. In my judgment this provision should be amended so that the annuities of those employees shall be paid out of the salaries appropriated for the positions vacated by retirement, and that the difference between the annuities thus granted and the salaries may be used for the employment of efficient clerks at the lower grades. If the bill can be thus amended, I recommend its passage, as It will initiate a valuable system and ultimately result in a great saving in the public expenditures. It would seem from these and similar statements that the chief executive officials of the Government are agreed in feeling that the highest degree of effectiveness and economy is impossible in the ad- ministration of the public offices so long as Congress fails to enact legislation for the retirement of superannuated employees. Most of them hesitate to indicate preference for any particular plan of retire- ment, feeling apparently that that is a matter to be worked out by experts. The Secretary of Commerce and Labor has, however, de- clared himself in favor of a " straight pension system " if salaries remain as they are; the Secretary of the Treasury and the Secretary of the Interior have expressed preference for a " contributory plan," and President Taft and Auditor Chance have recommended, respec- tively, the Gillett (H. E. 22013) and Perkins (S. 1944) bills, two bills covering a contributory plan which are identical in principle and almost so in detail. Nearly every public officer who has discussed the problem has made reference also to the inadequacy of Government salaries, seeming to appreciate the fact that the question of salaries and of retirement are two phases of the same general problem efficiency in the civil service. BETIBEMENT OP SUPEEANNUATED CIVIL-SERVICE EMPLOYEES. 27 Two things therefore seem clear from all these statements: (1) That the interests of the service demand the elimination of the superannuated employee ; and (2) That elimination of the superannuated employee from the service after he has been poorly paid for years is not just unless it is accomplished by retirement of the employee on a competence. " This means that an adequate plan for the retirement of super- annuated employees of the civil service is necessary as a logical com- plement of the civil-service law and that the absence of such a plan practically nullifies much of the good that the law would otherwise accomplish. NUMEROUS RETIREMENT BILLS INTRODUCED IN CONGRESS. The truth of this conclusion having long been recognized, many bills providing for the retirement of Government employees have been introduced in Congress. Some of the proposed measures have been carefully considered by the proper congressional com- mittees, but until February 23, 1909, no bill had ever been favorably reported out of committee. The bill then reported to the House of Representatives by its Committee on Eeform in the Civil Service, of which Hon. Frederick H. Gillett was chairman, was first considered at hearings held before that committee on March 10, 11, 13, 20, and 21, and on April 13, 1908. While lack of time prevented the members of the committee from investigating thoroughly some of the ques- tions involved in the proposed measure and reporting on it before the close of the first session of the Sixtieth Congress, they agreed to take up the subject on the opening of the second session, and requested that further data bearing on the plan be prepared in the interval. PLAN EMBODIED IN PERKINS, GILLETT, AND AUSTIN BILLS. The plan under consideration is found embodied in three bills introduced in the House of Representatives in the spring of 1908 and known, respectively, as H. R. 17969, H. R. 18982, and H. R. 21261, a fourth bill favorably reported on February 23, 1909, and known as H. R. 28286, a fifth bill introduced in the Senate on April 21, 1909, and known as Senate bill 1944, a sixth bill favorably re- ported by the House committee on April 4, 1910, and known as H. R. 22013, and finally a seventh bill introduced for the second time April 4, 1911, as H. R. 729. The groundwork of the seven bills is identical, the differences being of minor consideration, though in some cases of no little importance. The proposed plan first found public expression in a preliminary report of the subcommittee on personnel of the Com- mittee on Department Methods, commonly known as the " Keep 28 RETIREMENT OF SUPERANNUATED CIVII/-SERVICE EMPLOYEES. Commission," of which the author had formerly been a member, and was distributed in a circular sent out by the Civil Service Ketire- ment Association on August 9, 1907. The bill drawn up to embody this plan was criticized by the National Civil Service Reform League in its convention held at Buffalo in November, 1907, for certain fea- tures relating to the interest which the Government was required to pay on the clerks' savings. To meet these objections the subcommit- tee modified these features, and the resulting bill, popularly known as the "Keep bill," was introduced in Congress on February 18, 1908, by Hon. Joseph A. Goulden, of New York, as H. E. 17969. Later, the objections of the League were met by the author in another way — in a bill intsoduced in Congress on March 10, 1908, by Hon. Frederick H. Gillett, and known as H. E. 18982. At the hearings held in the spring of 1908 members of the subcommittee of the Keep Commission, representatives of the Civil Service Eetirement Asso- ciation, and various individuals with ideas on the subject of retire- ment funds had an opportunity to speak for and against this plan and any other, and as a result of the sifting and weighing to which each clause of the two proposed bills was subjected a third bill was evolved, which -^as introduced on April 20 by Mr. Gillett, and is known as H. Ev-Q1261. After study «f all the ideas advanced at these hearings and the history of retirement plans in other countries, the author prepared the text for a fourth bill, which is the one presented and discussed in this report. The full text of this proposed bill is found on page 210. It was introduced in the Senate on April 21, 1909, by Senator Perkins, formerly chairman of the Committee on Civil Service and Eetrench- ment, and is known as Senate bill 1944. In the meantime, late in the second session of the Sixtieth Congress (February 23, 1909) , the House Committee on Reform in the Civil Service reported favorably a bill, which is known as H. E. 28286. It differs from the bill here discussed in providing that annuities for back services shall be paid out of a fund created by deductions from the salaries of new entrants and the salaries of those promoted, instead of by the Government. A new administration coming in and a special session of Congress being called a few days after this bill was favorably reported, no action could be taken on it. Late in the following session, the first session of the Sixty-first Congress, another bill (H. E. 22013) was faA'^orably reported by the House committee (April 4, 1910). This bill approaches much more nearly to the ideal here discussed than did the bill favorably reported the previous year, for it provides, like Senate bill 1944, that annuities for back services shall be paid by the Government, but puts a limit of $600 a year on the amount that can be paid by the Government to any one individual. On the other hand, it makes extremely liberal provision for retirement in case of EETIBEMENT OF SUPEEANNUATFJ) CIVIL-SERVICE EMPLOYEES. 29 disability. Both the bills favorably reported (H. E. 28286 and H E 22013) are frequently referred to as the " Gillett bill," but it should be noted that they differ radically in regard to the method proposed for paying annuities on past services, and that the second Gillett bill (H. E. 22013), the latest expression of the House committee's judgment,* is identical in principle and in almost every detail also with the Perkins bill (S. 1944), here expounded. This report is, therefore, a report on the last ^ Gillett bill as well as the Perkins bill.^' Through all the modifications suggested in these several bills the plan itself remains unchanged. It divides itself naturally into two parts. Part I provides annuities for employees rendering service from now on. Part II provides annuities for employees who ren- dered service prior to the adoption of the plan. Part I is really the plan proper, since the operation of the second part will ultimately cease with the death or separation from the service of all the present employees. ^ Part I of the plan proposes that each employee in the' classified civil service shall, on reaching the age of retirement, receive an an- nuity equal to 1| per cent of his salary for each year of his service, or, as it may be differently stated, an annuity equal to 1| per cent of the total compensation received by him during his entire service. The theoretical basis of this provision is the assumption that three- quarters pay, or 75 per cent of his average salary, is a reasonable iinnuity for a person who has given his entire working life — that is about 50 years — to the service. Dividing 75 per cent by 50 years of service, 1^ per cent for each year of service is obtained as a basis for computing annuities for any period of service. The annuity is created by the employee himself, who is required to set aside during each month of his continuance in the service a sum sufficient with compound interest, at 3J per cent, to create that annuity at the age of retirement. These deductions from salary represent no fixed per- centage of salary, but vary with the age of entrance into the service, ranging in the case of employees to be retired at the age of 70 from 4.3 per cent for the individual who enters the service at the age of 20 to 11.2 per cent for the individual who enters at the age of 69. The amount deducted remains constant throughout the years of service, except in case of promotion or demotion, when it is increased or decreased accordingly on the basis of the employee's attained age. 'This is the biU indorsed by President Taft in his recent annual message. 'Since this report went to press Mr. Gillett has introduced a third Gillett bill (H. E. 750, 62d Cong., 1st sess.), a bill which expresses more nearly his personal ideas than did either of the two previous bills bearing his name. It contains no disability clause, but provides that the Government shall pay 4 per cent interest on the employees' savings rather than only Si per cent. ■This is practically a report also on the Austin bill (H. E. 729), which was introduced in Congress by Hon. Eichard W. Austin after this report was in proof. The Austin bill is based on the same principles and embodies the best features of both the Gillett and Per- kins bills as to superannuation, providing in addition for an increase of salaries. 30 BETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. Each employee thus sets aside the amount of money necessary to create his own annuity only, without regard to the deposits of others, so that each one shall receive full return on the money which he thus accumu- lates. The funds necessary for the payment of the annuities are therefore furnished by the employees themselves, without expense to the Government, except that involved in the administration of the fund. The scheme is virtually a compulsory savings arrange- ment with the requirement that the savings in each case be sufficient for the purchase of an annuity at the age of retirement equal to 1^ per cent of the aggregate salary. In proposing that the Government pay SJ per cent interest on the savings of the employees, it was not felt that the plan could be criti- cized on the ground of expense to the Government if provision were made in the bill for the investment of the fund in public bonds. In a long period of years these bonds would probably yield more than 3^ per cent interest, and provision is made that whatever is earned above the guaranteed rate of interest should be returned to the employees.^ On reaching the age of retirement, the employee may take his savings in one of three ways — in an annuity payable quarterly throughout life; in a smaller 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; and in one sum. The age of retirement varies, the service being divided for this purpose into three groups — the first group consisting of railway postal clerks who may retire at age 60, the second group consisting of letter carriers to be retired at age 65, and the third group comprising all the remaining branches of the service and to be retired at age 70. Since it is often to the advantage of the service that an old employee be retained because of some special knowledge or skill, provision is made for the retention of such an employee after the age retirement, for two years and for successive periods of two years each, on certificate of the head of the department in which he is employed that he is efficient and that his services are advantageous to the Government. Upon absolute separation from the service before reaching the age of retirement, whether by resignation or dismissal, and only in such event, the employee shall have the privilege of withdrawing his accumulations in one sum, or, if the amount to his credit be at least $1,000, he may use his savings to provide an annuity at his attained age. In case of the death of an employee while in the service, the amount to his credit shall be paid to his legal heirs. > In the opinion of the author, the Government could well afford to guarantee at least 4 per cent, and probably 6 per cent, as provided for In the Austin bill (H. E. 729). EETIREMBNT OP SUPEEANNUATED CIVIL-SERVICE EMPLOYEES. 31 The so-called Keep bill (H. E. 17969) contained a provision for retirement after 20 years' service on an annuity of IJ per cent of pay for each year of service in case of permanent disability. While a disability provision is recognized as very desirable in any scheme which aims at the improvement of the service, the provision was omitted from the two succeeding bills because no information as to its cost was available. An estimate of the cost of the limited pro- vision contained in the Keep bill has, however, been made by the author and is presented in this report, with a suggestion as to how that cost could be met, also without expense to the Government. This estimate is based on German tables of disability, which are so ex- tremely conservative, on account of conditions explained in the re- port, as to make the rates very high, and the estimate accordingly errs on the side of safety. It completely demonstrates, however, the feasibility of accepting the proposed disability clause as stated above, if the cost is met by the means suggested. A more liberal disability provision could doubtless be provided in time, when, through the operation of the plan, sufficient statistical data concerning the dis- ability of the civil employees had been accumulated to warrant the construction of more moderate disability rates, based on the Govern- ment's own experience.^ COST OF PUTTING PKOPOSED PLAN IN OPERATION. Part II of the plan proposes, as set forth in the first bills, H. R. 17969 and H. E. 18982, and in the Senate bill here proposed and discussed, that the Government shall pay all employees now in the classified civil service an annuity on arrival at age 70 equal to 1^ per cent of his salary for each year of service prior to the passage of the bill, and from that time on the employees shall provide their own annuities as arranged for in Part I of the plan. Part II, as set forth in the aforementioned bills, is thus kept consistent with the spirit of the plan proper, which is based on the principle that each employee shall provide his own annuity, no younger employee being taxed for the benefit of older employees. While not in any way essential to ihe adoption of the plan proper (Part I), Part II is naturally in- cluded in the whole scheme for two reasons : First, considerations of justice and humanity dictate that provision be made for those already superannuated in the service and those so near superannuation as to lack time to accumulate, through their own savings, a fund sufficient to give them an annuity on retirement; secondly, the lack of some such provision for past services would delay the full benefit to the 'Since the above was written the second " Gillett bill" (H. R. 22013) has been favorably reported (Apr. 4, 1910), containing a disability provision which is much more liberal than that contained in the Keep bill. No estimate as to its cost has been made. 32 RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. Government under the plan proper for a period of about 40 years, or until the majority of those now in the service had passed away. If Part I alone is adopted, the plan can go into effect at once, with- out cost to the Government except that necessary to meet the ex- penses of administration. In that case, however, it would be a full generation before the public service would be benefited by a thorough elimination of the superannuated. Bearing in mind the fact that the estimated loss to the Government through superannuation in the civil service is about $1,200,000 a year, the Keep Commission, in sub- mitting to President Koosevelt its report of February 18, 1908, on superannuation in the civil service, recommended as good business policy the adoption of Part II along with Part I of the plan, since any measure which will relieve the Government of the evil of superannua- tion at a cost of $1,200,000 or less is plainly a saving of public funds. It is apparent also that, even if the adoption of Part II should cost considerably more than $1,200,000 a year for a while, it would still be a wise expenditure of public funds, and a means of economy, for such appropriations would be practically negligible in 50 years, and cease completely by the time that all present employees are dead, whereas, under present conditions, the Government's loss from ineffi- ciency of its aged employees is a steady, permanent, and growing annual loss. What it will cost, or seem to cost, to put the plan in immediate operation by adoption of Part II depends upon the number of em- ployees that Congress may decide to include in its benefits. It might seem desirable to limit the operation of the plan at the start to the District of Columbia since superannuation there is much greater than elsewhere in the service. Census Bulletin 94 (p. 49) shows that in the District of Columbia practically 1 Government em- ployee in 14 is at least 65 years of age, while elsewhere the correspond- ing figures are but about 1 in 34. Over 15 per cent of the employees in the State, War, and Navy Building and in the Treasury proper, over 14J per cent in the War Department, and over 11 per cent in the Interior Department are more than 65 years of age. Restriction of the plan to the civil service of the District of Columbia — that is, to 23,254 employees as against 170,228 employees in the whole service — is to be commended also on the general principle that it is always de- sirable to proceed slowly and cautiously in the inauguration of any new measure. Other branches of the service could be included gradually, as seemed desirable, and as confidence in the wisdom of the plan increased. Two calculations of the cost of paying annuities for back services have been made. The first calculation included 103,030 classified employees, while the second included 170,228 employees. The in- crease in the number of employees is due to the growth in the civil RETIREMENT OP SUPERANNUATED CIVIL.-SERVICE EMPLOYEES. 33 service during the interval which elapsed between the two reckonings, and to the fact that a number of groups of employees were included in the second calculation that were omitted from the first. It was the intention to include in this second calculation all groups of em- ployees that might possibly be embraced in any plan of retirement. The first calculation was made under the direction of the Keep Com- mission and was based on Census Bulletin 12, covering the classified employees as of June 30, 1903. The second calculation was based on the cards used in preparing Census Bulletin 94, covering the classified employees as of June 30, 1907, According to the first calculation, the total maximum sum required for putting into effect the provisions of Part II of this plan was $66,985,778, or about $725,000 in the first year, increasing gradually and reaching a maximum of $1,746,561 about 30 years after the pas- sage of the bill. After the thirty-third year the amount required each year drops off very rapidly until in about 50 years, when all the present employees are dead, the plan would be self-sustaining. According to the last calculation, which embraces 67,361 more em- ployees, and is based on earlier ages of retirement and slightly more conservative mortality tables than the first estimate, the total maxi- mum sum required to pay annuities for back services would be $130,581,273, or about $1,120,000 the first year, increasing gradually and reaching the maximum of $3,495,000 about 28 years after the passage of the bill, and then dropping off gradually to nothing by the time all of the present employees are dead. It should be under- stood, however, that these calculations are necessarily exaggerated, since they make no allowance for the savings in annuities for back services that will be made through resignations before the age of retirement, which may be fairly estimated to equal the mortality, and because they are based on present salaries instead of average salaries, and because they make no allowance for retention of employees in the service past the age of retirement. The actual cost, therefore, of annuities for back services will be much less than these figures — probably not more than half as great, or about a million dollars a year for 50 years, which is equivalent to an increase in the Govern- ment pay roll of a little over one-half of 1 per cent. It should be remembered also that all things are only large or small by compari- son, and that even a million dollars a year for 50 years is a small sum compared with a permanent expenditure of a million two hundred thousand dollars a year, which is the sum computed to be lost annu- ally through the inefficiency of aged employees. The plan can, in other words, be put in immediate operation without increasing the annual expenditures of the Government by one dollar. One needs to be no profound mathematician to see that by paying the annuities for back services and thus establishing a self-supportmg plan of 74196°— S. Doc. 745, 61-3 3 34 EBTIBBMEKT OF SUPEEANNUATED CIVIL-SEBVICB EMPLOYEES. retirement, which would do away with that annual loss, the Govern- ment would effect an immediate and permanent economy. There would be a small saving the first year, a larger saving the second year, and so on, until by the time all present employees are dead the cost to the Government of superannuation would have ceased. HOW THIS COST MAT BE MET.' If annuities are paid for services rendered prior to the adoption of the plan, the obligation for their payment would seem to rest with the Government, which has had the benefit of those services. The sug- gestion was made, however, at the hearings held in the spring of 1908 that the plan proper might be put in operation without cost to the Government by imitating the practices of the French Government in raising the money to defray the expenses incident to the retirement of civil employees. This is done by making deductions from the sal- aries of new entrants and deductions from promotions. This idea was embodied in the third bill (H. E. 21261) introduced in Con- gress in the spring of 1908 and in the first bill (H. E. 28286) favor- ably reported by the House committee. According to the provisions of these two bills, a fund for the payment of annuities on services rendered prior to the passage of the bill would be created from two sources, (1) by a deduction for six months — that is, during the pro- bationary period — of one-fifth of the monthly pay of persons newly entering the service, and (2) by deductions from promotions of 25 per cent of the net annual increase, to be withheld during the first three months after promotion. This proposal was held by many to be open to serious objection as fundamentally unjust, since it requires contributions which are never returned to the contributor and im- poses a tax on efiiciency. It is certainly contrary to the spirit of the plan itself, which is based on the principle that each employee shall provide for his own annuity and not become in anj^ way a tax on fellow employees. Such a fund, however, might be justly used to defray the expense of a provision for disability as previously men- tioned, since the contributions would not then be diverted from the use of the contributors, as all would share in the protection furnished by such a provision. In the interval which elapsed between the favorable reporting of the last two House bills — ^between February 23, 1909, and April 4, 1 How the cost of putting the plan Into operation Is to be met Is a matter of bookkeep- ing. President Taft's recommendation in his annual message of December 6, 1910, that the annuities for back services shall be paid out of the salaries appropriated for the posi- tions vacated by retirement, and that the difference between the annuities thus granted and the salaries may be used for the employment of efficient clerks at the lower grades, is a practical solution of the difficulty and avoids a call for increase of appropriation. President Taft's recommendation Is based on statistics collected in the Treasury Depart- ment, the Post Office Department, and the Department of Commerce and Labor. For details, see pp. 182-185. EETIEEMENT OP SUPEEANNUATED CIVIIi-SEEVIOE EMPLOYEES. 35 1910 — ^the House Committee seems to have become convinced that it would be unjust to require the younger employees to provide for the retirement of the older ones, and the last bill favorably -reported (H. E. 22013) accordingly agrees in principle with the bill here pro- posed and discussed (Senate bill 1944) in providing that annuities for back services be paid by the Government. DIFFERENCE BETWEEN PERKINS AND GILLETT BILLS. It thus appears that the two bills, S. 1944 and H. K. 22013, which last had the attention of the Committees on Civil Service in the Senate and the House, agree not only on a definite plan of retiring civil employees, but also on the method by which it is to be put in immediate operation. The only material differences between them are two matters of detail. The House bill limits the amount payable by the Government for past services to $600 a year, and the Senate bill allows the full annuity for such services that would now be to the credit of the individual had the proposed plan always been in opera- tion. The House bill, on the other hand, makes more liberal pro- vision than does the Senate bill for retirement of employees in case of disability. STATISTICAL DATA CONTAINED IN THIS REPORT. This briefly is an account of the retirement plan which has been considered by the Committees of Civil Service in the Senate and the House and favorably reported by the House Committee. The Secre- tary of Commerce and Labor was requested by these committees at the close of the first session of the Sixtieth Congress to authorize the Bureau of the Census to prepare new tables, based on the most recent census of the executive civil service, showing the cost of annuities for back services, together with other data bearing on the plan. In this report, accordingly, are discussed the principles underlying the proposed savings and annuity plan, the mathematical basis of the 'plan, including the tables of mortality and interest on which the annuities and the necessary deductions from salary are computed, the minor provisions relating to separation from the service by reason of retirement, resignation, dismissal, disability, or death, the cost of paying annuities for back services as shown by the calculations made in the Bureau of the Census, and the provisions in the bill for invest- ment of the fund created by the savings of the employees. The Government Actuary of New Zealand, who devised the plan adopted there three years ago, made calculations to determine the probable cost of his plan, which contemplates a perpetual subsidy from the Government, but he carried his figures only through the first year and gave only an estimate as to the probable ultimate amount annually necessary. In calculating the cost of establishing 36 EETIEEMENT OP SUPEBANNUATED OIVIL-SEBVIOE EMPLOYEES. the plan proposed in the Perkins bill (S. 1944) , the computations have been carried through 78 years, to the time when every member of the present civil service will be dead and the plan self-supporting, so that the figures quoted are a more than safe maximum. Calculations covering a period of 78 years have also been made to show the cost of establishing the plan proposed in the Gillett bill (H. E. 22013). Finally, calculations have been made covering a period of 35 years to show the cost of a straight civil pension conferring the benefits of the Perkins bill and paid wholly from the Public Treasury. When not otherwise stated, all reference made in this report to " the bill " is understood to apply to the bill proposed and discussed in this report, S. 1944. CHAPTEE I. PEINCIPLES UNDERLYING PROPOSED PLAN, The plan described in this report and embodied in the accompany- ing bills ^ rests on four fundamental principles. FOUR FUNDAMENTAL PEINCIPIJ}S. They are as follows : (1) The funds necessary for the payment of annuities on services rendered after the adoption of the plan should be supplied by the employees themselves, without expense to the Government other than possibly the payment by the Government of a reasonable rate of inter- est on the money held by it and the payment of salaries to the clerical force required to keep the accounts and distribute the funds. (2) Each employee should set aside the amount necessary to cre- ate his own annuity, without regard to the deposits of others, so that each employee may receive full return on the money set aside by him. It is important that the amount set aside should be sufficient to buy an adequate annuity, else the condition of the superannuated employee will be little improved, and the aid of the Government ultimately be solicited. (3) The annuities to be paid employees on retirement should be graduated according to length of service and amount of salary and in such manner that the monthly deposits required from employees for the creation of such annuities shall be in no case excessive. (4) The fund necessary for the payment of annuities on services rendered prior to the adoption of the plan should be paid by the Government rather than by any form of tax upon the younger employees. It will thus be seen that the plan divides itself naturally into two parts, the first part, or plan proper, providing annuities for em- ployees rendering services from now on, and the second part provid- ing annuities for employees who rendered service prior to the adop- tion of the plan and are still members of the civil service. » See pp. 210-225. 37 38 KBTIKEMENT OF SUPERANNUATED CIVILrSEBVICB EMPLOYEES. OEITICISM OF PLANS PEEVIOUSIjT PEOPOSED. These principles were adopted as essential to the construction of a correct plan after careful study of the various plans which have been brought to the attention of Congress during the past 20 years, and those which have been tried by other Governments. These may be divided generally into two classes. First, noncontributory plans proposing the payment of annuities to the superannuated out of the Federal Treasury ; and Second, contributory plans proposing a uniform deduction of a given per cent — more or less adequate for the purpose in view — from the salaries of all employees to create a general fund out of which to pay annuities to retiring employees. This second class may prop- erly be subdivided into two divisions : (a) Those proposing a uniform deduction of a given per cent from all salaries and the payment of annuities based upon length of serv- ice; and (b) Those proposing a uniform deduction of a given per cent from all salaries and the payment of a uniform annuity regardless of length of service. CIVIL PENSIONS UNPOPULAR AND UNSOUND. The first group of plans — those proposing the payment of annui- ties out of the Federal Treasury — are, of course, simply civil pen- sions, such as England and Germany maintain for the benefit of their civil employees. It is true that arguments in favor of a civil pension are frequently heard in certain quarters in this country. It has become the custom, in recent years, for large business institutions to pension their old and worn-out employees. Many employers declare that it is good business policy, since it results in creating among their subordinates a sense of loyalty and an interest in the business, as well as a feeling of permanency in their employment, which are of benefit to the employer as well as the employee. Many of the most impor- tant railroads of the country have adopted a system of retirement for superannuated employees. It would seem as if a policy that the railroads and other great industrial enterprises of the country have found profitable might safely and wisely be followed by the Govern- ment. Eeasoning thus, many have contended that what the public service needs as an adjunct to the civil-service law is a civil pension list. Passing from the example of the railroads and the great corpo- rations, they have pointed to the pensions granted by the Govern- ment to those who have performed military service, and have argued that the civil employee was as deserving of that recognition as is the soldier or sailor. It has been shown that every great nation of the EETIEEMENT OP SUPEEANNUATED CIVIL-SEBVICB EMPLOYEES. 89 world, except the United States alone, provides some kind of pension for the superannuated civil employee, and some of them even provide a pension for the widows and orphans of such employees. Again and again the question is asked in all sincerity, and often by people who have wide knowledge of conditions among officeholders and among employees of private corporations in this and other countries. Why should not the United States Government grant a pension to its superannuated civil employees, as it does to its war veterans, as other nations do to their employees in the civil as well as military and naval branches of the public service, and as the great corpora- tions do to their old and faithful servants ? On the other hand, there is no doubt but that the people of the United States would generally look with disfavor on such a proposal. The popular objection seems to be based mostly on a well-grounded fear that a civil pension is bound to become enormously expensive, especially in a Republic. That there are also sound economic reasons why the adoption of any plan that is at all comparable to a civil pen- sion would be unwise for the State and disadvantageous to the em- ployees is not so well understood. Careful study of the history of civil pensions in other lands gives conclusive proof, however, that the pension payable out of the Public Treasury is not only costly for the Government — .that is, for the taxpayers of the country — but that it is demoralizing to the service, and finally that, contrary to the general impression, it works a real hardship on the employees themselves. The Civil Pension ib Expensive. A civil pension is bound to become enormously expensive, especially under a republican form of government, where the lawmakers must depend on popular favor for election. The difficulty of controlling legislation affecting pensions is well illustrated in the case of our own military and naval pensions. Although the United States makes provision for very few kinds of pensions,^ its outlay for pensions is notoriously great. Since the Civil War it has paid out about four billions of dollars in pensions to war veterans and their dependents. It is not likely that the people of the country generally would wel- come in addition a civil pension list with all its possibilities of abuse. Even were the list to be of most modest dimensions at the time of its establishment, it would be sure to grow in length and increase in cost- liness as time went on, for there is a constant tendency, under a pen- iThe only persons pensioned by the United States Government, besides war veterans and their dependents, are officers and enlisted men of the Army, Navy, and Marine Corps, and commissioned officers, warrant officers, and enlisted men of the Eevenue-Cutter Service, Army and Navy paymasters' clerks, and judges of the Supreme Court and of the United States courts. It is customary to pension the widows of deceased Presidents and to grant a year's salary to the widows of deceased Members of Congress, but this is done by special act of Congress and not under any general statute. 40 RETIEEMENT OF SUPERANNUATED CIVII/-SEBVICE EMPLOYEES. sion system, to extend its benefits to new classes of public servants. Such irresistible pressure would be brought to bear on Congress to include one class of employees after another under the system that ultimately, all members of the executive civil service, classified and un- classified, to the number of about 300,000, would be declared pen- sionable. While the country as a whole looks with antagonism on any increase of expenditures for pensions, yet everyone knows that the individual citizen with a claim usually feels justified in urging it upon Congress. COST OF CIVIL PENSIONS IN ENGLAND. It is hardly to be expected that, if the United States were to grant pensions to its civil employees, its experience would be any more favorable than that of England has been. When the Ridley Com- mission was appointed in England in 1886 to inquire into " the con- dition of the civil establishments," a subject which interested the members of the commission particularly was the cost of superannua- tion. Valuable data on this subject were supplied by Sir Herbert Maxwell and Mr. Frank Mowatt, two prominent officials of the Treasury. Sir Herbert showed the growth of the civil-service vote for superannuation from the years 1833-34 to 1868-69 by the follow- ing table : ^ Yeara. Amount. Years. Amount. Years. Amount. 1833-34 $272,363 286, 432 322,250 359,659 386,079 404,951 427,206 442,608 399,063 408, 786 395,646 417,646 1845-48 $390,780 393,213 424,369 375,694 535,884 529,319 626,680 658,726 647,147 660, 734 674,641 713,122 1867-68 $777,871 792, 699 812, 652 1834-36 1846-47 1858-69 1836-36 1847-48 1859-60 1836-37 1848-49 1860-61 864,840 900,984 898,872 868,762 902,586 872^963 904,624 958,871 1,337,640 1837-38 1849-50 1861-62 1838-39 1850-51 1862-63 1839-40 1861-62 1863-64 1840-41 1862-63 1864-65 1841-42 1853-54 1865-66. .. . 1842-43 1864-65 1866-67 1843-44 1866-66 1867-68 , 1868-69. 1844-45 1856-57 The cost of superannuation in the Revenue Departments, the Admiralty, the War Office, and the Royal Irish Constabulary was not included in the civil-service vote after 1832. In 1868-69 a number of noneffective charges were transferred from various effective votes to the superannuation estimate. After 1869-70 the appropriation accounts, as given by Sir Herbert Maxwell, were as follows : ^ 1 Second Beport ol Commission on Civil Establishments. 1888. Appendix, p. 422. RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 41 Years. Superan- nuation allowances. Compensa- tion allowances. Compas- sionate allow- ances. Compensa- tion and compas- sionate allowances. Gratui- ties. Total.' 1869-70 J802,630 851,190 912, 177 948,724 1,014,023 1,060,984 1,089,449 1,106,856 1,136,269 1,160,140 1,178,837 1,238,018 1,263,460 1,262,636 1,279,734 1,321,269 1,356,736 tl, 06,5, 160 977,402 962, 699 938,904 905,140 891,791 892,297 876,160 851,635 i m m m m m $14,264 16,349 15,680 17,320 18,824 18,984 ,^,19,860 * 19,266 17,568 $818,467 971,626 1,062,809 1,065,422 1,061,826 1,030,224 1,002,752 1,029,425 1,079,414 992,761 978,279 956,224 923,964 910,775 912,147 895,426 869,103 $5,742 77,226 25,402 28,260 18,483 9,392 11,373 6,346 14,132 12,666 13,592 14,089 11,782 11,816 12,687 11,972 13,315 $1,622,798 1,900,042 2,000,438 2,032,406 2,094,332 2,090,600 2,103,674 2,142,627 2,229,815 2,165,466 2,171,194 2,208,330 2,199,449 2,189,735 2,204,568 2,228,667 2,239,155 1870-71 1871-72 ... 1872-73 1873-74 1874-75 1875-76 1876-77 1877-78 1878-79 1879-80 1880-81 1881-82 . . . . 1882-83 1883-84 1884-85 I The sum of the items does not equal this total; the figures are, however, the equivalents of the English money, as computed by the Bureau of Labor. » Not separately reported. For the year 1887-88 Sir Herbert stated that a vote of £476,082 ($2,316,853) was taken in the civil-service estimates for superannua- tion and retired allowances, besides £1,412,622 ($6,874,525) provided for superannuation in the estimates of the several departments. Thus the total sum voted for superannuation of public servants (exclusive of military and naval pensions) was £1,888,704 ($9,191,378). It is not clear from Sir Herbert's statement whether this sum included allowances to the Eoyallrish Constabulary and the Dublin Metro- politan Police or not, but comparison with Mr. Mowatt's statement of the cost of civil pensions for the following year, 1888-89, would seem to indicate that it did. Mr. Mowatt's statement shows that the total sum voted for the superannuation of public officers in that year amounted to £1,907,863 ($9,284,615), including the Eoyal Irish Con- stabulary and Dublin Metropolitan Police, and to £1,581,992 ($7,698,- 764) excluding them. Brides this great sum voted by Parliament for that year, civil pensions to the amount of £345,517 ($1,681,458) were granted out of the Consolidated Fund, which would make a total expenditure of £2,253,380 ($10,966,073) for civil pensions.^ The increase in the cost of pensions did not cease in 1888 with the dissolution of the Eidley Commission. Fourteen years later, in 1902, when the Courtney Commission was appointed " to inquire whether it is possible so to amend the existing system of superannuation of persons in the civil service of the State as to confer greater and more uniform advantages upon those to whom it applies without increasing the burden which it imposes on the taxpayer," it was found that the pension charge had continued to increase steadily from year to year, the amount of the original estimate having risen from £1,592.597 ($7,750,373) in 1888-9 to £2,035,360 ($9,905,079) in 1902-3. Mr. T. L, Heath, a principal clerk in the Treasury, presented to the com- 1 See Civil Service Retirement, Great Britain and New Zealand, S. Doc. 290, 61st Cong., 2d sess., p. 133. 42 EETIEEMENT OF SUPERANNUATED CIVILrSERVICB EMPLOYEES. mission the following figures to show the amount of the original estimates for pensions during each of the years that had elapsed since the Kidley Commission reported in 1888. Superannuation and retired allowances — original estimates. Vote. 1888-89 1889-90 1890-91 1891-92 1892-93 1893-94 1894-95 1895-96 Superannuation al- lowances Compensation allow- ances Gratuities Compassionate allow- Prison officers' com- mutations Compassionate fund . Middlesex registry, pensions, etc Mercantile marine, pensions, etc $1,489,568 756,896 9,733 16,607 36,499 $1,533,911 735,508 9,733 16,266 40,392 3,40^ $1,643,873 717,337 14,699 12,852 43,798 3,407 $1,637,422 673,767 13,626 10,940 46,988 3,407 $1,633,971 640,203 9,733 8,594 47, i $1,793,602 600,920 9,733 10,040 33,301 3,407 2,711 $1,871,797 553,467 9,733 14,220 31,613 3,406 2,711 $1,977,215 537,140 9,733 14,010 27,296 3,407 2,711 Total War office Admiralty Customs Inland revenue Post office, etc Coimty court officers, Ireland 2,309,203 867,697 1,609,838 964,905 1,138,975 854,377 6,378 2,338,217 864,290 1,636,117 957,854 1,096,593 865,634 6,377 2,336,866 791,293 1,609,352 972,531 1,044,083 886,287 6,378 2,385,160 779, 127 1,553,387 966,078 1,018,889 931,964 6,377 2,343,599 749,928 1,526,621 949,094 1,025,863 1,013,269 - 6,377 2,463,714 759,661 1,519,321 967,966 1,019,001 1,066,153 5,377 2,486,947 801,513 1,519,321 931,380 1,028,574 1,117,606 6,377 2,671,612 824,385 1,644,140 916,021 1,053,602 1,159,633 6,377 Total. 7,760,373 7,764,082 7,644,790 7,639,972 7,613,761 17,781,392 '7,888,008 18,071,475 Vote. 1896-97 1897-98 1899-1900 1900-1901 1901-2 1902-3 Superannuation al- lowances Compensation al- lowances Oratulties Compassionate al- lowances Prison officers' com- mutations Compassionate fund Middlesex registry, pensions, etc Mercantile marine, pensions, etc Total War office Admiralty Customs Inland revenue Post office, etc County court offi- cers, Ireland $2,071,469 500,558 12,166 17,821 y 23,384 3,407 2,016 $2,134,345 459,835 12,166 15,013 17,729 3,407 1,723 $2,171,418 422,909 12,166 14,755 13,490 3,406 1,723 $2,244,771 396,033 12, 166 34,980 9,402 3,407 1,324 $2,263,312 381, 641 12,166 19, 160 6,631 3,406 1,324 56, 266 $2,387,057 354,014 12,166 33,910 3,849 3,407 1,324 52,183 $2,623,266 330,061 12,166 34,280 2,360 3,406 1,324 2,630,820 845,798 1,578,693 896,288 1,040,112 1,224,""" 3,105 2,644,218 863,097 1, 693, 292 900,750 1,064,892 1,317,162 3,105 2,639,867 862,830 1,593^292 908,517 1,146,224 1,483,648 2,760,269 893,976 1,661,910 935,249 1,223,063 1,717,821 2,742,896 875,970 1, 671, 643 941,940 1,271,018 1,863,378 2,847,910 917,364 1,657,630 933,570 1,271,621 1,963,876 956, 496 939, 234 703,762 934,280 310, 510 059,065 1,732 Total. 18,217,499 18,364,793 1 8, 631, 656 19,256,983 19,338,463 19,638,335 9,906,079 1 The sum of the items does not equal this total; the figures are, however, the equivalents of those in the original, as computed by the Bureau of Labor. It will be noted that the return for 1902-3 showed that the charge for civil pensions, gratuities, compensation allowances, and all those allowances which came within the scope of the Courtney Commis- sion's inquiry was £2,035,360 ($9,905,079), exclusive of pensions awarded under separate acts to the Eoyal Irish Constabulary and the Dublin Metropolitan Police, which brought the total up to something like £2,500,000, or over $12,000,000.^ 1 See Civil Service Retirement, Great Britain and New Zealand, S. Doc. 290, 61st Cong.., 2a sess., p. 149. EETIEEMENT OP SUPEBANNUATED CIVIL-SEBVICE EMPLOYEES. 43 It should be remembered also that this great and growing sum is paid annually to a civil service of not one-half the size of our classified service. It was stated in 1903 that the amount of money paid for civil pensions in England was from 16 to 20 per cen<>-varying with the department— of the amount of salaries.^ On that basis, since the Government pay roll of the United States is upward of $200,000,000 a year, a civil pension in this country similar to that in England would cost from $30,000,000 to $40,000,000 a year, and there would be no likelihood of its ever growing less, but quite the contrary. ABUSES TO WHICH PENSION SUPPORTED WHOLLY OE IN PART PROM PUBLIC TEEASUBT IS LIABLE, WHICH MAKE IT COSTLY. It will be noted that the English superannuation estimates include large sums under the head of "gratuities," "compensation allow- ances," and "compassionate allowances," as well as superannuation allowances. This is an indication of the abuses to which a pension system supported wholly or in part out of the public treasury is always liable. Gratuities to employees leaving tefore retirement age. The pension charge is never limited to the payment of annual allowances to those who have reached the legally pensionable age. Complaints are always lodged in behalf of a large number of those who retire before that age for one reason or another. It comes to be generally customary, under any such system, that after an employee has held office a number of years, usually 10, he is held to have a vested right in the pension toward which those 10 years will count if he remains in the service, and if he leaves the service after 10 years and before reaching pensionable age, it is argued that he should be given either a pro rata portion of that pension or a gratuity cor- responding to the surrender value of his pension. It can easily be seen how great an increase to the pension charge this custom of granting gratuities might cause and how difficult it must be to refuse or control the bestowal of such recognition on an official serving even a short time under a pension system. These gratuities are known to have been a source of great abuse in other countries, large numbers of employees retiring in the prime of life to engage in private busi- ness, after having held public office only long enough to entitle them to the privilege of an allowance. Such a system once established, however, the rights of the em- ployees are always insisted upon under it and the hardship entailed on the taxpayers is likely to be ignored. The tenderness exhibited for every person who has served the State even a very few years strikes the American observer as highly absurd when it is borne in mind that ' See Minutes of Evidence to Report of the Royal Commission on Superannuation in the Civil Service, London, 1903, p. 7. 44 RETIREMENT OF SUPEEANNUATED CIVIL-SERVICB EMPLOYEES. such consideration can only be shown at the expense of the general public. When, for instance, the superannuation act of 1909, modifying the civil pension system of England, was under discussion in the House of Commons, the Financial Secretary to the Treasury, Mr. Hobhouse, who had charge of the bill, explained its intent and purpose, laying emphasis on the fact that the bill made much more liberal provision for the civil servants than they had ever hoped to obtain, and criticiz- ing another scheme previously proposed, as defective, because " there was no provision made for those who retired from the civil service before they had completed 10 years' service, and thus became pen- sionable, except that gratuity of a month's pay for every year, which really was quite inadequate."^ To the ordinary self-reliant person not corrupted by contact with a pension system it would seem as if the State had treated an employee more than generously in giving him a bonus, at public expense, of one month's pay for every year of service when his devotion to the State had not been sufficient to hold him through one decade. If he had been properly compensated dur- ing his period of service, why should the State call on the taxpaying public, already heavily burdened, to make him a parting gift — a purse of $800 to the hundred-doUar-a-month clerk who took his leave after eight years' service? And yet Mr. Hobhouse characterized such recognition as " really quite inadequate." Compassionate allowances to dependents. " Compassionate allowances " for widows and orphans, where the pension system does not make definite provision for pensioning them, are sure to be allowed in time. The payment of gratuities to relatives of deceased officers was characterized by the actuaries employed to value the retirement fund of New South Wales, Australia, as " re- pugnant to the principles of a superannuation scheme." It leads to abuses of all kinds, but not many officials engaged in the adminis- tration of a pension fund would be likely to take the same view when considering the case of dependents " in necessitous circumstances," especially if the latter can be relieved out of the public treasury. Pensions increased on account of professional qualifloations. One way in which the pension charge in England and Canada has been increased is by a special show of consideration for members of the civil service who have " professional or other peculiar qualifica- tions not ordinarily to be acquired in the public service " — to quote the English superannuation act of 1859. In such cases it has been customary to add " a number of years not exceeding 20 " in comput- ing the amount of superannuation allowance which may be granted I See Civil Service Retirement, Great Britain and New Zealand. 8. Doc. 290, 61st Cong., 2d sess., p. 176. BBTIBEMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 45 to the employee, a practice that has undoubtedly helped to swell the annual vote for pensions. Retirement on " aioHtion terms." Probably the greatest abuse of pension systems has come through provision for retirement on what are spoken of as " abolition terms ; " that is, provisions for compensating officers removed from the pub- lic service in consequence of the abolition of the offices in which they are employed. The defense advanced for such a practice is the theory that by the abolition of offices " improvements may often be facili- tated in the organization of a department by which greater efficiency and economy can be effected." It would seem, however, as if places could usually be found for the incumbents of abolished offices in other departments until such time as they reached pensionable age and could be legitimately retired. The opportunity of retiring indi- viduals on abolition terms presents a temptation, however, which politicians are not usually strong enough to resist, and a pension system maintained under a form of government characterized by a shifting of power from one political party to another is bound to become at times the sport of political necessities. Such has been the case in England under a straight pension system, and in Canada and Australia under contributory schemes in which the Government has been responsible — as it must always be — for the deficit. ABUSE or ABOLITION TERMS IN ENGLAND. The hearings before the Eidley Commission in England in 1886-1888 abound in criticism of the custom of retiring officials on abolition terms at the expense of the State. Complaint was made, too, that the retirement of a particular individual was sometimes rightly desired by the head of an office on the ground of incompetency, rather than difference of political faith, but that there was no way to get rid of him except by resort to the awkward but effectual device of abolishing the office which he held and retiring him on a pension. While this procedure might simplify the conduct of his office for the head of a bureau, it was not fair to the taxpayers or to the other clerks in the same office to thus reward incompetency. ABUSE OF ABOLITION TEEMS IN CANADA. The history of superannuation and retirement legislation in Canada gives even more striking evidence of the way in which a system for the retirement of superannuated Government employees in which con- tributions are collected into a common fund and which depends on the Government to supply a deficit, and to that extent is a straight pension system, can be grossly abused for party purposes. Study of the parliamentary debates carried op year after year, until the superannuation act of 18T0 was superseded by the retirement act 46 EBTIEEMENT OF SUPERANNUATED OIVIL.-SEB.VICE BMPLOrEES, of 1898, shows conclusively that the change was brought about chiefly through the persistent agitation of certain members of the Liberal Party, who contended that the Conservative Party had administered the superannuation scheme for party ends and purposes at an enor- mous annual cost to the country. The point they brought out with special emphasis was that any measure which puts into the hands of a ministry the power to eliminate from public office an individual whose political faith differs from that of the ruling powers, or whose place is wanted for one of more congenial views, by retiring him, at public expense, on a pension is a bad and dangerous law. It was shown that men had been superannuated in the prime of life, at the ages of 31, 42, 45, 50, etc., and were drawing pensions from the people while other men were performing the duties those superannuated were well able to discharge, that the evil was growing, the number of those retired before the legal age increasing every year, and the pension charge on the State growing annually heavier. The more earnest opponents of the system did not attempt to deny that the opposition, when placed in power, would probably behave as badly as did the existing Government, but attacked the law as bad in prin- ciple, whoever might administer it. It was shown that the country with its little service of less than 5,000 people had suffered a net loss in 22 years of over two and a half million dollars, that there were many individuals under the age of 50 to be found on the superannuation list and a considerable number even below the age of 40, some having been superannuated when they had served less than 10 years (the minimum period on which an application for superannuation could be made) by taking advantage of the clause in the law which allowed years to be added to the term of service for reasons such as efficient service, technical knowledge, and so on. It was not, however, until the question was made a party issue and the Liberal Party came into power, for the first time in 18 years, on popularity given them largely by their de- nunciation of these abuses, that a serious attempt was made to correct them. The superannuation system was accordingly closed in 1898 to all future entrants to the service, and a system of compulsory savings was established in its stead. This system, because of certain inherent faults which will be explained later on, has not been found satisfactory, but the agitation which led to the change is highly instructive.^ ABUSE or ABOLITION TBBMS IN NEW SOUTH WALES, AUSTBALIA. No less instructive as to the way in which the cost of a retirement system may be increased by the abuse of " abolition terms " is the experience of the colony of New South Wales, Australia, where a superannuation fund based on an unsound contributory plan of > See forthcoming report, Civil Service Retirement, Canada, by Herbert D. Brown. EETIREMENT OP STJPBRANKUATED CIVIL-SEKVICE EMPLOYEES. 47 retirement was established in 1881-, speedily became insolvent, and was abandoned after only 11 years' trial, leaving the Government no choice except to assume the obligations of the fund. The first investi- gation of the fund, only five years after its establishment, showed a deficiency due largely to the fact that, in order to facilitate a scheme of reorganization and retrencliment, the Government had dismissed from the service a considerable number of employees who were neither incapacitated nor yet of pensionable age. Some of these were rewarded with gratuities which were paid by the Government and others were allotted retiring allowances drawn from the fund in ac- cordance with a provision in the law that when the services of any officer were dispensed with in consequence of the abolition of his office he might be retired upon a superannuation allowance. As many of those thus forced into retirement were in the prime of life, some even as young as 30 years of age, it is apparent that the cost of pensioning them was very great. This policy was continued by an obstinate Government year after year, despite the warnings of the actuaries. It was computed in 1901 that the amount paid to pensioners retired on abolition terms was at least $2,092,595, or nearly half the total pension payments, which had been $4,Y71,267. Established in the first place on an unscientific basis, the fund was quite unable to bear the inroads made on it by the policy of pensioning whole offices of employees in order to show a large apparent saving in salaries. When it became exhausted, the Government, being partly responsible, was impelled in common honor to assume its liabilities. The Govern- ment is therefore engaged at present in paying pensions and gratuities to the civil servants whom it had required to contribute to a fund it had helped to make insolvent. It will have to continue to do so until all those who entered the service before 1895, the year of the abandon- ment of the plan, are dead, an obligation that will probably not be fulfilled short of 40 years hence, and in the meantime the original problem of superannuation in the Government service is no nearer solution than it was in 1884, when the civil-service act established the ill-fated retirement plan.^ Enough has been said to show the difficulty of keeping a pension list within bounds wherever the whole or a part of the expense is paid out of the public exchequer. Instead of being able to reduce that charge from a probable 16 per cent of the pay roll, such as the ex- perience of England has shown necessary, it would seem more likely that, beset with temptations on all sides, those entrusted with the administration of a civil pension in the United States would show themselves quite as human and fallible as have similar officials in other countries, and the cost would be proportionately as great here as under any other Government. > See CiyiJ Seicvipe Retlreroent, New South Wales, Australia, Sen. Doc. 420, 61st Cong., 2d sess. 48 RETIREMENT OF ST7PEEANNUATED CIVIL-SEEVICB EMPLOYEES. PEOBABLE LEAST COST OF CIVIL PENSION IN THE UNITED STATES. The following table shows that the cost of a civil pension confer- ring the same benefits as the Perkins bill (S. 1944) and payable en- tirely out of the Public Treasury would be $232,773,690 during the next 35 years, as contrasted with the cost of the Perkins bill .for the same period at $97,553,023. The difference in cost between the two measures for that length of time would be $135,220,667, and it would increase as the years went on, for the cost of the pension would grow year by year, as shown by the table, whereas the cost of the Perkins bill would be nil at the end of 78 years, or by the time every one now in the service is dead.^ Table I. — Showing comparative cost to the Government during first 35 years of retiring employees on straight pensions and under the PerUvns till (S. 19U). Period. All employees. Excess cost of retiring all employees on straight pensions over cost of retiring all employees mider Perkins bill dm-ing first 35 years. Cost of retir- ing all em- ployees mider Perldns bill shown for period of 35 years. Cost of retir- ing all em- ployees on straight pen- sion confer- ring benefits of Perkins bill during first 35 years. General employees. Excess cost of retiring general em- ployees on straight pen- sions over cost of retir- ing general employees under Perkins bill during first 35 years. Cost of retir- ing gen- , eral em- ployees under Perkins bill during first 35 years. Cost of retir- ing gen- eral em- ployees on straight pen- sion confer- ring benefits of Perkins bill shown during first 35 years. Immediately - 1 year 2 years 3 years 4 years 5 years 6years 7 years 8 years 9 years 10 years 11 years 12 years 13 years Uyears 15 years 16 years 17 years 18 years 19 years 20 years 21 years 22 years 23 years 24 years 25 years 28 years 27 years 28 years 30 years. 31 years. 32 years. 33 years. 34 years. 35 years. $135,220,667 $97,653,023 $232,773,690 $52,850,870 $51,397,218 $104,248,088 14,008 36,603 76,513 127,822 196,141 277,148 370,553 473,740 672,679 707,058 844,518 1,013,466 1,211,119 1,412,728 1,641,434 1,875,576 2,168,712 2,489,837 2,688,165 3,268,212 3,667,342 4,134,194 4,661,693 5,171,470 5,741,268 6,308,259 6,853,926 7,472,324 8,063,833 8,700,020 9,358,111 10,020,239 10,644,040 11,226,124 11,736,887 1,121,795 1,261,819 1,390,435 1,556,632 1,706,135 1,861,499 2,003,086 2,129,118 2,252,506 2,317,860 2,392,028 2,441,271 2,491,484 2,659,337 2,621,035 2,679,979 2,726,937 2,791,401 2,871,945 2,940,921 3,047,310 3,138,272 3,236,543 3,323,097 3,390,712 3,442,268 3,469,245 3,481,754 3,495,463 3,483,861 3,454,704 3,419,266 3,373,276 3,314,099 3,232,814 3,136,067 1,121,795 1,276,827 1,426,988 1,633,145 1,832,957 2,067,640 2,280,234 2,499,671 2,726,246 2,890,639 3,099,086 3,285,789 3,504,950 3,770,456 4,033,763 4,321,413 4,602,613 4,950,113 6,361,782 6,629,086 6,316,622 6,806,614 7,369,737 7,984,790 8,662,182 9,183,536 9,777,604 10,335,680 10,967,787 11,652,699 12,164,724 12,777,377 13,393,614 13,958,139 14,458,938 14,871,954 6,834 20,428 45,745 77,505 125,051 179,179 240,664 298,473 341,583 405,951 463,689 628,099 696,668 669,621 738,254 813,344 902,076 1,006,032 1,107,669 1,284,469 1,428,818 1,611,265 1,814,930 2,010,982 2,192,352 2,375,382 2,513,964 2,721,595 2,927,127 3,177,801 3,449,223 3,762,363 4,061,247 4,350,884 4,601,733 706,290 803,660 892,056 1,020,092 1,123,699 1,249,851 1,358,948 1,449,713 1,632,090 1,653,682 1,677,259 1,570,667 1,566,937 1,545,966 1,537,544 1,511,480 1,485,348 1,466,143 1,456,133 1,438,410 1,465,515 1,482,258 1,608,111 1,630,210 1,549,001 1,648,476 1,544,175 1,538,943 1,543,358 1,646,149 1,547,352 1,562,364 1,561,293 1,564,071 1,651,927 1,629,148. 706,290 810,494 912,484 1,065,837 1,201,104 1,374,902 1,638,127 1,690,367 1,830,663 1,895,265 1,983,210 2,034,366 2,085,036 2,142,533 2,207,165 2,240,734 2,298,692 2,367,219 2,462,165 2,546,079 2,749,974 2,911,076 3,119,366 3,346,140 3,659,983 3,740,828 3,919,557 4,052,907 4,264,953 4,473,276 4,725,153 5,001,587 5,323,666 5,626,318 5,902,811 6,130,881 » See Table XXVIII, p. 160. KETIEEMBNT OP SUPERANNUATEI) CIVIL-SEEVICB EMPLOYEES. 49 Table I.—flJinwing comparative cost to the Government during first 35 years of retmng employees on straight pensions and under the Perkins Mil (8 tS^i) — Continued. ^ Mail carriers. Railway postal clerks. Period. Excess cost of retiring mail carriers on straiglit pensions over cost of retir- ing mail car- riers under Perkins bill during first 35 years. Cost of retir- ing mail car- riers under Perkins bill during first 35 years. Cost of retir- ing mail car- riers on straight pen- sion confer- ring benefits of Perkins bill during first 35 years. Excess cost of retiring railway postal clerks on straight pensions over cost of retir- ing railway postal clerks under Perkins bill during first 35 years. Cost of retir- ing railway postal clerks under Perkins bUl during first 36 years. Cost of retir- ing railway postal clerks on straight pension con- ferring bene- fits of Perkins biU during first 35 years. $67,621,100 $26,153,595 $83,774,695 $24,748,697 $20,002,210 $44,750,907 Immediately 166,449 187,943 217,600 246,646 273,947 294,011 312,044 326,639 347,076 371,103 394,799 424, 154 459, 273 503,673 642,928 697,995 648, 186 708,207 776,330 839,736 892,680 940, 521 989,799 1,036,672 1,072,848 1,122,372 1, 154, 148 1,178,888 1,197,461 1,197,318 1,188,837 1,172,208 1,146,978 1,114,770 1,079,298 1,040,360 156,449 194, 136 230,582 271, 397 313,056 347,887 384,969 421,667 473,543 537, 123 609, 494 696,668 804,870 939,402 1,066,092 1,236,911 1,405,327 1,607,750 1,847,106 1,940,819 2,319,668 2,530,315 2,764,282 3,021,658 3,255,032 3,575,876 3,871,176 4,179,929 4,488,219 4,753,316 5,017,629 5,272,635 5, 516, 160 5,719,931 6,912,616 6,091,418 269,066 270,216 280,929 289,996 307,589 317,637 ' 332,094 352,766 373,341 393,076 419,970 446,450 476,274 609,699 540,563 670,504 693,403 618,051 639,482 662,775 689, 116 715,493 737,633 756,316 768,863 771,420 770,922 763,923 754,644 740,394 718,615 694,694 665,004 636,268 601,589 565,559 259,056 271,198 283,922 295,911 318,797 334,851 367,138 387,747 422,140 468,151 606,382 564,865 615,044 688,521 760,606 834,768 898,494 975,144 1,062,512 1,142,188 1,246,980 1,364,223 1,486,089 1,617,992 1,747,167 1,866,832 1,986,771 2,102,844 2,214,615 2,326,107 2,411,943 2,603,155 2,563,698 2, 612, 890 6,192 13,082 24,852 39, 109 63,876 72,925 94,918 126,468 166,020 214,695 272,414 345,697 435,729 523,164 638,916 757, 141 899,543 1,070,775 1,101,083 1,426,888 1,689,794 1,774,483 1,986,086 2,182,184 2,463,604 2,717,028 3,001,041 3,290,768 3,655,998 3,828,792 4,100,427 4,369,182 4,605,161 4,833,217 6,051,058 982 2,993 6,916 11,208 17,214 25,044 34,981 48,799 65,076 86,412 108,415 139,770 178,822 219,943 264,264 306,091 357,093 413,030 479, 413 656,866 648,730 748,466 861,677 978,304 1,095,412 1,215,849 1,338,921 1,459,971 1,686,713 1,693,427 1,808,461 1,888,694 1,977,632 2,042,023 2,084,096 2 years 4 years 6 years 7 years 9 years 10 years 11 years 13 years 16 years 17 years 19 years 21 years 23 years 26 years 27 years 29 years 31 years 33 years 2,643,612 35 years 2, 649, 655 74196°— S. Doc. 745, 61-3- 50 KETIEEMENT OF SUPERANNUATED CIVIL-SEEVIOE EMPLOYEES. The difference in cost between the civil pension and the Gillett bill (H. E. 22013) would be still more striking, as shown by the following table. The cost of the Gillett bill during the next 35 years would he $73,136,765, or $159,636,925 less than the cost of the straight pension. Table II. — Showing comparative cost to the Government during first 35 years of retiring employees on straight pensions and under the Oillett Mil {H. B. 22013). All employees. General employees. Period. Excess cost of retiring all employees on straight pensions over cost of retiring all employees under Gillett bill dm-ing first 35 years. Cost of retir- ing ail em- ployees un- der Gillett biU for first 35 years. Cost of retir- ing all em- ployees on sfraight pen- sions confer- ring benefits of Perkins bill shown for first 35 years. Excess cost of retiring general em- ployees on straight pen- sions over cost of retir- ing general employees mider Gillett bill for first 35 years. Cost of retir- ing general employees under Gillett bill shown for first 35 years. Cost of retir- ing general employees on straight pensions con- ferring bene- fits of Per- Irins bill shown for first 35 years. {159,636,925 »73,136,765 »232,773,690 J73,291,603' J30,956,585 {104,248,088 Immediately 1 year... 143,251 183,722 225,010 296,713 377,137 483,844 604,428 726,230 863,729 980,509 1,136,821 1,282,331 1,458,826 1,671,379 1,898,435 2,141,890 2,392,690 2,692,705 3,054,058 3,277,090 3,909,050 4,363,846 4,876,669 5,466,180 6,035,966 6,649,876 7,264,466 7,869,281 8,532,510 9,194,280 9,880,297 10,585,654 11,325,203 12,009,845 12,634,630 13,168,474 978,544 . 1,092,105 1,201,978 1,336,432 1,455,820 1,573,796 1,675,806 1,773,441 1,862,517 1,910,030 1,962,265 2,003,458 2,046,124 2,099,077 2,135,328 2,179,623 2,209,823 2,257,408 2,307,724 2,361,996 2,406,472 2,451,768 2,493.068 2,618,610 2,526,216 2,533,660 2,513,038 2,476,399 2,435,277 2,358,419 2,274,427 2,191,723 2,068,311 1,948,294 1,824,408 1,703,480 1,121,795 1,275,827 1,426,988 1,633,145 1,832,957 2,057,640 2,280,234 2,499,671 2,726,246 2,890,639 3,099,086 3,285,789 3,604,960 3,770,466 4,033,763 4,321,413 4,602,513 4,960,113 5,361,782 5,629,086 6,316,622 6,-805,614 7,369,737 7,984,790 8,662,182 9,183,636 9,777,604 10,335,680 10,967,787 11,552,699 12,154,724 12,777,377 13,393,514 13,958,139 14,458,938 14,871,954 125,977 159,796 191,773 247,796 306,160 391,087 482,702 670,325 659,329 717,634 798,130 868,814 925,760 1,002,542 1,090,965 1,164,674 1,248,229 1,344,760 1,468,023 1,683,809 1,798,618 1,976,437 2,201,062 2,463,463 2,694,741 2,910,040 3,131,832 3,313,939 3,670,962 3,834,130 4,139,178 4,468,924 4,853,520 6,217,325 5,664,128 5,835,129 680,313 650,698 720,711 818,041 894,964 983,816 1,056,425 1,120,042 1,171,234 1,177,731 1,185,080 1,176,642 1,169,276 1,139,991 1,116,200 1,085,060 1,050,463 1,022,459 994,142 962,270 961,456 934,639 918,304 891,677 866,242 830,788 787,725 738,968 693,991 639,146 685,975 632,663 470,136 407,993 348,683 295,752 706,290 810,494 1,065,837 1,201,104 1,374,902 1,638,127 1,690,367 1,830,663 1,896,265 1,983,210 2,034,356 2,085,036 2,142,633 2,207,165 2,249,734 2,298,692 2,367,219 2,462,165 2,546,079 2,749,974 2,911,076 3,119,366 3,346,140 3,559,983 3,740,828 3,919,557 4,052,907 4,264,953 4,473,276 4,726,153 5,001,687 5,323,666 5,625,318 6,902,811 6,130,881 4 years......... 6 years Syears 10 years 13 years 15 years 18 years 20 years 23 years........... 25 years 26 years 28 years.... 29 years 31 years. 34 years......... EETIEEMENT OP SUPEEANNTJATED CIVIL-SERVICE EMPLOYEES. 51 Table II. — Bhowing comparative cost to the Government during first 35 years of retiring employees on straight pensions and under the Qillett Mil (H. B. 22013)— Continued. Mail carriers. Railway postal clerks. Period. Excess cost of retiring mail carriers on straight pensions over cost of retir- ing mail car- riers under Gillett bill during first 35 years. Cost of retir- ing mail car- riers under GiUett bill shown for first 35 years. Cost of retir- ing mail car- riers on straight pen- sions confer- ring benefits of Perkins bill shown for first 35 years. Excess cost of retiring railway postal clerks on straight pensions over cost of retir- ing railway postal clerks under Gillett biU for first 35 years. Cost of retir- ing railway postal clerks under Gillett bill shown for first 35 years. Cost Of retir- ing railway postal clerks on straight pension con- ferring bene- fitaof Perkins biU shown for first 35 years. $58,189,336 $25,586,359 $83,774,695 $28,156,086 $16,594,821 $44,750,907 Immediately 1 year 789 6,644 13,597 26,468 39,867 54,709 73,995 96,059 127,968 167,934 216,854 275,067 348,443 438,886 526,525 642,907 761,885 904,093 1,076,803 1,108,096 1,435,101 1,599,914 1,787,042 2,000,776 2,202,284 2,478,741 2,746,127 3,033,900 3,327,021 3,600,232 3,876,080 4,147,641 4,416,157 4,652,223 4,880,938 5,099,671 156,660 187,591 216,985 246,929 273,189 293,178 310,974 325,498 345,675 369,189 392,640 421,601 456,427 600,616 539,667 594,004 643,442 703,667 770,302 832,723 884,467 930,401 977,240 1,020,883 1,052,748 1,097,135 1,125,049 1,146,029 1,161,198 1,153,084 1,142,549 1,124,994 1,100,003 1,067,708 1,031,577 991,747 156,449 194,135 230,682 271,397 313,056 347,887 384,969 421,567 473,543 537,123 609,494 696,568 804,870 939,402 1,066,092 1,236,911 1,405,327 1,607,750 1,847,105 1,940,819 2,319,568 2,530,315 2,764,282 3,021,658 3,255,032 3,575,876 3,871,176 4,179,929 4,488,219 4,753,316 5,017,629 5,272,635 5,616,160 6,719,931 6,912,516 6,091,418 16,485 17,382 19,640 23,449 31,120 38,048 47,731 59,846 76,432 95,041 121,837 148,450 184,623 229,961 280,945 334,309 382,576 443,852 509,232 585,185 675,431 777,495 888,566 1,011,942 1,138,941 1,261 095 1,386,507 1,511,442 1,634,527 1,759,918 1,866,039 1,969,089 2,055,526 2,140,297 2,199,464 2,233,674 242,671 263,816 264,282 272,462 287,677 296,803 309,407 327,901 345,708 363,110 384,545 406,415 430,421 468,570 479,561 500,459 616,918 531,292 543,280 557,003 570,549 686,728 697,624 606,050 608,226 605,737 600,264 591,402 580,088 566,189 545,903 534,066 498,172 472,593 444,148 415,981 259,056 271,198 283,922 3 years 295,911 318,797 5 years 334,861 357,138 7 years ..t 387,747 8 years 422,140 468,151 10 years 606,382 554,865 12 years.... 615,044 688,521 14 years 760,506 834,768 16 years 898,494 17 years 975,144 1,052,512 19 years 1,142,188 1,245,980 21 years .-- 1,364,223 1,486,089 23 years 1,617,992 1,747,167 1,866,832 1,986,771 27 years 2,102,844 28 years 2,214,615 2,326,107 30 years 2,411,942 2,603,155 32 years 2,663,698 2,612,890 34 years. 2,643,612 2,649,665 The cost of a pension paid out of the Public Treasury compared with the cost to the Government of establishing the Perkins or Gillett bill is graphically illustrated in the following chart: 52 EETIBEMENT OP SUPERANNUATED CrVIL-SERVICE EMPLOYEES. Chart showing comparative cost to the Government during the first thirty-five years of the savings and annuity plan embodied in the Perkins and Gillett bills, and a pension giving the same benefits as the Perkins bill, but wholly at Government expense. AmtSyr^. 10 ZO 30 \ hmm / / r>\ # hmm 4/ L \. WQOOO ^/ ^1 V • A ^ -^ ^ ptj =Tb LL^ wmtjoo ^ ^^^^^ G ^ RETIEEMENT OF SUPEEANNUATED CIVIL-SERVICE EMPLOYEES. 53 The computations made to show the cost of the straight pension are mirmnum charges, no allowance being made for gratuities, compensa- tions for loss of office, compassionate allowances, or any of the extras that are sure to spring up and flourish under a pension system. On the other hand, the computations made to show the cost of putting into effect the Perkins or Gillett bill are maxirrmm charges, as no allowance is made for resignations, for the fact that the calculations are based on present salaries rather than average salaries, or for the retention in office of some employees past the age of retirement. In an ordinary service the rate of resignation is usually equal to the rate of mortality. The present salary of the individual is usually higher than his average salary for his entire period of service. The table showing the cost of civil pensions is carried out to 35 years only, and is below the actual cost of a civil pension by the amount required to pension those who will come into the service here- after at ages above 35 years and hence be entitled to pension within the 35 years shown in the table. DIFFEBENCE BETWEEN CIVIL AND MILITARY PENSIONS. The argument is sometimes advanced that, whatever the expense of a pension, the members of the civil service are as much entitled to that benefit as are members of the military and naval service. This argument will not bear analysis. The State demands from the indi- vidual who enters the military or naval service the surrender of many rights and privileges of which the individual entering the civil service is not deprived. First, the State requires a definite term of service, all the best years of his life in the case of the officer or a minimum number of years in the case of the enlisted man. Then the State reserves the right of dismissing the individual when his most useful years are past, since it is not only desirable but absolutely imperative if an army or navy is to be maintained at a high stand- ard of efficiency that the personnel be composed of men in the prime of life. While in the service, the individual is, theoretically at least, under orders constantly, not 7 hours a day, but 24, except when granted definite leave of absence from duty. His personal liberty is constantly curtailed, even his apparel, speech, and manners being subject to scrutiny and criticism such as would not be endured by members of the civil service. His pay is supposed to be sufficient for his needs, but in the case of neither officer nor private is it sufficient in itself to be an inducement to enter the Army or Navy. The at- traction is supposed to be' the honor and dignity attached to the serv- ice, and the chance it offers him for winning distinction. Finally, in case of war, he must go into battle and give his life, if necessary, for the State. In return for his renunciation of personal liberty, his willingness to defend the State with his life, and the forfeiture of his 54 EETIEEMENT OF SUPERANNUATED CIVIL-SEKVICE EMPLOYEES. chance to provide for his old age by some other means, the State agrees to grant him a pension when he reaches the age of retirement. The civil servant, on the other hand, makes no agreement on taking office to be subject to military discipline or to risk his life and limb in time of war. His duties are seldom of a hazardous nature. The reg- ulations to which he is obliged to conform are usually what would be customary in an ordinary business office and no more. Instead, however, of the practice regarding the pensioning of offi- cers of the Army and the Navy being taken as a model for the civil service, it may even be questioned whether the pensioning of Army and Navy officers might not be wisely remodeled on the basis here proposed for the civil service, with the addition of a provision for special recognition in the matter of retiring allowances in the case of those officers who actually go into battle. It is at least a subject open to debate whether members of the military and naval services and other police organizations might not be considered fairly treated in times of peace if they were given adequate salaries and required to set aside enough out of them every month to pay for their retiring allowances. Nor is this suggestion so unprecedented as some may think. In 1885 the British Parliament appointed a select committee to inquire into the subject of national provident insurance. This committee spent two years investigating conditions imposed by vari- ous private employers of labor upon those in their employment in order to provide for their superannuation. It was impressed with the growing cost of pensions, and came to the conclusion that not only the civil but the military establishments of the State also might well follow the example of private business firms in requiring employees to contribute to their pensions. They stated in their report that they— Are of opinion that all persons hereafter appointed to the service of the Crown, whether civil or military, whose service at present counts toward pen- sion, should contribute tpward that pension by a percentage deduction from salaries or pay. The steady and rapid growth of the pension list points to ap- proximate revision of the entire policy of burdening the public with the pro- vision of pensions; the enterprise of private individuals and firms indicates the advantage of self-help as a condition of employment (which it might be proper to supplement with State help) ; and your committee recommend that not only in service counting under the present system toward pension but also in the police and other unpensioned branches of the public service contribution to a pension fund should be made obligatory.' The Civil Pension is Demoealizing to the Service. Setting aside all comparisons then of the civil service with the military or naval, there are two sound arguments against a civil pension besides the heavy charge that it makes on the resources of > Second Report of Commission on Civil Establishments, 1888, appendix, p. 423. BETIBEMENT OF SUPEBANNUATBD CIVIL-SERVICE EMPLOYEES. 55 the country which discredit it with those who have the efficiency of the civil service and the welfare of the civil servants at heart. First, it is demoralizing to the service. It makes dismissal of the inefficient difficult, since it is hard for the superior officer to cause his subordinate not only loss of position but also loss of the pension which he has partly earned and counts as an asset of office. The re- sult is a breaking down of the moral tone of the members of the serv- ice, especially of the younger employees, since they come to feel they are safe however badly they do their work and unappreciated how- ever well they do it. In an article entitled "The mischief of pen- sions," an observer of the English system, named Michael Peters, brings out the danger in words that will bear quoting : There is this just scruple that besets the Government and hampers It on every side — that men whom it would be desirable to remove or supersede have not been fully paid for the work which they have done in the past until their pension falls due, and that it can not be justice to make them forfeit this de- ferred remuneration on account of present deficiencies. This difficulty gives occasion for the very broad margin of conduct within which a Government servant may maintain his position ; the reluctance to dispense with the services of men lacking in energy or interest in their work; the system of shunting an official, who has progressed on the ladder of routine to a position for which he is not fitted, from one department, where he is "making a mess of it," to an- other unfortunate department, where it is probable he will do the same; the unwritten law which decrees that an official once in receipt of a certain salary must in future, apart from any consideration of ability, occupy posts of equal or higher value, but can not occupy one of less value, because the ultimate pension is calculated in a certain ratio to the salary received at the date of retirement. This tolerance of ineptitude reacts upon the officials themselves and upon the junior officials in particular. These see that, however much energy and en- deavor they may put forth, advance in their profession is cramped into a matter of routine by the repletion of higher posts with men In whom slackness or inability appears to be a matter of no importance. Moreover, they have to suffer the gall of constant servi<'e under the thumb of such men, whose in- fluence is necessarily repressive and numbing, who do not appreciate energy, possibly even damp it, discouraging too much zeal because they are not them- selves able to understand it, and because they have, nevertheless, a dread that It might reflect disparagingly on themselves. This It is that, through monoto- nous years of subordinate service, breaks the heart of many a young man full of praiseworthy zeal and activity ; this It Is that kills originality and initiative In the young, so that, when they in turn reach those posts of higher responsi- bUIty, they have learned to do their work as did their seniors before them— as a machine makes matches. Added to which these young officials have the fact constantly before their eyes, that whether they exert themselves or whether they refrain from exerting themselves, they will ultimately, and with routine pre- cision, arrive at those same posts and be able to stick to them, provided only that they are able to quench their ardor and work themselves down to a soft and convenient complacency.^ 1 See " The mischief of pensions," Part II, by Michael Peters, in the Gentleman's Maga- zine, London, Septembei, 1907, p. 227. 56 EETIBEMENT OF SUPEBANNUATBD CIVIL-SBRVICE EMPLOYEES. DIFFERENCE BETWEEN GOVEBNMENT SERVICE AND PEIVATB BUSINESS. The question may be raised why a straight pension should be de- moralizing to the Government service when the testimony of private employers is to the effect that they have found it helpful in the main- tenance of discipline. The answer is that conditions of employment in the Government service are diametrically different from those in private service. A straight pension is a powerful aid to the ordinary employer in holding his men and in keeping up their standard of efficiency, as brought out by the Hon. Frank A. Vanderlip, president of the National City Bank of New York, in an article on " Insurance for workingmen," published in the North American Eeview in December, 1905. Said he — When employees realize that unsatisfactory conduct may at any time lose them not only their present position — a loss which In such a labor market as ours might be easily made good — but that it entails further the loss of a very valuable asset, the employee's right to a pension, the incentive to good conduct is greatly increased. It operates especially as an incentive to hold men between the ages of 40 and 50 when they have acquired the experience and skill which makes them especially valuable, and prevents their being tempted away by slightly increased wages for a temporary period. This statement is entirely correct when applied to business institu- tions. It is not wholly correct when applied to the Government service. A straight pension is a powerful aid to the Government as well as to a corporation in holding its employees, but there is this radical difference in its operation under the two conditions: In the case of the Government it operates to hold the poor employees rather than the good and to break down rather than to keep up the standard of efficiency. This is explained by two fundamental differences in the conditions of labor when a private corporation is the employer and when the United States Government acts in that capacity. These are, first, the fact that there is seldom any relationship between the value and the cost of a Government output such as there always is in the case of a commodity produced by a private corporation, and, secondly, the fact that the man at the head of a Government office or shop has much less authority over his subordinates than has an executive officer similarly placed in a private business. Business enterprises are conducted for the purpose of paying divi- dends, and as inefficiency on the part of an employee has a direct bearing on the dividends, it will not be tolerated. On the other hand, the great majority of Government employees are not engaged in the production of commercial articles which must be sold at a profit in competition, and the loss to the Government through inefficiency is not BO apparent or so easily measured. It may, for instance, cost the Government a hundred thousand dollars to get out a highly scientific or technical report which is, economically, either at the time or ulti- EETIBEMENT OP SUPERANNUATED CrVIL-SERVIOB EMPLOYEES. 57 mately in the course of years, well worth that sum of money to the people of the United States, but which, commercially, would not bring in a thousand dollars if placed on the market for sale. Since the inefficiency of an employee engaged in work that has such an uncertain market value is not so easily detected or so likely to be regarded as serious as would be the case in private business, he is usually permitted to remain in the Government service, whereas he would be very promptly dismissed by a private house. The fact that the administrative officials at the head of Govern- ment offices have not entire control over the selection of their subordi- nates makes it impossible tor those officials to be held as strictly responsible for results as is the case in private businesses. What is everybody's business is nobody's business. Since also the position of the executive head of the office is not greatly endangered by the in- competency of his assistants, especially where the effect of the incom- petency can not be readily measured by reduction in actual output of some kind, it follows that he can afford to be lenient with them. He is especially inclined to be so if the employee's inefficiency is known to be the result of old age, or any other cause which makes an appeal to the natural feelings of humanity. In case the inefficient employee is working under a pension system whereby he is entitled, on reaching a certain age, to retirement on a competence, the head of the office will be all the more reluctant to dismiss him before he reaches that age. But a pension system has exactly the opposite effect where a private corporation is the employer. In that case the administrative official at the head of any office is held directly re- sponsible either to the owner of the business or a board of directors for the inefficiency of his subordinates. The output can usually be measured in terms of tons or dollars, and if it falls below the required amount the position of the man in charge is jeopardized. In self- defense, therefore, he is obliged to hold every subordinate up to the highest standard of efficiency and to stifle any feeling of humanity or sympathy which might otherwise tempt him to show leniency. That being his state of mind, a pension system becomes a powerful aid to him in his effort to maintain discipline and secure obedience and industry, as explained by Mr. Yanderlip in the article quoted above. Undoubtedly, the reason why railroads and other corpora- tions are disposed to favor the straight pension with entire control of the pension fund rather than any contributory plan with a fund in any way controlled by the employees, is that it helps them to approximate the establishment of military discipline among their subordinates. They look on a pension as a useful kind of strike insurance. For fear of forfeiting his pension, the employee, like the soldier, will sacrifice much of his personal liberty, including his right to strike for better wages or shorter hours. 58 BETIREMENT OF SUPERANNUATED CIVIL-SEEVICE EMPLOYEES. It may be argued that commercial or military ideas and practices of economy and discipline should be maintained in the Government serv- ice. It is, however, an open question whether to do so is more than theoretically possible and certainly it would be dangerous to count on their successful introduction in considering the establishment of a civil pension system. The whole question is more complicated than the outside business man realizes, for the minute the head of an office were given a free hand in the selection and removal of his subordi- nates, as would be the case in a private business, political influence would be brought to bear on him to employ this, that, or the other individual, and the public offices would once more become the retreat of the indigent friends of successful politicians. Whatever financial losses may be occasioned by lack of authority or responsibility on the part of executive heads is slight in comparison with the cost of the frequent changes and corrupt practices sure to characterize the ad- ministration of politically controlled offices. It thus appears that, while the enforcement of that part of the civil- service law relating to the dismissal of the incompetent is sufficiently difficult at present, it would become greatly more so under a civil pen- sion system, unless military discipline such as rules in the Army and Navy and in commercial establishments were introduced into the civil service. The straight pension in the Army and Navy may be de- fended somewhat as a logical offset to the surrender of individual independence. In private business it is on exactly the same footing, though the attempt is usually made by the corporation to present it to the employee in the guise of a beneficence. It may be disputed whether such discipline in the civil service would be an improvement over present conditions or not, but it should be established first if the establishment of a civil pension system is undertsCken, unless complete demoralization of the service is desired, for to bestow the straight pension on civil employees under present conditions would be to intro- duce a temptation to even greater leniency with the incompetent than is at present the case. On the other hand, the establishment of a sav- ings and annuity plan like that in the proposed bill would have exactly the opposite effect, since administrative officials would be less reluctant to dismiss an incompetent clerk who was known to have a goodly sum to his credit than one who would be penniless, as is more often the case under present conditions. The Civil Pension Means Wages Below Mabket Pbice Finally, it is shown by the history of civil pensions in other lands that they are not in the interest of the civil servants themselves. The experience of Great Britain is especially instructive, for the states- men of that country have been experimenting a full century with legislation of one kind or another designed to remedy the evil of RETIREMENT OP SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 59 superannuation in office. It would be the part of folly for the United States to disregard the plain lesson taught by their experience, that only those comparatively few members of the civil service who sur- vive to pensionable age and remain in the service until that age derive any benefit from the pension system, while the others who die or drop out before reaching pensionable age are actually worse off than if there were no pension list. This is due to the fact that, human nature being as it is, the pension always comes to be taken into ac- count in fixing salaries, even though established in the beginning as a pure gratuity, and the result is that the pensionable employee works below the current market price. In case he lives to receive the value of this " deferred pay "—to use the phrase common in England — in the form of a pension, he has no cause for complaint, but, according to the English statistics, he either dies or leaves the service before that time in six cases out of seven. During the years that the pen- sionable employee is working for less than the market wage his fam- ily has just so much less to live on than they would have were he a nonpensionable employee, and in case he dies or leaves the service before reaching pensionable age, his family has absolutely no return for all those years of deprivation, unless they can get a gratuity or compensation on one pretext or another, a concession which in itself is an abuse of the system, as has just been shown. The civil pension, in the last analysis, is therefore a pure tontine in which all persons lose except those who succeed in three things: Living to a certain age, remaining in the service until that age, and living beyond that age long enough to get back the value of their contributions. As soon as the members of a service begin to realize that the " theory of prob- abilities " is against them, and that they have only one chance in seven to recover the amount of their " deferred pay," expressions of dissatis- faction with the pension system, once so ardently desired, will surely be heard. BXPEBIBNCE OF ENGLAND PROVES CIVIL PENSION IS " DEFERRED PAT." The experience of England with the civil pension is briefly as fol- lows : A contributory scheme inaugurated in 1829 by treasury minute and confirmed by the superannuation act of 1834 was abolished in 1857, because it was fundamentally unsound and therefore unsatis- factory, and succeeded by a. system of free pensions, established by the superannuation act of 1859. This system, which remained un- changed for a half century, was one of the most liberal ever devised for the benefit of a civil service; but study of the grievances pre- sented by representatives of the service to different royal commis- sions appointed from time to time to inquire into the condition of the civil establishments, reveals the astonishing fact that the civil servants generally came to believe that in reality they were paying for their 60 BETIBEMENT OP SUPEBANNTTATED OIVILi-SEBVICB EMPLOYEES. own pensions, because the salaries in the " established "or pensionable service are generally less than in the nonestablished or nonpension- able service, and to feel that the Government was treating them un- fairly. The theory that " pensions are deferred pay " gained ground, especially after the investigation of the civil establishments made by the Eidley Commission in 1886-1888. A committee of employees, which took the name of the Deferred Pay Committee, was organized, and of the 100,000 civil servants about 70,000 joined the organiza- tion. As a result of their agitation, the Courtney Commission was appointed in 1902 to investigate the grievances of the civil employees. The latter held that not only were their salaries lower than they would have been had the pension system not been adopted, but that the amount withheld from their salaries was more than sufficient to pay the pensions. They asked, therefore, that the difference should be put into a fund and returned in the form of insurance benefits for their dependents. The commission refused to concede that the amount withheld from salaries was more than sufficient for the pay- ment of pensions, but decided that it might be more satisfactory to diminish the amount of the pension and turn the difference into a cash sum to be paid at death or on withdrawal from the service. By act of Parliament of September 20, 1909, the law of 1859 was ac- cordingly modified so that new entrants to the service shall receive a pension calculated on the basis of one-eightieth of salary for each year of service instead of one-sixtieth, a cash sum in case of resigna- tion after two years' service, equal to one-thirtieth of salary for each year of service, and a cash sum, in case of death, after five years' service, while still in the service, equal to one year's pay, provided that if the einployee died after reaching the age of 65 the amount of the gratuity should be reduced by one-twentieth for each year he had served after attaining that age. This last provision was to discourage continuance in office after the age of 65, for, although all persons in the established civil service in England are liable to com- pulsory retirement at that age, the power of retention, in special cir- cumstances, for a period not exceeding five years, is lodged with the Treasury. The present situation in England, then, is this : The Government has acknowledged the contention of the employees that salaries are less because of the pension, and that the employees are, in reality, paying for their own retirement. The English law has been so modified as to make the pension system virtually a contributory system, the only difference being that the contributions are theoretical rather than actual, i. e., the difference between the value of the em- ployee's service and his actual pay. The result is that the present arrangement, while more satisfactory to the employees than the old system, is less equitable than it would be if it had been worked out BETIEEMENT OP SUPERANNUATED CIVIL-SEKVICE EMPLOYEES. 61 on a priori principles, with a definite benefit for a definite contribu- tion. At present, it can not be shown whether the amounts received by the employee in the form of pension, insurance, and cash-sur- render values correspond with the amounts contributed by him, since it has not been ascertained what percentage of salary is with- held as a contribution. THE SUBSTITUTE PLAN A FORM OF CIVIL PENSION. A form of civil pension that has seemed to be attractive to many members of the civil service is what is known as the substitute plan. Every argument that can be advanced against the straight pension can be successfully brought against the substitute plan and a few others besides. It is a plan based on the theory that salaries increase with age, that the oldest employees receive the highest salaries, and that employees above a given age generally perform service which could be performed with equal efficiency by new clerks at half the salary. In other words, the plan is founded on the theory that the Government is already paying an indirect pension to the old employees equal to half the salary which they receive, and that it would therefore cost the Govern- ment nothing (additional) to retire the old employees on half their salaries and use the other half in the employment of new clerks. The advocates of the plan declare, therefore, that it can be established and maintained " without expense to the Government." Assuming for the moment that their plan has all the merit which they claim for it, it would be more accurate to say "without additional expense to the Government," for it is manifest that if the employees eligible for retirement are receiving salaries sufficient to retire themselves on adequate annuities and enough more to employ younger men of equal capacity, then the Government is already incurring an expense equal to the amount on which they are retired. This is also a plea for appropriation by indirection, since the difference between the salaries paid and the salaries appropriated would be diverted to another pur- pose than that for which the money was appropriated by Congress. The policy of diverting money to a purpose other than that for which it is appropriated is always to be condemned as dangerous. It must be admitted, too, in favor of a straight pension that, in some cases, the pensioning of the aged employees would result in the promotion of the younger employees; but under the substitute plan, if public expenditures are not increased, promotions must of necessity be governed by two factors— the mortality among the pensioners and the expansion in the service. The death of a pensioner would allow the Government to apply his pension to an increase of some other person's salary. As long as the service continues to expand the ratio of pen- 62 EETrSEMENT OF SUPEEANNUATED GIVIIi-SEE.VIOB EMPLOYEES. oioners to members of the active service will be below normal. T^lien the service ceases to grow and the ratio of pensioners to active mem- bers of the service begins to increase, or when the service begins to grow smaller for any cause, a condition might easily be reached under which a large percentage of the s^'-vice would be compelled to work at half pay in order that the Government might use the other half to pay pensions, or persons coming into the service might be required to serve at their initial salary — ^i. e., half pay — for many years in order that the Government might use the other half to pay pensions. Certainly any plan which thus contemplates the deferment of promotions would be subject to criticism on the ground that such deferment would be a tax on efficiency. There is nothing new about the substitute plan, for long before there was any regular system of granting superannuation allowances in England many similar irregular practices were followed for mak- ing provision for superannuated civil employees. Certain offices were granted for life, others were openly maintained at public ex- pense as sinecures, and pensions were paid in some cases out of various contingent funds. What is now called the substitute plan is merely the old custom of charging the salaries of public officers with retiring allowances to their predecessors. The British records are full of cases of pluralism, of officers holding one office and paying out the salary of it to a predecessor while receiving in return the salary of a successor in another office. It would seem too obvious for argument that such appropriation by indirection, such misdirec- tion of funds, would be sure to lead to corruption in office. What the British commissioners of 1857 said of such practices still holds good: Any such mode of providing for retired servants is obviously most objection- able In principle and liable to great abuse in practice, both as regards due econ- omy in the. public expenditure and the fair and equal remuneration of pubUc servants.* FLAT-KATE ASSESSMENT PLANS INEQUITABLE. The. civil pensions or noncontributory plans being dismissed as costly and undesirable, there remains for consideration the second group of plans noted above — contributory plans proposing a uniform deduction of a given per cent from all salaries, what is frequently called a flat-rate assessment on salaries, to provide a general fund out of which to pay annuities to employees. Aside from their financial uncertainties, these prove in every instance on analysis to be inequita- ble as between employees of different ages. This is true whether the annuity paid is uniform or is based on length of service. iSee Clvil-Servlce Retirement, Great Britain and New Zealand, S. Doc. No. 290, pp. 16-21. RETIREMENT OP SUPERANNUATED CIVIL-SBRVICE EMPLOYEES. 63 Inequitable m Annuities abe Based on Length of Sebvice. Plans proposing a uniform deduction of a given per cent from all salaries and the payment of annuities based upon length of service are unfair to the employees who enter the service at an early age, as part of their savings must go to make up the annuities for the men already old in the service when the plan is put into operation, or who came into the service at an advanced age. Such a plan actually puts a pen- alty on length of service, since it allows the employee who has been in the service only a short time to profit by the savings of the one who has been there longer. Take the case of two men entering the service, one aged 20 and the other aged 60, each receiving $100 a month, and deduct 5 per cent of that salary, or $5 a month, with the object of paying each man on retirement an annuity based on his length of service. Is it feasible ? The man of 20 will have 50 years to serve before reaching the age of retirement and the man of 60 only 10 years. Now, a deposit of $5 a month will earn much more interest in a period of 50 years than it will in 10 years. Just what is the difference in this concrete case? Reference to an interest table shows us that a deposit of $5 a month for 50 years, improved by 3J per cent compound interest, amounts to $8,008.90, which is suiRcient to purchase an annuity of $1,054.50, beginning at age 70, first payment in 3 months; but the same table shows also that a deduction of 5 per cent from the same salary begin- ning at the age of 60 years will provide a fund on retirement at age 70 of only $717.25, and this amount would purchase an annuity at age 70 of but $94.44 a year, a sum too small to support any employee, however simple his needs. To make this plan practical it would therefore be necessary to put the deductions from all employees' sala- ries into a general fund and divide the fund among all the annuitants in proportion to their length of service. This arrangement would be exceedingly unfair, however, to the men who entered the service at an early age, as part of their savings would go to make up the annuities for the men already old in the service when the plan was put into operation, or who came into the service at an advanced age. Under such an arrangement the man who entered the service at 60 and served only 10 years would be retired on more than $94.44, it is true, but to have it so, the man who had entered at 20 and worked for 50 years would have to give up part of the $1,054.50 his savings had earned and content himself with a smaller annuity, a plan that seems indefensible, as it actually takes the money of one man to put it into the pocket of another who is less meritorious, judged by the standard of length of service. A study of the following table will show the inequitableness of any flat-rate assessment plan based on length of service. 64 EETIEEMENT OP SUPERANNUATED OIVIL-SERVICE EMPLOYEES. Table III. — Showing the armwity which a dedvction of $5 a month, during various periods of service, will provide on retirement at age 70. Age of retirement. Age of entrance into service. C. Years of service (A-B). Amount of annuity E. J7.695 Cost of annuity (FXG). F. Amount of SI a montti at end of years shown in Column C. Monthly deduc- tion from salary. 70 years 70 years 70 years 70 years 70 years 70 years 70 years 70 years 70 years 70 years 70 years 20 years 25 years 30 years 35 years 40 years 45 years SO years 55 years. 60 years 65 years 69 years 11,054.50 851. 61 680.61 636.71 415.55 313.54 . 227.64 165. 33 94.44 43.17 8.05 J8,008.90 6,467.25 5,169.20 4,076..™ 3,156.10 2,381.30 1,728.95 1, 179. 70 717. 25 327.85 61.15 tl,601.78 1,293.45 1,033.84 815.26 631.22 476.26 345. 79 235.94 143.45 65.57 12.23 $6.00 6.00 5.00 5.00 6.00 6.00 5.00 5.00 5.00 5.00 6.00 Inequitable if Annuities are Unifobm, Eegaedless of Length of Sbevice. Plans proposing a uniform deduction of a given per cent from all salaries and the payment of uniform annuities, regardless of length of. service, put an even greater penalty on entrance into the service at an early age, since the per cent deducted from all salaries has to be sufficiently large to accumulate not merely annuities for those enter- ing the service at an early age, but also to provide the amounts that the older men lack in order to retire themselves on the same annuity. Suppose it is desired to retire all employees receiving $1,200 salary on three-quarters pay, or $900 a year. The value of a life annuity of $900 a year, beginning at age 70, first payment in three months after reaching that age, may be stated as $6,835.50. To accumulate $6,835.50 during a service of 50 years requires a monthly deduction from a monthly salary of $100 of but $4.27, if the deductions are im- proved by 3^ per cent compound interest. That is all the man begin- ning at age 20 would have to set aside each month. But, on the other hand, to accumulate $6,835.50 during the 10 years of service of a man who entered the service at age 60, or who was already 60 years of age when the plan was put into operation, would require a deduction from a salary of $100 a month of $47.65, or 47.65 per cent^— an impossible deduction under any circumstance. To make this plan practicable it is therefore necessary to decide upon a per cent to be deducted from all salaries which shall be sufficiently large to accumulate not merely annuities for those entering the service at an early age, but also to provide the amounts that the older men lack to retire themselves on the same annuity. It thus appears that this plan puts even a greater penalty than does the first on entrance into the service at an early age, as is shown by the following table: RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 65 'Cable IV. — Showing amount required to he deducted from a monthly salary of $100 {per cent of other salaries) during various periods of service, to provide an annuity of $900 a year beginning at age of 70. Age of letiiement. B. Age of entrance into service. Years of service (A-B). Amount of annuity. Cost of annuity. fDXS7.595), F. Amount of SI a month at end of years shown in Column C. O. Monthly deduc- tion from salary. E 7a years, 70 years. 70 years 70 years 70 years 70 years 70 years 70 years 70 years 70 years 70 years 20 years. 25 years 30 years 35 years 40 years 45 years 50 years 55 years 60 years 05 years 69 years {900 900 900 900 900 900 900 900 900 900 900 $6,835.50 6,835.60 6,835.60 6,835,60 6,835.50 6,836.50 6,836.50 6,836.50 6,835.50 6,835.60 6,835.60 $1,601.78 1,293.45 1,033.84 815. 26 631. 22 476. 26 345. 79 235.94 143.46 65.67 12.23 $4.27 6.28 6.61 8.38 10.83 14.35 19.77 28.97 47.65 104. 25 658. 91 ACTUARIAL DIFFICULTIES OF PLANS BASED ON FLAT-RATE ASSESSMENTS. These illustrations are sufficient to show how impossible it is to devise an equitable plan as between all employees of various ages, based upon a uniform deduction of a given per cent from all salaries, either to pay annuities based upon length of service or to pay uni- form annuities to all employees upon retirement at a' given age. The most perplexing problem, however, connected with plans proposing a uniform deduction of a given per cent from all salaries is to decide what annuities could safely be paid out of a common fund thus cre- ated and what per cent of salaries would have to be deducted in order to raise such a fund. There is no stable and permanent principle to serve as a basis for these computations, no fixed or calculable relation between the fund and the annuities to be paid out of it. The forfeit- ure of interest or principal by those who resign or die before reach- ing the retirement age is often relied upon to swell the fund out of which annuitants are to be paid, but since the establishment of the plan would in itself have a tendency to discourage resignations, this source of income is likely to be overestimated. Apart from the injus- tice to the individual of any plan that contemplates the commingling of assets, the uncertain elements such as length of service, age of entrance, rates of resignation, increase of salaries, frequency of for- feiture, and the like, which encumber all such plans, make their unde- sirability so patent as to permit of no defense. It should be remem- bered also that any error of judgment as to what might be accom- plished in the way of annuities by a uniform deduction of a given per cent from all salaries would undoubtedly mean a call upon Con- gress for assistance, and possibly lead ultimately to the establish- ment of a civil pension. 74196°— S. Doe. 745, 61-3 5 66 BETIEEMENT OF SUPEEANNUATED CIVIL-SERVICE EMPLOYEES. Statements of Vakious Actuabies Against Flat-Rate Assessment Plans. The actuarial weakness of retirement plans based on a flat-rate as- sessment of salary has been pointed out, on various occasions, by well-known authorities. In 1891 Mr. William Sutton made the fol- lowing statement before a select committee of the British House of Commons : It may be said that, with a few exceptions, superannuation funds as gener- ally constituted are radically wrong in principle when looked at from the actuarial point of view. Instead of resting content with the introduction of as few assumptions as possible, they are made to involve not only assumptions as to the rates of mortality to be experienced among the members and as to the rate of interest to be earned by the accumulated funds — these may be fairly said to be Indispensable— but they are also made to depend upon such capricious elements as the rates of secession of members (that is, of members leaving active service otherwise than by death or retirement), and the rates of salary the members will receive, and on which the nature and amount of their con- tributions to the fund will depend, as well as the amount of pension they will receive. It thus follows that in bringing into the question rates of secession and rates of salary, matters which can not be prognosticated with any cer- tainty for any length of time, classes of members get lumped together whose real circumstances and conditions in respect of these matters are as different as possible. The impossibility of defending the practice of making flat-rate deductions from all salaries for the creation of a general-staff fund has been set forth by Mr. George King, one of the vice presidents of the Institute of Actuaries. In an article on " Staff-pension funds " read before the Institute on January 30, 1905, he made the following pertinent remarks on the subject: When a fund is to be started and the intending members have formulated the benefits they desire, the actuary is sometimes asked to quote the percentage of salary necessary to provide them. Theoretically the question is not diificult, but in practice it scarcely admits of trustworthy solution. * * * It is gen- erally the case that at a few of the younger ages at entry the ordinary contri- bution of 5 per cent is sufficient, or even a little more than sufficient, to provide the benefits, but that from perhaps 25 at entry an extra is required. Should the members themselves pay the whole of the contributions, then approximately accurate graduation according to age is important, because it would not be fair to one set of members if we were to make them contribute to the benefits of another set' HiSTOET OF Flat-Rate Assessment Plans a Waenino. The history of contributory plans based on flat-rate assessments on salary gathered into a common fund, which have been tried by the^Governments of England, Australia, Canada, and France at different times, shows conclusively how unsatisfactoiy such plans have been found, whether considered from the employees' viewpoint or 1 See Journal of the Institute of Actuaries, vol. 39, p. 170. BETIKEMENT OF SXJPEEANNUATED CIVIL-SEEVICE EMPLOYEES. 67 the Government's. They are always inequitable as between different classes of employees, since there is no definite relationship between what is given and what is received. The contribution rates are ahnost inevitably inadequate, leading to the ultimate insolvency of the fund, for while theoretically it may be a simple matter to fix a flat rate of contribution which wUl be adequate for a given problem, prac- tically it is almost impossible, owing to the difficulty of valuation and the difficulty of keeping those in authority from changing the rules and benefits- under a particular plan. FLAT-EATE ASSESSMENT PLAN UNSATISFACTOEY IN ENGLAND. The British contributory scheme established in 1829 by treasury minute and confirmed by the superannuation act of 1834 was de- servedly unpopular, because it was unjust and little better than a lottery. So bitter were the complaints made against it by the em- ployees that it was abolished in 1857 and followed, two years later, under the superannuation act of 1859, by the straight pension sys- tem of the last half century, which has also been found unsatisfac- tory, as explained above, and modified under the superannuation act of 1909. The contributory scheme required a flat contribution of 2| per cent of salary from all employees receiving less than £100 per annum, quite regardless of the age of the employee or any other condition, and 5 per cent from all receiving more than £100. The contributions of all employees were not merely commingled, as is generally the case where there is a flat- rate assessment; they were inextinguishably merged in the general exchequer. Not being funded or set aside for the accumulation of interest, it was not even known whether the sum total contributed was sufficient to pay the benefits allowed under the plan. There was a general impression that the rates were more than adequate to provide the benefits, and that the Government was making money at the expense of its employees. It is sometimes said that the British contributory plan was abandoned because the fund was found to be hopelessly insolvent. Such was not at all the case, for, in the first place, there was no fund to be insol- vent, and, in the second place, it was not known until about a year after the repeal of the superannuation act of 1834, when the investi- gating actuaries made their report, that the rates of deduction from salaries had been inadequate to provide the benefits under the act. Had there been a fund, it is true, however, that it would have become insolvent. The fact that eminent actuaries had generally shared the popular impression that the rates were more than adequate, until a minute and laborious investigation showed that quite the contrary was the fact is striking proof of the difficulty of fixing a flat rate of contribution which will be adequate in a given problem. The 68 EETIKEMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. discovery that the contributions were inadequate merely showed the British public, however, a new weakness in a plan they had^ already set aside for other reasons. The plan was condemned by employees and actuaries alike as in- equitable as between different classes of employees. It made no provision for the refund of contributions in case of retirement or in case of death before reaching pensionable age. This confiscation of contributions was felt to be a particular hardship when an em- ployee died in harness leaving a family in want, after Jiaving con- tributed for years to the supposed superannuation fund. No serious objection was expressed to the principle of deductions from salaries; it was only the confiscation of those deductions that met with oppo- sition. A large body of the employees in fact presented a petition asking that the deductions be continued, but that they be returned the employees in the shape of insurance for their families. The fact that was resented was the fact that only one contributor out of every seven received any benefit from thus contributing part of his salary year after year, the other six dying or leaving the service before reaching the age at which they could claim a superannuation allow- ance. The system was denounced as a tontine. The situation was thus summed up by Dr. William Farr, chief of the Statistical Office of the Department of the Eegistrar General, and a famous actuary, before a select committee appointed by Parliament to investigate the subject, in the following words : Under this arrangement for granting allowances out of deductions you neces- sarily have to take the deductions from men who never derive any benefit whatever from the fund. This is, I conceive, an insuperable objection to the system. The families of the men who die are harshly dealt with; you take from the widow and fatherless children the deductions of the men who die to enable you to pension those who live. Now, it is impossible to convince the widows or the orphan children of the officers who die in the service that it is just to deprive them of the advantage derived from the contribution of the parent to enable you to pay the superannuation allowances of those officers who are so fortunate as to live.^ FLAT-KATE ASSESSMENT PLAN UNSATISFACTOET IN AUSTEALIA. Particularly instructive, too, as showing the usual inadequacy and inequity of a contributory plan based on a flat-rate assessment is the experience of the colony of New South Wales, Australia. A plan was established there in 1884 which provided for a general deduc- tion of 4 per cent from salaries, with a Government subsidy of £20,000 a year for five years. No provision was made for paying the annuities on back services, and the Government subsidy of £100.000 was not sufficient to cover them, nor was the 4 per cent deduc- »See Report on Civil Service Superannuation. 1856. Minutes of Evidence, p. 178. EETIEEMEISTT OP SUPEKANNUATED CIVIL-SERVICE EMPLOYEES. 69 tion sufficient to cover future liabilities. Unsound thus in its very constitution from the beginning, the fund was hastened to its de- mise by being improperly administered, as explained on page 46, to further the ends of politicians. The very first valuation, made only five years after its establishment, showed the fund to be insol- vent, and at the end of eleven years the plan was accordingly aban- doned. Even had it been properly administered, it must have ulti- mately come to grief, owing to the inadequacy of the contribution rates and the debt with which it was burdened at the outset, and even had the subsidy been sufficiently high and the rates quite ade- quate to meet all demands, the plan would have been unsatisfactory as inequitable between individual members, the amounts contributed in each case not being commensurate with the amounts received.^ PXAT-BATE ASSESSMENT PLAN UNSATISFACTOKY IN CANADA. The Dominion of Canada has passed two unsatisfactory laws, both based on flat-rate assessments of salary for the benefit of its super- annuated civil employees. The first one, known as the superannua- tion act of 1870, was enacted three years after the formation of the Dominion and was based on fiat-rate deductions from salary. Like all such plans, it is subject to the criticism of having been inadequate and inequitable. The deduction from salary was fixed at the rate of 4 per cent per annum on salaries of over $600 a year and at 2^ per cent on those of less than that amount. Grossly inadequate as these rates were, they were still further reduced in 1873 from 4 to 2 per cent and from 2J to 2J per cent. Since there was no intention on the part of the Government to make the contributions adequate for the whole expense of superannuation, it is perhaps hardly fair to criticize the law on that score, though proper to point out that had there been a superannuation fund, it must have become insolvent. Owing to the lowness of the rate of contribution, the employees were fairly well satisfied with the law, their criticisms being confined to one point only. They rebelled against the confiscation of those contributions, small as they were. The law made no provision for the refund of contributions in event of retirement before pensionable age, and this, taken in conjunction with' its failure to make provision for widows and orphans, was held to be an injustice. It was thought that the abatements from salary should be returned to the dependents of the civil servant in the event of his death before pensionable age, and a campaign was made against the law on this ground. The history of superannuation schemes the world over shows that employees are never content with a plan which requires the forfeiture of their con- tributions, and it is against all the instincts of human nature that 1 See CiTil Service Retirement, New Soutli Wales, Australia, S. Doc. 420. 70 RETIREMENT OP SUPERANNUATED CIVIL-SERVICE EMPLOYEES. they should be, especially when deductions from salary are made under compulsion. The overthrow of the Canadian superannuation act was accom- plished, however, on other grounds than the complaint brought by the civil employees. The contribution rates being inadequate to pay for the benefits allowed, the deficit had to be made up by the Government, and to this extent the contributory scheme under the act of 1870 was simply a civil pension. As already explained on page 45, it became the prey of political parties, advantage being freely taken by partisan leaders of those clauses in the act which allowed the removal of employees from the service on " abolition terms " and the addition of years to the period of their service when calculating the amount of superannuation allowance due them. The result of these abuses was that the superannuation system be- came a great expense to the country. The question became a political issue and undoubtedly contributed to the defeat of the Conservative party in the elections of 1896. The Liberal party came into power then pledged to effect a reform, and in fulfillment of its pledge closed the superannuation act of 1870 to all new entrants into the civil service and passed in lieu thereof the retirement act of 1898, which is now in force and has proved quite as unsatisfactory, in a different way, as will be explained later on. FLAT-BATE ASSESSMENT PLAN UNSATISPACTOBT IN FEANCE. France has had in operation since 1853 a retirement plan for civil employees, which is based on a flat-rate deduction of 5 per cent from salary, and illustrates the weakness of all such plans. To the pen- sion fund thus created are also added deductions from the salaries of new entrants and deductions from promotion salaries, but even with these additional contributions from the employees, such are the uncertain and incalculable elements of any plan which requires com- mingling of assets that the public treasury, in 1902, was devoting 80,000,000 francs a year to civil pensions, with every prospect that unless there were modifications in the law the amount would finally reach 129,000,000 francs; so that the retirement plan in vogue for civil employees is virtually a civil pension. In addition to this, the plan is unsatisfactory to the beneficiaries themselves because of arbi- trary and unjust distinctions made between employees of different ages and classes, there being no fixed relation between the amount which the particular employee contributes and the amount he may receive from the fund.^ 1 See " Quelques observations siir les pensions de retraite des fonctionnaires civils et les projets de rgforme," by Georges Caben, in " Eevue Politique et Parlementaire," Sept. 10, 1902, p. 497. BBTIEEMENT OP SUPERANNUATED CIVIIi-SERVICE EMPLOYEES. 71 SAVINGS AND ANNUITY PLAN BASED ON ADEQUATE INDIVIDUAL CONTRI- BUTIONS THE IDEAL PLAN. Not one of all the foreign retirement schemes, so far as known, would seem to offer us a model. Germany, like England, grants a straight pension to its civil employees, while other countries, such as France, Holland, Belgium, Austria, and Turkey, have plans which require flat-rate assessments on salaries. All civil pension and gen- eral fund assessment plans being discarded as undesirable and inequi- table, the investigator is brought, by a process of elimination, to con- sider as the soundest, the most equitable, and the most expedient plan of retirement for civil-service employees a savings bank or " savings and annuity plan " based on deductions from salary that are suffi- cient in each case for the purchase of an adequate annuity at the age of retirement. This is in accordance with the fundamental principles laid down at the beginning of this chapter, that the funds necessary for the payment of annuities on all services rendered after the adop- tion of the plan must be provided by the employees themselves by means of contributions which shall be sufficient to provide an ade- quate annuity, based on length of service and amount of salary, and which are so arranged as to be in no case excessive. The funds neces- sary for the payment of annuities on all services rendered prior to the adoption of the plan must be furnished by the Government, a sharp distinction thus being made, in the interests of the younger members of the service, between past services and future services. Savinqs-Bank Plan Appeoved bt Well-Known Actuaries. The simplicity of the savings-bank idea may account for the fact that it has escaped special consideration, and yet it has been sug- gested before and approved by well-known actuaries. The subject of pension funds, for instance, is discussed by Mr. Miles M. Dawson, a consulting actuary of New York, in an article in the Eailway Age, in which he brings out the enormous perplexities and difficulties of the pension systems usually in force, especially those in which the fund is created partly by contributions from the employees and partly by contributions from the employers. He sup- ports his statements largely by a quotation from the highest British authority on the subject, Mr. Henry W. Manly, ex-president of the Institute of Actuaries, actuary manager of the "Old Equitable," and author of the most valuable actuarial treatise upon pension funds. Mr. Dawson's conclusion is that — Theoretically a pension fund could be created by exacting only the percentage of each salary which was found equivalent, as an increase of the whole pay roll, to the value of the pension. Practically this can not be done satisfactorily, because the employer must guarantee the sufficiency of the fund or leave its 72 RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. solvency doubtful, which is worse, and the rates of withdrawal and dismissal are too unreliable to count upon in fixing the deductions from salaries, because of the various demands described by Mr. Manly and because higher rates with lower benefits would seem unjust to employees entering the service at the higher ages. The only plan upon which the system can be operated without constant annoyance is that of making the scheme a mere savings bank until the retire- ment age is reached, the accumulation being returned at death, upon retirement because of ill health, upon withdrawal, or even dismissal.^ At a meeting of the Actuarial Society of America, held in Toronto, October 10 and 11, 1907, Mr. Benedict D. Flynn, assistant actuary of The Travelers Insurance Co. of Hartford, Conn., presented a paper on " Staff pension funds," in which he made special reference to the savings and annuity plan here under discussion, and commended it as avoiding all the perils of flat-rate assessment plans. After pointing out the great difficulty in creating a staff pension fund of obtaining a true measure of the rate of withdrawal, he said : And the salary scale, which is probably of greater importance in determining the amount of contribution than any other element, is most difficult to determine with reasonable accuracy. The presence of high-salaried offlicals in the older ages of the state and the probability of change in the methods of advancement call for the greatest care and judgment in the adjustment of the salary scale. Even when the work is completed in the most skillful manner there is a grave question as to whether the result gives a fair estimate of the rate of increase in salaries to be experienced in the future. The fact that these assumptions with regard to the rates of withdrawal, retirement, and salary increase can not be made with accuracy, however, would not of itself be of great moment, provided the errors of judgment did not place the fund in an unsafe condition, if it were not for the fact that in such a fund individuals or certain classes are not treated equitably. Proceeding to consider " the question of the proper plan to use in the organization of a pension system," Mr. Flynn calls attention to the fact that — practically all pension schemes which depend in any degree upon compulsory contributions from members contain in their rules the privilege of return of the whole or part of the contributions with or without interest in case of with- drawal or death before age of retirement is reached. He then says : The question which naturally arsises is what necessity there may be for introducing the elements of mortality and withdrawal and of the erection of this elaborate statistical structure. Why not eliminate these assumptions en- tirely in so far as active members are concerned and simply accumulate the contributions at compound interest? This savings-bank idea, although referred to at various times throughout the discussion of staff pension funds, has never been given the consideration that would seem to be its due. * * * It is in the ease with which a plan based upon the savings-bank idea can be started and operated, however, that its chief advantage lies. An account can be kept for each member, and the proper return upon death or withdrawal or > See " Pension funds," by Miles M. Dawson, F. I. A., Railway Age, Sept. 9, 1904. RETIEEMENT OF SUPERANNUATED CIVIIi-SBRVICE EMPLOYEES. 73 the amount of pension upon retirement can be determined with accuracy. Another advantage wliich this plan possesses is in the case of change in the rules of the plan. Mr. Manly states that in his experience rules were changed about every five years and oftentimes without the knowledge and advice of the actuary who made the original calculations. Funds which start with simple benefits very often assume obligations of a more costly nature without a corresponding increase being made In the contributions required. In cases where such changes have been made' and actuarial advice either ignored or not sought at all the funds have become insolvent with consequent loss to members. The result of increasing the benefits to the members under the savings-banlj plan would simply be to cut down the gains to the fund and to reduce the surplus to be divided among the members — a simple adjustment compared with the situation in a fund built upon assumptions. It can be said, therefore, if the rules of a plan require the return of contributions with interest as will most plans of to-day which make payments by members compulsory, that the use of the savings-bank plan as outlined above has many advantages and that, even in cases where the benefits to members are more restricted, it will prove a safe and desirable method for starting and carrying the scheme until a reliable experience can be obtained. The value and adaptability of this method can best be shown in detail by considering a plan which has been proposed recently for the retirement of the employees of the classified branch of the United States civil service. Mr. Flynn then proceeds to describe the savings and annuity plan discussed in this report.^ Savings-Bank Plan Peoposed fob France. The shortcomings of the law of 1853, under which the retirement plan for the civil employees of the French Government was estab- lished, have been noted above in the reference to Georges Cahen's article in the Revue Politique et Parlementaire. According to that same author, " the key to the problem " is to be found in a " system of savings-bank accounts" proposed in 1877 and again in 1891 by two great financiers, which was adopted by the Senate but rejected by the Chamber of Deputies. An acount of this project, translated from Cahen's article, is as follows: In 1873 the National Assembly sent to the Council of State a study of a propo- sition made by Admiral de Montaignac and three of his colleagues. The secretary of the Council, M. de la Roque, devoted himself to minute researches and laborious calculations. After two years of elaboration and discussion, a vast project issued from the Council of State, which served as a basis for that which M. Leon Say, minister of finance, announced in 1877, in the name of the Government. It creates a " provident fund oflice," the duty of which is to bring together to the credit of each civil employee the amounts deducted from his salary and the proportional subsidies granted annually by the State. An individual account is opened for each employee, where the sums thus paid are charged up with compound interest at 4i per cent, reckoned each year. After two years of » See " Staff pension funds, with special reference to a retirement plan for United States clTll-servlce employees," by Benedict D. Flynn, F. A. S.. Transactions of the Actuarial Society of America, Vol. X, p. 275. 74 RETIBEMENT OF SXJPERajSTNUATED CIVIL-SERVICE EMPLOYEES. service tUe employee has a right to the portion of the fund which has come out of his salary After 15 or 20 years, and at the age of 45 or 50 years, according to circumstances, he can draw on the amount of the subsidies, under the form either of a life annuity or of a right to perpetual income. The passing over of this income to the widow is assured in certain cases and according to definite conditions. After being adopted, with modifications, by the Senate, upon the remarkable report of M, Gouin (March 24, 1879), the bill was rejected by the Chamber, conformably to the conclusions of M. Godefroy Cavaignac, who established the fact that in adopting it the advantages granted by the law of 1853 to the minor ofljceliolders would be diminished and transitory charges, too burdensome and insufficiently compensated by the economics of the distant future, would be imposed upon the treasury. The question was not again taken up until eight years later. On June 27, 1891, M. Rouvier introduced a new bill, which was directly inspired by that of M. Leon Say, but account was taken of the criticisms which had brought about the latter's rejection. The interest in this later bill is calculated only at 3J per cent. The rate of the subsidy decreases, that of the salary deductions in- creases, with the importance of the salaries. A common fund permits a supple- mentary grant to be made to the employees least favored. The employee be- comes proprietor of the fund accumulated from the deductions from his salary only after 10 years of service, but his widow and heirs have right to it in case of his decease after 5 years of service. The benefit of the subsidy is, however, acquired only at the end of 25 or 30 years. In this scheme, as well as in that of M. Leon Say, he can draw on this amount only in the form of an annuity, the principal ultimately going to the common fund. The national bureau of retir- ing pensions for old age, an old institution, protected from all interference with its funds by the State, was to have charge of this new service. Parliament never reached a discussion of the bill. Nevertheless, in certain of its principles * * * ought to be found, in our opinion, the key to the problem. * * • The tontine system of the law of 1853 causes the greater part of the abuses already mentioned; It entails an arbitrary and unscientific fixing of the amount of the pension; it does not take into account the entire career of the pensioner ; it necessitates percuniary sacrifices, increasing incessantly, always indefinite. The system of the " savings-bank account," on the contrary, permits a regulation of the rate of the pension according to the amount of the pay- ments made into the individual's fund; it makes the rate depend on the serv- ices rendered ; at every period conserves the rights of the employees ; it makes the fund held back from his salary his property, and thus takes away from this governmental act Its character of spoliation. For annual charges in the budget it substitutes fixed subsidies, easily calculable. By the accumulation of interest It facilitates the formation of a reserve fund which will lighten the charges of the future. * * * It brings clearness and economy into the public finances. It is, to sum up, the only rational, just, scientific, and humane method. Reasons fob Failube or Savings-Bank Plan in Canada and New Zealand. The suggestion that a savings-bank plan is the logical one to adopt for the retirement of Government employees sometimes encounters tlie criticism that such was the plan established in Canada by the re- tirement act of 1898, that it has not given satisfaction, and that a RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 75 movement is even now on foot to set it aside and adopt a plan which shall depend, at least partly, on the Government for support. It is true that the Canadian plan is a compulsory savings system, pure and simple. The deductions from salary, together with interest at 4 per cent, compounded annually, are placed to the separate ac- count of the individuals from whose salaries the deductions are made, and they are his unconditionally on separation from the service. To this extent the Canadian plan resembles the savings and annuity plan embodied in the Perkins, Gillett, and Austin bills. There is, however, one radical difference between the two plans. The Canadian scheme is based on a flat-rate assessment of 5 per cent on all salaries. Since there is no commingling of assets, the uniformity of rate in the deductions from all salaries does not result in any inequity as between different classes of employees. Each employee gets back just what he sets aside, plus interest, and can not complain that any of his savings is diverted for the benefit of some older employee. An assess- ment of 5 per cent of salary is not, however, sufficient at the older ages to provide adequate benefits. The very complaint is made by the civil employees of Canada that a student of the subject might expect to hear, that the annuities provided under the retirement act for employees who entered the service at the older ages are insufficient. Similar criticism can not be made of the savings and annuity plan here proposed, because deductions from salary are graduated accord- ing to the age at which the employee enters the service, and are sufficient in each individual case to create a sum that will purchase an adequate annuity at the age of retirement. Instead of a flat-rate deduction of 5 per cent of salary for all ages the deductions for re- tirement at the age of 70 vary from 4.3 per cent in the case of an employee who enters the service at the age of 20 to 11.2 per cent in the case of the employee who enters at the age of 69, or is at that age when the plan takes effect. Not only are retirement allowances thus made adequate, but the general effect of such a graduation in deductions is to discourage the entrance of old people into the serv- ice, which surely is as it should be. A compulsory savings scheme was tried in New Zealand from 1886 to 1893 which was open to the same objection as that now brought against the retirement act of Canada. It was based on a uniform deduction of 5 per cent of salaries, the deductions credited separately to the account of each employee, but it proved inadequate as a retirement measure for those who entered the service late in life, and other measures were brought forward to take its place. Assessment on Salaet Should be Based on Age of Entrance into Service. The necessity of making the percentage of salary deducted depend on the age of entrance into the service has been perceived by at least 76 EETIEEMENT OF SUPEKAM N UATED CIVIL.-SBE.VICE EMPLOTEBS. two well-known actuaries. One of the actuaries employed to make the valuation, on several occasions, of the New South Wales super- annuation fund was Mr. John B. Trivett. In 1902, on the occasion of the fifth and last actuarial valuation, Mr. Trivett made a very exhaustive report discussing the causes which had operated to bring about the failure of that fund and the principles which should under- lie a perfectly safe scheme of superannuation, arguing that " it would be in every way regrettable if the failure of a system which had been devised on an unsafe plan should provide so great a prejudice as to permanently prevent the adoption of some well-founded retirement fund, a most essential attachment to any efficient public service." Assuming retirement at the age of 60, and salaries in progress as at present in the New South Wales civil service, he stated that the con- tribution rates necessary to insure the sufficiency of a superannuation fund would have to vary with the entrance age as follows : ^ Under 20 years 5 per cent per annum. 20 and under 25 years 5i per cent per annum. 25 and under 30 years 5| per cent per annum. 30 and under 35 years- 6 per cent per annum. 35:i^d under 40 years 6^ per cent per annum. When Mr. Morris Fox, the Government actuary of New Zealand, came to work out the plan for the retirement of New Zealand's civil employees, which was enacted into law in 1907 under the name of the " Public-service superannuation act," he evidently profited by the dis- astrous experience of New South Wales, and heeding the advice of Mr. Trivett carefully observed the fundamental principle that em- ployees' contributions must be fixed according to the age of entrance into the service or the age at the time of the passage of the law, and not according to some uniform percentage of salary. The law as finally enacted provides for contributions at 5 per cent of salary for ages under 30 at age of entrance, with an increase of 1 per cent for every five years' increase in the age of entrance or part thereof, until for ages exceeding 50 they reach 10 per cent. Two IMPOETANT PRINCIPLES ObSEEVKD IN PeEKINS, GiLLETT, AND AUSTIN BlIXS. In the observation of this important principle and one other, the plan embodied in the Perkins, Gillett, and Austin bills diifers from all plans previously proposed in this country or tried in other countries, with the single exception of New Zealand, so far as known to the author. Besides graduating deductions from salary according to entrance age — and this is done with exactness for every age in the proposed plan rather than for every five years only, as in the New Zealand plan — ^the plan embodied in these bills makes a sharp differentiation between past liabilities and future liabilities. It is through using the * See Civil Service Retirement, New South Wales, Australia, S. Doe. 420, pp. 43-44. BETIEEMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 77 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, Gil- lett, and Austin bills all provide that the annuities for services ren- dered prior to the adoption of the plan shall be paid by the Govern- ment, the contributions of present employees to be kept undisturbed for them until they are ready to retire. The New Zealand law like- wise 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 superannua- tion 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 thorouglily sound in prin- ciple, 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 Libeeal Rate of Interest the Govebnment's Best Contki- BXJTION. 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 fol- lowing paragraph occurs : Anyone who will analyze the commission bill or the Senate bill will be con- vinced 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 equl- 78 KETIKEMENT OF SUPERANNUATED CIVIL-SEEVICE EMPLOYEES. 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 serv- ice, therefore, is intended to be supplemented by 5 per cent from the Govern- ment, or, what would amount to the same result, the Government may guar- antee 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 aH concerned. As to the view that no matter whether the employer contribute o» 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 break- ing 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 self- respect of every contributor — but it shuts the door on all the possi- bilities of abuse and corruption that will surely creep in if direct con- tributions 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.^ 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 con- tribution per annum will double itself in the course of a service of » See Interest chart, p. 102. RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 79 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 appro- priation from the Treasury to give the same pension. The Canadian or American Government could, therefore, far better afford to in- crease salaries by the amount of the contributions that will be neces- sary 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 em- ployees. SAVINGS AND ANNUITY PLAN ADOPTED BY ENGLISH FRATERNAL ORGANI- ZATION. While no government, in the opinion of the author, offers a model retirem^t plan which it would be safe to follow in all respects, the record of at least one actual experiment with a saA'ings 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 introduc- tion 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 For- esters. That district has undertaken to provide an old-age pension fund for its own members. At the commencement of 1901, 428 members were contribut- ing to the fund ; at the close of it there were 468. Several courts having valua- tion surpluses have seen the desirability of converting their courts into pen- sion courts, and 19 of these have voluntarily required all future entrants to subscribe for " old-nge pensions " as a condition of membership. There are now 637 members in Sheffield assured of old-age pensions.' * * * » See Old-Age Pensions : A Collection of Short Papers, 1903, p. 4. 80 RETIREMENT OF SUPERANNUATED OIVILr-SERVICE EMPLOYEES. 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 founda- tion 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. id. 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 fol- lowing 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. BETIREMENT OF SUPERABTNUATED CIVIL-SERVICE EMPLOYEES. 81 construction of the savings and annuity plan discussed in this report. The contributions are based on entrance age, and are sufficient to pro- vide 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 gi-atifying 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 Eeviews in which the writer deprecated as unsound and unwise the proposed leg- islation, and called attention to the success of the rural scheme de- scribed 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 able- bodied 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 en- tirely 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 Cham- berlain 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?"' ADVANTAGES OF PROPOSED PLAN. It should be plain from the foregoing explanations that the sav- ings and annuity plan here proposed of retiring civil-service em- ployees 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 in- terest on the money held by the Government and the expense of ad- ministering 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 jnstify an English experi- ment?" By Sir William Chance, Bart. (The Financial lieview of Eeviews, London. Feb., 1908, p. 9.) 74196°— S. Doc. 745, 61-3 6 82 EETIBEMENT OF SXJPEEANNXJATED OIVIL-SERVICE EMPLOYEES. and superannuated. It will benefit the employee by stimulating his independence and self-respect while he is in office and by retiring him on a competence when he reaches old age. And it is as simple in its operation as a straight pension itself. Note. — Since this report has been in proof the special committee on retire- ment legislation of the Civil Service Reform Association of New York has sub- mitted a report In which they " lay down the lines which sane, fair, and economical pension legislation should follow.'' It is gratifying to note that the principles promulgated in their report agree with those here set forth. The full text of their report is as follows: Civil Pensions in New Yokk State and City. ebpobt of the special committee on betieement legislation of the citil seevice eefoem association of new yoek. To the Executive Committee: Your committee appointed to consider the subject of retirement legislation in this State herewith submits Its report. If a retirement system can be devised — and it seems to your committee that one can be devised — which, without imposing an undue burden upon the tax- payers, will tend to increase the efficiency of the public service through caring for the old age of those who have served long and faithfully, the New Yorlc Civil Service Reform Association should heartily favor the establishment of such a system and should aid in securing the necessary legislation to that end. In so far, however, as any proposed retirement system fails either to Increase the efficiency of the public service or to be just and fair to the employees, or to be just and fair to the taxpayers, the association should oppose the proposal. And this because unless a retirement system does increase the efficiency of the service It has no excuse for existence, and because a retirement system that imposes unjust or unfair burdens either upon the- employees or upon the tax- payers who employ them will prove progressively demoralizing in its operation. Approaching the subject from this point oiC view makes clear and sharp the distinction between a straight pension and a retiring allowance for superan- nuated employees. The former should be confined to civil employees engaged In hazardous occupations who suffer injury or death in the performance of duty. The entire expense of allowances or annuities granted in such cases should be paid out of the public treasury. They should be regarded as a part of the legitimate cost to the public of conducting a hazardous business. The ordinary civil employee is In a very different situation. He should be paid a proper and adequate compensation for the services he performs, and there would seem no valid reason why government employees who have been In receipt of such compensation should be erected into a special class to be supported in their old age at public expense. On the other hand, if the public employee Is not paid a proper and adequate compensation for his services, any method which seeks to supply the deficiency by pensioning him when superannuated is unjust to the employee, economically wasteful, politically demoralizing, and detrimental to the efficiency of the service. A retiring pension provided in whole or In part at the public expense as a reward for long and faithful services Inadequately paid for at the time they are rendered is inevitably regarded as merely the deferred payment of moneys already earned. This works a double Injustice, for it helps to make and keep the pay for current work inadequate, and the death of the employee before his superannuation will prevent his ever receiving the deferred portion of his EETIEEMBNT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 83 compensation. It Is equally unfair to tlie public, for it has been shown by ex- perience that each year an employee remains in the service with a portion of his pay held, back until he shall reach the age of superannuation is an added obstacle to his discharge, though his work may have sensibly deteriorated. It would be far better from every point of view for the government to pay ade- quately and contemporaneously for the services as rendered than to weaken the discipline and impair the efficiency of the public service by deferring the payment of any portion of the earnings of its employees on the promise that if they desired to remain and were not discharged before they reached the age of superannuation they would thereafter be pensioned. Your committee is unreservedly in favor of the following propositions : Each employee in the civil service of the government should receive proper and adequate compensation for his services at the time the services are ren- dered. If the salaries of the government's civil employees are adequate, as compared with salaries for similar employment outside the public service, so that the employees can properly be expected to lay by a sufficient amount year by year to provide for their own old age, it is not reasonable, nor does it tend toward personal thrift and economy, for the government to add to such salary a pen- sion for life, at great expense to the taxpayers. It is quite possible and, indeed, probable that in certain cases the salary remaining to the employee after deduction has been made to provide for his support in old age will not be sufficient to permit him to maintain the standard of living to which his position entitles him. In such cases, however, it is clear that the salaries as now fixed are inadequate, and your committee therefore recommends that all such cases be inquired into and the necessary advances in salary made. That some private corporations have of late been establishing various pension systems represented to be wholly or in part at the expense of the employing corporation does not seem to your committee a convincing or even a strong argument for introducing such a system in the public service. In the first place, assuming it to be honestly believed that the expense of these pensions is borne in whole or in part by the employing corporation, we may be very sure that, if it turns out that any part of the pension is paid out of the capital of the corporation, that part of the pension will stop. We may be equally sure that, by so much as the payment of any part of the pension diminishes the normal return upon capital the pension will stop. In the second place, in each of these instances a private corporation Is simply risking its own money to try an experiment that may or may not prove to be successful as the years go on ; while the Government has neither savings nor investments nor earnings of its own, and if it ventures upon such an experiment must pay the expense out of forced contributions from the taxpayers. The Government lacks the stimulus to keen watchfulness and economical management constantly present when one who fails in either respect must bear the loss occasioned. It would be rashly imprudent in these circumstances to create a large dependent class of voters directly interested in influencing legislation for its pecuniary profit. Your committee therefore recommends that the following principles be ob- served in drafting retirement legislation applicable to employees in the civil service : (1) A system of retiring annuities based upon length of service and an attained age of retirement should be provided by compulsory contributions from the employee's salary, which, invested by or under the supervision of the Government at a reasonable rate of interest, compounded annually, will be suffi- cient to provide the annuity at the age of retirement. The safety of the contrl- 84 RETIREMENT OF SUPERANNUATED CIVIIx-SERVICE EMPLOYEES. butions and the reasonable rate of interest should be guaranteed by the Government. (2) An individual and separate account should be kept of the contributions of each employee. In case of his voluntary separation from the service before the age of retirement, these should be repaid to him. (3) In order that the retirement system should increase the stability of the service and add an inducement to capable men to remain in it, those who separate themselves from the service prior to the age of retirement should receive somewhat less than the full accumulation of interest upon their deposits with the Government. It is apparent that a system of retiring annuities embodying the principles favored in this report can be made to rest upon a sound actuarial basis, and in the case of a new entrant into the civil service need not require the contribution of an undue proportion of his salary in order to secure the benefits sought. At the present time, however, the data are almost wholly lacking for devising a sound plan for retiring, at reasonable cost to the taxpayers, the civil employees already in the public service. Those who are still young enough to provide for their own retiring annuities without contributing an unreasonable amount of their salaries should be required to do so ; but it is obvious that those already above a certain age can not afford to contribute from their salaries an amount suflScient to provide an adequate annuity on retirement. In the opinion of the committee, the Government should make up the balance between what such employees may reasonably be called upon to contribute and the amount needed to secure them an adequate annuity on retirement. Such investigations as have already been made into the conditions of employment in the Federal service lead us to hazard the opinion that a thorough investigation of the problem here will show that the amount which the Government is called upon to contribute in order to carry out this plan will not much exceed the loss to the Government occasioned by the retention of superannuated employees and the consequent loss in efflciency all along the line through the blocking of the way to promotion. What is needed at the present time is a thorough investigation which shall ascertain and set forth accurately the facts essential to determining the cost to the taxpayers of establishing upon a sound actuarial basis a retirement system applicable to employees already in the public service. We need to know, for example, the length of service and the age of each such employee, his salary at entrance, all increases since, and his present salary. It is not necessary to emphasize the unwisdom of enacting any retiring system into law without the prior oflBcial collation and publication of such necessary statistical information. Your committee, therefore, recommends the creation of a commission to be appointed by the governor for the purpose of making a thorough study and Investigation of the entire subject and to report thereon with its recommenda- tions. The commission should have power to subpoena and examine witnesses and have an adequate staff of competent experts. Respectfully submitted. Horace E. Deming, Chairman. H. De F. Baldwin. Chaeles a. Conant. Elliot H. Goodwin. RtrssELL H. LOINES. Special Committee on Retirement Legislation. Apbil 12, 1911. CHAPTER II. MATHEMATICAL BASIS OF PROPOSED PLAN. The plan proposed is concisely stated as follows in the first para- graph of both the Perkins and Gillett bills (see pp. 210 and 215) : That beginning witli the first day of July next following the passage of this act there shall be deducted and withheld from the monthly salary, pay, or com- pensation of every officer or employee of the United States to whom this act ap- plies an amount, computed to the nearest tenth of a dollar, that will be sufficient, with interest thereon at three and one-half per centum per annum, compounded annually, to purchase from the United States, under the provisions of this act, an annuity, payable quarterly throughout life, for every such employee on arrival at the age of retirement as hereinafter provided equal to one and one- half per centum of liis annual salary, pay, or compensation for every full year of service or major fraction thereof between the date of the passage of this act and the arrival of the employee at the age of retirement. The deductions hereby provided for shall be based on such annuity table as the Secretary of the Treasury may direct, and interest at the rate of three and one-half per centum per annum, compounded annually, and shall be varied to correspond to any change in the salary of the employee.' ANNUITT THE OENTBAL IDEA OF THIS PLAN. It will be seen from careful reading of the above paragraph that the annuity is the central idea of this plan. While provision is made in the bill for the withdrawal of accumulations on reaching the age of retirement in a lump sum if so desired, the amount set aside from month to month to create that sum is so calculated as to be just sufficient in each individual case to purchase the desired annu- ity. The amount desired as annuity is held to be 1^ per cent of salary for each year of service. This standard was not chosen arbitrarily as a basis, but was taken on the assumption that an employee's work- ing life is limited to 50 years (from the ages of 20 to 70), and that retirement on three-quarters pay after 50 years' service is not un- reasonable. Dividing 75 per cent of salary by 50 years of service gives li per cent of salary for each year of service as a basis for computing annuities to be granted aft er other periods of service. iThe first paragraph of the Austin bill is identical with the above, except that pro- vision is made for Interest " at five per centum per annum, compounded annually," Instead o£ 3i per cent, and provision is made for an increase of salaries. 85 86 EETIBEMENT OF SUPERANNUATED CIVILrSEBVICE EMPLOYEES. VALUE OF ANNUITY DETERMINED BY MORTALITY AND INTEREST TABLES. The main object of this discussion is to show how the value of an annuity is determined and what deductions from salary must be made, at any age, from any salary, in order that a sum may be accu- mulated sufficient to purchase the desired annuity from the Govern- ment at the age of retirement. Since the price to be charged for an annuity depends on the table of mortality and the table of compound interest used in the computation, the mathematical basis of this plan will be discussed under the following heads and in the following order: Mortality tables, interest, annuities, and deductions from salaries. The four steps in our course of reasoning must be as follows : FOUR STEPS IN DISCUSSION. MORTALITY TABLES. (1) Up to the age of retirement the proposed plan is merely a com- pulsory savings arrangement, but on retirement from the service the employee is entitled to withdraw his savings in the form of an an- nuity payable to him as long as he may live, rather than in one lump sum. The annuity provision, to be sound, must be based on the law of averages as applied to human life, the so-called " law of mortality." This is the law on which the operations of all sound insurance com- panies are based. While nothing is more uncertain than the duration of any individual life, the study of statistics pursued during the last 200 years among civilized nations shows that nothing is more certain than the average continuance of life. In various parts of the world during the last two centuries records have been kept showing the births and deaths of individuals. From these records tables have been constructed that are known as mortality tables, and upon these tables the average duration of life has been calculated. Since they were all compiled by different persons from different data, their re- markable similarity constitutes strong proof of their accuracy. While wonderfully alike in general, the accepted tables of mortality vary, however, in detail, according to the conditions of environ- ment^ — such as climate and occupation — ^to which the lives under ob- servation were subjected. While apparently small these differences are important, and it requires a careful study of the various tables in order to determine which one of them is best adapted to computing the rates for an- nuities on the lives of civil-service employees in America. Among those choosing annuities on retirement from the civil service will be some who will live beyond the usual span of life; but, on the other hand, there will be many who will die far short of it. It is impossible to determine which of the individuals living at age 70 will survive to age 100, but it is perfectly possible to determine with remarkable BETIREMEKT OF SUPEEANNTJATED CIVIL-SERVICE EMPLOYEES. 87 accuracy by the use of a table of mortality constructed on the basis of lives which were similar in their environment to those of the civil service how many individuals out of a large number will survive to that age. This being definitely known, we can thus adjust scientifi- cally and absolutely the amount of the annuities so that the sums for- feited by those who die early will carry the few to extreme old age. The first step, then, is to make a study of the various mortality tables and to select for our computations the ones which best represent the conditions of life among employees of the United States Government. INTEREST, (2) The second step is to ascertain what rate of interest could be obtained on the savings of the employees and whether such rate of interest is sufficient, with a reasonable deduction from salary, to create the desired annuity at the age of retirement. In tliis connec- tion it is necessary to review the fundamental principles on which tables of inte.rest are based and to take special note of the results obtained with compound interest at various rates. ANNUITIES. (3) The third step is to consider, theoretically and practically, the provision in the plan for granting annuities at retirement equal to IJ per cent of the employee's annual salary for each year of service. In order to compute annuity rates under this plan, it is necessary to understand the method pursued in determining the value of an an- nuity. The longevity of life having a direct bearing on the con- struction of mortality tables, and consequently the computation of annuity rates, some attention should be given to the question whether or not it is increasing. How the conditions under which annuity contracts are granted differs from those under which life insurance contracts are issued should also be made clear, since the philosophy underlying the two is diametrically opposed and capable of creating confusion in the minds of those who have not given the matter much attention. DEDUCTIONS FROM SALARIES. (4) The fourth step is to determine what per cent of salaries at various ages of entrance into the service would have to be set aside by each individual in order to provide himself with an annuity on re- tirement equal to U per cent of his salary for each year of service. MOKTALITY TABLES. In order to understand why the three tables used in constructing this plan were adopted for this work in preference to others, it may be we]] to consider briefly the theory and history of mortality tables, show how a mortality table is constructed, and review the most im- portant ones in use. 88 EETIREMENT OP SUPEBANNUATBD CIVILrSERVICE EMPLOYEES.. A mortality table may be defined as an instrument by means of which is shown the decrement by death from one age to another among a particular class of people. In other words, a table of mortal- ity shows how many children out of a great number born alive die in each year of age and exhibits the law of decrease through the whole extent of life. The formation of such a table was not an easy task, nor was it accomplished early in the history of manldnd. In the beginning, -tables of mortality were based on the death records of certain towns, which were necessarily incomplete and unreliable, but more recently they have been based on the censuses of population in various countries and on the records of life insurance companies. These recent tables are far more accurate than the early ones. Before the perfection of mortality tables life insurance calculations were necessarily little better than a gamble. CONSTKUCTION OF MOKTALITT TABLES. The ideal way of constructing a mortality table would be to have under observation for the whole period of their lives, a large number of persons — say 100,000 — born on a given day, and to record the num- ber dying in each year of age, and the number living at the end of each year of age. That would make a perfect mortality table. Such procedure is, of course, impossible in practice, but various means of accomplishing substantially the same results have been devised. The important consideration is the relative number at each age as com- pared with the number alive at the preceding age. The actual num- ber is of little consequence. In a brief way, the method adopted by insurance companies is as follows: As large a number of persons as possible is classified by age and placed in a special group for observation. A record is made of the number at each age living at the beginning and at the end of the year. By dividing the number living at a given age at the end of the yea,r by the number living in that age at the beginning of the year the probability of living one year is determined. In like man- ner, by dividing the number dying during the year by the number living at the beginning of the year, the probability of dying within one year is obtained. As the number under observation is seldom large enough, when divided into individual ages, as described above, to give perfectly accurate probabilities, these differences must be reconciled by one of several methods of graduation, either graphic or mathematical. The simplest process is to plot the probability of dying at the various ages. The result obtained, if a line is drawn from one age to the next, and so on, will be a more or less irregular curve, showing, as might be expected, that from about the tenth year of age the probability of death increases with age. The irregularities of the curve are, as above explained, due to the inadequate numljer RETIREMENT OP SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 89 under observation at the individual ages. By drawing a line through the zigzag curve thus obtained a new set of probabilities may be derived, with the irregularities due to the lack of original data for the individual years greatly ironed out, as it were. The accuracy of the graduation may be tested by placing in a column the number under observation at the various ages, and in a parallel column opposite each age the number of actual deaths that took place each year. In a third column opposite each age should be placed the number that would probably die, according to the graduated tables of probabilites, and in a fourth column should be noted the error, plus or minus. The accumulated error from year to year may be shown in an additional column, and if the graduation has been accurately performed, the pluses and minuses will in a number of years substantially offset one another.^ From this mate- rial a table of mortality may be deduced. This is accomplished by assuming a given number of persons as living at the beginning of the youngest age that is to be shown in the table. This number may, for the sake of convenience, be stated as 100,000, while the initial age in the table is usually 10, 16, or 20, although earlier ages may be used if desired. The number shown as living at the beginning of the initial year is then multiplied by the probability of living, obtained as above de- scribed, and the number thus obtained represents the number of per- sons out of 100,000 at the initial age adopted for the table that, according to this experience, may be expected to survive to the begin- ning of the second year. By subtracting this number from 100,000 the number that might be expected to die during the first year is obtained. This number is noted on the table opposite 100,000. By multiplying the number thus computed as living at the beginning of the second year by the probability of living during that year the number of persons that may be expected to survive to the beginning of the third year is obtained. By subtracting this number from the number living at the beginning of the second year the number that might be expected to die during the second year is obtained. This number is noted on the table opposite the number living at the beginning of the second year. By continuing this process on to the death of the last survivor, using the probability of living in each instance corre- sponding to the particular age, a table of mortality is constructed such as forms the basis of all life-insurance calculations in which there is a life contingency. Generally speaking, there are two kinds of mortality tables — insur- ance tables and annuity tables. The principal difference between them is this: The insurance table usually contemplates a length of 1 For the purposes of this explanation it is not thought desirable to go into the detail* of graduation by mathematical formulsa. 90 EETIBEMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES^ ]ife somewhat shorter than the fact, whereas the annuity table con- templates a length of life somewhat longer than the fact. This dis- crepancy is maintained as a margin of safety, since the insurance table is used to calculate the premiums on policies calling for the payment of a definite sum on the failure of the life insured, whereas the annuity table' is employed to compute the rates for annuities which must be paid as long as the life continues. EABLT KOMAN TABLES. While we find traces of speculation concerning "the theory of probabilities" as far back as the time of Plato and while we know that all civilized people have followed the practice of registering births and deaths, we have no knowledge that anyone ever attempted to make a mortality table before the third century of the Christian era. Such a table was actually constructed, however, by the great jurist, Ulpian, during the reign of the Emperor Alexander Severus and was used as a basis for calculating annuities. EAELY GEKMAN TABLES. The first mortality table of the Christian era was constructed by Graunt from data obtained from transcripts of deaths entered in London registers. The second mortality table was published in 1693 by the astronomer Halley, who secured his data from the registers of Breslau, Germany, which was the only place where a record of the ages of the dead was kept. His work was entitled "An Estimate of the Degrees of Mortality of Mankind, Drawn from Curious Tables of the Births and Funerals at the City of Breslau," and laid the foundation of the science of life contingencies. Halley taught with great clearness the conditions needful for the formation of rates of mortality; but mortality tables constructed from data supplied by parish registers proved to be in serious error where used for com- puting annuities. As the registers furnished no information as to the number who were exposed at any age, it was assumed " that the data fairly represented the mortality which would successively apply to a group equal to the whole number of decedents born on the same day * * *. It must be evident that, unless the population were precisely stationary, the births balancing the deaths each year, and nobody removing from or into the field of observation, the assump- tion that the mere number of deaths during any period could furnish a radix for a mortality table constructed as if from lives observed from the time of birth was sure to be erroneous. As the populations of Breslau and other places which furnished statistics used to com- pile these tables were in each case increasing, it followed that the radix was in each case too small to correctly represent the mortality at the younger ages, and this in turn made the mortality proportion- BETIEEMENT OF SUPEEANKUATED CIVIL-SERVICE EMPLOYEES. 91 ately too small at older ages. Wliere these tables were used for in- surances, this proved an error on the safe side; where used for annui- ties, it was an unfortunate error." ^ EAKLT ENGLISH TABLES. After Halley there were many investigators, some of whom de- duced mathematical formulae from such records as they had, while others improved the methods of making records. About 70 years after Halley the registration of persons living and dying in Stock- holm from 1765 to 1763 was classified and arranged by Dr. Richard Price into a mortality table. John M. Holcombe speaks of this as "the first accurate deduction ever made of the length of life in a city," 2 and comments on the fact that the old Eoman Ulpian's cal- culations were remarkably close to those reached 15 centuries later by Dr. Price. THE NORTHAMPTON TABLE. From the records of the town of Northampton Dr. Price con- structed in 1783 a table which became widely known as the North- ampton table and which, though in some respects unreliable, was adopted as the standard. of life-insurance calculations. According tc Moir= it showed excessive mortality and large profits were made by the life assurance companies which used its figures, whereas heavy losses were sustained by the annuity companies which adopted it, because their annuitants lived longer than the table indicated. THE CARLISLE TABLE. Since Dr. Price many mathematical experts have tried their skill at constructing tables of mortality. In 1815 the Carlisle table was prepared by Joshua Milne from the census of the population of two parishes in Carlisle in 1780 and the deaths in the same parishes from 1779 to 1787. It was scientifically constructed and very satisfactory. Even to-day it is considered of great value, especially in the calcula- ' tion of survivorship benefits. MOETALITT TABLES BASED ON EXPERIENCE OF LIFE INSURANCE COMPANIES. As life assurance had its earliest development in England, it was natural that more attention was paid there than elsewhere to the making of mortality tables, since they are the basis of life insurance as a science. The first life insurance company organized on a really scientific foundation, with premiums graded according to age and based on a mortality table, was the Old Equitable of London, incor- ' See Practical Lessons in Actuarial Science, by Miles M. Dawson, p. 60. 'See Yale Insurance Lectures, p. 311. See Life Assurance Primer, by Henry Moir, p. 38. 92 KETIREMBNT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. porated in 1762, and still doing business. The actuary or manager of the Old Equitable was William Morgan, a nephew of the celebrated Dr. Price, by whose precepts he profited. No better example than this oldest of English societies could be found to prove that no life insurance institution established on a sound scientific basis need ever fail, if managed with honesty and prudence, for it has been demon- strated again and again that the rate of mortality is an absolutely reliable basis for calculating the charges that must be made to meet the obligations of life assurance. As one writer on the subject has well said: There is nothing more uncertain than any given human life, and yet by a law of nature as certain in its operations as that which brings seedtime and harvest, the rate of mortality among large numbers of people, for periods of years, is uniform. ^ RECENT ENGLISH GOVERNMENT TABLES. During recent years the English Government has given valuable aid in the matter of constructing and perfecting mortality tables, especially through the work of its statistical bureau and the experi- ence of its life offices. One important work done by the English Government has been the formation, on five different occasions, of mortality tables from census returns. " In 1897," says Moir,^ " a most useful series of tables was submitted, with details of mortality in 100 different occupations, showing not only the mortality rates in those occupations, but giving also the causes of death." The popu- lation table which has received most prominence was published in 1861, and is known as The Healthy English Table. It was formed by Chief of the Statistical Office of the Department of the Registrar General, Dr. "William Farr, from census returns of 1851 and the records of the births and deaths from 1848 to 1853, inclusive, in 63 of the healthiest registration districts of England and Wales. The mor- tality of the sexes was investigated separately. THE COMBINED OR ACTTJAEIES' TABLE. In the meantime, the experience among life assurance companies had increased so greatly that they found themselves in possession of exceptional facilities for the construction of mortality tables. Know- ing the ages of all policy holders and the ages at which they died, it was easy for them, as the field of observation widened, to compile very valuable statistics from their records. The first mortality table compiled from the records of a life assurance company was published in 1834 by Mr. Arthur Morgan, actuary of the Old Equitable of London. The experience of one company is not, however, nearly so 1 See Life Assurance Primer, by Henry Moir, p. 39. RETIREMENT OP SUPERANNUATED CI\ IL-SERVICE EMPLOYEES. 93 valuable as the combined experience of several companies, since it is very possible that peculiar circumstances in the case of any one company may have caused its mortality experience to be exceptionally high or unusually low. The combined experience of 17 English companies was accordingly collected and formed into a table, which is known in this country as the Combined Experience or Actuaries' Table of Mortality, but in England goes by the name of the Seventeen Offices' Table of Mortal- ity. This compilation was begun in 1838 by a committee of actuaries and was based on 62,537 insurances. The results were first published in 1843, in London, in a book by Jenkin Jones, entitled "A Series of Tables of Annuities and Assurances Calculated from a New Rate of Mortality Amongst Insured Lives." Owing to the indorsement of the Hon. Elizur Wright, commissioner of life insurance of Massachu- setts and the father in this country of " the square deal " in life insur- ance, the Combined or Actuaries' Table, was adopted as the legal standard in Massachusetts, and has been popular throughout the United States. In Great Britain, on the contrary, the Combined Table has been superseded by the Institute of Actuaries' H" and H' tables, commonly spoken of as the Healthy Male and Healthy Female Tables. THE ACTUAEIES' H™ AND h' TABLES. These tables were constructed from data supplied by 20 British companies belonging to the Institute of Actuaries, and are accordingly often spoken of as the Twenty Offices' Tables. The most important of these tables is that known as the Healthy Male or H™ Table. It was constructed in 1869 on the lives of about 140,000 healthy males. Finding that the low mortality of recent entrants had practically disappeared after five years, another table was formed called the H^O Table, in which the first five years from entry were excluded from the statistics. In this table the mortality rates are higher than those of the H"° Table. A separate table was formed dealing with healthy female lives, the H' Table. Although popular in England and Canada, this table has never found favor in the United States. AMKEICAN EXPERIENCE TABLE. About the same time that the Institute of Actuaries published its Healthy Male and Healthy Female Tables in England a table was published in the United States that has come to be very popular, and is known as the American Experience Table of Mortality. It was constructed mainly on the experience of the Mutual Life In- surance Co. of New York during its first 15 fiscal years, ending February 1, 1858. The experience was compiled and the table con- structed by Mr. Sheppard Homans, the actuary of the Mutual Life. 94 RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. He is said to have availed himself of all the other statistics at hand for ascertaining the laws of mortality applicable to healthy insured lives in this country. In graduating and modulating the American table Mr. Homans also made use of all the standard European tables for the purpose of comparison. The first actuary of the Mutual Life Insurance Co. had been Prof. Charles Gill, who appears to have been the first American to frame a mortality table an*d compute independent rates. He was the author of a book entitled "Assurance Tables," and in 1851 he made a report upon the company's experience for its first eight years among its members residing in the Northern States. It is highly probable that Prof. Gill's work aided Mr. Homans in his. Mr. Homans's first report was made in 1858, and included an adjusted table of mortality, based on the whole experience of the company for the 15 years. In the years 1859 and 1860 Mr. Homans continued the compilation of the company's experience, and in 1860 framed what was afterwards known as the American Experience Table of Mortality. While based in the main upon the experience of the Mutual Life Insurance Co. it represented, in a considerable degree, Mr. Homans's personal opinion of the probable rate of mortality among insured lives after the immediate effects of medical selection had worn off. " It is very remarkable," says Mr. D. P. Fackler, " that this table, based largely upon judgment rather than actual experience, should be so nearly the same as if it had been based on the Makeham formula of several years later.^ THE BRITISH OFFICES' TABLES. The most recent and most valuable mortality experience published is that of the " British Offices." It is the result of an exhaustive in- vestigation of the subject made by a joint committee of the Institute of Actuaries and of the Faculty of Actuaries. A large number of tables, both life and annuity, based on the combined experience of 60 British companies covering a period of 30 years — from 1863 to 1898 — were produced. The most distinguished actuaries of the world had charge of the work, and bestowed more care and scientific ac- curacy on the assortment of the material from which the tables were constructed than was ever before given to such a task. TABLES USED IN PEEPAEING THIS PLAN. Three different mortality tables have been employed in the con- struction of the retirement plan proposed in this report ; the British Offices' Select Annuitants' Mortality Table in connection with Part I, 1 See article entitled " Tlie genesiF of the American Experience Table," by David Parka Facltler, in the Transactions of the Actuarial Society of America, Vol. X, p. 509. KETIREMENT OP SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 95 and the American Experience Table of Mortality, together with the Combined or Actuaries' Table of Mortality, in connection with Part II. BEASONS FOE USING BRITISH OFFICES' SELECT ANNUITANTS' MOBTALITY TABLE AS THE BASIS FOB ANNUITY BATES UNDEE PABT I OF PLAN. The first necessity for a mortality table presents itself in connec- tion with this plan in computing the rate which the Government must charge its employees for annuities due them on reaching the age of retirement. The British Offices' Select Annuitants' Mortality Table is recommended for that purpose. In constructing Part I of the proposed plan it was necessary to select a mortality table for computing the rates which the Govern- ment should charge its employees for annuities purchased with their savings. Since, under the bill, the employees are to be given the right to take their savings on retirement either in a cash sum or in the form of an annuity, it was very important to choose a table with a mortality sufficiently low to overcome this selection against the Gov- ernment. Manifestly, retiring employees would choose between the cash and annuity according to their condition of health. An em- ployee in poor health would in all cases prefer a cash sum, whereas one in the enjoyment of excellent health would be likely to choose the annuity. Table V shows the number of persons living at all ages according to various tables of mortality. A convenient method of comparing the longevity of mortality tables is by means of the " expectation of life," which is the average number of years which persons of a given age will survive. The expectation at all ages, according to these tables of mortality, is shown in Table VI. It will be noted that the expectation of life under the British Offices' Select Annuitants' Table is greater than under any other table.^ The insurance companies in this country have issued few annui- ties, and their experience therefore has not been very broad. On the other hand, annuities in Great Britain have been popular for many years, and the British companies have had a broad experience in is- suing them. For these reasons, the fact, as shown above, that the British Offices' Select Annuitants' Table shows a low mortality as com- pared with other tables, and the fact that the British companies have had a large experience as compared with American companies, in issuing annuities, that table is recommended as the safest and best 1 The " expectation of life " has no relation whatever to the time when any individual Is likely to die, or to the time when death is most liliely to occur. It is merely an aver- age, and can not be used in computations involving compound interest. It forms, how- ever, a most convenient means of comparing the longevity of mortality tables, and is derived by dividing the sum of the tabular number living above the given age, by the number living at the age and adding one-half year to the quotient. 96 EETIBEMENT OP SX7PEBANNUATED CIVIL-SEBVICE EMPLOYEES. basis for the annuity rates under Part I of this plan. If the rates, high as they are, should prove inadequate, the bill provides for the adoption of a new table by direction of the Secretary of the Treasury.^ Table V. — Showing; number living at all ages under various talles of mortality. American experience table of mortality. Northamp- ton table of mortality. Farr's Eng- lish table No. 3. Combined or actua- ries' table of mortality. British of- fices' an- nuitants (select). British of- fices' an- nuitants (ultimate). McCIin- tock's annuity table.i 92,637 91,914 91,192 90,471 89,751 89,032 88,314 87,696 86,878 86,160 8S,441 84, 721 84,000 83, 277 82, .Ml 81,822 81,090 80,353 79,611 78, 862 78, 106 77,341 76,567 75,782 74,985 74, 173 73,345 72,497 71,627 70,731 69,804 68,842 67,841 66,797 65,706 64,663 63,364 62, 104 60,779 59,385 67,917 66,371 64,743 53,030 51,230 49,341 47,361 46,291 43, 133 40,890 38,569 36, 178 33,730 31,243 28,738 26, 237 23, 761 21,3.30 18, 961 16, 670 14,474 12,383 10,419 8,603 6,955 5,485 4, 193 3,079 2, 146 1, 402 847 5,132 5,060 4,985 4,910 4,835 4,760 4,685 4,610 4,536 4,460 4,386 4,310 4,2,36 4,160 4,085 4,010 3,935 3,860 3,785 3,710 3,635 3,559 3,482 3,404 3, 326 3,248 3,170 3,092 3,014 2,936 2,867 2,776 2,694 2,612 2,530 2,448 2,366 2,284 2,202 2,120 2,038 1,966 1,874 1,793 1,712 1,632 1,652 1,472 1,392 1,312 1,232 1,152 1,072 992 912 832 762 676 602 534 469 406 .346 289 234 186 145 111 83 62 46 333, 608 330,844 328,043 325,207 322,339 319,442 316,516 313,562 310,681 307,672 304,534 301,466 298,366 295, 232 292,061 288,850 286,596 282,296 278,944 276,538 272,073 268,544 264,948 261,280 257,534 253,708 249,796 245,795 241,700 237,508 233, 216 228, 821 224,196 219,437 214,652 209,639 204,395 199, 114 193, 686 188, 102 182, 360 176,421 170,303 163,989 157,474 150,754 143,833 136,718 129,421 121,963 114,370 106, 675 98, 919 91, 149 83,416 75, 777 68,294 61,026 64,036 47,381 41,115 35,283 29,922 25,060 20, 711 16,877 13,549 10,709 8,325 6,360 4,770 93,268 92,588 91, 905 91,219 90,529 89, 835 89,137 88,434 87,726 87,012 86,292 86,565 84,831 84,089 83, 339 82,681 81,814 81,038 80,253 79,458 78,653 77,838 77,012 76, 173 75,316 74,435 73,526 72,582 71,601 70,580 69,617 68,409 67,263 66,046 64,786 63,469 62,094 60,658 69, 161 67,600 65,973 54, 275 52,605 60,661 48,744 46, 764 44,693 42,565 40, 374 38,128 35,837 33,510 31, 159 28,797 26,439 24,100 21,797 19,648 17, 369 15,277 13, 290 11, 424 9,694 8,112 6,685 5,417 4,300 3,348 2,637 1,864 1,319 100,000 99,329 98,666 97,979 97,299 96, 616 95,928 95, 236 94,536 93,829 93,116 92, 394 91,663 90,921 90, 166 89,400 88, 620 87,823 87,011 86, 179 86,327 84, 453 83, 665 82,631 81,678 80, 696 79, 680 78,630 77,641 76,413 76,240 74,022 72,764 71,434 70,060 68,627 67, 134 65,577 63,954 62, 262 60,500 68, 665 66,758 64,776 62,722 60,594 48,397 46, 133 43,806 41,423 38,991 36,519 34,019 31,502 28,983 26,477 24,002 21,576 19,217 16,945 14,780 12.737 10,835 9,086 7,502 6,090 4,863 3,790 2,896 2,159 1,668 97,691 97,004 96,312 96,615 94,911 94, 201 93,483 92,756 92,020 91,273 90,514 89,743 88,957 88, 155 87,336 86,497 86,639 84,767 83,862 82,920 81,959 80,968 79,944 78,883 77,785 76, 645 75,462 74,232 72,952 71,619 70,231 68,786 67,276 65,704 64,065 62,356 60,577 58,724 56,799 54,799 52,725 50,579 48,362 46,079 43,734 41,333 38,884 36,396 33,881 31,351 28,820 26,305 23,823 21,392 19,031 16,760 14,598 12,561 10,668 8,930 7,359 5,961 4,739 3,691 2,812 2,091 926,984 918,712 911, 452 904,200 896,953 889,705 882,452 876,190 867,912 860,613 863,287 845,927 838,626 831,075 823,567 815,992 808,341 800,603 792,768 784,822 776,753 768,547 760,189 751,663 742,953 734,040 724,905 716,527 706.886 696,959 686,721 675, 149 664,215 652,895 641,159 628,980 616,331 603, 181 689,604 676,273 660,461 645,046 629,006 612,325 494, 990 476, 995 458,341 439,036 419, 100 398,663 377,468 356,871 333,845 311,480 288,880 266, 170 243,488 220,990 198,846 177,232 156,334 136,339 117,425 99,769 83,4?8 68,729 55, .667 44,044 34, 162 25,873 19,091 ^ Soe last sentence of see. * Standard for annuities 1 of the proposed bill given at the end of under the laws of New York State. this report. EETIBEMENT OF SUPBEAHNirATBD CIVIL-SERVIOB BMPLOTEES. 97 Table V. — Showing numher living at all ages under various tables of mortality — Continued. Age. American experience table of mortality. Northami)- ton table of mortality. Farr's Eng- lish table No. 3. (Combined or actua- ries' table ol mortality. Britisli of- fices' an- nuitants (select). British of- fices' an- nuitants (ultimate). McClln- tock's annuity table. 91 years... 92 years... 93 years... 94 years... 95 years... 96 years... 97 years... 98 years... 99 years... 100 years.. 101 years.. 102 years.. 103 years.. 104 years.. 105 years.. 106 years.. 107 years.. 462 216 79 21 3 3,510 2,531 1,787 1,234 833 548 352 220 134 79 46 25 14 7 4 2 1 570 339 184 89 37 13 4 1 1,107 767 501 319 195 114 64 33 17 11 6 1,513 1,064 725 477 303 184 107 59 31 15 7 3 1 13,689 9,S12 6,387 4,129 2,561 1,518 857 457 230 108 48 ■ 19 7 2 1 Table VI.- -Showing expectation of life at all ages under various tables of mortality. Age. American experience table of mortality. Actuaries or com- bined. Northamp- ton. Farr's En- glish taile No. 3. CarUsle's. British offices' annuitants (select). British offices' annuitants (ultimate). 20 years 21 years 22 years 23 years 24 years 25 years 26 years 27 years 28 years 29 years 30 years 31 years 32 years 33 years 34 years 35 years 36 years 37 years 38 years 39 years 40 years 41 years 42 years 43 years 44 years 45 years 46 years 47 years 48 years 49 years 60 years 61 years 62year? 63 years 54 years 55 years 56 years 57 years 68 years 59 years 60 years 61 years 62 years 63 years 64 years 65 years 74196 42.20 41.53 40.85 40.17 39.49 38.81 38.12 37.43 36.73 36.03 35.33 34.63 33.92 33.21 32.60 31.78 31.07 30.35 29.62 28.90 28.18 27.45 26.72 26.00 25.27 24.54 23.81 23.08 22.36 21.63 20.91 20.20 19.49 18.79 18.09 17.40 16.72 16.06 16.39 14.74 14.10 13.47 12.86 12.26 11.67 11.10 41.49 40.79 40.09 39.39 38.68 37.98 37.27 36.66 36.86 35.15 34.43 33.72 33.01 32.30 31.68 30.87 30.15 29.44 28.72 28.00 27.28 26.66 26.84 25.12 24.40 23.69 22.97 22.27 21.56 20.87 20.18 19.50 18.82 18.16 17.60 16.86 16.22 15.59 14.97 14.37 13.77 13.18 12.61 12.06 11.51 10.97 33.43 32.90 32.39 31.88 31.36 30.85 30.33 29.82 29.30 28.79 28.27 27.76 27.24 26.72 26.20 25.68 26.16 24.64 24.12 23.60 23.08 22.66 22.04 21.64 21.03 20.52 20.02 19.61 19.00 18.49 17.99 17.60 17.02 16.64 16.06 15.68 15.10 14.63 14.15 13.68 13.21 12.75 12.28 11.81 11.35 10.88 39.48 38.80 38.13 37. 46 36.79 36.12 36.44 34.77 34.10 33.43 32.76 32.09 31.42 30.74 30.07 29.40 28.73 28.06 27.39 26.72 26.06 26.39 24.73 24.07 23.41 22.76 22.11 21.46 20.82 20.17 19.54 18.90 18.28 17.68 17.06 16.45 15.86 16.26 14.68 14.10 13.63 12.96 12.41 11.87 11.34 0.82 41.46 40.75 40.04 39.31 38.59 37.86 37.14 36.41 35.69 35.00 34.34 33.68 33.03 32.36 31.68 31.00 30.32 29.64 28.96 28.28 27.61 26.97 26.34 25.71 25.09 24.46 23.82 23.17 22.60 21.81 21.11 20.39 19.68 18.97 18.28 17.68 16.89 16.21 15.65 14.92 14.34 13.82 13.31 12.81 12.30 n.79 42.972 42.246 41.521 40.795 40.066 39. 333 38. 600 37.866 37.131 36.396 36.669 34.922 34.184 33.447 32. 710 31. 974 31.238 30.604 29.771 29.040 28.311 27.584 26.862 26.141 25.426 24.713 24.004 23.302 22.604 21. 912 21.227 20.548 19.877 19.213 18.557 17.910 17.273 16.644 16.026 15.418 14.821 14.236 13. 662 13.101 12.551 12.016 38. 918 38. 190 37.461 36.730 36.999 36.266 34.534 33.800 33.066 32.333 31.600 30.867 30.135 29.405 28.677 27.960 27.226 26.502 25.784 26.067 24.365 23.648 22.944 22.246 21.552 20.866 20.185 19.611 18.845 18.186 17.536 16.894 16.262 15.639 16.026 14.424 13.833 13.254 12.686 12.131 U.68S — S. Doc. 745, 61-3- 98 BETIEEMENT OF SUPERANNUATED OIVILi-SERVICE EMPLOYEES. Table VI. — Showing expectation of life at all ages under various tables of mprtality — Contluued. Age. American experience table of mortality. Actuaries or com- bined. Northamp- ton. Farr's En- gUsh table No. 3. Carlisle's. British offices' annuitants (select). British offices' annuitants (ultimate). 10.54 10.00 9.47 8.97 8.48 8.00 7.65 7.11 6.68 6.27 6.88 S.49 5.11 4.74 4.39 4.05 3.71 3.39 3.08 2.77 2.47 2.18 1.91 1.66 1.42 1.19 .98 .80 .64 .50 10.46 9.96 9.47 9.00 8.54 8.10 7.67 7.26 6.86 6.48 6.11 6.76 5.42 5.09 4.78 4.48 4.18 3.90 3.63 3.36 3.10 2.84 2.59 2.35 2.11 1.89 1.67 1.47 1.28 1.12 .99 .89 .75 .60 10.42 9.96 9.60 9.06 8.60 8.17 7 74 7.33 6.92 6.54 6.18 5.83 S.48 5.11 4.75 4.41 4.09 3.80 3.58 3.37 3.19 3.01 2.86 2.66 2.41 2.09 1.75 1.37 1.05 .75 .60 10.32 9.83 9.36 8.90 8.45 8.03 7.62 7.22 6.85 6.49 6.15 6.82 5.51 5.21 4.93 4.66 4.41 4.17 3.95 3.73 3.53 3.34 3.16 3.00 2.84 2.69 2.65 2.41 2.29 2.17 2.06 1.95 1.85 1.76 1.68 1.65 1.62 1.50 1.50 1.25 1.00 .60 11.27 10.76 10.23 9.70 9.18 8.65 8.16 7.72 7.33 7.01 6.69 6.40 6.12 5.80 5.61 6.21 4.93 4.65 4.39 4.12 3.90 3.71 3.59 3.47 3.28 3.26 3.37 3.48 3.53 3.53 3.46 3.28 3.07 2.77 2.28 1.79 1.30 .83 .50 11.492 10.983 10.487 10.005 9.637 9.084 8.646 8.222 7.812 7.417 7.037 6.671 6.320 5.983 5.660 6.361 5.056 4.774 4.506 4.250 4.006 3.775 3.555 3.346 3.148 2.961 2.783 2.616 2.457 2.307 2.165 2.030 1.901 1.777 1.488 1.266 1.080 .874 .600 11.059 67 years 10.543 68 years 10.041 9.552 70 years 9.078 8.618 72 years 8.173 7.743 74 years 7.327 6.926 6.541 6.170 5.815 79 years 5.474 5.148 81 years 4.836 4.539 83 years 4.257 84 years 3.988 85 years 3.732 3.490 3.261 88 years . . . 3.045 2.841 90 years . . . 2.649 2.468 92 years . . . 2.299 2.140 94 years 1.991 1.852 96 years 1.722 1.600 1.487 1.380 100 years 1.277 101 years 1.172 1.050 103 years .870 .500 105 years 106 years KEASONS FOB TTSING AMEEICAN EXPERIENCE TABLE OF MORTALITY IN FIEST STEP OF DETERMINING COST OF ANNUITIES FOR BACK SERVICES. The next need for a mortality table is in computing the cost of annuities for services rendered prior to the adoption of the plan. The American Experience Table of Mortality, an insurance table, was used in the first step of the calculation. It was employed in determining the annuities that would be due the employees of various ages on reaching the retirement age. This was accomplished by multiplying the "immediate annuities" by the probability of living under the American Experience Table of Mortality from the various ages at the present time to the age of retirement. This table was selected be- cause it has been found that in the ages up to about 70 thie gradua- tion is more nearly in harmony with the experience of the American insurance companies, and because under it the probability of living between the various ages and the ages of retirement is considerably higher than under any of the other recognized insurance tables. The BETIBEMENT OF SU?EEANNUATED CIVIL-SERVICE EMPLOYEES. 99 reason for selecting a table which shows a low mortality from the various ages to the age of retirement is to avoid the mistake of estimating the cost of these annuities at less than the amount required, as would result if fewer deaths occurred than had been calculated. Table VII shows that the probability of living up to the age of 70 is greater under the American table than under any of the others — in other words, that the mortality is lower. Table VII. — Showing the number out of 100 living at various ages that will survive to age 70 according to different tables of mortality. Age. Ameri- can expe- rience. North- ampton. Carlisle. Farr's English No. 3. Com- bined or actu- aries'. offices H". 20 offices H»(5). British offices annuity (ulti- mate). 20] 25 years . 30 years., 35 years. 40 years. 45 years. 50 years. 65 years. 60 years. 65 years. 41.63 43.32 45.14 47.14 49.38 52.00 55.25 59.74 66.59 78.17 24.01 25.88 28.10 30.72 33.89 37.93 43.12 SO. 33 60.45 75.49 39.42 40.84 42.55 44.78 47.31 60.79 54.60 58.95 65.91 79.56 34.28 35.80 37.55 39.59 42.04 45.08 49.04 64.58 62.72 75.86 38.42 39.89 41.53 43.40 45.56 48.14 51.55 56.46 64.02 76.66 39.62 40.97 42.42 44.18 46.33 48.93 62.42 57.32 64.76 77.33 36.77 38.67 40.64 42.58 44.92 47.63 51.25 ■ 56. 39 64.03 76.89 42.31 43.88 45.66 47.78 50.43 53.93 58.85 66.28 78.39 REASONS FOB USING COMBINED OB ACTUABIES' TABLE OF MORTALITY IN LAST STEP OF DETERMINING COST OF ANNUITIES FOR BACK SERVICES. • The second step in calculating the cost of adopting Part II of the plan is to deterniine the amount of annuities that will actually be paid those who rendered service prior to the adoption of the plan from the time they reach the age of retirement until the last of them is dead. This will depend upon the rate of mortality among the survivors. From about the age of 75 the American table shows a severe rate of mortality, and it was thought best, therefore, in dis- counting the annuities from the retirement age down to the death of the last survivor by the probability of living each year, to make use of a table which shows generally a greater expectation of life after the retirement ages than does the American table. The Com- bined or Actuaries' Table, therefore, which shows at the age of 80 about six months greater expectation of life than does the American table (4.78 years as against 4.39) and at older ages still, greater dif- ferences of expectation, was selected for this purpose. It shows the death of the last person at the age of 99 as against the age of 95 in the American table, and probably more nearly represents the true span of life than does the American table. For a comparison of the expectation of life under the various mortality tables, see Table VI. The effort has been throughout to use such tables as would give the highest rate for annuities, so that the estimate of cost under Part II of the plan would be a maximum. 100 BETIKEMENT OF SUPERANNUATED CIVIL-SEEVICE EMPLOYEES. INTEREST. The computation of annuities depends upon tables of mortality and tables of compound interest. Having considered briefly the history and uses of mortality tables with special reference to those employed in the construction of the proposed savings and annuity plan, it becomes necessary to give some attention to the tables of compound interest used in the computation of the annuities granted under the plan. SIMPLE INTEREST AND COMPOUND INTEREST. Interest is defined by Carroll as " the charge made by the lender to the borrower for the use or opportunity to use capital, money, or credit, and is stated in terms of money." ^ Two kinds of interest are taken account of in financial transac- tions — simple and compound. Simple interest, which is interest charged on the principal only, has no part in the calculation of annuities, or in any other form of life assurance contracts. Com- pound interest, on the other hand, which is interest charged on the accrued interest as well as on the original principal, is the basis of all life assurance computations, including the calculation of annui- ties. All life assurance institutions invest their funds at compound interest; that is, they reinvest the interest received from their invests ments so as to receive more interest, gaining thus not merely profit on the original investment, but profit on the profit as well. CUMULATIVE POWER OF COMPOUND INTEREST. To the mind not accustomed to the consideration of the cumulative power of compound interest the results that can be obtained by steady and systematic saving, when the accumulations are improved by the operation of compound interest, appear little short of marvelous. The young employee, entering the service at 20 years of age, has only to put aside out of a salary of $1,200 a year the small sum of $4.27 each month to accumulate, with the help of compound interest at 3^ per cent, by the time he is 70 years of age the sum of $6,835.50, which is sufficient to retire him on an annuity of $900 a year for the rest of his life. Of this sum of $6,835.50, which he will have to his credit at the age of 70, only $2,560.20 will actually have been contributed by himself. All the remainder, which is no less than $4,275.30, or nearly two-thirds of the whole sum, will be interest. Illustrations of the working of this principle through different periods of service are given in the following tables. Table VIII > See Principles and practice of finance, by Edward Carroll, Jr., p. 35. EETTREMENT OP StJPEKANNUATED CIVIL-SERVICE EMPLOYEES. 101 shows the percentage of annuity contributed by the employee and the percentage gained through the increment of interest : Table VIII. — Showing percentage of annuity contributed by employee and percentage gained through increment of interest. Entrance age. Years service. Monthly deduc- tion from salary of 3100. Amoimt of annu- ity. Cost of annuity. Retirement age. Total. Employee's savings. Interest on em- ployee's savings. Amount. Per cent. Amount. Per cent. 70Jyears 7o years 70 years 70 years 70 years 70 years 70 years 70 years 70 years 70 years 70 years 20 years 25 years 30 years 35 years 40 years 45 years 50 years 55 years 60 years 65 years 69 years 50 45 40 35 30 25 20 15 10 5 1 $4. 267 4.756 5.289 5.869 6.497 7.176 7.907 8.691 9.630 10. 425 11. 178 $900. 00 810 00 720 00 630 00 540. 00 460.00 360. 00 270.00 180.00 90 00 18.00 36,835.50 6,151.95 5,468.40 4,784.85 4,101.30 3, 417 75 2,734.20 2,050 65 1,367.10 683. 55 136. 71 32,660 20 2,568.24 2,638.72 2,464 98 2,338.92 2, 152. 80 1,897.68 1,664.38 1,143.60 625. 50 134. 14 37 45 41.75 46.42 61.62 57.03 62.99 69.41 76.29 83.65 91.61 98.12 $4,275.30 3,683.71 2,929.68 2,319.87 1,762.38 1,264.96 836.52 486. 27 223.50 58.05 2.57 62.55 58.25 63.68 48.48 42.97 37.01 30.59 23.71 16.35 8.49 1.88 Table IX shows the amount returned to the employee in cash, after various periods of service, for each dollar deposited. Table IX. — Showing amount returned to the employee in cash, after various periods of service, for each dollar deposited. Ectirement age. Entrance age. Years of serv- ice. Monthly deposit from a salary of 3100. Amount of an- nuity. Amount deposited by em- ployee diu:- ing entire period of service. Amount of casli re- turned on retirement in lieu of an annuity. Amount of cash returned for each dollar deposited. 60 45 40 35 30 26 20 15 10 5 1 34.267 4. 7.'i6 5.289 5.869 6.497 7.176 7.907 8.691 9.530 10.426 11. 178 3900.00 810.00 720.00 630.00 540.00 450.00 360.00 270.00 180.00 90.00 18.00 32,560.20 2,568.24 2,538.72 2,464.98 2,338.92 2,152.80 1,897.68 1,564.38 1,143.60 626.60 134.14 36,835.50 6,151.95 6,468.40 4,784.85 4,101.30 3,417.75 2,734.20 2,050.65 1,367.10 683.66 136.71 32.67 70 years.. 25 years 2.40 2.15 70 years . 35 years 1.94 1.75 70 years 45 years 1.59 1.44 70 years 55 years 1.31 1.20 1.09 70 years 69 years 1.02 The rapidity with which a fund increases at compound interest after the lapse of a few years is graphically illustrated in the accom- panying chart by the curves representing the amount resulting from a deposit of $1 a year compounded at various rates of interest from 1 to 50 years, and Table X, which follows, shows the same thing in numbers. It will be noted that during the first years of accumula- tion the amount of interest is insignificant, and the curves represent- ing it are slight, but that after about 20 years' accumulation the amount of interest increases very rapidly, approaching and passing 102 Chart BETIEEMENT OF SUPEEANNTJATED CIYIL-SEEVICE EMPLOYEES. showing the arrumnt of a deposit of$l per annum from one to fifty years at various rates of interest. *2Z0 210 200 190 mo 170 ISO ISO liO 130 120 110 lOO 90 80 70 60 SO 40 30 20 lO - 9. .1 m js 20 25 30 as M M so \ fmsM \ ■.158.77 aassa .11618 (.JO 00 1 ^ 1 / hi n / // // / f 1 V( / / u^Li- // A. 1 / A / J / / // 7/ f / / /A '// A f/ ^ ^ f -#ssf- ^ A ^^ ^ ^ ^^ ^^ ^ R^TIEEMENT OF SUPERANNUATED GIVIL-SERVICE EMPLOYEES. 103 the amount of the principal itself. In other words, the interest accumulation on shorter periods is vastly less than on the longer periods of service. To illustrate : The interest on $1 per annum com- pounded for 40 years, at 4 per cent, amounts to $58.83, while for 50 years, an accumulation period of only 10 years more, or but one-fifth of the whole period, it amounts to $108.77, or nearly twice the inter- est of the shorter period. Table X. — Showing the amount of a deposit of $1 per annum from 1 to 50 years at various rates of interest. Year. 1 year... 2 years.. 3 years.. 4 years.. 5 years.. 6 years.. 7 years.. 8 years.. 9 years.. 10 years. 11 years. 12 years. 13 years. 14 years, 15 years. 16 years. 17 years. 18 years. 19 years. 20 years. 21 years. 22 years. 23 years. 24 years. 25 years. 26 years. 27 years. 28 years. 29 years. 30 years. 31 years. 32 years. 33 years. 34 years. 35 years. 36 years. 37 years. 38 years. 39 years. 40 years. 41 years. 42 years. 43 years. 44 years. 46 years. 46 years. 47 years. 48 years. 49 years. 60 years. AmouDt of a deposit of SI per annum witli interest at— 2 per cent. 2i per cent. 3 per cent. SJ percent. 4 per cent. $1.0200 2. 0604 3. 1216 4.2040 6. 3081 - 6. 4343 7.5830 8.7546 9. 9497 11.1687 12.4121 13.6803 14. 9739 10. 2934 17. 6393 19.0121 20. 4123 21. 8406 23. 2974 24. 7833 26. 2990 27. 8450 29. 4219 31. 0303 32. 6709 34. 3443 36.0512 37. 7922 39. 5681 41.3794 43. 2270 45. 1116 47. 0338 48. 9945 50. 9944 53. 0343 55. 1149 57. 2372 69. 4020 61. 6100 63. 8622 66. 1595 68. 5027 70. 8927 73. 3306 76. 8172 78. 3635 80. 9406 83. 5794 86. 2710 SI. 0250 2. 0766 3. 1625 4. 2563 6. 3877 6. 6474 7. 7361 8. 9645 10. 2034 11. 4835 12. 7966 14.1404 15. 5190 16. 9319 18. 3802 19. 8647 21. 3863 22. 9460 24.5447 26. 1833 27. 8629 29. 5844 31. 3490 33. 1578 35. 0117 36. 9120 38. 8698 40.8663 43. 9027 45.0003 47. 1603 49. 3640 61. 6129 63. 9282 56. 3014 58. 7339 61. 2273 63. 7830 66. 4026 69. 0876 71. 8398 74. 6608 77. 5523 80. 5161 83.5540 86. 6679 89. 8696 93. 1311 96. 4843 99. 9216 J1.0300 2. 0909 3. 1836 4. 3091 5.4684 6.6626 7. 8923 9. 1591 10. 4639 11. 8078 13. 1920 14. 6178 16. 0863 17. 5989 19. 1669 20. 7616 22. 4144 24. 1169 26. 8704 27. 6766 29. 5368 31. 4529 33. 4265 35. 4693 37. 6650 39. 7096 41. 9309 44. 2189 46. 5764 49. 0027 SI. 5028 54. 0778 56. 7302 69. 4621 62. 2759 65.1742 68. 1594 71.2342 74. 4013 77. 6633 81. 0232 84.4839 88.0484 91. 7199 95. 6015 99. 3965 103. 4084 107. 5406 111. 7969 116. 1808 $1.0360 2, 1062 3. 2149 4. 3625 6. 5502 6. 7794 8. 0517 9. 3686 10. 7314 12, 1420 1,3, 6020 15, 1130 16. 6770 18. 2957 19. 9710 21. 7060 23, 4997 26. 3572 27. 2797 29. 2695 31. 3289 33. 4604 36. 6666 37. 9499 40. 3131 42. 7591 46. 2906 47. 9108 50. 6227 53. 4295 56. 3346 69. 3412 62. 4532 65. 6740 69. 0076 72. 4579 76. 0289 79. 7249 83. 6603 87. 5095 91. 6074 96. 8486 100. 2383 104. 7817 109. 4840 114. 3510 119. 3883 124. 6018 129. 9979 135. 5828 SI. 0400 2. ,1216 3. 2465 4. 4163 6. 6330 6. 8983 8.2142 9. 6828 11. 0061 12. 4864 14. 0258 15. 6268 17. 2919 19. 0236 20. 8245 22. 6975 24. 6454 26. 6712 28. 7781 30. 9692 33.2480 35. 6179 38. 0826 40.6459 43. 8117 46. 0842 48. 9676 61. 9663 66. 0849 58.3283 61. 7015 65. 2095 68. 8579 72. 6522 76. 5983 80. 7022 84. 9703 89. 4091 94. 0265 98. 8265 103. 8196 109.0124 114. 4129 120. 0294 125. 8706 131. 9464 138. 2632 144. 8337 161.6671 168. 7738 EATE OF INTEREST. The cumulative power of compound interest being so great, the rate at which the interest is compounded is important, since even slight variations in the rate cause considerable differences in results. (See chart, p. 102.) 104 RETIREMENT OF SUPERANNUATED CIVIL-SEKVICE EMPLOYEES. The rate of interest that money will earn is important in connec- tion with this plan in two respects. It has to be considered with reference to the payment of interest on the accumulated savings of the employees, and also in connection with the computation of the annuity that these savings will buy. The bill provides, in the first sentence of the first section, that interest at 3J per cent compounded annually shall be added to the savings of the employees. It likewise provides in the last sentence of the same section that the deductions from the employees' salaries shall be based on the proper mortality table, with interest at 3^ per cent compounded annually. In other words, no specific amount or uniform percentage of salary is stated as the proper rate of deduction from salaries, but a sum which, on two assumptions, will at the retirement age yield the amount neces- sary to buy the desired annuity. The two assumptions are the rate of mortality and the rate of interest. The latter is fixed by the proposed law at 3J per cent, but the right to change the mortality basis is left to the Secretary of the Treasury, so that, in case the experience among the Government annuitants should make it de- sirable to use a table showing a higher or a lower rate of mortality, the change can be made. The table recommended for the present is the British Offices' Select Annuitants' Table. For both purposes, the accumulation of interest on the employees' savings and the computa- tion of annuities to be bought with them, the rate of interest pro- posed is 3i per cent. BATE OF 3i PEB CENT PROPOSED IN BILL. The rate of 3^ per cent was adopted in drafting the proposed bill as the desirable rate to be allowed the employees on their money held by the Government, since, in the opinion of some who have con- sidered the subject, it is the maximum rate that can be safely guaran- teed by the Government ; while, on the other hand, a lower rate than 3^ per cent would require the deductions from salaries to be unduly high in order to create the fund from which to pay the annuities provided in the bill. It was also thought to be about as low a rate as the Government could consistently ask its employees to accept on enforced savings, since that rate or a higher one is offered them by the majority of outside savings institutions. OBJECTION TO LOW INTEBEST BATE. The most practical objection to too low a rate of interest is the fact that it necessitates too high a deduction from the employee's salary, a factor in the problem that is not very flexible. The higher interest rate would undoubtedly create a better feeling among the KBTIEEMENT OF STJPBBANNTJATBD OIVIL-SEBVICE EMPLOYEES. 105 employees also, some of the more thrifty of whom object to a com- pulsory savings plan solely on the ground that they can find more remunerative investments for their savings than the Government would guarantee under this bill. The improvident, too, who never have any money to invest would be less likely to complain about a compulsory savings plan charac- terized by low rather than high deductions from salary. In the opinion of the author, therefore, 3^ per cent is altogether too low an interest rate on enforced savings, and the Government should be willing to guarantee at least 4 per cent. It is very improbable that a guarantee of that rate would put a burden on the Govern- ment, for it would undoubtedly often be able to earn more than 4 per cent, which would offset the times when it would earn less. As explained on page 77 also, the safest and wisest way for the Gov- ernment to lend its aid to the retirement project, far better than by any direct contribution, is through grant of a liberal rate of interest, since encouragement of that kind from the Government would offer no temptation to the introduction of abuses which invariably creep in under a system supported wholly or in part by contributions from the Government. The payment of a liberal rate of interest would operate chiefly as a reward of merit for the benefit of the long- service employee, for it is not until after a long period of years that the difference of a point or two in the rate of compound interest begins to show to any considerable extent, so that, while it would not make much difference to the employee who left the service after 10 years whether the interest rate allowed on his savings was 3J or 4 per cent, it would make a very great difference to the employee who had been in the service 40 or 50 years. Reference to the interest chart on page 102 will show how much more interest at 4 and 5 per cent will amount to on a long period of years than on a short term. ADVANTAGE OP LOW INTBEEST RATE. On the other hand, the assumption of a low interest rate is not without its advantages. The lower the rate of interest the less probable, of course, that the Government would ever fail to realize the rate guaranteed. The bill provides that whatever is carried above the guaranteed interest rate should be returned to the em- ployees, and it is proposed (see p. 110) that this surplus earning should be divided among the annuitants in order to make the an- nuity settlement as attractive as possible and to discourage employees from taking their money in cash. Naturally, the lower the rate of interest guaranteed, the more there will be to divide among annuitants and the greater the advantage given them over those who take a cash settlement on retirement. 106 RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. The eiFect 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 XL Table XI. — Showing the value of an annuity of $1, at variows ages, hased on the British offices' select, annuitamts' experience, with different rates of interest. Annuity payable quarterly. 20 years, 21 years 22 years 23 years 24 years. 25 years 26 years, 27 years. 28 years. 29 years. 30 years 31 years 32 years 33 years 34 years 35 years 36 years 37 years 38 years 39 years 40 years 41 years 42 years 43 years 44 years. 45 years 46 years 47 years 48 years 49 years 60 years 51 years 52 years 53 years 54 years 65 years 66 years 57 years 58 years 69 years 2} per cent. 24.887 24.668 24.425 24.186 23. 941 23.690 23. 433 23. 169 22.902 22.628 22. 348 22. 061 21.769 21.471 21.167 20. 857 20.542 20. 221 19.895 19.562 19.224 18.881 18.634 18.182 17.825 17.463 17.097 16.728 16.366 16.979 15.699 15. 218 14.833 14.447 14. 060 13. 671 13.282 12.893 12.604 12. 117 3 per cent. 22.733 22. 648 22.369 22. 164 21.965 21.768 21.547 21.330 21.107 20.879 20.646 20.404 20.158 19. 906 19.648 19.384 19.115 18.840 18.558 18. 271 17.979 17.680 17.377 17.069 16.755 16.436 16. 113 15.785 16.463 16.117 14.778 14.435 14.089 13. 740 13.389 13.035 12.681 12.326 11.969 11.613 SJper cent. 20.874 20.724 20.579 20.410 20.246 20.076 19.900 19.720 19. 534 19.343 19. 147 18. 944 18.736 18.621 18.301 18.076 17.844 17.607 17.364 17.115 16. 860 16.601 16.335 16.064 16.788 15.606 15.220 14.928 14.631 14. 331 14.026 13.717 13.405 13.089 12.770 12.448 12. 124 11.799 11.471 11.143 4 per cent. 19.259 19. 137 19.010 18. 879 18. 743 18.602 18.456 18. 306 18. 160 17. 989 17. 823 17.650 17. 474 17. 291 17. 103 16.909 16.710 16.506 16. 294 16.078 15.855 15.627 15.394 15.156 14. 911 14. 661 '14. 406 14. 146 13.881 13. 611 13.337 13.058 12.775 12.488 12. 198 11.904 11. 60S 11.310 11.008 10.706 60 years 61 years 62 years 63 years 64 years 66 years 66 years 67 y?ars 68 years 69 years 70 years 71 years 72 years 73 years 74 years 75 years 76 years 77 years 78 years 79 years SO years 81 years 82 years S:j years 84 years 85 years S6 years i,7 years 88 years 89 years 90 years 91 years 92 years 93 years 94 years 95 years 96 years 97 years 98 years 99 years 2iper 3 per SJper cent. cent. cent. 11.730 11.257 10.815 11.346 10.901 10.485 10. 963 10.547 10. 157 10. .684 10.194 9.828 10. 207 9.844 9.502 9.S.S6 9.496 9.177 9.467 9.152 8.854 9.103 8.811 8.534 8.746 8.474 8.218 8. .393 8.143 7.904 8.047 7.816 7.595 7.708 7.494 7.291 7.376 7.179 6.992 7.050 6.870 6.698 6.733 6.668 6.410 6.424 6.273 6.128 6.123 0.986 5.852 5.831 6.706 5.684 5.647 5.432 5.322 5.272 5.168 6.068 5.007 4.912 4.821 4.750 4.664 4.682 4.502 4.426 4.350 4.264 4.194 4.127 4.036 3.972 3.912 3.815 3.769 3.704 3.604 3.553 3.504 3.402 3.357 3.313 3.209 3.168 3.129 3.025 2.988 2.953 2.848 2.816 2.784 2.680 2.652 2.623 2.621 2.495 2.470 2.368 2.346 2.323 2.224 2.204 2.184 2.086 2.068 2.061 1.956 1.940 1.924 1.831 1.817 1.804 1.712 1.700 1.688 1.596 1.586 1.575 4 per cent. 10.402 10.096 9.791 9.486 9.180 8.877 8.574 8.273 7.974 7.679 7.386 7.098 6.813 6.633 6.258 5.989 5.725 5.467 5.216 4.971 4.733 4.502 4.278 4.062 3.852 3.651 3.466 3.269 3.090 2.918 2.763 2.696 2.44S 2.301 2.164 2.034 1.909 1.790 1.675 1.656 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 1^ PEE CENT OF AGGREGATE SAIiAEY. 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 en- trance to the age of retirement (a definite number of years) — it is easy to compute what deduction from salary will be enough, with fiETTKEMENT OF STJPEKANNUATED CIVIL-SEKVICE EMPLOYEES. 107 interest at 3^ per cent, compounded annually, to create a fund suf- ficient 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 pro- posed 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 as- sessment 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 SAI^RY POSSIBLE BUT NOT ADVISABLE. Some other per cent than li 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 inade- quate, and the evils of inadequate annuities have just been pointed 108 RETIREMENT OF SUPERANNUATED OIVIL.-SERVICE EMPLOYEES. 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 dif- ference in the practicability of these several bases of computation — 1, li, and 2 per cent for each year of service — is shown in Table XII. Table XII. — Showing differences in practicaUUty of several bases of computa- tion for annuities, 1, li, and 2 per cent of annual salary for each year of service. Deductions required from a monthly salary of $1 00 to pro vide an annuity on retirement at age 70 equal to— Age. 1 per cent ofannual salary for each year of service. H per cent of annual salary for each year of service. 2 per cent ofannual salary for each year of service. 2.844 3.171 3.526 3.913 4.331 4.784 5.271 6.794 6.353 6.960 7.452 4.267 4.756 S.289 5.869 6.497 7.176 7.907 8.691 9.630 10.425 11. 178 6.689 6.341 7.052 35 years. .1.. . ... . . 7.825 40 years 8.663 45 years.. . 9.568 10.543 11.588 60 years 12.707 65 years 13.900 14.904 TWO roRMS or annuities. Provision is made in the bill for three optional settlements on retirement from the service. These three provisions are set forth ia 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 provi- sion that in ease of the death of the annuitant before he has received in annui- ties 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. T^Tiich 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 BETIKEMBNT OF SUPERANNUATED CIVrL-SEBVICE EMPLOYEES. 109 still to his credit. The third option is a necessary and logical alterna- tive 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 Mil. Option I. — Amount of deposit necessary at age stated to purchase a life an- nuity of $1 payable in quarterly installments, first payment three months after reaching given age : Age 60 $10,815 Age 65 9.1T7 Age 70 7.595 Amount of yearly annuity payable quarterly that following deposit will provide under above : Deposit. Annuity. Age 60 $6,835.50 $632.03 Age 65 6,835.50 744.85 Age 70 6,835.50 900.00 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 — — $12,675 Age 65 11.125 Age 70 9.625 Amount of yearly annuity payable quarterly that following deposit will pro- vide under above : Deposit. Annuity. Age 60 $6,835.50 $539.28 Age 65 6,835.50 614.43 Age 70 6,835.50 710.18 ADVISABILITY OF CASH SETTLEMENT AS WELL AS ANNUITY SETTIJEMBNT. 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 super- annuated 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 cer- tainly 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 re- tiring at age 69, at age 65, at age 60, at age 50, at age 40, and so 110 EETIEEMENT OF SUPEKANNUATED OIVILi-SERVIOE EMPLOYEES. 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 an- nuity settlement, and yet an annuity settlement would not be desir- able 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 an- nuity 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 prac- tical 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 re- main 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 par- ticipate 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 cer- tainly 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 BETIKEMBNT OF SUPERANNUATED CIVrL-SEBVICE EMPLOYEES. Ill rather than to take an annuity which would cease with his death or run on after his death for the benefit of some one else. It seems certain at least that any average human being would object, and be justified in objecting, if his employer, whether the same were the Government, a corporation, or an individual, should withhold part of his earnings and reserve the right to return them at some remote date in the form of an annuity only, regardless of the employee's circumstances at that time or his wishes in the matter. In the opinion of most people that would be carrying the element of compulsion farther than necsssary. It is unfortunate that it should ever be necessary to force people to take any step for their own good, and, theoretically, there is only one thing to be said in favor of compelling a person, whether a Government employee or not, to save his money, and that is that, since he is a member of society, the possibility is recognized of his making a claim on society, and society is right in protecting itself by prescribing what his con- duct shall be. Undoubtedly, the ideal plan of retirement would be no retirement plan at all, but a government willing to pay salaries large enough to support its employees in dignity and comfort and a body of employees so thrifty as voluntarily to lay aside a com- petence for the rainy days of old age. There would be no problem then of superannuation in the public service, but such a condition can not be expected before the millennium, and in the meantime the Government must deal with the situation, in justice to itself and the employees, in such a practical way as to get beneficial results, re- gardless of any theory that it is tyranny for a government to require an individual to include thrift among the virtues he must cultivate in order to be held law-abiding. The Government is commonly held to be justified in protecting itself against the possibility of dishonesty on the part of its employees by requiring those holding offices of trust to give bond for the faithful performance of duty, and it is difiicult to see why the Government is not equally justified in protecting itself against the evil consequences of improvidence on the part of its employees by requiring them to make such regular deposits of money as may guarantee their ability to retire when the interests of the Government so demand. A compulsory retirement law, such as that here proposed, is indeed much less paternalistic than a law requiring employees to give bond, because under this retirement system every contributor recovers his contributions with interest, whereas under the bonding system of the Government nine hundred and ninety-nine honest officials contribute to reimburse the Government against loss at the hands of one dishonest employee. At the same time there is surely a limit to the extent the Government is justified in interfering with the individual's liberty or assuming responsibility for his wel- fare, and that point would seem to be reached in a retirement plan 112 RETIKEMENT OF SUPEBANNUATED OIVII.-SEBVICB EMPLOYEES. when the Government has arranged the employee's affairs so that it can without injustice dismiss him from the service, leaving him thereafter to his own devices. ANNUITY RATES USED IN PEOPOSED PLAN. The next thing to consider is what price the Government should chargt for these annuities. In determining what the rate should be for an annuity of $1, beginning at various ages, the first step is to select a mortality table that most accurately represents the par- ticular body of lives on which the annuities are to be granted. The table recommended, for reasons given on page 95, is the British Offices' Select Annuitants' Table. The next step is to decide upon a rate of interest which the funds received in payment for the annuity contracts may reasonably be expected to earn. The rate of interest proposed, for reasons given on page 104, is 3^ per cent. With these two fundamentals established, Table XIV has been prepared, which shows the present value of a life annuity of $1 for a male at age 70, first payment in one year to be $7.2205. Briefly stated, the price of an annuity is the present worth of a series of payments to be made to a person for a stated period or until the happening of some event, such as death. Table XIV. — Showing liow the value of an annuity is determined. Nmnlier living. Probal.ility ol living. Present value of SI (3J per cent). Present worth of each payment. 70 years 71 years 72 years 73 years 74 years 75 years 76 years 77 years 78 years 79 years 80 years 81 years 82 years 83 years 84 years 85 years 86 years 87 years 88 years 89 years 90 years 91 years 92 years 93 years -•- 94 years 95 years 96 years., 97 years 98 years 99 years 100 years 101 years 102 years 103 years Present value of a life annuity of tl at age 70 (first pay- ment in one year) I. 38,991 37,673 35,790 33,675 31,312 28,820 26,305 23,823 21,392 19,031 16, 760 14,698 12,561 10,668 8,930 7,359 5,961 4,739 3,691 2,812 2,091 1,513 1,064 725 477 303 184 107 59 31 15 7 . 91790413 . 86366084 . 80305711 .73914493 . 67464287 . 61098715 . 54863943 . 48808699 . 42984278 . 37439409 . 32215126 . 27360160 . 22902721 . 18873686 . 16288143 . 12164087 . 09466287 . 07211921 . 06362776 . 03S88382 . 02728836 . 01859403 . 01223359 . 00777102 . 00471904 . 00274422 . 00151288 . 00079506 . 00038470 . 00017953 . 00007694 . 00002565 10. 96618357 . 93351070 . 90194270 . 87144223 . 84197317 . 81350064 . 78699096 . 76941155 . 73373097 . 70891881 . 68494571 . 66178330 . 63940415 .61778179 . 59689062 . 67670591 . 65720378 . 63836114 . 62016669 . 50266688 . 48667090 . 46916063 . 45328663 . 43796713 . 42314699 . 40883767 . 39501224 . 38165434 . 36874816 . 35627841 . 34423035 . 33268971 . 32134271 10. 93104601 . 85687333 . 77897259 . 69981788 . 62234020 . 54882241 . 48023038 . 41664312 . 35812454 . 30472363 . 26643963 .21319432 . 17494200 .14148884 . 11265466 . 08816762 . 06772303 . 05096281 . 03751322 . 02695148 .01888085 . 01280235 . 00842841 . 00536778 . 00192932 .00108400 .00067740 .00029318 .00013706 .00006180 .00002659 .00000824 S7.22050596 EETIKBMENT OF SUPERANNUATED CIVIL-SEKVICE EMPLOYEES. 113 PBESENT VALUE OF AN ANNUITY OF $1 FOB A MALE, BEGINNING AT AGE 70. It will be observed that, according to the above table (Table XIV), the number living at the beginning of age 70 is 38,991. At the beginning of the second year there will be, according to the same table, only 37,573 living, and consequently as the first annuity pay- ment under our calculation is to be made at the beginning of the second year the payment will amount to only $37,573. If an adjust^ ment were made at the beginning of the first year, the Government would have to pay such a sum as would with compound interest amount to $37,573 at the end of the year. Since each one of the annuitants has an equal claim upon this sum, it must be divided by 38,991, the number living at the beginning of the first year. The share of each annuitant, 3^ per cent interest being assumed, is there- fore the present value of U^i{ of $1, or f|;|||X 0.96618357, or $0.93104601. The present value of all payments commuted in this manner constitutes the value of a life annuity at the age given. The present value of a life annuity of $1 for a male at age 70 (first pay- ment in one year) is therefore the sum of the present values of all commuted payments from the age of 70 to 103, the oldest age con- templated under the British Offices' Select Annuitants' Table. This sum equals $7.22. To buy an annuity of $1, therefore, payable at the end of age 70 and every year thereafter until the end of life, the annuitant must pay a sum (or numerous sums at stated intervals) which, with interest compounded annually at 3J per cent, will amount, when he reaches the age of 70, to $7.22 for every dollar of the life annuity that he desires to buy. ILLUSTEATION. As a concrete illustration, take the case of an employee entering the Government service at the age of 20, expecting to retire under the plan at the age of 70 on an annuity equal to IJ per cent of his salary for each year of service. For the sake of simplicity, let us assume that his salary is $100 a month, and continues at that rate throughout the entire period of his service. An annuity at age 70 equal to IJ per cent of $1,200 a year for 50 years would amount to $900. To ascertain the price of that annuity it is necessary then to multiply $7.22, the present value of a life annuity of $1 beginning at age 70, by 900. This amounts to $6,498, and is the sum which he will have to accumulate by means of his savings and with the help of compound interest. As a matter of fact, however, the present value of a life annuity of $1 beginning at age 70 will be $7,595, rather than $7.22, because the bill provides for the pnyment of the annuities quarterly rather than at the end of the year. Since all persons of a given group who 74196°— S. Doc. 745, 61-3 8 114 RETIREMENT OF SUPERANNUATED Ca::vri>SERVIOB EMPLOYEES. are expected, under a given table, to die during a year will not be dead at the end of three months when the first payment is due, it is manifest that annuities payable quarterly require somewhat larger premiums than do those payable annually, when the first payment is due at the end of the first year. The sum, therefore, which he will have to accumuiate will be $7.595X900=$6,835.50. PRESENT VALUE OP AN ANNUITY OF $1 FOB A FEMALE BEGINNING AT AGE 70. It is the practice of life-insurance companies to charge women higher rates for annuities than men. This is because of their greater longevity. According to the British Offices' Select Annuitants' Mor- tality Table, the complete expectation of life for a female at age 70 is 10.884 years, as against 9.537 years for a male at the same age. The greater longevity among female annuitants may be attributed in some degree to the greater " self -selection " exercised by them.^ If the practice of the insurance companies is followed in the mat- ter of rates charged women annuitants, and if the rate charged a male for an annuity of $1, payable quarterly, beginning at age 70, is $7,595, the corresponding rate charged a female for a similar an- nuity of $1, beginning at the same age, must be, according to Table XV, $8,512. There are several reasons, however, for suggesting that the annuity rates charged by the Government might properly be made the same for women as for men. In the first place, outside of the District of Columbia, there are comparatively few women in the service. Table 2 in Census Bulletin 94 (p. 10) shows that only 7.4 per cent of the employees in the entire civil service are women. In the District of Columbia women .constitute 29 per cent of the employees. In the civil service elsewhere than in the District of Columbia women form only 4 per cent of the total number. In the second place, the " self -selection " exercised by women an- nuitants would probably be less severe against the Government than that exercised against the insurance companies. Annuities issued by the Government would probably be more attractive because they are issued by the Government without loading for expense, and be- cause a surplus derived either from interest earned or from excessive mortality among annuitants would be distributed among the sur- vivorfe, whereas annuities issued by insurance companies are generally on the nonparticipating plan. In the third place, the Government might properly follow the example of other nations in this respect and make some concession to women in the matter of conditions under which they are retired. igee Journal of the Institute of Actuaries, vol. 39, pp. 2, 3. EETTREMENT OF SUPEEANNTJATED CIVIL-SERVIOE EMPLOYEES. 115 It is customary in other countries which -have a system of retiring civil employees to retire women at a younger age than men. In New Zealand, for instance, the retirement age for women is 55, as against 65 for men. The proposed plan makes no similar provision, but in view of the fact that the annuity rates, even for women, have been constructed on the most conservative basis, it seems fair to charge them no more than men for their annuities. A fourth consideration lies in the fact that a uniform rate for both sexes would avoid the complexity incident to the use of two sets of deductions and would simplify the matter of accounting. Table XV. — SUoioing the present value of a life annuity of $1, for males and females, beginning at various ages, first payment in three months (British Offices' Select Annuitants' Mortality Experience; interest 3J per cent, com- pounded annually). Age. Male. Female. $20. 874 J21.093 20.724 20.951 20.570 20.806 20.410 20.665 20. 246 20.499 20.076 20. 339 19.900 20.173 19. 720 20.003 19. 534 19.828 19.343 19.648 19.147 19.465 18.944 19.277 18.735 19.084 18. 521 18.888 18.301 18.688 18.076 18.485 17.844 18.277 17.607 18.067 17.364 17.853 17.115 17.635 16. 860 17.416 16. 601 17. 191 16.335 16.965 16.064 16.735 15.788 16.502 15.506 16.265 15. 220 16.025 14.928 16.781 14.631 15. 533 14.331 15.280 14.026 15.022 13.717 14. 759 13.405 13.089 14.488 14.213 12.770 13.930 12.448 13.639 12. 124 13. 341 11.799 13. 035 11. 471 12.720 11.143 12.397 Age. Male. Female. 20 years. 21 years. 22 years. 23 years. 24 years. 25 years. 26 years. 27 years. 28 years 29 years. 30 years. 31 years. 32 years. 33 years 34 years 35 years 36 years 37 years, 38 years 39 years 40 years 41 years 42 years 43 years 44 years 45 years 46 years 47 years, 48 years, 49 years 60 years 51 years 62 years 63 years 54 years 55 years 66 years, 57 years 68 years, 69 years. 60 years. 61 years. 62 years. 63 years. 64 years. 65 years. 66 years, 67 years. 68 years. 69 years. 70 years. 71 years. 72 years, 73 years. 74 years, 75 years, 76 years, 77 years, 78 years, 79 years. 80 years, 81 years, 82 years, 83 years, 84 years, 85 years, 86 years 87 years, 88 years. 89 years 90 years, 91 years 92 years. 93 years. 94 years, 95 years. 96 years 97 years, 98 years, 99 years $10. 10. 10. 9. 815 ,"485 157 828 602 177 854 634 218 904 695 291 992 698 410 128 862 584 322 068 821 682 350 127 912 704 504 313 3.129 2.953 2.784 2. 2. 2. 2. 2. 1. 1. 1. 1. $12. 066 11. 728 11.383 11. 032 10. 676 10. 316 9.954 9.691 9.229 S.868 8.612 8.159 7.813 7.473 7.139 6.814 6.498 6.189 5.890 6.600 5.320 6.049 4.788 4.636 4.294 4.061 3.838 3.625 3.420 3.225 3.037 2.860 2.690 2.528 2.376 2.228 2.094 1.969 1.837 1.702 THESE RATES CONSERVATIVE, AS SHOWN BY COMPARISON WITH CANADIAN GOVERNMENT RATES. The fact that these rates are conservative is brought out by com- parison with the rates offered to the public generally by the Canadian Government. A system of Government annuities was recently estab- lished by Canada, which enables any citizen to purchase from the Government an annuity, which may be either immediate or deferred, but can not be payable before the age of 55, The rates at which 116 EETIBEMENT OP SUPERANNUATED OIVIL-SEEVIOB EMPLOYEES. these annuities are thus sold are less, as will be seen from Table XVI, than the rates here recommended. Table XVI. — Showing immediate annuity rates of Canadian Government, an- nuities payaile quarterly, first installment three months after purchase. Age last birthday Amount required for a life an- nuity of II. 66 years 66 years 67 years 68 years 69 years 60 years 61 years 62 years 63 years 64 years 65 years 66 years 67 years $n.90 11.60 11.31 11.00 10.70 10.40 10.09 9.79 9.48 9.18 8.87 8.67 8.27 Age last birthday. 68 years 69 years 70 years 71 years 72 years 73 years 74 years 7.5 years 76 years 77 years 78 years 79 years. 80 years Amount required for a life an- nuity of $1. 17.97 7.67 7.38 7.09 6.81 6.63 6.26 6.98 6.72 S.46 5.21 4.96 4.72 Furthermore, deposits made in payment of deferred annuities are credited -Avith interest at 4^ per cent, whereas the rate of interest proposed here is 3^ per cent. It should be added, however, that under the Canadian plan the depositor is paid but 3 per cent if he elects to receive cash instead of an annuity or dies before his annuity begins.^ INrLUENCE OF INCREASED LONGEVITY ON ANNUITY RATES. It is important that there be no confusion in the minds of those considering the basis of this plan in regard to the relation between the average length of life and the total span of life. The statement is frequently made that, owing to general improvements in the con- ditions under which life is maintained, the span of human life is lengthening. If this is so, then objection might be made to using mortality tables as the basis for annuity rates which were made on the assumption that out of 100,000 individuals living at a given age, all will be dead at the age of 104, as is the case with the British Offices' Select Annuitants' Mortklity Table, or that they will be dead at the age of 96, as shown in the American Experience Table of Mor- tality, or at some other age as shown in some other table. It might be argued that, since the duration of life seems to be longer than in former years, it is not safe to use a table made on any of the present assumptions as to length of life. Even though this contention were true, it does not follow that the mortality table that runs to the greatest age is the safest. Several tables run to 104 or more, but they are not as safe as the tables used, because they do not contemplate so many payments in the aggregate from the ages of 60, 65, and 70 — the retirement ages under this plan. That the span of life is lengthening is, however, doubted by many »See Canadian Government Annuities, Ottawa (1908), p. 24. RETIREMENT OP SUPERANNUATED OIVIL-SERVICE EMPLOYEES. 117 actuaries. Mr. Henry Cockburn, president of the British Institute of Actuaries, discussing the British Offices' Tables, in his opening address on November 28, 1904, said : The new tables exhibit also a continued Improvement in the value of annui- tant life, especially among females, which must be attributed in some degree to the " self -selection " exercised by the purchasers. * * * As regards the larger question of a general impro\ement in the value of human life in this couutry, and apart from the experience in any special class, there is no doubt that advances in matters relating to sanitary science, the care of disease, more healthful ways of living, have diminished at most ages the chances of death, and, indeed, the remark is not unusual thai " people live longer than formerly.'' This improvement in vitality takes the form of, at each age, a greater average number of years lived by those born into the world, constituting, in actuarial l)arlance, a greater "expectation of life." A larger number than formerly reach adult age and usefulness, though without materially increasing the small proportion who will as heretofore attain to the highest ages; and one dis- tinguishes between this position and longevity in its usual meaning the pro- longation of life to advanced ages. In that matter it is difficult to say or to determine that among the population as a whole there is any appreciable Increase.' The subject was very thoroughly discussed at the Fourth Interna- tional Congress of Actuaries held in New York in September, 1903. Papers on the improvement in longevity during the nineteenth cen- tury were presented by Mr. Samuel George Warner, of Great Britain, and Mr. John K. Gore, of the United States, and numerous members of the congress took part in the discussion. The general consensus of opinion seems to have been that the average length of life may be increasing but that the total span of life is not, or, if at all, at an imperceptible rate. To quote Mr. Warner : We have the growth of our great hospitals, the various organizations which care for the poor and the suffering, and especially for the children. Contem- porarily with this we have also the great advance of science, its increased ability to cope with disease, its triumphs in surgery, its development of sani- tation. If we carefully consider these various " streams of tendency," I think we shall not find it difficult to understand how the added length of years which they have combined to bring have come as a gift to childhood and youth rather than to old or middle age.' The conclusions of Mr. Gore were to the same effect. Said he: In the absence of more complete data, we may conclude from the evidence available that during the last 30 years our urban population has experienced a rapidly decreasing death rate from phthisis, but that at the same time there has been a decided increase in the rate from diseases of the heart, kidneys, and lungs, from cancer and from violence. Among children, on the other hand, the mortality from all the diseases named, except measles, has greatly diminished. On the assumption that the general tendency of the rate of mortality of our urban population has been the same as that of the whole country, it may be concluded from the data presented in these pages that the gross death rate was 1 See Journal of the Institute of Actuaries, vol. 39, p. 4. ' Documents Fourth International Congress of Actuaries, p. 62. 118 RETIEEMENT OP SUPERANNUATED CIVIL-SEKVICE EMPLOYEES. lower at the end than at the beginning of the nineteenth century; that there was a decided decline In the rate during the last 50 years ; that the greatest decline was at the youngest ages ; that there was a considerable decline in the rate at the so-called producing ages of life, and that there was an increase in the death rate at the older ages, the increase being greatest at the most ad- vanced period of life.' In the discussion which followed the presentation of these papers, Dr. Alfred Manes, of Germany, said : It may with certainty be surmised only that a much larger percentage of new- born children live longer to-day than a hundred years ago ; that, therefore, the mortality among children has diminished, and this circumstance is undoubtedly due to progress in medicine and social politics. On the other hand, there is nothing to prove that to-day a larger percentage than, for instance, a hundred years ago, reaches the highest stages of life — that is, over 60 to 70 years. On the contrary, these cases seem to occur less frequently to-day, and that is not to be wondered at in view of the change that has taken place in our cir- cumstances of life. If we are indebted to the progress in medicine for the fact that nowadays more children are alive, it seems to me doubtful whether this Is an advantage from the standpoint of political economy; for It means that to-day many more delicate children, whom nature had condemned to death at the outset, are kept alive artificially ; but this progress is scarcely con- ducive to the improvement of our race.' Corroborative of this general view is Table XVII, taken from the report of the Twelfth Census, which shows that in 1900, ■ in comparison with 1890, there was a very regular decrease in the death rate at all ages up to 60 years, and an increase in the rates at each age above 60 years. Table 'KYll.^Shoimng for the registration area the death rates at each age per 1,000 of population in 1890 and 1900 and the decreases and increases in the rates. Age. 1900 1890 De- crease. In- crease. Under 1 year , 1 year 2 years Syears 4years Under 5 years 5to9 years 10 to 14 years 15 to 19 years 20 to 24 years 25 to 29 years 30 to 34 years 35 to 39 years 40 to 44 years 45 to 49 years 60 to 54 years 65 to 59 years 60 to 64 years 65 to 69 years 70 to 74 years 75 to 79 years 80 to 84 years 85 to 89 years 90 to 94 years 95 years and over.. 4 6 5 2 4 1 2 3 2 5 6 4 2 2 1 3 1 2 2 5 8 3 2 418.9 165. 46. 20. 13. 9. 52. 5. 3. 5. 7. 8. 9. 11, 12. 15. 19. 26. 35. 52. 75. 110. 165. 241. 205.8 84.9 23.8 16.8 13.0 66.8 7.3 .3.8 6.0 8.4 9.9 10.6 12.5 13.5 16.5 19.2 26.5 32.8 49.0 64.5 103.2 144.6 215.5 260.0 347.1 40.0 38.3 3.3 3.6 3.6 14.7 2.1 0.5 0.8 0.9 1.3 1.2 1.5 1.3 1.3 0.1 0.2 2.3 3.2 10.7 7.3 21.2 25.8 79.2 71.8 1 Documents Fourtli International Congress of Actuaries, p. 615. ' See Procecaings Fourth International Congress of Actuaries, vol. 2, pp. Ill, 112. EETIKEMENO? OP StTPEEANNUATED CIYIL-SEBVIOB EMPLOYEES. 119 Investigation of the cases of centenarians seems to bear out the statement that the limit of human life is about 100 years. Mr. T. E. Young, late president of the Institute of Actuaries, and author of a work On Centenarians and the Duration of the Human Race, finds that the majority of reputed cases of centenarians in modern times are not authentic, and he proves that evidence of extreme longevity in the past is deficient. Bulletin 13 of the Bureau of the Census contains the statement that the number of centenarians in 100,000 population of known ages at the last six censuses has been as follows: 1850, 11; 1860, 10; 1870, 9; 1880, 8; 1890, 6; 1900, 5. This regular diminution indicates, not that the longevity of the population has been decreasing, but that in this, as in other particulars the accuracy of the age statistics of the censuses has been improving.^ The same bulletin contains a quoted statement to the effect that " in Prussia the number of persons (in a total population of 30,000,000) declared to be more than 100 years old in 1890 was 149, of whom more than one-half were discovered upon investigation to be of less age ; and of these 8.8 per cent were found to be from 95 to 100, 14.3 per cent were between 90 and 95, and the rest not yet 90 years old." ^ It does not, therefore, seem likely that increased longevity of the race will ever make the annuity rates suggested here inadequate. Provision for that contingency has, however, been made in the bill, and another table can, if necessary, be adopted by order of the Sec- retary of the Treasury.* A UFE ANNUITT CONTRACT IS THE CONVERSE OP A LITE INSURANCE CON- TRACT. Since the purchase of annuities is not very common in the United States and the question under discussion is how to determine the value of annuities on the lives of Government employees, it may be well to point out the principles underlying the computation. They are pre- cisely the opposite of those employed in the computation of life insur- ance premiums, with which the American public is more familiar. This is so admirably explained by "William Alexander * that his state- ment is given in full : In calculating annuities a mortality table must be employed and a rate of Interest assumed, as in calculating the premiums on life-insurance policies. In fact, investigation will show that a life annuity is simply the opposite of a policy of life insurance. In the case of the policy, a man pays the company a small sum annually as Jong as he lives, in consideration of which the company agrees 1 See Census Bulletin 13, entitled "A Discussion ot Age Statistics," by Allyn A. Young, p. 20. 2 See Mayo-Smith, Statistics and Sociology, p. 61. » See last sentence of sec. 1 of tlie proposed bill. « See Life Insurance Company, by William Alexander, p. 47. 120 EETIREMENT OP SUPEEANNXJATED CIVILrSEE.VICB EMPLOYEES. to pay a large sum at his death. In the case of the annuity, a man sinks in the beginning a large sum, in consideration of which the company agrees to pay him a small sum annually as long as he lives. In view of the fact that the conditions are reversed, and for other reasons, it is usual in calculating annuities to adopt, on the one hand, a mortality table framed on a somewhat more rigid basis than that employed in calculating in- surance premiums ; and, on the other hand, to assume a somewhat more liberal rate of interest, such, for example, as 3i per cent. The younger a man is the less it costs to obtain a policy of life insurance. In the case of an annuity the reverse is true. If a man is old, a given sum will yield a large annuity ; if he is young, the same sum will yield but a small annuity. In the case of life insurance the longer the policy holder lives the greater :he advantage to the company; hence the com?)any insists upon medical ex- iminatlons in order that it shall not assume risks on impaired lives. In the ease of the annuity, on the other hand, no examination is required, because the sooner the annuitant dies the less the company will have to pay. Hence there Is no need for the company to protect itself by an examination. As the annui- tant is well aware of this fact, there is no danger that he will sink his capital unless he believes himself to be in good health. The man who has the greatest need of life insurance is the one who has a family dependent upon him ; the man who invests in an annuity is usually one who has no dependents. SEDUCTIONS PBOU SALARIES. After deciding on the mortality table and the rate of interest proper for the purpose, and by means of them constructing the rates which the Government should charge for the annuities granted its employees, the fourth step in working out the proposed plan is to determine what amount will have to be deducted from the employees' salaries to create the sums necessary for the purchase of the annuities. It has been pointed out that this plan differs essentially from all the plans previously laid before Congress, in that it discards as un- fair to the employees of different ages the idea of deducting from all salaries a uniform percentage of salary, large or small. The problem then under this plan is to determine what percentage of salary must be deducted at each age of entrance into the service for each grade of salary. Each class of cases must be treated indi- vidually. Each employee must set aside that percentage of his salary necessary, with the help of compound interest, to accumulate a sum sufficient to buy him at the age of retirement an annuity equal to li per cent of his salary for each year he has served. If he should set aside too small a percentage of his salary, then the sum to his credit on reaching the retirement age would be insufficient for the purchase of the annuity desired. On the other hand, there is no need to set aside a larger percentage of his salary than that actually required for the purchase of his annuity, for all his fellow employees RETIREMENT OF SITPERANNTTATED CiyiL-SERVICE EMPLOYEES. 121 are accumulating in the same way the sums necessary to purchase their own annuities, and have no need of his help. HOW TO DETERMINE THE AMOUNT OF DEDUCTIONS FROM SALARIES. To determine the amounts that must be deducted from any salary at any entrance age, all that is necessary, in addition to the data already secured, in computing the cost of the employee's annuity is Table XVIII, which shows the amount to which a deposit of $1 a month, first payment immediate, will accumulate at 3| per cent per annum, compound interest, at the end of the number of years which the employee will have to serve before reaching the age of retirement. Table XVIII. — Showing the amount to which a deposit of $1 per month (first payment immediate) will accumulate at 31 per cent per annum, compound interest at the end of a given term of years. Term of years. Amount of accu- mulation. Term of years. Amount of accu- mulation. Tenn of years. Amount of accu- mulation. Term of years. Amount of accu-' mulatlon. 1 $12.23 24.88 37.98 51.54 65.57 80.09 95.12 110.68 126.78 143.45 160.69 178.55 197.02 14 $216. 16 235.94 266.42 277. 63 299.67 322.28 346.79 370. 12 396.30 421.36 448.34 476.26 505.16 27 $636.06 666.02 698.06 631.22 665.54 701.06 737.82 775.87 815.26 856.02 898.21 941.87 987.06 40 . . $1,033.84 1,082.25 1,132.36 1,184.22 2 15 28 41 3 16 29 42 4 17 30 43 5 18 31 44 45 1,237.89 1,293.45 1,350.94 1,410.45 1, 472. OS 6 19 32 7 20 33 46 . . 8 21 34 47 9 22 35 48 10 23 36 49 1,536.80 1,601.78 11 24 37 50 12 25 38 13 26 39 By dividing the sum which has been previously ascertained as the cost of the annuity by the amount shown in the above table (Table XVIII) which a deposit of $1 per month will accumulate in the given number of years, the amount of the monthly deduction required from the monthly salary during all the years of service to accumulate the price of the annuity is obtained. Table XIX, which follows, shows the per cent required to be deducted monthly from any salary at different entrance ages to provide an annuity for a male at age 70 equal to IJ per cent of the annual salary for each year of service. 122 ketirement of superakntjated civil-service employees. Table XIX. — SJiowing amount required to 6e deducted from a monthly salary of $100 (per cent of other salaries) to provide an annuity at age 70 equal to li per cent of annual salary for each year of service. Age of retire- ment. 70 years.. 70 years.. 70 years. . 70 years.. 70 years.. 70 years. . 70 years.. 70 years.. 70 years.. 70 years.. 70 years.. 70 years.. 70 years.. 70 years. . 70 years.. . 70 years.. 70 years.. 70 years.. 70 years.. 70 years.. 70 years.. 70 years.. 70 years.. 70 years.. 70 years. . 70 years.. 70 years.. 70 years.. 70 years.. 70 years.. 70 years.. 70 years.. 70 years.. 70 years.. 70 years.. 70 years.. 70 years.. 70 years.. 70 years.. 70 years.. 70 years.. 70 years.. 70 years.. 70 years.. 70 years. . 70 years.. 70 years.. 70 years.. 70 years.. 70 3 B. Age of en- trance into service. 20 years . 21 years . 22 years . 23 years . 24 years . 25 years . 26 yeaiB . 27 years . 28 years . 29 years. 30 years . 31 years . 32 years . 33 years . 34 years . 36 years . 36 years . 37 years . 40 years.. 41 years . . 42 years . , 43 years.. 44 years . , 45 years . 46 years . . 47 years. 48 years.. 49 years . , 50 years., 61 years., 62 years . 63 years . 64 years. 55 years. 56 years . 67 years . 68 years . 69 years . 60 years . 61 years . 62 years . 63 years . 64 years , 65 years . 66 years . 67 years. 68 years . 69 years . Years of service (A-B). D. Amount of an. nuity. $900. 00 882.00 864. 00 846. 00 828.00 810. 00 792. 00 774.00 756.00 738.00 720. 00 702. 00 684.00 666. 00 648.00 630. op 612. 00 594. 00 576. 00 568. 00 540. 00 622. 00 504.00 486.00 468.00 450.00 432. 00 414. 00 396. 00 378. 00 360. 00 342.00 324. 00 306. 00 288.00 270. 00 252. 00 234.00 216. 00 198. 00 180. 00 162. 00 144. 00 126. 00 108.00 90.00 72.00 54.00 36.00 18.00 Cost of an- nuity (DX«7-696). $6,836.60 6, 698. 79 6, 662. 08 6, 426. 37 6,288.66 6, 151. 95 6,015.24 5,878.63 5,741.82 5, 606. 11 5, 468. 40 5,331.69 5, 194. 98 6, 068. 27 4,921.66 4, 784. 85 4, 648. 14 4, 511. 43 4,374.72 4,238.01 4, 101. 30 3,964.59 3,827.88 3,691.17 3,654.46 3,417.75 3,281.04 3, 144. 33 3,007.62 2,870.91 2,734.20 2, 697. 19 2,460.78 2,324.07 2, 187. 36 2,050.66 1,913.94 1,777.23 1,640.62 1,503.81 1,367.10 1,230.39 1,093.68 966. 97 820. 26 683.55 646. 84 410. 13 273.42 136. 71 Amount of $1 a month at end of years shown in column C. $1,601.78 1, 635. SO 1,472.06 1, 410. 46 1,360.94 i; 293. 45 1, 237. 89 1, 184. 22 1, 132. 36 1,082.26 1,033.84 987. 06 941. 87 898. 21 866. 02 816. 26 776.87 737. 82 701. 06 666. 54 631. 22 698. 06 666. 02 635.06 506. 16 476.26 448.34 421.36 395.30 370. 12 345. 79 322.28 299. 67 277.63 256.42 235.94 216. 16 197. 02 178. 65 160. 69 143.46 126. 78 110.68 96.12 80.09 65.57 51.54 37.98 24.88 12.23 G. H. Monthly Monthly deduction deduction from salary from adjusted to salary (E-i-F). "nearest tenth of a dollar." $4. 26V $4 30 4.362 4.40 4.458 4.50 4.665 4.60 4.665 4.70 4.756 4.80 4.859 4.90 4.964 5.00 5.071 5.10 5.179 5.20 6.289 6.30 6.402 5.40 6.616 6.50 6.631 5.60 5.749 6.70 5.869 6.90 5.991 6.00 6.114 6.10 6.240 - 6.20 6.368 6.40 6.497 6.50 6.629 6.60 6.763 6.80 6.899 6.90 7.036 7.00 7.176 7.20 7.318 7.30 7.462 7.60 7.608 7.60 7.757 7.80 7.907 7.90 8.060 8.10 8.214 8.20 8.371 8.40 8.530 8.60 8.691 8.70 8.854 8.80 9.020 9.00 9.188 9.20 9.368 9.40 9.630 9.50 9.705 9.70 9.881 9.90 10. 061 10.10 10.242 10.20 10.425 10.40 10. 610 10.60 10. 799 10.80 10.989 11.00 11. 178 11.20 To determine the amount of deduction required from any salary at any age, multiply the amount shown as required from a salary of $100 at the age desired by the ratio of the salary for which the deduc- tion is desired to 100. In other words, the deduction required from a salary of $100 for an employee entering the service at age 30 is shown in the table as $5,289. For a salary of $150 for an employee entering the service at age 30 the deduction required is determined as follows : 150 $5,289 X — = $7,933. EETTREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 123 As a concrete illustration of the amount of salary to be deducted for the creation of an annuity payable quarterly from age 70, of 1^ per cent of salary for each year of service, take the case of the employee mentioned in the illustration on pages 113, 114. It was ascertained that he would have to accumulate the sum of $7,595 times 900, or $6,835.50, in order to obtain a life annuity of $900, which would be an annuity of IJ per cent of his salary of $1,200 for 50 years, he having entered the service at age 20. To ascertain what his monthly deductions from salary would be, divide $6,835.50 by the amount which a deposit of $1 per month will accumulate at 3^ per cent per annum, compounded annually, at the end of 50 years. According to the interest table that is $1,601.78. The amount of his monthly deduction from salary is therefore $6,835.50 divided by $1,601.78, equaling 4.267, and that it remains until he receives a pro- motion in salary. PERCENTAGE OF SALARY DEDUCTED VARIES WITH RETIREMENT AGE. The percentage of salary to be deducted must necessarily be larger when retirement is contemplated at the ages of 65 and 60 than it is when retirement takes place at the age of 70, since the time during which contributions for the purchase of annuities are accumulated at compound interest is 5 years shorter in one case and 10 years shorter in the other. In addition to this, the time during which the annui- ties will be payable is 5 years longer in one case and 10 years longer in the other. The deductions from salaries for retirement at age 65 are shoWn in Table XX; for retirement at age 60 in Table XXL 124 RETIREMENT OF SUPERANNTJATED CIVIL-SERVICE EMPLOYEES. Table XX. — Showing amount required to Be deducted from a monthly salary of $100 (per cent of other salaries) to provide an annuity at age 65 equal to li per cent of annual salary for each year of service. Age ol retire- ment. B. C. Age of en- Years of trance into service service. (A-B). 20yeara 45 21 years 44 22 years 43 23 years 42 24 years 41 25 years 40 26 years 39 27 years 38 28yeara 37 29yeara 36 30 years 35 31 years 34 32 years 33 33 years 32 34 years 31 35 years 30 36 years 29 37 years 28 38 years 27 39 years 26 40 years 25 41 years 24 42 years 23 43 years 22 44 years 21 45 years 20 46 years 19 47 years 18 4S years 17 49 years 16 50 years 15 61 years 14 62 years 13 53 years 12 54 years 11 55 years 10 S6 years 9 67 yeais 8 58 years 7 59 years 6 60 years 5 61 years 4 62 years 3 63 years 2 64 years 1 Amount of annuity. Cost of annuity (DXt9.177). Amount of tl a month at end of years shown in column C, a. Monthly deduction from salary (E-i-F). H. Monthly deduction from salary adjusted to "nearest tenth of a dollar." 65 years, 65 years. 65 years. 65 years. 65 years. 65 years, 65 years. 65 years. 65 years. 65 years. 65 years. 66 years. 66 years. 66 years. 66 years. 66 years. 66 years. 66 years. 65 years. 65 years. 65 years. 65 years. 65 years. 66 years. 66 years. 66 years. 65 years. 65 years. 65 years. 66 years. 65 years. 65 years. 65 years. 65 years. 65 years. 65 years. 65 years. 66 years. 66 years. 66 years. 65 years. 65 years. 65 years. 65 years. 65 years. 1810 792 774 786 738 720 702 684 666 648 630 612 694 576 5.58 540 522 504 486 468 460 432 414 396 378 360 ,342 324 306 288 270 262 234 216 198 180 162 144 126 108 90 72 54 ,36 18 17,433.37 7,268.18 7, 103. 00 6,937.81 6,772.63 6,607.44 6)442. 26 6,277.07 6,111.88 8,946.70 5,781.-51 5,616.32 6,4,51.14 5,28,5.95 6, 120. 77 4,9.56,68 4.790.39 4,62,5,21 4,460.02 4,294.84 4, 129. 65 3,964. 46 3, 799. 28 3.634.09 3,468.91 3,303.72 3,138.63 2, 973. ,35 2,808.16 2,642.98 2,477.79 2,312.60 2,147.42 1,982.23 1,817.05 1.651.86 i; 486. 67 1,. 321. 49 1,166.30 99J.12 825. 93 660.74 495.56 3,30. 37 165. .19 11,293.45 1,237.89 1, 184. 22 1,132.36 1,082.26 1,033.84 987.06 941.87 898. 21 866. 02 816. 26 775. 87 737. 82 701. 06 666. 54 631. 22 698.06 566.02 535.06 505.16 476. 26 448. 34 421. 36 395. ,30 370. 12 346, 79 322. 28 299. 57 277.63 256. 42 23.5. 94 216. 16 197. 02 178. ,56 160. 69 143.45 126. 78 110.68 95,12 80, 09 66.67 51.64 37.98 24.88 12.23 $5,747 6.871 5.998 6.127 6.258 6.391 6.527 6.664 6.805 6.947 7.092 7.239 7.388 7.640 7.694 7.861 8.010 8.171 8.336 8.802 8.671 8.842 9.017 9.193 9.372 9.564 9.738 9.926 10. 116 10. 307 10. ,502 10. 699 10. 899 11. 102 11.308 11.515 11.726 11.940 12. 156 12,375 12, 896 12.820 13.048 13.278 13.507 15,70 5.90 6.00 6.10 6.30 6.40 6.60 6.70 6.80 6.90 7.10 7.20 7.40 7.50 7.70 7.90 8.00 8.20 8.30 8.50 8.70 8.80 9.00 9.20 9.40 9.60 9.70 9.90 10.10 10.30 10.60 10. 70 10.90 11.10 11.30 11.60 11.70 11.90 12.20 12.40 12.60 12.80 13.00 13,30 13,60 KEHEEMENT OF SXJPEEANNUATED OIVILr-SERVICE EMPLOYEES. 125 Table XXI. — Shovnng amount required to he deducted from a monthly salary of $100 (per cent of other salaries) to provide an annuity at age 60 equal to li per cent of annual salary for each year of service A. Age of retire- ment. B. Age of en- trance into service. C. Years of service. (A-B). D. Amount of annu- ity. E. Cost of annuity. (DX$10.816.) F. Amount of $1 a month at end of years shown in column 0. G. Monthly deduction from salary. (E-i-F.) H. Monthly deduction from salary adjusted to "nearest tenth of a dollar." 20 years 21 years 22 years 23 years 24 years 26 years 26 years 30 years 35 years 40 years 45 years 60 years 65 years 69 years 40 39 38 37 36 35 34 30 25 20 IS 10 5 1 $720 702 684 666 648 630 612 540 450 360 270 180 90 18 J7,786.80 7,592.13 7,397.46 7,202.79 7,008.12 6,813.45 6,618.78 5,840.10 4,866.76 3,893.40 2,920.05 1,946.70 973.35 194.67 11,033.84 987.06 941.87 898.21 866.02 815.26 776.87 631.22 476. 26 345.79 235.94 143. 45 65.57 12.23 J7.633 7.692 7.864 8.019 8.187 8.357 8.531 9.262 10.219 11.259 12.376 13. 570 14.844 15.917 $7.50 60 years 7.70 7.90 60 years 8.00 8.20 60 years ... . 8.40 «.50 9.30 10.20 11.30 60 years 12.40 13.60 60- years 14.90 16.90 PEKCENTAGE OF SALARY DEDUCTED VARIES WITH ENTRANCE AGE, BUT NOT WITH SALARY. It will be seen that for the younger ages, when retirement at age YO is contemplated, less than 5 per cent of salary — ^the percentage most often suggested in the schemes proposing a uniform rate of deduction from salaries — ^will be sufficient, but for the older ages more than 5 per cent will be necessary. Those entering the service late in life and having but a short period of accumulation must set aside a larger sum each month in proportion to their salaries than those entering early, who have a longer period of accumulation. This puts a premium on the early entrance ages, which is as it should be. On the other hand, it is wholly fair to the elderly person who enters the service, the deductions from his salary being in no case excessive, his savings being accumulated for him at compound in- terest and some provision thus assured him for his old age. It is important to remember, too, that after the age of 70 the accumula- tions increase very rapidly, and that the price of the annuity, on the other hand, decreases very fast, so that an employee who entered the service late in life and would have a very small annuity to his credit at 70, by remaining a few years after reaching that age, under the provisions of the bill (see sec. 4, p. 211), would retire on a very comfortable annuity. For instance, as is shown by Table XXII, an employee entering the service at age 50, on a salary of $100 a month would, on reaching the age of 70, have to his credit $2,734, which would then buy him an annuity of but $360 a year. By re- maining in the service until he reached the age of 75 his accumula- tions would have increased to $3,903, which would then purchase an 126 EETIEEMENT OP SITPEBANNUATED OIVILi-SERVICE EMPLOYEES. annuity of $637 a year. The number of those entering so late in life is naturally not great and is confined largely to those whose work — that of watchman or messenger — is light enough to permit its con- tinuance late in life. Table XXII. — Showing amount of cash accumulation at the end of various j/ears of service payable to employee on resignation or to his legal heirs in case of death; and life annuity that may le granted on resignation in lieu of cash. Eetirement at end of years. Age on entrance Into service and monthly deduction required from a salary of $100 (retirement age, 70). 20— J4.267. Cash. Annuity. Cash. 25—84.756. Annuity. 30— S5.289. Cash. Annuity, 35-J5.f Cash. Annuity. le.. 11.. 12.. 13.. 14.. 15.. 16.. 17.. 18.. 19.. 20.. 21.. 22.. 23.. 24.. 25.. 26.. 27.. 28.. 29.. 30.. 31.. 32.. 33.. 34.. 35.. 37. 39. 40. 41., 42., 43.. 44., 45., 46., 47., 48., 49., 50.. 51.. 62.. 63.. 64.. $342 406 472 641 612 686 762 841 922 1,007 1,094 1,185 1,278 1,375 1,475 1,579 1,687 1,798 1,913 2,032 2,150 2,283 2,415 2,552 2,093 2,840 2, 991 3,148 3,311 3,479 3,653 3,833 4,019 4,212 4,411 4,618 4,882 5,053 5,282 5,519 5,764 6,018 6,281 6,553 6,835 7,197 7,570 7,958 8,359 $381 452 526 603 682 764 849 937 1,028 1,122 1,220 1,320 1,425 1,633 1,645 1,760 1,880 2,004 2,132 2,265 2,403 2,545 2,692 2,844 3,002 3,165 3,334 3,509 3,690 3,877 4,071 4,272 4,480 4,694 4,917 5,147 5,3&5 6,632 5,887 6,152 6,490 6,844 7,201 7,575 7,962 !■], 331 358 421 466 494 536 581 745 810 890 979 1,075 1,182 1,299 $424 603 686 671 769 850 944 1,042 1,143 1,248 1,356 1,468 1,684 1,705 1,829 1,958 2,091 2,229 2,371 2,519 2,672 2,830 2,994 3,163 3,339 3,520 3,708 3,902 4,104 4,312 4,527 4,751 4,982 5,221 5,'468 6,782 6,106 6,442 6,790 7,160 $130 143 156 170 186 202 220 240 261 336 365 397 432 470 511 557 606 661 720 793 873 9(12 1,069 1,107 $470 558 650 744 842 943 1,048 1,156 1,269 1,385 1,605 1,629 1,758 1,891 2,029 2,172 2,320 2,473 2,631 2,795 2,965 3,140 3,322 3,510 3,705 3,906 4,115 4,330 4,564 4,785 5,075 5,374 5,685 6,006 6,339 $163 179 197 216 236 26S 283 404 441 482 527 576 630 769 849 937 1,034 1 Section 7 of House bill No. 22013 provides that on leaving the service prior to the age EETIKEMBNT OP SUPERANNUATED OIVIIi-SBRVICE EMPLOYEES. 127 Table XXII. — Showing amount of cash accumulation at the end of various years of service payable to employee on resignation, etc. — Continued. Age on entrance Into service and monthly deduction required from a salary of ■ 1100 (retirement age, 70). Ketiremont at end of years. 40— $6,497. 45—17.176. 60-87.907. 55-$8.691. 60— $9,530. Cash. Annu- ity. Cash. Annu- ity. Cash. Annu- ity. Cash. Amu- ity. Cash. Annu- ity. 6 1320 61 S 719 824 932 1,044 1,160 1,280 1,404 1,533 1,666 1,804 1,946 2,094 2,247 2,405 2,568 2,738 2,913 3,094 3,282 3,476 3,677 3,886 4,101 (J) (') ('5 229 253 279 307 337 371 407 447 492 540 $575 683 794 910 1,029 1,153 1,281 1,414 1,551 1,693 1,840 1,992 2,150 2,313 2,481 2,656 2,837 3,024 3,217 3,418 (0 ^'} (1) k $270 300 332 368 407 450 $633 752 875 1,002 1,134 1,271 1,412 1,558 1,709 1,866 2,028 2,195 2,369 2,648 2,734 (■) ll $360 $696 827 962 1,102 1,247 1,397 1,552 1,712 1,879 2,051 i $270 $763 906 1,055 1,212 1,367 en 7 8 9 ' 10 ^im U 1,537 1,713 1,895 2,084 2,279 211 12 245 13 283 14 325 16 372 16 2,245 2,446 2,654 2,869 3,092 308 350 396 448 505 17 18 19 20 21 2,952 3,177 3,411 3,653 3,903 405 454 509 570 637 22 23 24 25 26 3,660 3,910 4,169 4,438 4,715 502 559 622 692 769 28 29 30 31 .... 4,367 4,642 4,927 5,221 5,526 599 664 736 815 902 33. ... 35 'Section 7 of House bill No. 22013 provides that on leaving the service prior to the age of retirement an annuity will not be granted unless tlie cash to the employee's credit amounts to at least $1,000. AMOUNT OF DEDUCTION FROM SALARY VARIES ONLY WITH CHANGE IN SALARY. The bill provides that deductions shall be varied to correspond to any change in the salary of the employee. It is apparent, of course, that if this were not done the annuities would not amount to 1^ per cent of salary for each year of service in cases where there had been changes in salary during the years of service. The deduction from salary in cases of promotion is computed on the salary increase at the attained age— that is, the age of the employee when the promo- tion takes place. In other words, the promoted employee is regarded as a new entrant to the extent of his increase in salary. Table XXIII shows how deductions from salaries may be adjusted to correspond to promotions. 128 RETIREMENT OP SUPERANNUATED CIVIL-SERVICE EMPLOYEES. Table XXIII. — Showing how dedvctions from salaries may he adjusted to cor- respond to promotions. Monthly deduc- tion, from salary. Deductions plus inter- est at age of retirement. A entered service at age 20 at salary of $900 a year, or $75 a month. Deduction re- $3.20 .37 $5,125.70 At age 22 his salary was tacreased to $1,000 a year, or $83.33 a month. Increase in salary, $100 a year, or $8.33 a month. Deduction required at age 22 is 4.458 per 644. as Deduction thereafter 3.67 .79 At age 25 his salary was increased to $1,200 a year, or $100 a month. Increase in salary, $200 a year, or $16.66 a month. Deduction required at age 25 is 4.766 per 1,021.83 4.36 .92 At age 32 his salary was increased to $1,400 a year, or $116.66 a month. Increase in salary. $200 a year, or $16.66 a month. Deduction required at age 32 is 5.516 per 866.62 5.28 .98 At age 35 his salary was increased to $1,600 a year, or $133.33 a month. Increase in salary, $200 a year, or $16.66 a month. Deduction required at age 35 Is 5.869 per 798.95 Deduction thereafter 6.26 1.04 At age 38 his salary was increased to $1,800 a vear, or $150 a month. Increase in salary, $200 a year, or $16.66 a month. Deduction required at age 38 is 6.240 per 729.10 Deduction thereafter. . . , . -,,-.. 7.30 Total 9,086.76 Summary, 2 years at $900 = $1, 800 3 years at 1,000= 3,000 7 years at 1,200= 8,400 3 years at 1, 400 = 4, 200 3 years at 1, 600 = 4, 800 32 years at 1,800 = 67,600 50 years' service = 79, 800 X li per cent = $1,197 = annuity required. $1,197X$7.595 (value of an annuity of $1 at age 70) =$9,091.21. Amount to credit of employee on retirement at age 70=$9,086.76. Note. — The difference of $4.45 between the value of the annuity ($9,091.21) and the amount to the credit of the employee at retirement ($9,086.76) Is due to the omission of decimals from the monthly deductions at the various ages. Those already in the service at the time the plan goes into eflPect must be regarded as new entrants and the amount of their deduc- tions from salary computed on the basis of their age at that time. As an illustration of how the plan will work in the case of an em- ployee who has been in the service some time when the law goes into effect, take the case of an employee 40 years of age, who has been in the service 15 years at the time of the enactment of this plan into law. He would on retirement 30 years hence be entitled to receive an annuity from the Government of 1^ per cent of his total compen- sation for service up to the passage of such a law, or 22.5 per cent of his average annual salary during that time, plus the amount of his own savings from the time the law went into effect until his retire- BETIEEMENT OF SUPERANNUATED OIVIIi-SERVIOE EMPLOYEES. 129 ment, after 30 years, at the age of 70. Suppose that this employee receives a salary of $1,200 per annum throughout the whole term of his service. On retiring at the age of 70 he would be entitled to an annuity of $810 for the remainder of his life, $270 from the Gov- ernment, as li per cent of his total compensation during the 15 years he served prior to the passage of the retirement law, and $540 as an annuity from his own savings — that is, IJ per cent of his salary for every year of service after the passage of the law. The annuity from the Government (the $270) would have no cash-surrender value. It could be taken only as an annuity, never in a lump sum, and could only be obtained in case the employee remained in the service until he reached the retirement age. The $540, on the other hand, which represents his own savings, plus interest, could be converted into the cash sum necessary to buy that annuity, $4,101.30. The employee could always, on leaving the service, withdraw his own money, but the contribution by the Government for services rendered prior to the passage of this act must always be taken in the form of an an- nuity. AVERAGE RATE OF DEDUCTION FROM SALARY ONLY 5 PER CENT. Some criticism has been brought against this plan by employees now old in the service, who will have to be regarded as new entrants, on the ground that the rates of deduction for them are excessive. This criticism seems to be based on incomplete understanding of the situation. The percentage of salary deducted, to provide for retirement at age 70, it will be seen by reference to Table XIX, ranges from 4.3 in the case of those 20 years old at the time of entrance into the service or at the time of the passage of the bill to 11.2 in the case of those 69 years old at such time. While a deduction of 11.2 per cent from salary seems, at first glance, to be high, the return made by the Government for such contribution is so generous that the employee has no just cause for complaint. The deduction would only be made for one year. On a salary of $1,200 that would be $11.20 a month, or $134.40 for the year. At the end of that time the employee would be retired, under Senate bill 1944, on an annuity of $540 a year if he had been in the service 30 years, an annuity of $720 if he had been in the service 40 years, of $900 if he had been in the service 50 years, and so on. In other words, in consideration of his saving $134.40 for one year, the Government would pay him 401.8 per cent a year on that saving for the rest of his life, provided he had been 30 years in the service; 535.7 per cent a year if he had been employed 40 years; or 669.6 per cent if 50 years. It would be hard to find, at age 69, a better investment for twelve monthly installments of $11.20 each. If the employee should happen to die during the year before reaching 74196°— S. Doc. 745, 61-3 9 180 EETIBEMEN'T OF STJPEEANNITATED CIVIL-SEEVICE EMPLOTEES. . the age of retirement, the full amount he had contributed, plus in- terest, would be returned to his family. If he lived to the age of retirement he could, if he preferred, draw his contribution for the one year ($134.40) in cash, but the Government's payment to him fbir the other 29, 39, or 49 years would be paid, under Part II of the pro- posed plan, only in the form of an annuity. In any possible erent,, he would be well repaid for being compelled to save $11.20 a monfehi for 12 months. Comparatively few of the employees are 69 years of age. The great majority are under 40 years of age. Between the ages of 20 and 40 the rate of deduction from salary ranges from 4.3 to 6.5 per cent, or on a salary of $1,200 from $4.30 to $6.50 a month. As the average age of entrance into the service is about 27 years and the rate of deduction at that age is an even 5 per cent, the average amount deducted from salaries, once the plan were in full operation,, would be 5 per cent, ADVANTAGE TO THE SERVICE OF INCREASING DEDUCTION WITH INCREASE'. OF ENTRANCE AGE. The fact that the percentage of deductions from salary increases with the age of entrance into the service works out greatly to the good of the service, since it offers more encouragement to the young than it does to the old to enter the service. Two individuals enter- ing the employ of the Government, one at the age of 20 and the other at the age of 60, on salaries of $100 a month, would be required to set aside, respectively, 4.3 per cent of salary and 9.5 per cent. It amounts, therefore, to this: That the younger employee would re- ceive $95.70 a month, while the older one would receive $90.50, a fact that would have a tendency to discourage the elderly from entering the service. The advantage of this is seen when contrasted with the effect on the service of any form of civil pension which would retire all employees after 10 years or some other period of service. Good places in the business world are likely to become increasingly difficult to secure at advanced ages. The promise of a pension would, there- fore, make the Government service look very attractive to, those superannuated unfortunates who had not been able to place them- selves well in life, and the average age of applicants for civil-service positions would without doubt be much higher than it is now. CHAPTEE IIL MINOR PROVISIONS OF THE PROPOSED BUI. Having considered the mathematical basis of the proposed plan of retiring civil employees of the Government, it is next in order to take up some of the minor provisions of the bill. While these do not vitally affect the essential features of the plan, they are im- portant as adding to its equitableness and attractiveness. PROVISIONS FOR SEPARATION FROM SERVICE. It is right that a measure intended primarily for the improvement of the public service should contain some provision for the removal, not only of those who are superannuated, but also of those who have become disabled through illness or accident. It is also right, from the standpoint of humanity, that some cognizance should be taken of the condition in which death or dismissal from the service may find the employee. Not the least merit of a savings plan of retire- ment, as opposed to any form of civil pension, is the fact that it permits of an extension of its benefits automatically and with justice, to both the individual and the Government, to all, cases in which separation from the service occurs. There are five ways in which an individual may be separated from the civil service. These may be listed as follows: (1) By retirement because of old age. (2) By resignation. (3) By dismissal. (4) By death. (5) By retirement because of disability. Kbtiekment Because of Old Age. How the retirement of the superannuated is to be effected has been explained in the first part of this discussion under the head of "Mathematical basis of the proposed plan." Besides section 1 of the bill, which contains the statement of the foundation of the pro- posed measure, sections 3, 4, 5, and 6 contain provisions regarding the retirement of the superannuated which will now be considered. 131 132 EETIBEMENT OF SXJPEEAN NUATED OIVIL-SEE.VICE EMPLOYEES. AGES OF BETIREMENT ACCORDING TO SEVERITY OF OCCUPATION. Section 3 reads as follows: " Sec. 3. That the retirement age herein referred to shall be sixty-five years for group one, sixty-five years for group two, and seventy years for group three. And the President of the United States shall designate the branches of the service to be included in each group." While it is felt that the age of retirement for clerks generally should be 70 years, it was not thought just to consider all of them in one class together, since those engaged in the more arduous kinds of employment might naturally be expected to become superannuated earlier than others employed at lighter tasks. The powers of the mind ordinarily outlast those of the body, and an aged person engaged in mental work, whether as a judge of the Supreme Court, a Senator in Congress, oi a petty clerk in the executive depart- ments remains a useful member of society much longer than do those whose labors depend upon their physical activities. The employees coming within the scope of the bill whose duties make most severe demands upon their physical endurance are the railway postal clerks. A large part of their work is performed during the night in light railway cars on swiftly moving trains under considerable physical and mental strain. The employees whose phys- ical powers are taxed most heavily after the railway postal clerks are the letter carriers. Abroad in all kinds of weather and burdened with a heavy pack, their work is certainly more exhausting physically than that of the majority of Government clerks. With these facts in mind, the civil-service employees have been divided into three groups. In Group I are the railway postal clerks, for whom retire- ment is proposed at the age of 65. A clause in section 11 of the bill also provides that employees of Group I may receive the annuity at the age of 60 if they so desire. In Group II are letter carriers, for whom retirement is proposed at the age of 65. In Group III are all the other departmental clerks, and retirement is proposed for them at the age of 70. In view of the difference in the value of annuities for employees retiring at different ages, it was necessary to compute the cost of annuities for these three groups of employees separately. Their records should also be kept in three separate groups, so that the mortality and disability statistics based on them in years to come will tell a more accurate story than if the history of the three groups is consolidated. MODES OF PEOCEDUEE FOE EETIBEMEHT. The action to be taken on the arrival of each employee at the age of retirement, whatever that age may be, in order to put into effect REtlfiEMENT OF SUPE&ANNUATED CIVIL-SEEVICE EMPLOYEES. 133 the provisions of the plan, is stated in section 4 of the bill, which reads as follows: Sec. 4. That if within thirty days before the arrival of an employee at the age of retirement, the head of the department or Independent office in which he IS employed certifies to the Secretary of the Treasury that by reason of his efficiency and his willingness to remain In the service the continuance of such employee therein would be advantageous to the public service, such employee may be retained for a term not exceeding two years; and at the end of the two years he may by similar certification be continued for an additional term of two years, and so on. Upon the failure of the head of the department or independent office to make the above-described certificate it shall be the duty of the Secretary of the Treasury to place such employee upon the retired list in accordance with the provisions of this act. This provision shows that the plan does not contemplate the arbi- trary retirement of all who reach the age of 70. It would, in many cases, be a real loss to the nation to force into retirement men engaged in work which they are still able to perform efficiently and which is of benefit to the public. This would be particularly true of scien- tists and economists engaged in research work. This provision allows them to continue their work beyond the age of 70 if they de- sire to do so and their services are recognized as valuable. The pro- vision is also of benefit to the efficient clerk entering the service late in life who would prefer to remain at work a few years beyond the age of 70, because he would then be able to retire on a much larger annuity than if he retired at the age of 70, since the annuity not only costs less at the older age, but each year that he remains gives him a larger retirement fund from his savings, plus interest. With the exception of persons who come into the departments by prefer- ment on account of military service, it is generally true, of course, that clerks who enter late in life are admitted by reason of their special qualifications in some particular work, and their continuance in the service past the ordinary age of retirement is not open to the usual objections on the score of advanced age. It is highly desirable, however, that there be a fixed age of retire- ment at which the routine clerk can, without injustice, be forced out of the service. The history of superannuation measures in England shows how important the officials of the civil service in that country have considered a compulsory age of retirement. The Ridley Com- mission, in England, in 1888, recommended 65 as the proper age, and then said: There should be no exception to this rule, except in the case of certain scheduled offices, in which the officer. If asked by the Government to do so, might be allowed to extend his services for a further period, never exceeding five years.' * See Second Report of Commission on Civil Establishments. 1888. p. XXIII. 134 EEnREMENT OF SUPERANNUATED CIVIL-SEBVICB EMPLOYEES. A Treasury official who was most vigorous in urging the necessity for compulsory retirement at a given age was Mr. Frank Mowatt. It was about the only reform that he had advocated before the Ridley Commission, being adverse in general to making changes in the exist- ing system. So convinced, however, was he of the wisdom of a compulsory retirement age that he would not even admit that the re- tention in office of exceptional men after they had reached that age was advisable. An interesting sequel to this statement is the fact that when the Boer War broke out and he, as Sir Francis Mowatt, was serving as Secretary to the Treasury, it was not considered wise at that critical time to make a change in Treasury officials, and he was accordingly retained for a year beyond the compulsory retirement age by special order in council. It was not until November 29, 1898, that the recommendation of the Ridley Commission and other commissions as to the compulsory retirement age was put into effect by an order in council. The power of retention, in special circumstances, for a period not exceeding five years, is lodged with the treasury, but when the superannuation act of 1909 was passed as a measure intended to modify and reform the civil pension system a clause was included in the act providing for reduction of the pension in case of such retention, which was evidently intended as a discouragement to the exercise of such power. The case of Sir Francis Mowatt shows, however, that the law should make the retention of exceptional employees at least possible, though difficult and unusual. It has been the policy of the Government to show preference for war veterans in the matter of appointment to office. A similar preference in the matter of their retirement from office would un- doubtedly be urged were a retirement plan to be adopted. In the last annual report (1910) of the Hon. M. O. Chance, former Auditor for the Post Office Department, occurs the following paragraph, which is well worthy of consideration in connection with this bill : For these reasons chiefly I most heartily indorse the plan embodied in Senate bill 1944. It should be modified, however, in my judgment, so as to show war veterans a similar preference in the matter of retirement to that shown in appointment. Of the 711 employees of this office, 48 — 6.75 per cent — are veterans of the Civil War. Some have been in the civil service many years, while others have been appointed quite recently. It would seem desirable in cases where they have been in the civil service too short a period of time to be entitled under the terms of the bill to receive an adequate annuity from the Government, that the bill should be amended so as to give them a retiring allowance of not less than half pay. I recommend, therefore, that the Treasury Department urge the passage of the bill referred to, with the following amend- ment: On page 11, line 21, after the word " act," insert the following : Provided, however, That such annuity to any employee who served ninety days or more in the military or naval service of the United States during the BETIKEMENT OP gUPERANNtTATED OIVILrSERVICE EMPLOYEES. 135 late Civil War, or sixty days in the war with Mexico, and who has been honor- ably discharged therefrom, shall, including the annuity herein provided for by his own contributions from his salary, be not less than fifty per centum of his average annual co'mpensation during his entire period of employment in the civil service. CONTINUANCE IN SERVICE ATTEB EETIEEMENT AGE. For the benefit of those employees retained in the service after the age of retirement section 5 was introduced into the bill. It reads as follows : Sec. 5. That if an employee is retained in the service after reaching the re- tirement age a deduction of ten per centum of his monthly salary, pay, or com- pensation shall thereafter be made while he remains in the service, and the same shall be treated as other deductions under section two of this act. The purpose of deducting 10 per cent from the salaries of persons who remain in the service after reaching the age of retirement is to increase as rapidly as possible the amount to their credit. Those who desire to remain after the age of retirement will, in most cases, be persons who entered the service late in life, and who, therefore, have not had time to accumulate a sum sufficient to buy them a de- sirable annuity. Five years longer in the service, with a 10 per cent deduction from salary during that period, would almost double the annuity the employee's money would buy (see p. 127). VAEIOirS OPTIONS ON EETIEEMENT. Section 6 details the various options which the employee has of withdrawing his savings on retirement and reads as follows : Sec. 6. 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 ; and, if Option I or Option II Is selected, re- ceive in addition thereto such annuity, if any, as may be apportioned by the Secretary of the Treasury out of accumulations in excess of three and one-half per centum guaranteed by the provisions of this act, and such apportionment by the Secretary of the Treasury shall be conclusive : Option I. In an annuity payable quarterly throughout life. Option II. In an annuity payable quarterly throughout life, with the pro- vision that in case of the death of the annuitant before he has received in an- nuities 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 eleven of this act. Option III. In one sum. If after retirement the employee does not avail himself of one of the foregomg options but leaves the amount due him on deposit, interest at the rate of two per centum per annum on the original sum so left on deposit on retirement shall be credited thereto for a period not exceeding twenty years, and if not then withdrawn the money so left on deposit, without interest, shall be covered into the Treasury as a miscellaneous receipt. 136 RETIREMENT OP SUPERANNUATED CIVIL-SERVICE EMPLOYEES. The advantages of these various options have been discussed on page 108, under the caption of " Two forms of annuities." The second part of the section makes provision for the disposal of savings not withdrawn by the employee on retirement. Eetirement Because of Resignation, Dismissal, oe Death. Section 7 of the bill contains the provisions, under the plan, for the return of an employee's savings, in case of his separation from the service before reaching the age of retirement, by reason of his resignation, dismissal, or death. It reads as follows : 1*50. 7. That upon absolute separation from the civil service prior to the re- tirement age, and only upon such separation, the employee may withdraw his savings in one sum, and in case he has been in such service not less than six years he may also receive in addition thei'eto interest on his savings at the rate of three and one-half per centum per annum, compounded annually ; or, in case his savings amount to at least one thousand dollars he may withdraw the same under any one of the foregoing options, computed on the basis of his attained age. In case of the death of an employee while in the service the amount of his savings, together with the interest credited thereon, shall be paid to his legal heirs. In Case of Resignation. Under the proposed savings plan the employee who leaves the serv- ice to engage in some other occupation will not go penniless to his new work. If nothing else, he will have at least the amount of his enforced savings while in the Government service. This will be returned to him, since the Government claims no right to compel him to lay it aside except with the understanding that it shall be paid back to him on his absolute separation from the service, whether at the age of retirement or earlier. interest allowed on savings attee six tears' service. The question whether interest should be paid on these savings in case the employee leaves the service before reaching the age of retire- ment is one that has received considerable attention. Some are in- clined to believe that no interest should be paid on the savings of those employees who remain only a short time in the service, since those who do so usually regard the service as merely a means to an end. With this class of employees in mind, section T was made to provide that interest on savings should only be allowed an employee who leaves the service through resignation or dismissal after he has been in the service at least six years. The loss of interest to the indi- vidual who has been in the service less than six years is small in every case — not sufficient to affect the rate of resignations one way or the other. A $1,200 employee aged 25 on entrance into the service would have $314.74 to his credit after being in the service five years, of BETIEEMENT OF SXJPEEANNUATED CIVII.-SEEVICE EMPLOYEES, 137 which $288 would represent his own contributions. If he resigned aftei' five years, he would forfeit the difference between $314.74 and $288, or $26.74, the amount of interest contributed by the Govern- ment. The sum of $26.74 is certainly not sufficient to hold in the service an employee who has reasons for wishing to resign. On the other hand, the forfeiture of that small amount of interest would amount in the aggregate to a considerable sum returned to the Government, which would ultimately be divided among the clerks that remained in the service and took annuities on retirement, and thus be an additional safeguard in guaranteeing the interest rate. It has been suggested that interest might be withheld in all cases except where the employee has been in the service for an extended period, such as 20 years or more. It is said that such a forfeiture of interest might have a tendency to hold employees in office longer than if there were no penalty attached to resigning. The practical objec- tion to such a proposal is that the interest after 19 years amounts to a very considerable sum. The employee mentioned above as forfeit- ing $26.74, if he left after five years, would forfeit $449 of the $1,533 to his credit if he left at the end of 19 years. The result would be a mild form of peonage, at best a kind of coercion difficult to defend in the case of enforced savings. ANNUITY ON SEPAEATION FROM SERVICE BEFORE AGE OF RETIREMENT IN CASE SAVINGS AMOUNT TO $1,000. The clause providing that an employee, on retiring from the service before reaching the age of retirement, may, if he so desires, withdraw his savings in the form of an annuity, computed on the basis of his attained age for such an amount as his savings will buy, seems to call for no particular comment. Table XXII, on page 126, shows the amount of cash accumulations to an employee's credit at the end of various years of service and the life annuity that may be granted him on resignation in lieu of cash. In Case of Dismissal. The employee who is dismissed from service under this plan would have to his credit the amount of his savings, and in case he has been in the service six years he would also have the interest on his savings. To dismiss him under those circumstances would be less difficult than if he were known to be without funds. The efficiency of the service is thus protected. SUPERIORITY OF THIS PLAN OVER CIVIL PENSION ILLUSTRATED IN CASE OF DISMISSAL. The general wisdom of a savings plan, from the viewpoint of the service, in contrast to a civil pension of any description, appears in the provisions of section 7 as applied to those whose separation from 138 EETIKEMBNT OB" SUPEBANNtTATED CIVII>SEE.ViCfi EMPLOYEES. the service comes through dismissal. Everyone familiar with the executive departments of the Government knows that not all the inefficient clerks are found among the superannuated. While the rules enforced by the Civil Service Commission are effective in preventing the entrance of incompetents into the service, they are not so success- ful in maintaining efficiency among those who secure entrance, a fact set forth in their reports: The conditions which have forced large business institutions to adopt pension systems exist to an intenser degree in the public service, partly due to the re- luctance of appointing officers in making removals and partly to the lack of a wise system for making promotions upon efficiency. Under the enforcement of sound promotion regulations reductions and dismissals vrould tend to reduce to a minimum the number of inefficient and incapacitated employees, because under such regulations there would be a constant weeding out and reduction to lower grades of this class of employees.' This reluctance of officers to make removals and the difficulty of doing so, even after they have definitely concluded to make the par- ticular removals, was strikingly brought out by Hon. E. F. Ware, Commissioner of Pensions, in testimony before the House Committee on Reform in the Civil Service on February 9, 1904. A leaf from the hearing of the committee on that occasion reads as follows : Mr. Smith. Have you any plan or theory as to the proper and humane way of disposing of the old people? Mr. Ware. No, sir. The reason I have not any plan is this : There was an old man in the bureau who was so thoroughly inefficient that I concluded to dismiss him. He was over 80 years of age, and I had the paper on my desk ready to Issue when the next morning before the dismissal could take place he dropped dead, and it scared me. If I had issued the order for his dismissal, it might have been charged that I inhumanely murdered him. I have not been able to bring my courage up to the point of dismissing any of those very old people. I therefore say this : I think that the Government should fix an age at which they should leave the service. That is one way of handling this whole question. However, I do not believe that my views on this particular branch of the subject would be worthy of present consideration, for there are better ways. Mr. Lacey. Have you had occasion to think of this idea : Suppose that every man in your office had to be reappointed at a fixed period, five, seven, or eight years, or some other fixed period, and it was optional to appoint or not, do you not think it would enable you to weed out the least efficient in that way from time to time when the periodical time of appointment arrived, requiring also that every man who is appointed shall undergo an examination, not a civil-service examination, but a departmental examination, along the line of work at which he has been employed? Did you ever investigate or think out the question whether that would give you relief, so as to be constantly getting new blood into the office? Mr. Wabe. I have never had that point presented to me, but there is in my bureau a class of appointees called " special examiners," 150 in number, whose services expire every year, on the 1st of July, and unless they are reappointed by the Pension Commissioner they are no longer connected with the service. * See Twentieth Report of Civil Service Commission, p. 155. EETIKEMEK-T OF StTPERANNUATED CIVIL-SEKVICE EMPLOfEES. 139 It has been my experience that all of the poor members of that class (called special examiners) knowing their inferiority, begin during June to work any political influence on me which they have, and the poorer the clerk the greater the influence, so that by the 1st of July I am completely overwhelmed with demands to keep such persons in the service. Last year I got rid of three men, and I had more trouble in getting rid of those three men than I had from other sources in the entire bureau during a month's work, and the job was so great that I have decided not to under- take it a second time, because the influence that was brought to bear upon me only began with me. Some of it was carried to the department. I was haled up to the department to answer some of the demands of the persons interested in the reappointments and the President himself was even applied to. I would not feel that it was any protection to a bureau to have the right you suggest, because it is as easy to dismiss as it is to stand the pressure that comes from keeping bad clerks in. I believe that answers the question. The same points were brought out a few days later, February 12, 1904, by Adjt. Gen. F. C. Ainsworth, then Chief of the Eecord and Pension Office, War Department, in his testimony before the same committee. Among other things, he said : It goes without saying that whenever an employee of the civil establishment, by reason of age or any other cause, becomes unable to render a reasonable return in service for the salary paid him it is the plain duty of his bureau chief and the head of his department to cause his reduction in grade or his discharge from service. But it is difficult to bring one's self to recommend or order the reduction or dismissal, in his old age, of an employee who has ren- dered many years of faithful and efficient service, who probably has no means of support other than his salary, and with whom no fault can be found other than that he has become worn out in the public service. In such a case senti- mental consideration usually prevails, the call of duty is neglected, and the old employee retains his position, virtually as a pensioner, while the duties which he should perform are neglected or are discharged by another, often at an inadequate compensation. In addition to all this, whenever an attempt is made to reduce or discharge an employee who has become useless or unfit for service by reason of age or any other cause, it is almost invariably the case that more or less political and social pressure is brought to bear in his behalf upon the chief of his bureau and the head of the department. The exercise of such influence is espe»ially to be looked for in the cases of those, young or old, whose record of service is indifferent or bad. As a rule, to which there are but few excep- tions, the value of an employee bears an inverse ratio to the political and social support which he brings to bear in his own interest. It is at best difficult to bring about the discharge of a worthless, inefficient, unfaithful, or insub- ordinate employee, and it is equally difficult after Ms discharge to resist the importunities of his friends and supporters for his reinstatement. Under the proposed plan, the retention of ineflGicient clerks out of humane considerations or because of their political prestige would be far less imperative than it now is. On the other hand, the tendency of a civil pension would be just the reverse, since the chief who dis- missed an incompetent clerk would know that he not only deprived him of the salary of which he probably had most pressing need, but 140 EETIEEMENT OS" StlPERAiTNtJATEt) CIVIL-SERVICE EMPLOYEES. that he also deprived him of a kind of intangible right to the pension that would ultimately be his if he were allowed to remain in the service until reaching the age at which it would be granted, and which he had already partly earned. (See Chap. I, p. 54, discussion under head, Civil pension is demoralizing to the service.) In Case of Death, The savings plan would certainly not be condemned in the home of any employee removed by death from the service. The last sentence in section 7 provides that interest on the employee's savings shall be paid in case of his removal from the service by death, regardless of the length of time he has been in office. In Case of Disability. The last retirement bill introduced in the first session of the Sixtieth Congress (H. R. 21261), known as the first "Gillett bill," contained no provision for separation from the service in case of disability. This omission seemed at that time to be disapproved by the employees of the Post Office Department. At the annual conven- tion of the United States Association of Post-Office Clerks, held in Birmingham, Ala., September 7 to 11, 1908, the president of the- association strongly opposed this bill because of the elimination of the disability provision contained in the so-called Keep bill, the first of the series introduced covering this plan of retirement and known ^ officially as H. E.. 17969. Since then, the association seems to have changed its attitude toward the disability question, for it is under- stood to oppose the second " Gillett bill" (H. R. 22013) , the one last favorably reported, on the ground that the disability provision is unsatisfactory. This attitude seems to be decidedly inconsistent in view of the fact that the disability provision in this last bill is the most liberal of any yet proposed. Opposition is understood to be based on the theory that the cost of disability should be paid for entirely by the Government instead of out of any fund created by the employees. In taking this position the members of the postal service have not seemed to realize that the passage of this last bill would enable them to get accident insurance at net cost, and that they would be benefited out of all proportion in comparison with the members of the other departments by participating in any mutual fund, since the number of accidents among members of the postal service is naturally much greater than among members of other branches of the service. If the criticism of inequity is raised it should be directed toward cutting down benefits to the members of the postal service. KETIKEMENT OF SUPEEANNUATED CIVIL-SERVICE EMPLOYEES. 141 DISABILITY PROVISION IN SO-CALLED KEEP BILL. The disability, provision^found in section 6 of H. E. 17969 provides that an employee who has served the Government for not less than 20 years may retire on an annuity equal to 1^ per cent of the aggre- gate salary he has received, in case of disability " not due to vicious habits or by reason of exigencies of service, but without fault or delinquency on his part, or on his own application after 40 years' service." NECESSITT 01" DETEKMINING COST OF DISABILITY BENEFIT. Wbile a disability clause is recognized as a desirable feature of any retirement bill, the aforesaid provision does not wholly meet the require- ments. The clause providing for retirement on the employee's own ap- plication after 40 years' service virtually means general retirement at the ages of 60 to 65 instead of 65 and 70, and would therefore ma- terially increase the cost to the Government for annuities for back services. Neither could any provision for retirement in case of dis- ability, however satisfactory in theory, be regarded as desirable in the absence of figures to show what such a provision would cost. DIFFICULTY OF DETERMINING COST OF DISABILITY BENEFIT. The first step necessary then in determining the feasibility of in- cluding in the retirement measure a provision for disability is to ascertain what such a provision would be likely to cost. The great difficulty in the way of estimating this cost is the fact that there is no satisfactory basis for such computation. No reliable tables of dis- ability based upon the experience of American lives have as yet been compiled. Several German tables have been prepared based on the experience of various industries, including the different branches of the German railways and including the employees in German coal mines, but none of these tables can suitably be used as the basis for the required estimate. While they have been compiled in a most scientific manner, it is generally recognized that they show too high a rate of invalidity to serve as a satisfactory basis for computing the cost of disability among ordinary American lives, such as civil-service employees. This is because, in the first place, they are all based on extra-hazardous occupations, and, in the second place, because dis- ability is made to include superannuation. The most superficial study of these tables— including even the most reliable ones— shows that disability has been generally confused with superannuation in the older ages, and the rates .based on them are in consequence in- ordinately high. 142 RETIREMENT OF SUPERANNUATED CIVIL-SERVICE BMP1.0YEES. GEEMAN DISABILITY EXPEEIBNCE BEST AVAILABLE. That the German tables show too high a^ rate of invalidity is recog- nized apparently by German actuaries, for J. Karup in a chapter on disability in his well-known work " Kef orm des Eechnungswesens der Gothaer Lebensversicherungsbank " calls attention to the fact that the disability experience of German railroad employees is not reliable, and recommends that observations made from 1868 to 1876 be disre- garded because " pensioning and invalidity were treated then as of equal significance." Overconservative, however, as we know they are, rates based on the German tables of disability are the most reliable that are available for computing the cost of a disability provision. The tables of Zimmermann, based on the experience of the various branches of the employees of German railways, have accordingly been used to esti- mate the cost of the disability benefit proposed in the Keep bill (H. E. 17969). These tables cover an experience extending over the years 1873 to 1887, and although they include three years, 1873 to 1876, of the period, 1868 to 1876, quoted above by Karup as one when the superannuated were erroneously classed with the disabled, they are, nevertheless, generally recommended by Karup, Hamza, and other leading actuaries of Germany as the safest of available ex- periences, their fault being, indeed, an excess of safety rather than a lack of it.^ ' Recently, since the above text was written, tables which could be used for the calcu- lation of the cost ot a disability feature for that class of the civil service retiring at age 70 have been published, based upon the experience of the Knights of Maccabees. The experience upon the members of this fraternal order should approach more nearly upon that of the above-mentioned class of the civil service. From a cursory examination of the rates derived from this experience It is evident that the cost of disability benefits would show a considerable decrease from the cost obtained on the German experience which has been made the basis of these calculations. BEMEEMENT OF SUPBEANNUATED CIVIIj-SEEVICE EMPLOYEES. 143 Table XXIV. — Showing rates hased on German disability experience to pro- vide an amnuity of $100 (first payment immediate) to age indicated upon occurrence of total and permanent disahility^ Retirement age. 70 65 60 20 years $0.41 .46 .52 .59 .66 .74 .83 .94 1.08 1.25 1.46 1.72 2.04 2.39 2.76 3.12 3.51 3.89 4.26 4.62 4.98 5.33 5.66 6.98 6.27 6.57 7.94 8.82 10.17 11.01 12.39 13.01 13.80 14.55 15.21 15.42 15.93 17.29 18.61 21.39 24.72 28.65 31.17 33.02 33.56 32.21 29.15 25.94 20.95 12.68 JO. 41 .58 .76 .95 1.16 1.36 1.59 1.84 2.11 2.40 2.71 3.05 3.42 3.81 4.22 4.64 5.08 6.53 6.00 6.48 6.98 7.62 8.12 8.79 9.54 10.37 11.30 12.35 13.53 14.84 16.29 17.79 19.19 20.46 21.60 22.60 23.44 24.09 24.65 24.81 24.88 22.99 19.92 16.33 8.94 10.59 21 years .84 1.12 23 years 1.42 1.75 25years 2.12 26 years 2.54 27 years 3.04 28 years 3.60 4.16 30 years 4.68 5.11 32 years 5.52 33 years 5.88 6.28 35 years . 6.72 7.21 37 years . 7.77 8.36 39 years 9.00 9.69 41 years . 10.22 10.70 43 years . 11.13 11.60 45 years - 12.14 12.91 47 years 13.72 14.62 16.55 17.07 17.42 17.71 17.96 18.18 18.40 16.89 14.65 11.36 6.62 1 These rates were computed by Mr. Benedict D. Flynn, assistant actuary, The Trav- elers Insurance Company, Hartford, Conn., In January, 1909. ESTIMATED COST OF DISABILITY PEOVISION IN SO-CALLED KEEP BILL. The disability benefit proposed in the Keep bill is arranged on a basis similar to that used in calculating retirements ; that is, retire- ment by reason of total disability and after not less than 20 years' service on 14 per cent of the employee's total compensation during the service prior to the taking effect of this act. That would mean a disability benefit of 30 per cent of pay in the case of the employee who had been in the service 20 years, 45 per cent of pay in the case of the employee who had been in the service 30 years, and so on. While this arrangement might, in many cases, be inadequate, it could be recommended for the Government as a safe and conservative beginning. 144 KETIREMENT OF SUPERANNUATED CIVrL-SERVICB 'EMPLOYEES. The erst the first year of such a provision based on the foregoing rates, to run from the date of disability to the respective ages of retirement, is shown in the following table to be $1,157,298. Table XXV. — Showing cost of disaiility provision m Keep hill, hut limited to run from date of disahility to age of retirement. Age, years. 1 per cent of salary of all general em- ployees (wlio nave been in service at least 20 years) mul- tiplied by number of years of service. (See note.) Eate per $100 of an- nuity. Total pre- mium, first year. 1 per cent of salary of all letter carriers (wlio have been in service at least 20 years) multiplied by number of years of service. (See note.) Rate $100 of an- nuity. Total pre- mium, first year. 1 per cent of salary of all railway postal clerks (who have been int service at leas 20 years) mul- tiplied by number of years of service. (See note.) Bate per $100 of an- nuity. Total pre- mium, first year. Total (a) (t) (0) $625,762 (d) (e) $92,279 (g) (h) $53,491 81,304 00 2,684.00 5,426.00 9,144.40 16, 924. 60 28,166.40 34,351.60 43,788.80 61,082.60 63,738.80 72,709.20 76,344.60 90,483.80 104,656.40 116,537.40 124,138.20 125.606.80 136,243. 60 101,806.40 115, 563. 00 108,961.00 106,520.00 102,238.20 125,021.20 111, 507. 80 107,263.60 114,996.80 129,945.60 121,782.00 156,409.60 151,782.40 169,050.60 152,981.80 132,034.20 136,893.20 98,689.40 96,363.80 $2.39 2.76 3.12 3.51 3.89 4.25 4.62 4.98 6.33 6.66 6.98 6.27 6.57 7.94 8.82 10.17 11.01 12.39 13.01 13.80 14.56 16.21 16.42 16.93 17.29 18.61 21.39 24.72 28.66 31.17 33.02 33.56 32.21 29.15 25.94 20.95 12.68 31 74 169 321 668 1,197 1,587 2,181 3,266 3,608 4,348 4,787 5,945 8,310 10,190 12,626 13,829 16,757 13,245 16,948 15,854 16,202 15,766 19,916 19,280 19,962 24,598 32,123 34,891 48,441 50,118 53,378 49,276 38,488 35,610 20,676 12,219 34 $762. 60 912. 00 839.00 $4.22 4.64 5.08 5.53 6.00 6.48 6.98 7.52 8.12 8.79 9.64 10.37 11.30 12.35 13.63 14.84 16.29 17.79 19.19 20.46 21.60 22.60 23.44 24.09 24.65 24.81 24.88 22.99 19.92 16.33 8.94 32 42 43 ■■■'iss' 238 472 817 1,214 1,863 2,432 2,672 3,466 4,830 4,319 4,704 5,427 4,719 5,366 5,029 5,243 4,972 5,154 4,324 4,006 4,273 4,468 4,666 3,334 2,666 1,430 3C 37 $400.00 894.00 840.00 4,132.00 6,454.00 6, 708. 00 11,494.00 14,080.00 11,248.00 22,836.00 23,041.00 22,326.20 21,802.00 22, 798. 00 26,642.00 21,311.00 23,106.20 23,928.40 20,802.20 17,148.00 21,330.00 15,034.00 14,597.60 15,180.00 $7.21 7.77 8.36 9.00 9.69 10.22 10.70 11.13 11.60 12.14 12.91 13.72 14.62 16.56 17.07 17.42 17.71 17.96 18.18 18.40 16.89 14.65 11.36 6.62 29 C9 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 64 55 56 57 58 59 60 2,636.00 3,666.00 6,761.80 10,864.81 14,951.00 21,193.20 26,491.00 26,762.80 30,670.00 39,113.00 31,925.00 31,699.00 33,316.60 26,529.20 27,964.40 24,579.00 24,276.40 21,999.40 21,990.20 17,949.00 16,317.00 17,222.00 17,958.40 20,295.80 16,737.00 16, 737. 40 15,992.00 70 371 628 686 1,230 1,567 1,305 2,772 2,975 3,063 3,187 3,773 4,360 3,712 4,092 4,297 '6.1i2 3, 1.^5 3,U03 2,202 1,668 1,0C5 62 63 64 65 66 67 68 69 ... Amount required to provide all general employees who have been In the service not less than 20 years a disability .allowance equal to 1 per cent of salary for each year ot service, to run from date of disability to age 70 $625, 762 Amount required to provide all letter carriers who have been In the service not less than 20 years a disability allowance equal to 1 per cent of salary for each year of service, to run from date of disability to age 65 02, 279 Amount required to provide all railway postal clerljs who have been in the service not less than 20 years a disability allowance equal to 1 per cent of salary for each year of service, to run from date of disability to age 60 53, 491 771, 532 Amount required to provide all employees who have been in the service not less than 20 years disability allowances equal to 1.5 per cent of salary for each year of service, to run from date of disability to ages stated above, according to occupation ($771,532X1.5) 1,157,298 NoTD. — ^The amount $152,981.80, opposite 65 years, In column (a) of the above table, Is the sum of all annuities of persons who have been In the service 20 years or more, as shown In the last column of Illustrative Table XXIX beginning with the Item of $5,448 (p. 163). other amounts In columns (a), (d), and (g) are the sums of annuities of employees of various ages and classes who have been In the service 20 years or more. EETIBEMENT OF StJPERANNUATED CIVIL-SERVICE EMPLOYEES. 145 ONE-YEAB TERM BATES USED IN CALCULATION. The rates that were used in calculating these premiums are one-year term rates based on the German disability experience to provide an annuity of $100, first payment immediate, upon the occurrence of total and permanent disability and continuing to the age of retire- ment. The life annuity table used in the calculation was based upon the American Experience Table of Mortality. As the expectation of life shown by that table is greater than the fact in the case of perma- nently disabled persons, and as it is well known that the life of a person totally disabled — particularly in the younger ages — is not so good as that of the normal person, it follows that annuities based on the American Experience Table of Mortality will give higher values than necessary. It will be seen, therefore, that in every way the dis- ability rates applied to the various groups of civil-service employees at present ages for present salaries for estimating the total cost of a disability provision in connection with the retirement plan were more than adequate and conservative. The one-year term rates used in the calculations are open to objection on one score. The cost of the dis- ability provision on the one-year term basis would undoubtedly increase for a few years. To use level premium rates, however, for the calculation of the disability cost, especially with the very inade- quate data as to the rate of disability among the civil employees, would be complicated and unsatisfactory. The better plan would be to employ one-year term rates based on the German disability experi- ence for the first few years until the experience of the enormous civil- service organization could furnish data for determining the cost of its own disability benefits. HOW COST OF DISABILITY PBOVISION CAN BE MET. The cost of such a disability provision being thus approximately ascertained, the important question of how this cost can be met re- mains for consideration. At the hearings held in 1908, the suggestion was made that annuities for services rendered prior to the adoption of the plan might be paid out of deductions from the salaries of new entrants and deductions from salary increases of those promoted, after the plan followed by the French Government.^ The suggestion was embodied in sections 6, 7, and 9 of H. R. 21261, as a substitute for the provision in the two preceding bills that the annuities for these services be paid out of appropriations made by the Govern- ment. Since then, the House committee, by reporting favorably H. E. 22013, has receded from this position, and returned to the original plan of providing that annuities for back services be paid 1 See Hearings before the Committee on Reform in tlie Civil Service, House of Eepre- sentatives, Retirement Fund for Superannuated Employees in the Civil Service, p. 81. 74196°— S. Doc. 745, 61-3 10 146 KETIEEMENT OF SUPERANNUATED CIVIL-SERVIOE EMPLOYEES. by the Government, with the limitation, however, that they be re- stricted to $600 in each case. Since the other suggestion meant a tax on efficiency and was unfair to the younger employees, it was wisely abandoned, but it is proper to state here that, if the Govern- ment assumes the payment of annuities for back services, the fund created by deductions from salaries of new entrants and the salaries of employees receiving promotions might justly and consistently be applied to pay the cost of disability benefits, since all employees, both old and young, would have a chance to participate in the benefits. It would mean simply that Government employees would be required to carry accident insurance, which would be furnished them at cost, without the loading for expense necessary in the case of insurance companies. The sum that wiU be available through deductions from entrance and promotion salaries has been estimated by Maj. Fred Brackett of the Treasury Department as approximately $1,412,329 a year. In deciding, therefore, how the cost of .putting the plan into operation shall be met Congress will be settling not one question but two, since the fate of a disability clause would seem to depend largely on this decision. Maj. Brackett's computation is as follows : There is an average of 8,082 deaths, resignations, and removals per year, and I have allowed an equal number of new appointments at $720 each, from which we receive $60 each, or one-twelfth of the whole amount. This produces $484,920 per annum, but as probably 5 per cent of the original appointments would be of $900 grade, we must add $6,060, or 404 by 15, which would give us $490,981, from appointments. From promotions we should receive an average of $120, less 5 per cent for appointments to vacated grades, which might not Involve promotions. Each promotion ought to average $114, as follows: $720 to $840 $120 $840 to $900 60 $900 to $1,000 100 $1,000 to $1,200 200 Total 480 25 per cent (assessment) on $480 is $120. $120 less 5 per cent = ($6) $114. $114X8,082=$921,348. $490,981+$921,348=$1,412,329, the amount of annual proceeds from new entrants' and promotion salaries.' DESIBABILITT OF MOBE LIBERAL DISABILITY BENEFITS. It would be very desirable, both for the employee and for the service, if such a course were practicable, to provide for a more liberal disability benefit than that proposed in the Keep bill. The ideal arrangement would undoubtedly be to have the disability bene- fits accrue to the employee regardless of his term of service, since disablement may occur at any period and the need be much greater »See Hearings before the Committee on Reform In the Civil Service, House of Repre- sentatives (1908) Retirement Fund for Superannuated Employees In the Civil Service, p. 130. KETIREMENT OP SUPEEANNTTATED CIVIIi-SEBVICE EMPLOYEES. 147 in the case of the employee who has been in the service only one year than in the case of the employee who has been in the service 20 years or more. Disability benefits limited, as in the above-mentioned bill, to those who have served at least 20 years would be of little value to the letter carriers, and of practically no value to the railway mail service. A provision to be really adequate would have to provide about 60 per cent of the pay received at the time disability was incurred. It would include the payment of benefits for permanent disability due to either accidents or illness, accident benefits to be payable after any length of service, illness benefits to be payable only when the employee has been in the service a stated number of years, probably ten. While such a provision has much to recommend it, however, it can not, of course, be wisely adopted in ignorance of the cost. In view of the absence of reliable disability statistics, it is impossible to state the cost accurately. ESTIMATED COST OF LIBEEAL DISABILITY BENEFIT. A computation based on the disability tables compiled by Zim- mermann gives $5,737,263 the first year as the cost of a disability pro- vision, such as outlined above. While this figure is so high as to be ridiculous— and emphasizes again the very great safety of the esti- mate of $1,157,298 (based on the same tables) as the cost of the disability provision in the so-called Keep bill — still, in the absence of all other data, this figure makes the price of a liberal benefit prohib- itive at the present time. Had the estimate been about $2,000,000 a year instead of $5,737,263, then the above-mentioned disability clause might safely have been included in the bill, and the provisions under it so graduated as to bring the cost below the amount of $1,412,329 a; year, the amount of the fund available through deductions from entrance and promotion salaries, but with the estimate of cost, even though that estimate is known to be grossly exaggerated, over three times as great as the available fund, the only safe conclusion is that such a clause is unwise until such time as reliable statistics of disa- bility on lives of civil-service employees are available as a basis for computation. If a limited disability provision such as that proposed in the Keep bill be granted, and then the disability experience of United States civil-service employees in the various groups be care- fully kept for a few years following the adoption of the proposed plan, valuable data may be obtained from which American tables of disability can be compiled and the cost of a liberal disability feature in connection with the retirement plan accurately computed. An increase of disability benefits could then be authorized by Congress. 148 EETIBEMENT OF SUPEKANNUATED CIVIL-SEE.VIOE EMPLOYEES. Table XXVI. — Showing cost the first year of disability provision equal to one- half pay, to run from date of disaiUity to age of retirement. Total salaries of general employees, Bate. Total premium, first year. Total salaries of letter carriers and rural carriers. Kate. Total premium, first Total of railway postal clerks. Bate. Total premium, first year. Total., 14 years.. 15 years.. 16 years.. 17 years.. 18 years.. 19 years. . 20 years.. 21 years.. 22 years.. 23 years.. 24 years.. 25 years.. 26 years.. 27 years.. 28 years.. 29 years.. 30 years.. 31 years.. 32 years.. 33 years. . 34 years.. 35 years.. 36 years.. 37 years.. 38 years.. 39 years.. 40 years.. 41 years.. 42 years.. 43 years.. 44 years.. 45 years.. 46 years.. 47 years. . 48 years.. 49 years.. 50 years.. 51 years.. 52 years.. 53 years.. 54 years.. 65 years.. 66 years.. 57 years.. 68 years.. 69 years.. 60 years.. 61 years.. 62 years.. 63 years.. 64 years.. 65 years.. 66 years.. 67 years.. 68 years.. 69 years.. $6,570,497 13,824,944 11,079,087 J8,400 33,000 97,440 153,220 346,860 676, 200 948,760 1,293,680 1,557; 860 1,890,060 2,146,760 2,309,500 2,610,480 2,788,580 2,807,560 2,944,160 3,143,980 3,02:j,260 3,060,160 3,039,080 .S, 070, 600 2,863,200 2,956,680 2,925,900 2,916,260 2, 867, 440 2,515,260 2,256,820 2,218,400 2,017,100 1,987,880 1,951,000 2,011,480 1,975.200 1,844,920 1,710,540 1,642,360 1,276,080 1,275,740 1,161,000 1,050,240 998, 140 1,020,280 979, 620 931,220 894, 160 951, 600 878, 460 1,078,600 1,007,220 935, 620 926,840 730,580 710, 120 532, 180 (0.41 .41 .41 .41 .41 .41 .41 .46 .52 .74 .83 .94 1.08 1.25 1.46 1.72 2.04 2.39 2.76 3.12 3.51 3.89 4.25 4.62 4.98 5.33 6.66 5.98 6.27 6.57 7.94 8.82 10.17 11.01 12.39 13.01 13.80 14.55 15.21 15.42 15.93 17.29 18.61 21.39 24.72 28.65 31.17 33.02 33.56 32.21 29.15 25.94 20.95 12.68 34 135 399 628 1,422 2,772 3,890 6,951 8,101 11,151 14,169 17,090 21,667 26,213 30,322 36,802 45,902 52,000 62,427 72,634 84,749 89,332 103, 779 113,818 123,941 123,236 125,260 120,289 12s, 561 120, 623 124,640 128, 181 159,712 174,213 187,628 188,330 203,488 166,018 176,062 168,925 159,741 153,913 162,531 169,359 173,300 191,261 235,236 251, 679 336, 168 332, 584 313,994 298,535 212,964 184, 205 111,492 62,051 tl62, 180 343,080 522,360 723,740 959, 900 1,175,800 1,257,640 1,353,260 1,508,860 1,664,780 1,837,260 1,856,440 1,955,360 1,966,080 1,950,240 2,028,500 2,002,580 1,932,320 1,908,540 2,032,100 1,913,300 1,800,280 1,805,040 1,462,900 1, 502, 560 1,352,460 1,262,980 1,299,300 1,312,580 1,267,680 1,095,440 953,400 941,320 764,420 791,540 680,500 574,340 614,740 453,220 388,420 308,440 29.5,760 267,300 298, 680 306,080 259,840 273,860 198,340 194,680 152, 340 108,460 87, 100 SO. 41 .41 .41 .58 .76 .95 1.15 1.36 1.59 1.84 2.11 2.40 2.71 3.05 3.42 3.81 4.22 4.64 6.08 5.53 6.00 6.48 6.98 7.52 8.12 8.79 9.54 10.37 11.30 12.35 13.53 14.84 16.29 17.79 19.19 20.46 21.60 22.60 23.44 24.09 24.65 24.81 24:88 22.99 19.92 15.33 8.94 665 1,407 2,142 4,198 7,295 11,170 14,463 18,404 23,991 30,632 38,766 44,556 52,990 59,660 66, 698 77,286 84,509 89, 660 96,954 112,375 114, 798 116, 668 125,992 110,010 122, 008 118,881 120,488 134,737 148, 322 155,323 148,213 141,485 153,341 135,990 151,897 139,230 124,057 116,331 106,235 93, 670 75,722 73,378 66, 504 68, 667 60, 971 39,833 24,483 tl,200 25,240 98, 920 220,760 297,860 409,880 421,200 464,340 ,520,340 588,800 553, 540 654, 980 622,920 674,960 651, 280 653,280 637,580 619,440 617, 920 600,740 544,800 511,820 449,600 400,840 353,540 3.37,200 303, 140 300, 100 284, 200 289, 640 247, 460 217, 640 195,720 161,000 148,920 139,380 107,340 89,640 101,020 72,600 71,860 67,000 60,940 71,Sfl0 84, 660 84,440 49,600 62,100 61,920 41,640 37,800 32, 840 SO. 59 .59 .59 .84 1.12 1.42 1.75 2.12 2.54 3.04 3.60 4.16 4.68 5.11 5.52 5.88 6.28 6.72 7.21 7.77 8.36 9.00 9.69 10.22 10.70 11.13 11.60 12.14 12.91 13.72 14. 62 16. 55 17.07 17.42 17.71 17.96 18.18 18.40 16.89 14.65 11.36 6.62 7 149 584 1,854 3,336 5,820 7,371 9,844 13,217 17,900 19,927 27,247 29,153 34,490 35,951 38,413 40,040 41,626 44,652 46, 677 45, 545 46,064 43,566 40,966 37,829 .37, 530 35, 164 36, 432 36,690 39,739 36,179 36,019 33,409 28; 046 26,374 25,033 19, 514 16,494 17,062 10,636 8,163 4,475 Amount required to prcTide 94,403 general employees a disability allowance equal to full pay, to run from date of disability to age 70 $6, 570, 496 Amount required to provide 61,931 letter carriers and rural carriers a dis- ability allowance equal to full pay, to run from date of disability to age 65_ 3, 824, 944 Amount required to provide 13,894 railway postal clerks a disability allow- ance equal to full pay, to run from date of disability to age 60 1,^79, 087 Total 11, 474, 527 Amount required to provide 170,228 employees disability allowances equal to half pay, to run from date of disability to ages stated above, according to occupation 6, 737, 263 Note. — Since the above table was worked out and the accompanying text written, the second " Glllett bill" (H. R. 22013), with its notable disability provision— a compromise between the limited disability clause of the Keep bill KETIEEMENT OF SUPERANNUATED CIVIL-SEEVICE EMPLOYEES. 149 and the liberal disability provision discussed above — has been favorably re- ported. This provides that any employee, regardless of his length of service, " who, by reason of accident or illness not due to vicious habits or by reason of exigencies of the service, but without fault or delinquency on his part, has become totally and permanently disabled," may retire on an annuity equal to IJ per cent of his total compensation during service prior to retirement, the allowance for disability due to accident being never less than 20 per cent of his average annual compensation, and the allowance for disability on account of illness being granted only after 20 years of service. It will be observed that this is much more liberal than the provision in the Keep bill, since a disability allow- ance is granted after any period of service. It is much more conservative, how- ever, than the provision suggested above as " really adequate," on which the computation was made, since it provides only 20 per cent of pay as a disability allowance instead of 50 per cent. No estimate of the cost of this disability pro- vision in H. R. 22013 has been made. It lies, of course, somewhere between $1,157,298 a year, the estimated cost of the provision in the Keep bill, and $5,737,263 a year, ihe estimated cost of the provision suggested as " really adequate." SEPARATE EECOBDS SHOULD BE KEPT OF SUPEEANNTJATION AND DISABILITY. Whether a limited, a liberal, or a compromise disability proA'ision be adopted, the confusion which the German experience shows in the older ages between superannuation and disability may be avoided by making the benefits run from date of disability to the age of retire- ment only and by paying them only on condition that the employee continue his contributions to his retirement fund, so that when he reaches the retirement age the disability fund will be relieved of further payments. If the disability benefits were to run for life, the cost, of course, would be very high because of the rapid increase in the probability of disability after about the sixtieth year of age. If the disability benefits are continued only to the retirement age, the heavy expense of disability in the advanced ages may be avoided, and the increase in the charges for advancing ages of entrance held down by the constantly diminishing period during which disability payments would be made. If the fund out of which to pay these disability benefits were created by uniform deductions from the salaries of new entrants and from promotion salaries of all groups of employees, regardless of the hazard of occupation, and the ages of retirement for all groups were the same, such a plan might be open to criticism on the ground that one group would be receiving a benefit at the expense of another. By making the disability benefits run only to the ages of retirement this inequality in benefits is overcome, in a measure at least, by the provision of the bill which groups the employees according to sever- ity of occupation, and gives the youngest retiring age to the most hazardous occupation, and the oldest retiring age to the least hazard- ous occupation. Under such an arrangement, employees would be subject to substantially the same tax in proportion to their initial salaries and increases, but railway postal clerks would be limited to disability incurred prior to age 60 and to benefits up to age 60, 150 RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. letter carriers to disability incurred prior to age 65 and to benefits up to age 65, and departmental clerks to disability prior to age 70 and to benefits up to age 70. If the cost of a liberal disability benefit were not kept entirely within the limit of the available fund by confining it between the date of disability and the age of retirement, the benefits for permanent disability might be reduced to 40 per cent of pay, or the benefit for disability due to illness might be given only after 15 years of service. But until reliable disability rates founded on actual American ex- perience are available, the disability benefit proposed in the so-called Keep bill— retirement on 1^ per cent of salary for each year of serv- ice in case of disability after 20 years of service — would seem to be the limit of financial safety. DISABILITY CLAUSE IN PROPOSED BILL. Sections 6 and 7 of H. R. 21261 and sections 8 and 9 of H. E. 28286 make provision for the creation of a fund by uniform deduc- tions from the salaries of new entrants and from the salaries of those promoted. In the bill proposed in this report .(S. 1944) a fund is similarly created under section 8, but it is applied under section 9 to the payment of disability benefits instead of to the payment of annui- ties for back services. Section 8 provides for the creation of a disability fund and reads as follows: Sic. 8. That beginning with the first day of July next following the passage of this act, there shall be deducted and withheld from the monthly salary, pay, or compensation of every employee newly entering the service to whom this act applies an amount equal to one-fifth of his monthly salary, pay, or compensa- tion during the first six months of his employment ; and in every case of pro- motion of any person to whom this act applies, there shall be deducted and withheld from the monthly salary, pay, or compensation of such person an amount equal to the increase made by such promotion during the first three months from the taking effect thereof ; and the amounts so deducted and with- held shall be deposited in the Treasury of the United States to the credit of a special fund to carry out the provisions of section nine of this act. It will be noted that for the sake of simplicity in the matter of accounting, one-fifth of the monthly salary is deducted from the sal- ary of the new entrant during the probationary period instead of one-sixth, as provided for in former bills following the French system. Section 9, which makes provision for retirement in case of dis- ability, reads as follows : Sec. 9. That beginning one year after the first day of July next following the passage of this act, any employee to whom this act applies, who has served the United States for not less than twenty years, and who, by reason of accident or illness not due to vicious habits or by reason of exigencies of the service, BETIEEMENT OF SUPERANNUATED CIVIL-SEE.VICE EMPLOYEES. 151 but without fault or delinquency on his part, has become totally and perma-. nently disabled, may retire from active service prior to the age of retirement, and, on certificate from the head of the department or independent office in which he is employed to the Secretary of the Treasury setting forth such disa- bility and the approval of such certificate by the Secretary of the Treasury, may receive, out of the fund created by section eight of this act, an annual disability allowance, payable quarterly, equal to one and one-half per centum of his total compensation during service prior to such retirement. Allowances under this section shall be discontinued on arrival of the employee at the age of retire- ment unless sooner terminated by the Secretary of the Treasury. If, upon the retirement of an employee on a disability allowance, the money then to his credit under section two of this act, together with interest thereon at three and one-half per centum per annum, compounded annually, will not be sufficient to purchase an annuity, payable quarterly throughout life, for such employee on arrival at the age of retirement equal to his annual disability allowance, the Secretary of the Treasury shall deduct and withhold from his quarterly disability allowance an amount, computed to the nearest tenth of a dollar, that together with the money then to his credit, with Interest, will be sufficient to purchase such annuity. Amounts deducted and withheld from disability allowances shall be treated as deductions under section two of this act. If the money to his credit as aforesaid is in excess of the amount that will be required to purchase such annuity he may withdraw such excess in one cash sum, or in an annuity certain limited to the age of retirement. The Secretary of the Treasury shall reduce or terminate the disability allow- ance granted to any employee whenever in his judgment it is proper to do so, and such action on his part shall be final and conclusive. In case of the death of an employee while in the receipt of a disability allow- ance, the amount to his credit under section two of this act shall be paid to hlB legal heirs, and the disability allowance shall cease and determine. The disability allowances hereby provided for shall at all times be limited to the fund created by section eight of this act, and if the total allowances shall at any time be in excess of such fund, the allowances shall be reduced pro rata to a sum within such fund. It is thought that this provision safeguards the interests of the Government in every way, and yet it is so worded that when the disability experience of the employees warrants so doing, more liberal benefits may be allowed by change of a few words in the bill. The ultimate ideal, of course, is the allowance, as soon as it is proved practicable, of disability benefits for total and permanent disability resulting from accident incurred in line of duty after any period of service'. Provision is made for the reduction or termination of the allowance within the discretion of the Secretary of the Treasury, since it is always possible that a person thought to be permanently disabled may recover in part or entirely. As a precautionary meas- ure in the interests of the Government it is specifically provided also that the allowances shall be reduced pro rata, if they at any time exceed the amount of the disability fund. While the disability bene- fit provided is so limited as to make that probability very remote it was thought wise to put a phrase in the disability clause that would 152 KETIREMENT OP SUPEBANNUATED CIVIL-SEBVICE EMPLOYEES. make impossible a deficit and a call on the Government for appro- priations. In pursuance of the principle laid down in the foregoing pages that there should be a sharp distinction drawn between disability and superannuation, this section provides that disability allowances shall be discontinued on arrival of the employee at the age of retirement, and that from that time on, while he shall continue to draw the cus- tomary amount as an annuity, it shall be paid out of the retirement fund created by himself instead of the disability fund. (This is necessary for the reason that at th|e older ages it is impossible to differentiate between disability and superannuation.) In case the sum to his credit at the time of retirement from active service on a disability allowance is not sufficient to purchase an an- nuity for him when he shall reach the age of retirement equal to the amount of his disability allowance (which will then be discontinued), it will be necessary to deduct from his quarterly disability allowance such an amount as will be sufficient, together with the money then to his credit, to purchase such an annuity. As the bill stands at present, disability allowances being granted only after 20 years' service, there is no probability of the amount to an employee's credit at the time of retirement on account of disability being insufficient to purchase an annuity at the age of retirement equal to his disability allowance. If the bill should be amended so as to allow of accident benefits after any period of service, it might happen that the amount to an employee's credit at the time of disablement, say, one or two years after entering the service, would be insufficient for the pur- chase of an annuity at the age of retirement equal to the disability allowance, and deductions would therefore have to be made as provided for. At present, however, with disability benefits granted only after 20 years' service, the sum to the credit of the employee is likely to be in excess of the amount required for the purchase of an annuity at the age of retirement equal to the disability allowance granted in the interval. As an injured employee is likely to be in need of money at the time of his disablement, the bill provides that this excess may be drawn at once in a cash sum, if so desired. PROVISION FOR REINSTATEMENT IN SERVICE. As persons who leave the service frequently return to it, section 10 was introduced into the bill to provide for the reinstatement of such persons. It reads as follows: Sec. 10. That in case of reinstatement in the classified civil service of any person virho at the time of his separation therefrom received a refund under section seven of this act, his period of service for the purpose of retirement and of making the monthly deduction from his salary shall be computed from the date of such reinstatement unless he shall, within ninety days after rein- BETIEEMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 153 Btatement, pay to the Secretary of the Treasury the amount refunded to him, with interest at three and one-half per centum per annum, in which case the same shall be replaced to the credit of his account, and the former period of service shall be counted. PROVISION FOR PAYMENT OF ANNUITIES FOE PAST SERVICES. The proposed bill thus far down to section 11, has had to do only with Part I of the plan, the payment of annuities for services ren- dered after its adoption. Sections 11 and 12, which have to do with Part II of the plan, the payment of annuities for services rendered prior to the adoption of the plan proper, are discussed by themselves in the chapter entitled " Cost of plan," since it is the payment of annuities for past services which constitutes, aside from the cost of administration, the sole expense connected with the plan. MISCELLANEOUS PROVISIONS OF THE PROPOSED BILL. The remaining sections of the bill make provision mainly for the condition and legality of its enactment. Section 13 is self-explana- tory, and reads as follows : Sec. 13. That every person to whom this act applies who shall continue in the classified civil service after the passage of this act, as well as every person to whom this act applies who may hereafter be appointed to a position or place, shall be deemed to consent and agree to the deductions made, and provided for herein, and shall receipt in full for the salary, pay, or compensation which may be paid monthly or at any other time, and such payment shall be full and complete discharge and acquittance of all claims or demands whatsoever for services rendered by such person during the period covered by such payment, notwithstanding the provisions of sections one hundred and sixty-seven, one hundred and sixty-eight, and one hundred and sixty-nine of the Revised Statutes of the United States, or of any other law, rule, or regulation affecting the salary, pay, or compensation of any person or persons employed in the classified civil service to whom this act applies. PROVISION FOE KEEPING STATISTICAL KECOKDS. Section 14 of the bill should have special emphasis. It reads as follows : Sec. 14. That the Secretary of the Treasury shall prepare and keep all need- ful tables, records, and accounts required for carrying out the provisions of this act. The records to be kept shall include data showing the mortality ex- perience of the employees in the various branches of the service, and the rate of withdrawal from the classified service, and any other information that may be of value and may serve as a guide for future valuations and adjustments of the plan for the retirement of employees. The Secretary of the Treasury shall make a detailed comparative report annually to Congress showing all receipts and disbursements under the provisions of this act, together with the total number of persons receiving aunuities and disability allowances, and the amounts paid them. 154 EETIEEMENT OF SUPEBANNITATED CIVIL-SBRVIOE EMPLOYEES. As pointed out in the first report made by the subcommittee on personnel of the Keep Commission, one of the valuable features of the plan is the array of reliable statistics concerning a large body of representative people that will gradually be collected if this retirement plan is adopted. In handling the accounts of the em- ployees under this plan records will necessarily be kept showing the mortality experience of the employees in the various branches of the service and in different localities throughout the country, the rate of withdrawal from the classified civil service, and much similar information that may be of value and service as a guide in future valuations and' adjustments of any plan, and in reducing the cost, not only to the employees, but to the Government as well. The records should eventually prove of great interest to the in- surance companies in this country as well as to the public, for on them mortality tables of exceptional reliability might be constructed. PROVISION LIMITING OPKBATION OF PLAN TO DISTRICT OF COLUMBIA. The operation of the plan is limited in the proposed bill, for rea- sons explained in the chapter entitled " Cost of plan," to the classi- fied civil service in the District of Columbia. Section 15 will be found on page 214. PEOVISION MAKING MONEYS OF BILL NONASSIGNABLE AND NONATTACHABLE. A necessary provision in the bill is section 16, which reads as follows : Sec. 16. That none of the moneys mentioned in this act shall be assignable, either in law or equity, or be subject to execution or levy by attachment, gar- nishment, or other legal process. PROVISION FOE ADMINISTRATION OF PLAN, Section 17 of the proposed bill, which makes provision for the cost of administering the plan, is discussed in the chapter entitled " Cost of plan," on page 185. ENACTING CLAUSE. The final provision of the proposed bill is the enacting clause, which reads as follows : Sec. 18. That the Secretary of the Treasury is hereby authorized to perform, or cause to be performed, any and all acts and to make such rules and regula- tions as may be necessary and proper for the purpose of carrying the provi- sions of this act Into full force and effect CHAPTEE IV. COST OF PIAN. COST OF PUTTING PLAN INTO OPERATION UNDEB PERKINS BILL. Assuming that the proposed retirement plan is acceptable to Con- gress, the most important thing to be considered is the cost of putting it into operation. The plan itself is self-sustaining and asks nothing of the Govern- ment except the care and investment of the employees' savings. If the present civil service could be wiped out entirely and a fresh list of appointments made to-morrow, this savings and annuity plan might go into full operation without any appropriation from the Treasury except that necessary to cover the cost of keeping the ac- counts. Part I of the plan might indeed be put into immediate op- eration without Part II and the Government's help not be asked, but that would mean postponing the solution of the superannuation problem for a full generation. In that case benefits resulting to the service from the plan would only begin to be apparent in about 30 years, when the old and middle-aged persons now in the service would have passed away. The ideal solution of the problem, however, is to require employees to begin at once to save for their own annuities, and at the same time to retire, under the provisions of the bill, all those who are now at the retirement age. The one difficulty in the way of doing this is the necessity of pro- viding money for the retirement of those already grown old in the service. If the plan were put into effect immediately there is a con- siderable body of old people, of 70 years of age and over, who should be retired at once, there are others 69 years of age who would have only one year of monthly deductions from salary to contribute toward the purchase of an annuity, there are others 68 years of age who would have only two years' time for accumulating the necessary sum, and so on down to those employees whose term of service begins with the enactment of the plan, each lacking something, according to the length of time he had served before the passage of the bill, toward the sum required to buy the desired annuity. The only way in which these persons could be retired would be through the appropriation 155 156 RETIREMENT OF SUPERANNUATED CIVIL-SEEVICB EMPLiOYEES. from some source of a sum sufficient to make up the difference be- tween their own savings and the amount required to purchase their annuities. The annual sum necessary would gradually increase for a few years, reaching its maximum about 30 years after the passage of the bill, but a few years after that the amount each year would fall off very rapidly until in about 50 years, when practically all now in the service would be dead, there would be no more need of appro- priations. The plan would then be self-sustaining, and the condition of the civil service, so far as superannuation is concerned, nearly what it would be if a clean sweep of the service could be made and the plan inaugurated to-morrow with a complete list of new ap- pointees. ExpEEiENCB OP New Zealand. This difficulty was clearly perceived by the framers of the public superannuation act recently passed in New Zealand, as shown by the following press comment: Hitherto, no comprehensive scheme for the humane and equitable treatment during infirmity and old age of the servants of the State has been in operation In New Zealand, and critics of public affairs have complained of what they considered a glaring defect in the national life of the Dominion. But these critics had not fully realized the difficulties which presented themselves in the way of an application of the pension idea which would be at once financially sound, and fair in its operation. As the Premier (the Kt. Hon. Sir Joseph G. Ward) pointed out in the course of a debate on the bill, the civil service in New Zealand Is old compared with the age of the country, and it was because of that fact that there was a supreme difficulty on the part of the Government in putting on the statute hoolcs a superannuation act 40 years after some of the men had joined the service, the incidence of which was light in its burden upon members of the service.* It is exactly the difficulty that confronts those who would devise a plan of retirement for the civil employees of the United States which shall be " at once financially sound and fair in its operation." The difficulty was met in New Zealand in the only way that can be devised without injustice to the w"hole body of employees, that is, by appropriation from the Government. While the New Zealand plan goes much farther than anything suggested in the plan under discussion in this report in the way of benefits (including benefits to widows and orphans), and has departed widely, in certain respects, from the savings bank idea, the necessity of keeping entirely separate the annuities paid on services rendered after the adoption of the plan and the annuities paid on services rendered prior to the adoption of the plan was clearly perceived, as shown by the following comments on their superannuation act: The pensions are liberal, and a scheme of this description, applying to present officers, many of whom can retire immediately on very fair pensions, must of >8ee The Insurance Record, London, Feb. 21, 1908. RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 157 necessity entail a heavy liability on the part of any Government. The favorite method, however (vide New South Wales and Cape Colony civU-servlce schemes), has been to ignore this liability and to go on paying the pensions of the old men who retire, out of the contributions of the young men who join the scheme, until the funds are exhausted, and the outlay for pensions exceeds the income from contributions. The actuary, Mr. Morris Fox, has made the reck- lessness of this method quite apparent in his comprehensive reports, and the Government has agreed to start the scheme with an annual payment of f 20,000, the subsidy to be increased by such further amounts as will be sufficient to pay the difference between the pensions falling due and the amount of pension the contributions would have actually purchased. (For example, if an old servant retires on £400 a year while his contributions would only have purchased £10, the fund pays the £10, and the Government finds the balance, £390 per annum.) The contributions of the younger members will therefore be accumulated at compound interest to help provide their pensions when they become payable, and will not be absorbed by meeting more immediate liabilities; the cost of providing current pensions being borne by the present taxpayers and not by posterity. If the scheme were commenced without contributions, the pensions falling due would be the measure of the Government's annual liability, and by meeting this liability (or rather the portion not paid for by the contributor) at once, Sir Joseph Ward has made a fair division of the annual outlay between present and future taxpayers. It is this simple, but ingenious, financial arrangement which differentiates the scheme from all others with which we are familiar, and the result is threefold ; the solvency of the fund Is secured, the present strain on the exchequer is the minimum compatible with soundness, and only a fair share of the liability is transferred to posterity. The Govern- ment Is^ to be congratulated accordingly on having adopted this important actuarial recommendation.' The necessity for keeping separate accrued and future liabilities was indeed well brought out in Mr. Fox's reports. There seems to have been no thought in his mind but that the whole of the liability for back services should be borne by the Government, a point which does not appear to have been questioned by the Government. As for future liabilities, it was impracticable, in view of the generous bene- fits provided under the scheme, for the employees to carry them alone and the help of the Government was expected with them also, but Mr. Fox insisted on the importance of reserving and accumulating the contributions to meet the contributors' portion of liability and not using them, in earlier years, to pay other claims which had not been provided for by contributions, namely, pensions to persons already in the service at the time of the establishment of the plan.=' Cost Dependent on Ntjmbee op Employees iNCLtroED. The cost of putting the proposed plan into operation depends, of course, entirely on the number of employees to whom the benefits of the plan are extended. If it were confined to the employees of the iSee The Review (Sydney), Feb. 29, 1908. 2 See Civil Service Retirement in Great Britain and New Zealand (Senate Doc. 200, pp. 234-235). 158 RETIKBMENT OF SUPERANNUATED OIVIL,-SERVIOE EMPLOYEES. District of Columbia only it would cost very much less than if ex- tended to the entire classified service, since the number of classified employees in the District is only 23,254 as compared with that of 170,228 included in the entire service. At the same time, as super- annuation is very much greater in the District than it is outside the District, the need of a retirement plan is much more urgent in the District than it is outside. Census Bulletin 94 not only emphasizes the fact that superannuation among civil servants in the District is greatly in excess of superannuation among civil servants outside the District, but it also brings out in a general way that it is much greater among the civil servants in the District than it is among breadwinners throughout the country. The number of Government employees at least 65 years of age is 6,523. Of this number 1,852 are employed in the District of Columbia, and 4,671 elsewhere. Although less numerous in the District than elsewhere, employees of advanced age form a much larger proportion of the force in the District than they do of the force elsewhere. In the District practically one Government employee in 14 Is at least 65 years of age, while elsewhere the corresponding figures are but about one In 34. Whether these figures represent any special tendency for Government em- ployees to remain In service after persons in other walks of life would have retired, is, of course, the interesting question. Perhaps some light may be thrown upon it by comparing the age distribution of the Government employees In the District * * * 25 years of age and over with that of the breadwin- ners 25 years of age and over reported at the census of 1900. In the District of Columbia * * * lo per cent of the male employees 25 years of age and over are at least 65. For the breadwinners In general the corresponding percentage Is 6.3.^ The advisability of confining the proposed plan, in the beginning, to the District of Columbia can be urged not only on the grounds of less cost and greater gain where the need is greatest, but on the general principle that it is desirable to proceed slowly in the inaugu- ration of new measures. The plan could gradually be extended by Congress to various classes of employees, as the wisdom of doing so was proved. In the proposed bill, section 15 reads as follows : Sec. 15. That the provisions of this act shall apply only to the classified civil service of the District of Columbia, which Is hereby defined to include all oflicers and employees In the executive civil service of the United States in the District of Columbia, except persons appointed by the President and confirmed by the Senate, and unskilled laborers. No person serving in a position excepted from examination or registration as defined In the civil-service rules shall be Included within the provisions of this act unless he has served in a competitive position for at least one year. Whenever any person becomes separated from the classi- fied service by reason of appointment into the unclassified service, such sepa- ration shall not operate to take him out of the provisions of this act. The President shall have power, in his discretion, to exclude from the operation of this act any group of employees whose tenure of office Is Intermittent or of un- certain duration. •See Census Bulletin 94, pp. 12, 13. RETIREMENT OF StTPEEANNUATED CIVIL-SEEVICE EMPLOYEES. 159 Two CALcm-ATioNS or Maximum Cost for Entire Classified Service Agree. Two calculations have been made of the cost of putting the plan into operation throughout the service. They virtually agree. The amounts of the two sums are different, but proportionately they are the .?ame. the first oalculatiow. The first calculation was made under the direction of Mr. Benedict D. Flynn, assistant actuary of the Travelers Insurance Co., Hartford, Conn., for the Committee on Department Methods and was based on Table 67 of Census Bulletin 12, entitled " The Executive Civil Service of the United States," covering the classified employees as of June 30, 1903. The total number of employees included in that cal- culation was 103,030, and the maximum cost of paying them annuities for past services was found to amount to $66,985,778 in the course of 67 years, as shown by the following table : Table XXVII. — Showing maximum cost of annuities for Mck services for 103,030 employees. [Based on census of employees as of June 30, 1903.] Year. Amount of appropria- Year. Amount of appropria- tion. Year. Amount of appropria- tion. 1907 J725,110 811,840 908,188 1,025,293 1,157,181 1,258,725 1,370,710 1,466,424 1,626,551 1,570,768 1,579,132 1,564,974 ■1,650,742 1,534,636 1,631,851 1,612,159 1,564,679 1,646,866 1,650,718 1,555,588 1,571,682 1,689,167 1,617,302 1,663,981 1931 $1,699,374 1,713,035 1,724,385 1,734,603 1,736,047 1,744,512 1,746,661 1,736,974 1,718,642 1,684,723 1,636,423 1,568,188 1,492,830 1,406,199 1,314,000 1,211,837 1,103,182 990,583 889,324 772,736 669,126 572,770 484,069 403,306 1965 $331,667 269,380 216,046 170,947 133,347 102,460 77,434 67,499 41 884 1908 1932 1956 1909 .■ 1933 1967 1910 1934 1958 1911 1935 1959 1912 1936 1960 1913 1937 1961 1914 1938 1962. 1915 1939 1963 1916 1940 1964 29,877 20,829 14,162 9,354 5,971 1917 1941 1965 1918 1942 1966. 1919 1943 1967 1920 1944 1968. .. 1921 1946 1969 1922 1946 1970 2 199 1923 1947 1971 1,251 679 1924 . . . 1948 1972.. . . 1925 1949 1973 346 1926 1960 1974 163 1951 Total 1928 1962 66,985,778 1929 1953 1930 1964 THE SECOND CALCULATION. The second calculation, which was made under the direction of the author by the Bureau of the Census, was based on cards used in the compilation of Census Bulletin 94, entitled " Statistics of Em- ployees of the Executive Civil Service of the United States," covering the classified employees as of June 30, 1907. The total number of employees included in this most recent inquiry was 170,228, and the 160 EETIREMENT OF SUPERANNUATED CIVILr-SEEVIGE EMPLOYEES. maximum cost of paying them annuities for past services was found to amount to $130,581,273, in the course of the next 78 years, as shown by the following table: Table XXV III. —Showing maximum cost of annuities for back services for 170,S28 employees. [Based on census of employees as of June 30, 1907.] Years after the introduction of the plan. Aggregate annuities payable quarterly. To general To letter carriers and To railway postal clerks retir- ing at age of 60. Total. employees retiring at rural car- riers retir- age of 70. ing at age of as. $1,121,795 $706,290 $156,449 $259,056 1,261,819 803,660 187,943 270,216 1,390,485 892,056 217,600 280,929 1,656,632 1,020,092 246,545 289,995 1,705,135 1,123,599 273,947 307,589 1,861,499 1,249,851 294,011 317, 637 2,003,086 1, 358, 948 312, 044 332,094 2,129,118 1,449,713 326,639 352,766 2,252,506 1,532,090 347,075 373,341 2,317,860 1,553,682 371, 103 393,075 2,392,028 1,577,259 394,799 419,970 2,441,271 1,670,667 424,154 446,450 2,491,484 1,556,937 459,273 475,274 2,659,337 1,545,965 503, 673 509,699 2,621,035 1,537,544 542,928 640,563 2, 679, 979 1,511,480 597,995 570,504 2,726,937 1,485,348 648, 186 593,403 2,791,401 1,465,143 708,207 618,051 2,871,945 1,456,133 776,330 639,482 2,940,921 1,438,410 839,736 662,775 3,047,310 1,465,516 892,680 689, 115 3,138,272 1,482,258 940,621 715,493 3,235,543 1,508,111 989,799 737,633 3,323,097 1,530,210 1,036,572 756,315 3,390,712 1,549,001 1,072,848 768,863 3,442,268 1,548,476 1,122,372 771,420 3,469,245 1,544,175 1, 164, 148 770,922 3,481,754 1,538,943 1,178,888 763,923 3,495,463 1,543,358 1, 197, 461 754,644 3,483,861 1, 546, 149 1,197,318 740,394 3,454,704 1,547,352 1,188,837 718,515 3,419,266 1,552,364 1,172,208 694, 694 3,373,275 1,561,293 1,146,978 665,004 3,314,099 1,564,071 1,114,770 635,258 3,232,814 1,551,927 1,079,298 601,689 3,135,067 1,529,148 1,040,360 565,659 3,021,176 1,498,314 994,292 528,570 2,901,416 1,463,090 946,731 491,595 2,707,554 1,421,790 892,842 452,922 2, 618, 430 1,367,819 836,651 413,960 2,466,544 1,313,333 778,416 374,795 2, 302, 036 1,246,255 720, 110 336,671 2,132,720 1, 169, 589 662,490 300,641 1, 964, 236 1,094,285 602, 976 266,975 1,792,997 1,014,722 642.671 235,704 1, 618, 616 927,968 483,713 206,835 1,449,172 842,132 426,686 180,354 1,283,841 754,800 372,822 166,219 1, 125, 133 667,842 322,910 134,381 977,446 684,828 277,866 114,762 840,125 50.6,410 237, 479 97,236 714,958 431,711 201,518 81,729 602, 139 364,316 169,715 68,108 602,310 304, 260 141,797 56,253 415, 013 251,508 117,483 46,022 339,457 20.6, 707 96,476 37,274 274,814 166,464 78,473 29,877 220,096 133,232 63,182 23,e82 174, 269 105,399 50,321 18,549 136,301 82, 363 39,605 14,343 105,195 6,3,495 30,765 10,935 Less than 1 year, lyear 2years Syears 4years Syears 6 years 7years 8 years Qyears 10 years 11 years 12 years 13 years 14 years 15 years 16 years 17 years 18 years 19 years 20 years 21 years 22 years 23 years 24 years 25 years 26 years 27 years 28 years 29 years 30 years 31 years 32 years 33 years 34 years 35 years 36 years 37 years 38 years 39 years 40 years 41 years 42 years 43 years 44 years 45 years 46 years 47 years 48 years 49 years 60 years 51 years 62 years 63 years 64 years 55 years 66 years 67 years 58 years 69 years eoyeai's KETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 161 Table XXVIII. — Showing maximum cost of annuities for 'back services for 170,328 employees — Continued. Years after the Introduction of the plan. Aggregate annuities payable quarterly. Total. To general employees retiring at age of 70. To letter carriers and rural car- riers retir- ing at age of 65. To railway postal clerks retir- ing at age of 60. 61 years . 62 years . 63 years. 64 years. 65 years. 67 years.. 68 years.. 69 years.. 70 years., 71 years., 72 years. 73 years. 74 years., 75 years . 76 years. 77 years. 78 years . Total.. 80,036 59,960 44,149 31, 914 22,601 16,645 10,562 6,937 4,413 2,709 1,600 902 483 248 124 54 48,258 36,114 26,676 19,206 13,608 9,432 6,386 4,212 2,700 1,677 1,007 681 320 171 89 42 18 6 17, 777 13, 181 9,588 6,830 4,762 3,219 2,117 1,344 819 477 264 137 66 30 12 5 130,581,273 8,210 6,059 4,392 3,120 2,163 1,461 957 608 369 213 116 67 26 11 G 647,243 36,325,671 24,708,359 METHOD FOLLOWED IN PEEPARINQ TABLES OF COST. The method followed in calculating the maximum cost after the number of employees to be included in the calculations was de- termined is illustrated by Tables XXIX and XXX, which were prepared in the course of making the last calculation. These tables show how the data were drawn off and the percentages of salaries determined for all employees included in the estimate. The total amount of salaries for each age to be used in determining the annui- ties for this age was thus obtained. These totals were then dis- counted to age 70 according to the probability of living based upon the American Experience Table of Mortality. The total annuity payments for each year for the remaining years of life after age 70 were then obtained by discounting the above-discounted totals accord- ing to the probability of living based upon the Combined or Actu- aries' Experience Table of Mortality. 74196°— S. Doc. 745, 61-3 ^11 162 EETIKEMENT OF SUPERANNUATED CIVILi-SEEVICE EMPLOYEES. Table XXIX. — Showing the numher of general employees 65 years of age, each group, and the annuities to which those employees would be entitled if service. S600 J720 $840 $900 $1,000 $1200 $1,400 Years of service. 1 ^ Z 1 1 Z 1 Si i 1 Z < 1 1 1 « < Total 113 $67,800 69 S49,680 29 $24,360 66 $59,400 109 $109,000 175 $210,000 76 $106,400 Less thanl year.. 4 4 7 5 1 3 2 3 6 4 3 1 5 11 3 3 1 4 2 2 I 2 2,400 2,400 4,200 3,000 COO 1,800 1,200 1,800 3,000 2,400 1,800 600 3,000 6,600 1,800 1,800 600 2,400 1,200 1,200 600 1,800 1,200 1 840 2 2 3 3 2 1 3 1 4 2 1 1,440 1,440 2,160 2,160 1,440 720 2,160 720 2,880 1,440 720 900 1,800 900 3,600 900 900 1 1 ■ 1 2 1 3 1 5 6 7 3 3 7 6 5 6 3 3 3 3 1 5 4 1 8 2 1 1,000 1,000 1,000 2,000 1,000 3,000 1,000 5,000 6,000 7,000 3,000 3,000 7,000 6,000 5,000 6,000 3,000 3,000 3,000 3,000 1,000 5,000 4,000 1,000 8,000 2,000 1,000 2 3 2 3 7 2,400 3,600 2,400 3,600 8,400 2 years .. 3 2 1 2,520 1,680 840 1 1 1 1 1 3 3 1 1,400 1,400 1,400 1,400 1,400 4,200 4,200 1,400 4 5 9 6 4 9 9 1 6 6 2 6 7 7 4 2 9 8 4 2 2 4,800 6,000 10,800 7,200 4,800 10,800 10,800 7,200 3,600 7,200 7,200 2,400 7,200 8,400 8,400 4,800 2,400 10,800 9,600 4,800 2,400 2,400 8 yeara... 900 6,300 900 2,700 6,300 3,600 2,700 9 years 3 2 1 2 2 1 2,528 1,680 840 1,680 1,680 840 11 years 12 years ... 1 2 2 1 2 4 4 1,400 2,800 2,800 1,400 2,800 5,600 5,600 4 6 6 2,880 4,320 4,320 14 years 16 years 2 1 1 1 1,680 840 840 840 3,600 3,600 900 2 i 1,440 720 720 1,440 2,880 18 years 19 years 20 years 1,800 3 1 3 4,200 1,400 4,200 2 1,680 23 years 3 2 1 2 2,i66 1,440 720 1,440 4 6 2 1 1 1 4 2 3 4 1 2,400 3,000 1,200 600 600 600 2,400 1,200 1,800 2,400 600 2 2 3 1 2 3 1,800 1,800 2,700 900 1,800 2,700 900 1 4 3 2 4 1,400 5,600 4,200 2,800 6,600 25 years 1 840 27 years 28 years 29 years 1 2 720 1,440 30 years 1,680 4 4,000 2 2 3 2 5 2 3 1 2 2 2 6 2 1 2 2,400 2,400 3,600 2,400 6,000 2,400 3,600 1,200 2,400 2,400 2,400 6,000 2,400 1,200 2,400 2 2 2 1 2 2 2,800 2,800 2,800 1,400 2,800 2,800 31 years 32 years 1 2 720 1,440 2 2 2,000 2,000 1,800 34 years 35 years 900 900 2,000 1,000 36 years 1 600 37 years 1 1 2 3 1 1 2 1 3 1,400 1,400 2,800 4,200 1,400 1,400 2,800 1,400 4,200 38 years 1 720 39 years 1 2 1 600 1,200 600 2 1,440 840 2,000 1,000 2,000 41 years 42 years: 900 43 years 1 720 44 years 45 years 46 years 2 2,400 47 years 48 years 1,000 1 1,400 49 years 50 years 1 720 Not reported 1 600 EETIKEMENT OF SUPEEANNXJATED CIVIL-SEEVICE EMPLOYEES. 163 dlassifledr according to salary and years of service, the aggregate salaries of retired immediately on 1 per cent of their present salaries for each year of $1,600 $1,800 $2,000 $2,500 Piecework. Not re- ported. g 'S ■a o i s i i t ■o a i o 4 i a i 1 +i ^ ^ Z 1 1 |6 40 $64,000 49 $88,200 40 $80,000 23 $67,500 5 $6,000 4 $4,600 $926,840 $203,319.15 3,240 8,140 14,560 14,640 17,600 10,940 7,220 12,960 28,920 37,100 26,420 14, 260 33,380 38,960 31,660 20, 420 34,280 35,780 23,960 22,660 27,240 18,880 22,080 14, 660 25,440 38,360 19,940 14,000 20, 100 12,620 26,920 8,400 17,520 17,740 21,600 19,900 13,300 9,200 11,720 11,300 ..20,280 0.50 1.25 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00 10.00 11.00 12.00 13.00 14.00 15.00 16.00 17.00 18.00 19.00 20.00 21.00 22.00 23.00 24.00 25.00 26.00 27.00 28.00 29.00 30.00 31.00 32.00 33.00 34.00 35.00 36.00 37.00 38.00 39.00 40.00 41.00 42.00 43.00 44.00 45.00 46.00 16.20 101 75 291 20 1 2,000 436. 20 1 2,500 1 900 704. 00 1 2,000 847. 00 433. 20 1 1 1,800 1,800 907. 20 3 4,800 1 2,500 2,313.60 3, 339. 00 1 2,000 2 1 1 1 1 3,200 1,600 1,600 1,600 1,600 1 1,800 2,642.00 1, 508. 60 2 3,600 1 1 2,000 2,000 4, 005. 60 5,064.80 1 1 2 2 1 2 1 1 1,800 1,800 3,600 3,600 1,800 3,600 1,800 1,800 1 1 2,600 2,600 ' 4, 418. 40 3,063.00 3 1 1 1 1 1 4,800 1,600 1,600 1,600 1,600 1,600 2 2 1 1 1 4,000 4,000 2,000 2,000 2,000 6,484.80 6,082.60 1 1 1 2,600 2,600 2,600 1 1,400 4,312.80 4, 305. 40 1 1,200 1 1,200 6, 448. 00 3,964.80 2 4,000 1 1,200 4,857.60 2 1 3,200 1,600 1 1 1 1,800 1,800 1,800 1 1,000 3, 348. 80 1 1 1 1 1 1 1 1 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 1 1,200 6, 105. 60 2 6,000 9,690.00 1 1,600 5, 184. 40 1 2 1 2 1,800 3,600 1,800 3,600 1 1 2,600 2,500 3,780.00 1 3 2 1,600 4,800 3,200 5,628.00 3,669.80 1 2,600 8,076.00 2,604.00 3 4,800 1 1 2 3 2 1,800 1,800 3,600 6,400 3,600 5,606.40 1 3 1 1 2,000 6,000 2,000 2,000 1 1 2,500 2,500 6,854.20 7,310.00 2 1 1 1 1 1 1 2 3,200 1,600 1,600 1,600 1,600 1.600 1,600 3,200 : 1,200 6,965.00 4,788.00 2 5,000 3,404.00 2 3,600 1 1 2,000 2,000 4,463.60 1 2,500 4,407.00 4 1 3 2 1 1 1 7,200 1,800 5,400 3,600 1,800 1,800 1,800 8,112.00 1 6 3 1 2,000 10,000 6,000 2,000 16,000 29,600 21,820 10,100 6,000 6,700 6,150.00 1 3 1 2,600 7,600 2,500 1 1,200 12,432.00 9,382.60 4,444.00 .... 2,700.00 1 2,500 3,082.00 .... .... • 2,400 48.00 1,152.00 .... .... 720 600 50.00 22.00 360. 00 .... 132.00 164 KETIKEMENT OF SUPEEANNUATED CIYIL-SEBVICB EMPLO'XEES. Table XXX. — Showing the annuities that loould &e due all general employeea for each year of service, and the annuities due each age group the first year the same annuities. Present age of annuitant. Annuity if retired imme- diately. Annuity at retire- ment age. Aggregate annuities payable quarterly. Imme- diately. 1 year. 2 years. 3 years. 4 years. After the introduction of the plan when the youngest annuitant will be one whose present age is— 70 67 Total. 95 years. 91 years. 90 years. 88 years. 87 years. 86 years. 85 years. 84 years. 83 years. 82 years. 81 years. 80 years. 79 years. 78 years . 77 years. 76 years. 73 years. 74 years. 73 years. 72 years. 71 years. 70 years. 69 years. 68 years. 67 years. 66 years. 65 years., 64 years. 63 years. 62 years., 61 years., 60 years., 69 years., 58 years'. J470,860 S535,773 S594,704 $680,061 $156 380 911 308 1,572 1,299 3,223 4,491 2,060 8,277 7,340 8,230 16, 762 12,359 23,750 28,258 31,428 45,983 68,268 65,466 81,586 98,835 118,596 125, 220 170, 093 167,302 203, 319 206,837 207, 790 216, 639 172,373 185,291 164,267 164, 133 $115, 130 114,968 148,388 139,288 162,185 158,642 153, 736 155,057 119,665 125, 061 108,022 105,363 97 290 718 255 1,324 1,111 2,794 3,939 1,825 7,403 6,620 7,481 14,433 11,394 22,032 26,367 29,480 43,343 55,171 62,246 77,869 94,668 37 174 460 180 972 841 2,170 3,128 1,477 6,095 6,535 6,343 12,396 9,903 19,362 23,407 26,416 39, 171 60, 252 57,108 71, 919 87,969 110,458 13 96 275 122 688 617 1,643 2,430 1,173 4,934 4,557 5,303 10,510 8,505 16,829 20,570 23,451 35, 100 45,415 52,016 65,983 81,247 102,934 110, 293 4 47 151 78 465 437 1,206 1,840 911 3,918 3,689 4,366 8,787 7,211 14,453 17, 879 20,609 31, 160 40,695 47,009 60,100 74,541 95, 359 102,780 142,366 $749,066 1,351 690 3,044 2,930 3,534 7,235 6,029 12,254 15,355 17,912 27,384 36,127 42,123 54,315 67,896 87,779 95,216 132,669 133, 635 1 The original tables, of which this Is an Illustration, continue down to the age of the youngest person now In the service. KETIREMENT OF SUPERANNUATED CIVIL-SEEVICB EMPLOYEES. 165 between the ages of 95 and 58 ' if retired immediately on 1 per eent of salary and each year thereafter during the first 12 years " if retired at the age of TO on Aggregate annuities payable quarterly. 5 years. 6 years. 7 years. 8 years. 9 years. 10 years. 11 years. 12 years. After the introduction of the plan when the youngest annuitant will be one whose present age is— 65 64 63 62 61 60 59 58 $833,234 $905,965 $966,475 $1,021,393 ^,035,788 $1,051,606 $1,047,111 $1,037,958 ■'■ ""'s 32 26 178 190 . 677 966 607 2,305 2,276 2,806 5,857 4,964 10,246 13,019 15,383 23,801 31,749 37,395 48,670 61,359 80,242 87,647 122,906 124,532 156,603 3 12 13 98 114 370 647 359 1,692 1,723 2,180 4,651 4,019 8,436 10,885 13,042 20,441 27,595 32,863 43,207 64,9Ji2 72,800 80,121 113,136 116,368 145.004 152,204 1 4 6 48 63 222 415 243 1,197 1,265 1,651 3,613 3,192 6,829 8,962 10,904 17,331 23,700 28,563 37,970 48,810 65,610 72,690 103,422 106,197 134,333 141,837 147,497 1 2 21 31 122 248 156 810 895 1,212 2,736 2,480 6,423 7,255 8,978 14,490 20,094 24,631 33,002 42,894 58,426 65,411 93,830 97,078 123,655 131,399 137.450 148,764 1 8 13 60 136 93 519 605 858 2,009 1,878 4,213 5,761 7,268 11,931 16,801 20,798 28,343 37,282 51, 599 68,337 84,434 88,075 113,037 120,954 127,335 138,631 114,809 3 6 26 67 51 311 38B 580 1,422 1,379 3, 1,00 4,475 5,772 9,659 13,833 17,389 24,030 32,019 45,089 61,522 75,303 79,265 102, 653 110,568 117,213 128,429 100,989 119,980 1 2 10 29 25 171 232 372 962 976 2,342 3,388 4,484 7,670 11,199 14,318 20,091 27,147 38,949 46,022 66,606 70,684 92,283 100,313 107,148 118,220 99,116 111,813 103,638 1 4 u 11 84 128 223 616 660 1,657 2,488 3,395 5,9.58 8,893 11,591 16,542 22,698 33,227 38,891 68,115 62,426 82,303 90, 268 97,211 108,069 91,237 103,586 96,579 101,087 sThe original tables are carried through 78 years, when, according to the mortality table, the youngest person now in the service will be dead. Only 12 years are given as an U lustration. 166 EETIEEMBNT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. COMPAKISON OF TWO CALCULATIONS. At first glance the second calculation seems remarkably large when compared with the earlier one, but the difference in the amounts is readily accounted for, and the results are, in fact, when analyzed, astonishingly similar, considering the differences in the data employed in making the calculations. There are three reasons why the last result should be larger than the first : (1) The last calculation includes 67,198 more employees than does the first. (2) The last calculation is based on earlier ages of retirement, 60 and 65 having been adopted for two groups of employees, with 70 years for the third group, which naturally increases the cost above the first calculation, based on only one age of retirement, that of 70 years. (3) The last calculation is based on two mortality tables, the Com- bined or Actuaries' Table and the American Experience Table. The former, which was used in making the last part of the last calcu- lation, shows a slightly longer expectation of life from age 70 than the latter, which was employed as the basis for the whole of the first calculation, and the use of the Combined or Actuaries' Table in con- nection with the American Experience Table has therefore raised the cost somewhat in the second calculation. GREATER NTTMBER OF EMPLOYEES INCLINED IN LAST CALCULATION. The greater number of people included in the last calculation is explained by two facts, first, the increase in the size of the service, owing both to the Government's enlarged activities and the growing tendency to bring into the classified service new groups of employees ; and, second, the inclusion in the inquiry of persons not classified but reported as classified, and also of persons reported as unclassified but included as classified because investigation showed them to belong to the classified service. Not all the employees of the civil government of the United States were included in these computations. On July 1, 1907, according to the Official Register, the executive civil service, exclusive of the con- sular and diplomatic service, furnished employment to 286,902 per- sons. Of this number 101,028 were omitted from the statistics of Census Bulletin 94. In a few instances this was because the returns were received too late for tabulation, but more often it was because certain classes of employees are peculiar in some technical respect, such as the character of their appointment or the method of their compensation, and thus the inclusion of data concerning them would have tended to destroy the comparability of the figures for classes which are in technical respects alike. The most important of the EETIKEMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 167 classes omitted for the latter reason include 62,663 postmasters, 18,376 mechanics and laborers at navy yards and naval stations, 12,850 clerks in post offices not having free delivery, and 1,031 occa- sional employees of the "Weather Bureau. Data for 4,584 employees of the Isthmian Canal Commission at work on the Isthmus were too incomplete to be included. From this statement of the most im- portant classes omitted from Bulletin 94 it will be seen that these omissions did not prevent the use of the data collected for the bulle- tin in computing the cost of annuities for back services under the pro- posed plan, for the reason that it is not proposed to extend the plan to those classes. The first estimate was based on Table 67 of Census Bulletin 12, covering the executive civil service as of June 30, 1903, and embraced 103,030 employees. In preparing the present estimate the cards used in the preparation of Census Bulletin 94 showing the executive civil service as of June 30, 1907, were used, and covered 170,228 employees. Each of the 185,874 employees included in Bulletin 94 was repre- sented in the Bureau of the Census by a tabulation card showing, in addition to other matter, the age, years of service, rate of compen- sation, and occupation of the employee. All the information was thus available for calculating the maximum cost of annuities for back services. In examining these cards to ascertain how many of these employees in the executive civil service were also included in the classified civil service, it was found that a considerable number of employees did not understand their technical status in the civil service and did not answer accurately the question as to whether they were classified or unclassified. Charwomen, for instance, frequently made the mistake of reporting themselves as classified. On the other hand, a considerable number of railway postal clerks reported them- selves, erroneously, as unclassified. This seems, in the latter case, in- credible, because the railway postal clerks were one of the first large groups of Government employees to be placed under civil service rules and their status has never been changed. The error did, however, occur, for the reason possibly that old clerks who came into the civil service under blanket rule realized only that they had never taken an exami- nation, and supposed, therefore, that they had not been classified. From the cards it was impossible to tell the names of the individual represented by the card except on tracing the number of the card back to the original schedule made by the individual, but as it would have required months of time to do this, it was decided to include the cards of all employees who reported themselves as classified, and to make an individual separation of the cards of those who reported themselves as unclassified. These decisions were regarded as being in harmony with the gen- eral rule, pursued throughout the computations, that all doubtful 168 EETIKEMENT OF SUPEEANNUATED CIVIL-SEBVICE EMPLOYEES. cases of whatsoever sort were to be decided in favor of the alternative which would make the calculation of the cost of annuities for back services a maximum figure. In accordance with this rule, 170,228 employees wpre included in the computation, 67,198 more individuals than were taken account of in the earlier calculation. The classes excluded from the two calculations are as follows : Classes excluded from the first calculation. Classified employees in the District of Columbia (retirement age, 70)__ 22, 273 Classified employees elsewhere than in the District of Columbia (retire- ment age, 70) : 102,464 124, 737 Less employees in the District of Columbia who had been in the service less than one year 1, 781 Less employees elsewhere than in the District of Columbia who had been In the service less than one year 19, 712 Less employees whose years of service were not reported 163 Less employees without salary 51 21,707 Number of persons included in the first estimate of cost of an- nuities for back services 103, 030 Not all of the employees of the civil government were included in the last calculation. Of the 286,902 persons shown in the Official Register, 170,228 were included, as follows : Classes excluded from the second calculation. According to the Official Register of July 1, 1907, the executive civil service, exclusive of the consular and diplomatic service, furnished employment to , 286, 902 In preparing the estimate of cost of annuities for back services, the following groups of persons were omitted : Groups included In Official Register, but omitted from Bulletin 94 and present computation — Postmasters 62, 663 Mechanics and laborers at navy yards and na- val stations 18, 376 Clffl-ks in post offices not having free delivery 12, 850 Occasional employees of Weather Bureau 1, 031 Isthmian "Canal employees on the Isthmus 4, 584 Other miscellaneous classes 1, 524 101, 028 Groups included in Official Register, and in Bulletin 94, but omitted from present computation — Laborers, unskilled 7, 255 Janitors, scrubbers, cleaners, and charwomen 1, 532 Special agents, experts, appraisers, and commis- sioners 850 Laborers, skilled 817 Guards 695 KETIEEMENT OF SUPERANNUATED CIVIL-SEEVICE EMPLOYEES. 169 In preparing the estimate of cost of annuities for bacli services, the following groups of persons were omitted — Continued. Groups included in Official Register, and in Bulletin 94, but omitted from present computation — Cont'd. Heads of local offices 502 Firemen 441 Cooks and bakers 371 Physicians and surgeons 254 Farmers 236 Domestics and waiters 201 Stewards and quartermasters . 159 Heads of departments, bureaus, and independ- ent offices 115 Other miscellaneous classes 2, 218 15, 646 116, 674 Number of persons included in the last estimate of cost of annui- ties for back services 170, 228 EARLIER RETIREMENT AGES IN LAST CALCULATION. The number of employees included in the calculation to be retired at the various ages of retirement follows : Railway postal clerks (retirement age 60) 13,894 Letter carriers and rural carriers (retirement age 65) 61,931 All other employees (retirement age 70) 94,403 Total 170,228 TEST OF ACCURACY OF TWO CALCULATIONS. Having the total number of employees shown in the first calculation (103,030) , the total number of employees shown in the second calcula- tion (170,228), and the aggregate annuities payable to the first group ($66,985,778) as a basis for the calculation, the aggregate annuities that should be shown by the last calculation may be determined, assuming, of course, that the first calculation is correct, that the age distribution has remained the same, and that salaries on the average have remained the same. Since no interest factor was used in calculating the cost of the annuities for back services, the expectation of life under the Ameri- can Experience Table at the various retirement ages may be used as the value of an annuity of $1, and by multiplying the number of employees to be retired at the various ages by this value of an annuity of $1 at the corresponding retirement age, and then dividing the sum of these by the result of a similar computation covering the employees included in the first calculation, a result will be obtained which shows the ratio of the amount of total annuities payable for past services under the first calculation to the amount the last cal- culation should show. 170 EETIKEMENT OF STJPERANNTJATED CIVIL-SEEVICE EMPLOYEES. As the annuity payments under the last calculation are to be made quarterly, first payment in three months after the employee reaches the age of retirement, the annuity values (13.645, 10.845, and 8.415) used in the first part of the following calculation, covering the last estimate, are the curtate expectation of life for the respective retire- ment ages of 60, 65, and 70, according to the Combined or Actuaries' Table of Mortality, and correspond to annual payments when the first payment is to be made in one year, with 0.375 added to cover the addi- tional cost of annuity payments made quarterly, first payment in three months, instead of at the end of the year. The first calculation was based throughout on the American Experience Table of Mor- tality, Ix+i, first payment immediate, on the assumption that, on the average, the employees would retire at the age of 70^ years. The complete expectation of life under this table at, the age of 70^ is approximately 8.25 years. The calculation may therefore be stated as follows : 13, 894 X 13.645= 189,584 61, 931 X 10.845= 671,642 94, 403 X 8.415= 794,401 170, 228 1, 655, 627 103, 030 X 8.25 = 849,997 • 1, 655, 627-^849, 997= 1. 948 1.948 X $66,985,778 $130, 488, 295 The last calculation shows a cost of 130, 581, 273 Difference $92, 978 This difference might be reduced by carrying the decimals out farther, but since the difference is but slightly over seven one-hun- dredths of 1 per cent, further refinement would seem to be a waste of time. Probable Cost Much Less than Maximum. This total maximum sum of $130,581,273 is, however, only the pos- sible total cost of putting the proposed plan into operation and ap- plying it to the whole number of employees included in this inquiry ; that is, to 170,228 persons. It is not the probable cost, which is greatly less. There are three reasons why the actual cost will be much less than the sum of $130,581,273 during the course of the next 78 years. (1) This sum allows for mortality, but not for resignations. (2) This sum allows for annuities based on present salaries, whereas the bill provides for annuities for back services based on the average salary received in the past (1^ per cent of total compensation during entire period of service), which in the majority of cases is consider- ably less than the present salary. RETIEEMEN-T OF STTPEEANNUATED CIVIL-SERVICE EMPLOYEES. 171 (3) This sum allows for annuities to persons of retiring age who might remain in the service after reaching that age in accordance with the provision contained in section 4 of the proposed bill. BECAUSE CALCtTLATION MAKES NO ALLOWANCE FOE KESIGNATION, The cost of annuities for past services could be discounted by the probability of living, since tables of mortality, which show this, are available, but it could not be discounted by the probability of resign- ing, since there are no available data on which a table of resignations could be constructed. A very great margin of safety is, therefore, undoubtedly secured by ignoring resignations in making the estimates of possible cost. Generally speaking, the rate of resignation is usually held to be, roughly, equal to the mortality. Mr. Miles M. Dawson, the well- known actuary, states, indeed that it is much greater. In an article on the value and cost of service pensions, he says : There is another view of the cost which in practice has, perhaps, more sig- nificance to the employer than even the foregoing, and that is : To what per- centage addition to the entire pay roll is it equivalent? This involves calcula- tions based upon rates of withdrawal and dismissal from the service, and these rates would difCer so widely in different employments that it would be useless to undertake to estimate this cost. It is, however, a matter of common observa- tion that in most employments withdrawals and dismissals greatly outnumber the deaths.* While it can not be shown with any definiteness how much this maximum cost must be discounted to allow for the resignations, it can be shown that they will probably be numerous enough to prevent the amount of the annual appropriation ever reaching anything like the maximum sums shown in Table XXVIII. This table shows that the possible appropriation increases gradually from $1,121,795, becom- ing a little over $2,000,000 six years after the adoption of the plan, a little over $3,000,000 in 20 years, and reaching its maximum of $3,495,463 in 28 years, after which it falls off, gradually at first and very rapidly at the last, until in 78 years it has entirely disappeared. But these figures are based on 170,228 individuals, and assume that not one of the employees now in the service entitled to an annuity for back services will resign before reaching the age of retirement, and that all employees included in the calculation have received their present salaries from the date of their original appointments. It is certain, of course, that many will resign, and that many employees have received lower salaries in the past than they are receiving at present. It is therefore equally certain that the sum required must be considerably less than the maximum given. > See " Value and cost ot service pensions," by Miles M. Dawson, The Railway Age, Sept 2, 1904. 172 EETIREMENT OF SUPEEANNUATED CrVIL-SERVICE EMPLOYEES. The important question, then, with reference to the cost of putting the plan into operation throughout the classified service, is this: What effect will the establishment of the plan have on the rate of resignations in the service? It will undoubtedly have a tendency to discourage resignations. This effect will be most marked among the employees who have reached advanced ages, but it will be less and less pronounced the farther away the employee is from the age of retire- ment. It will be least noticeable, owing to the remoteness of the benefit offered, on those who have been in the service the shortest time, and that really means almost half the service, since census reports show that 48.2 per cent of those now in the executive civil service have worked for the Government less than five years.^ It fol- lows, therefore, that if allowance is to be made for resignations only, the sum of $1,121,795, estimated as the maximum cost the first year, if 170,228 employees are included in the plan, would be about the true sum required for that year, bepause few employees 70 years of age and over would be likely to resign just before they became entitled to retirement allowances, but with each additional year the increasing excessiveness of the estimated annual appropriation becomes more apparent, the number of resignations for which no allowance has been made increasing with remoteness from the age of retirement. BECAtrSB CALCULATION IS BASED ON PEESENT SALARIES INSTEAD OP AVEBAQE SALARIES. Census Bulletin No. 94 shows that the average compensation of em- ployees in the executive civil service is lowest in the younger ages and highest in the older ages. The average compensation of em- ployees from 20 to 24 years of age is $785, while for those from 70 to 74 years of age the average compensation is $1,125. In the Dis- trict of Columbia the average compensation ranges from $781 for employees from 20 to 24 years of age, to $1,263 for employees 70 to 74 years of age. The calculations of cost for annuities for back services have been made on the basis of present salaries, and as the salaries for employees increase, in the great majority of cases, with age, the present salaries of those under consideration are higher than their average salaries and therefore the estimate of cost is greater by reason of that fact than the actual cost would be. BECAUSE CALCULATION MAKES NO ALLOWANCE FOE RETENTION OF PERSONS IN THE SERVICE AFTER THE AGE OF EETIREMENT. There would undoubtedly be numerous employees whose interest in their work and whose eflSciency would make desirable their con- tinuance? in office after reaching the age of retirement in accordance " See Census Bulletin 94, p. 27. KETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 173 with the provision contained in section 4 of the proposed bill. Others who had entered the service late in life would remain a few years beyond the age of retirement in order to increase the amount of their annuities. The retention of every such individual would reduce the total payment of annuities for back services. From the foregoing it will be seen that the calculated cost of annuities for back services is in excess of reality by the amount of annuities saved through resignation of persons before reaching the age of retirement, plus the difference between the amount of annui- ties based on final salaries and the amount of annuities provided for the bill based on aggregate salary, plus the amount of annuities saved through retention of persons in the service after the age of retirement. CALCULATION INCLUDES PAYMENT ON BACK SEKVICES TO ALL PBESENT EMPLOYEES. It is true, of course, that those in the service who are now at the age of retirement represent the residue of a service that was much smaller at the time of their entrance into it than is the case now on their leaving it. It may be suggested that, since the service is larger now than it was when those now at the age of 70 entered it, the number who will be eligible for retirement in 28 years — the year of estimated maximum cost — will be correspondingly large and the annuities payable for back services accordingly greater. It should be remembered, however, that to offset this is the fact that those who reach the retirement age 28 years hence will have been providing for their own annuities by 28 years of savings and the Government, instead of having to pay annuities for the full period of service, as will be necessary the first year of the plan, will only provide for annuities on the difference between the full period and 28 years. COST or PUTTING PLAN INTO OPERATION UNDER GILLETT BILL. Calculations as to the cost of putting into operation the Gillett bill (H. K. 22013) , favorably reported by the Committee on Reform in the Civil Service, House of Eepresentatives, have also been made by the author. Like the calculations on the cost of the Perkins bill, they were carried through 78 years, or to the year when, according to the mortality table used, all in the service at the time of the passage of the bill, would be dead. They show that the cost of put- ting into effect throughout the service the Gillett bill (which is sim- ilar in all essential respects to the Perkins bill but limits the amount which the Government will contribute for any one individual for services rendered prior to the adoption of the bill to a sum which, with the annuity provided by the individual's own contributions, will not exceed $600 a year) , would be $87,055,280. 174 RETIREMENT OF SUPEEANNUATED CIVIL-SERVICE EMPLiOyEES. COMPABISON OF COST OP PEBKINS AND GiLLETT BiLLS. The cost of putting into effect the Perkins bill (S. 1944) through- out the classified service being $130,581,273, and the cost of putting into effect the Gillett bill (H. E. 22013) throughout the service being $87,055,280, in the course of the next 78 years, it follows that the dif- ference in cost between the two bills would be $43,525,993, as shown by the following table :^ Table XXXI. — Showing total and comparative cost to the Oovemment of estab- lishing plan for retiring envployees under terms of Perkins bill (S. X944) and Gillett bill (H. R. SS013). All employees. Excess cost of establish* Ing Perkins biU {S. 1944) for all em- ployees over cost of es- tablishing Gillett bill (H. E. 22013) for all em- ployees. Cost of es- tablishing Gillett bill (H. R. 22013) for all em- Cost of es- tablishing Perkins bill (S. 1944) for all em- ployees. General employees. Excess cost of establish- ing Perkins bill (S. 1944) for general over cost of establishing Gillett bill (H. E. 22013) for general employees. Cost of es- tablishing Gillett bin (H.E. 22013) for general employees. Cost of es- tablishing Perkins bill (S. 1944) for general employees. Immediately. 1 year 2 years Syears 4years S years 6years 7 years 8 years 9 years , 10 years 11 years 12 years 13 years 14 years 15 years 16 years 17 years 18 years 19 years 20 years 21 years 22 years 23 years 24 years 25 years 26 years 27 years 28 years 29 years 30 years 31 years 32 years 33 years 34 years 35 years 36 years 37 years 38 years 39 years 40 years 41 years 42 years 43 years 94 years 45 years 143,525,993 »87,055,280 tl30,581,273 137,366,001 $32,181,242 143,251 169,714 188,507 220,200 249,315 287,703 327,280 355,677 389,989 407,830 429,763 437,813 445,360 460,260 485,707 600,456 517, 114 533,993 664,221 688,926 640,838 686,504 742,475 804, 487 864,296 908,608 956,207 1,005,355 1,060,186 1,126,442 1,180,277 1,227,643 1,304,964 1,365,805 1,408,406 1,431,587 1,440,830 1,440,176 1,425,883 1,394,017 1,356,629 1,295,772 1,230,176 1,161,036 1,087,321 1,004,177 978,644 1,092,105 1,201,978 1,336,432 1,455,820 1,573,796 1,675,806 1,773,441 1,862,517 1,910,030 1,962,265 2,003,468 2,046,124 2,099,077 2,135,328 2,179,523 2,209,823 2,257,408 2,307,724 2,351,996 2,406,472 2,461,768 2,493,068 2,518,610 2,526,216 2,533,760 2,613,038 2,470,399 2,436,277 2,368,419 2,274,427 2,191,723 2,068,311 1,948,294 1,824,408 1,703,480 1,580,346 1,461,240 1,341,671 1,224,413 1,109,915 1,006,264 902,544 803,200 706,676 614,339] 1,121,795 1,261,819 1,390,486 1,656,632 1,705,136 1,861,499 2,003,086 2,129,118 2,252,506 2,317,860 2,392,028 2,441,271 2,491,484 2,559,337 2,621,035 2,679,979 2,726,937 2,791,401 2,871,945 2,940,921 3,047,310 3,138,272 3,235,543 3,323,097 3,390,712 3,442,268 3,469,245 3,481,754 3, 495, 463 3,483,861 3,464,704 3,419,266 3,373,276 3,314,099 3,232,814 3,135,067 3,021,176 2,901,416 2,767,554 2,618,430 2,466,544 2,302,036 2,132,720 1,964,236 1,792,997 1,618,516 125,977 152,962 , 171,346 202,061 228,645 266,036 303,523 329,671 360,856 375,951 392,179 395,125 397,661 405,974 421,344 426,420 434,885 442,684 461,991 476, 140 514,069 547,619 689,807 638,633 683,759 717,688 766,450 799,975 849,367 907,003 961,377 1,019,701 1,091,157 1,166,078 1,203,244, 1,233,396 1,250,015 1,256,497 1,251,669 1,229,301 1,201,914 1,156,808 1,100,377 1,039,998 974,326 897,926 580,313 660,698 720,711 818,041 894,964 983,816 1,055,426 1,120,042 1,171,234 1,177,731 1,185,080 1,176,542 1,159,276 1,139,991 1,116,200 1,086,060 1,050,463 1,022,459 994,142 962,270 951,456 934,639 918,304 891,677 865,242 830,788 787,725 738,968 693,991 639,146 585,975 532,663 470,136 407,993 348,683 296,752 248,299 206,693 170,121 138, .518 111,419 88,447 69,212 54,287 40,396 30,043 169,547,243 706,290 803,660 892; 066 1,020,092 1,123,699 1,249,861 1,358,948 1,449,713 1,. 532, 090 1,563,682 1,577,259 1,570,667 1,556,937 1,546,965 1,537,544 1,511,480 1,486,348 1,466,143 1,456,133 1,438,410 1,465,515 1,482,258 1,608,111 1,530,210 1,549,001 1,548,476 1,544,175 1,538,943 1,643,368 1,546,149 1,547,362 1,552,364 1,661,293 1,564,071 1,651,927 1,629,148 1,498,314 1,463,090 1,421,790 1,367,819 1,313,333 1,245,255 1,169,589 1,094,285 1,014,722 927,968 •For cost of pension paid wholly from the Public Treasury see pages 48-52. BETIEEMENT OF SUPERANNUATED CIVIL-SEBVICE EMPLOYEES. 175 Table XXXI. — Showing total and comparative cost to the Government of estab- lishing plan for retiring employees, etc. — Continued. All employees. General employees. Excess cost of establish- ing Perkins bill (S. 1944) for all em- ployees over cost of es- tablishing Gillette bill (H. E. 22013) for all em- ployees. Cost of es- tablishing Gillett bill (H. R. 22013) for all em- ployees. Cost of es- tablishing Perkins bfll (8. 1944) for all em- ployees. Excess cost of establish- ing Perkins bill (S. 1944) for general employees over cost of establishing Gillett bill (H. R. 22013) for general employees. Cost of es- tabUshing Gillett bill (H.R. 22013) for general employees. Cost of es- tablishing Perkins blU (S. 1944) for general employees. 46 years $918,052 827,277 736,221 646,230 560,782 481,136 407,756 342,084 284,093 232,472 189,890 152,794 121,568 95,576 74,186 56,796 42,844 31,810 23,210 16,613 11,648 7,978 5,333 3,461 2,176 1,320 768 424 226 116 51 23 6 $531,120 466,664 390,112 331,216 279,343 233,822 194,383 160,226 130,920 106,985 84,924 67,302 62,701 40,726 31,009 23,240 17,106 12,339 8,704 5,988 3,997 2,584 1,604 952 533 280 134 59 23 9 3 $1,449,172 1,283,841 1,125,133 977,446 840,125 714,958 602,139 502,310 415,013 339,457 274,814 220,096 174,269 136,301 105,195 80,036 59,950 44,149 31,914 22,601 15,645 10,662 6,937 4,413 2,709 1,600 902 483 248 124 54 23 6 $820,240 739,200 657,001 577,508 500,626 428,702 362,504 303,226 250,956 206,432 166,338 133,181 105,381 82,348 63,493 48,258 36,114 26,576 19,206 13,608 9,432 6,386 4,212 2,700 1,677 1,007 581 320 171 89 42 18 6 $21,892 15,600 10,841 7,320 4,784 3,009 1,812 1,034 653 275 126 51 18 6 2 $842,132 764,800 48 years 667,842 684,828 606,410 49 years 51 years 431,711 364,316 53 years 304,260 251-,608 55 years 205,707 166,464 57 years ... 133,232 105,399 59 years . 82,353 60 years 63,495 48,258 62 years 36,114 26,576 64 years 19,206 65| years 13,608 9,432 6,386 68 years 4,212 2,700 1,677 1,007 681 320 171 89 42 18 6 ^^"° Mall carriers. Railway postal clerks. Excess cost of establish- ing Perkins bill (S. 1944) for mail carriers over cost of es- tablishing Gillett bill (H. R. 22013) for mail carriers. Cost of es- tablishing Gillett bill (H.R. 22013) for mall carriers. Cost of es- tablishing Perkins bUl (S. 1944) formal] carriers. Excess cost of establish- in? Perkins bill (S. 1944) for raUway postal clerks over cost of establishing Gillett bill (H.R. 22013) for railway postal clerks. Cost of es- tablishing Gillett bill (H.R. 22013) for railway postal clerks. Cost of es- tablishing Perkins bfll (S. 1944) for railway postal olerlrs. 11,393,106 $34,932,565 $36,325,671 $4,766,886 $19,941,473 $24,708,359 Immediately 789 , 352 515 616 758 833 1,070 1,141 1,500 1,914 2,159 2,653 2,846 155,660 187,691 216,985 245,929 273,189 293,178 310,974 325.498 345,575 369,189 392,640 421,501 456,427 166,449 187,943 217,500 246,545 273,947 294,011 312,044 326,639 347,075 371,103 394,799 424,154 16,485 16,400 16,647 17,533 19,912 20,834 22,687 24,865 27,633 29,965 35,425 40,035 242,571 253,816 264,282 272, 462 287,677 296,803 309,407 327,901 345,708 363,110 384,645 406,415 259,056 270,216 280,929 289,995 307,589 317,637 332,094 352,766 373,341 393,075 419,970 2 years A years 7 years............ Qyears 11 years ........... 12 years 459,273 1 44,853 430,421 1 »io,a(« 176 EBTIBEMENT OF SUPEEANNTJATED CIVILr-SERVICE EMPLOYEES. Table XXXI. — Showing total and ^ompa'-aHve cost to thu Government of estab- lishing plan for retiring employees, etc. — Continued. 13 years. 14 years . 15 years. 16 years . 17 years. 18 years. 19 years . 20 years. 21 years . 22 years. 23 years. 24 years . 26 years. 26 years. 27 years . 28 years . 29 years . 30 years. 31 years. 32 years. 33 years . 34 years.. 35 years.. 36 years . . 37 years . . 38 years . . 39 years., 40 years.. 41 years.. 42 years.. 43 years.. 44 years.. 45 years.. 46 years . . 47 years . . 48 years.. 49 years.. 50 years.. 51 years.. 52 years.. 53 years . . 54 years . . 55 years.. 56 years.. 57 years.. 68 years.. 69 years.. 60 years . . 61 years . . 62 years.. 63 years.. 64 years.. 65 years.. 66 years.. 67 years.. 68 years . . 69 years.. 70 years.. 71 years.. 72 years.. 73 years.. 74 years.. 75 years.. 76 years.. 77 years.. 78 years . . Mall carriers. Excess cost of establish- ing Perkins bill (S. 1944) for mail carriers over cost of es- tablishing Gillett bill (H.E. 22013) for mail carriers. 157 361 991 744 i;550 028 ,013 213 1,120 669 689 100 237 50, 49, 48, 47, 42, 42, 42, 43, 44, 43, 40, 36, 33, 29, 26, 23, 20, 18, 15, 13, 11, 217 838 654 677 895 303 883 641 564 637 847 193 656 218 875 608 408 261 161 92 48 23 Cost of es- tablisiing Gillett biU (H.E. 22013) for mail carriers. $500,516 639,567 594,004 643,442 703,657 770,302 832,723 884, 467 930,401 977,240 1,020,883 1,062,748 1,097,136 1,126,049 1,146,029 1,161,198 1,153,084 1,142,549 1,124,994 1,100,003 1,067,708 1,031,677 991,747 945, 618 896,695 843,370 787,774 730,850 677,743 619,773 669,995 499, 130 439,057 383,074 332,118 286,016 244,689 207,639 174,896 146,103 120,988 99,266 80,638 64,819 61,605 40,426 31,302 23,882 17,927 13,213 9,644 6,741 4,637 3,096 2,001 1,242 736 411 216 103 45 18 7 Ckist of es- tablishing Perkins bill (S. 1944) for mail carriers. $603,673 542,928 597,995 648, 186 708,207 776,330 839,736 892,680 940,621 989,799 1,036,672 1,072,848 1,122,372 1,154,148 1,178,888 1,197,461 1,197,318 1,188,837 1,172,208 1,146,978 1,114,770 1,079,298 1,040,360 994,292 946,731 892,842 836,651 778, 416 720,110 662,490 602,976 542,571 483,713 426,686 372,822 322,910 277,866 237, 479 201,518 169,715 141,797 117,483 96, 476 78, 473 63,182 60,321 39,606 30, 765 23,568 17,777 13,181 9,588 6,830 4,752 3,219 2,117 1,344 819 477 264 137 66 30 12 5 Bailway postal clerks. Excess cost of establish- ing Perkins billCS. 1944) for railway postal clerks over cost of establishing Gillett bilT lH.R.22013) for railway postal clerks. $51,129 61,002 70,045 77,485 86,759 96,202 106,772 118,666 128,765 140, 109 150,265 160,637 165,683 170,658 172,521 174,556 174,205 172,612 160,628 166,832 162,665 157,441 149,578 142,141 133,643 124,742 116,839 107,149 96,597 87,082 78,057 69,654 61,596 54,200 47,373 41,126 35,446 30,316 25,812 21,640 18,049 14,921 11,202 9,898 7,936 6,292 4,925 3,810 2,897 2,166 1,597 1,167 812 560 374 246 153 91 52 26 12 6 3 Cost of es- tablishing Gillett biU (H.R. 22013) for railway postal clerks $458,570 479,561 500,459 515,918 531,292 543,280 667,003 570,549 686,728 697,524 606,060 608,226 606,737 600,264 591,402 580,088 666, 189 645,903 634,066 498, 172 472,693 444,148 415,981 386,429 367,952 328, 180 298,121 267,646 240,074 213,559 188,918 166,150 145,239 126,154 108,846 93,255 79,307 66,920 65,917 46,468 38,204 31,101 26,072 19,979 15,746 12,267 9,418 7,126 5,313 3,893 2,796 1,963 1,351 901 583 362 216 122 64 31 14 6 2 Cost of es- tablishing Perkins bfll (S. 1944) for railway postal clerks. EETIBEMENT OF SUPEBANNUATED CIVIL-SERVICE EMPLOYEES. 177 The difference in cost to the Government between establishing the Perkins and Gillett bills is graphically illustrated by the following chart: § ^ ^ % ^ ^ 1 J y 7 -> y / ^ / J / Z' <.f f A v" / f V ( \ * \y \ A I \ k X ^ 1 1 1 1 1 74196°— S. Doc. 745, 61-3 12 178 RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. The number and per cent of the total number of employees whose annuities under the Perkins bill would be reduced by the $600 limit provided under the Gillett bill are shown in the following table: Table XXXII. — Showing, hy classes, the per cent of employees whose annuities would 6e reduced by the $600 limit provided by the Oillett bill {H.R. 22013). Total num- ber of employees. Employees whose amimties would be reduced by the S600 limit. Number. Per cent of total. 170,228 50,619 29.7 94,403 61,931 13,894 40,197 6,173 4,249 42.6 Mail carriers ... .. 10.0 30.6 CALCULATION OF MAXIMUM COST FOK SERVICE IN THE DISTRICT OF COLUMBIA. The maximum cost, the first year, of putting the plan into opera- tion in the District of Columbia alone would be much less than if extended to the employees throughout the country, and at the same time those branches of the service where superannuation is greatest and the need of a retirement measure most keenly felt would be benefited immediately. The cost of paying annuities for back serv- ices to employees in the District of Columbia is shown in Table XXXIII to be about $400,000 [$396,060] for- the first year. Table XXXIII. — Showing estimate of the maximum cost the first year of annu- ities equal to 1.5 per cent of salary for each year of service for employees in the District of Columbia. Period of service. Number of em- ployees. Salary. Aimuity. Years, (a) Average years. (b) Total. • (<3) Average. Co) Total (see note). (0 Average. (E) UnderS 4 7 12 17 22 27 32 37 45 12 45 76 61 84 117 86 75 176 J14,180 45,300 77,920 63,000 101,000 144.260 114, 140 100,740 233,940 tl,182 1,007 1,025 1,033 1,202 1,233 1,327 1,343 1,329 1851 4,756 14,026 16,065 33,330 58,425 54,787 55,911 157,909 171 106 185 263 397 499 637 745 897 5to9 10 to 14 15 to 19 20 to 24 26 to 29 30 to 34 35 to 39 40 and over 'All periods ." 732 894,480 1,222 396,060 541 Note.— The annuities shown in column (f) are equal to 1.5 per cent of salary for each year of service; 100 BETIEEMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 179 This. table is less accurate than the other tables given in this report, but its lesser accuracy is a point in favor of its conservatism. It IS based on Table 72 in Census Bulletin 94, which shows the em- ployees m the executive civil service in the District of Columbia classified by compensation, age, and period of service. The lesser accuracy of Table XXXIII is due to the fact that Table 72 includes unclassified as well as classified employees, the total number of employees in the District being given as 25,351 as against 23,254 classified employees. The employees shown in Table 72 are given in five-year age groups, which also makes the result somewhat less accurate than if the number at each age had been stated. The sum of $400,000 would, however, seem to be a safe maximum figure, considering all the allowances that must be made for the inclusion of unclassified members of the service, the overestimation due to computations based on present rather than average salaries, and the retention of numerous individuals in the service past the age of retirement. This approximate figure of $400,000 as the maximum annual cost of inaugurating a retirement measure in the District of Columbia is interesting, since it has been estimated that the loss to the Govern- ment by reason of superannuation in the District is approximately $400,000 a year. In a report on superannuation in the civil service, made by a special committee of the National Civil Service Reform League in 1906, the Civil Service Commission is quoted as authority for the statement that those over 70 years of age do about three- quarters of the maximum quantity of work performed by a thor- oughly efficient employee, and that the loss to the Government through superannuation in the departments at Washington amounts therefore to about $400,000 a year.^ HOW THE COST OF PUTTING PLAN INTO OPERATION MAY BE MET. Two ways of paying annuities on services rendered prior to the adoption of the plan have been suggested. The first two bills intro- duced into Congress covering this plan provided that annuities pay- able for services rendered prior to the passage of the bill should be paid by the Secretary of the Treasury from any money in the Treas- ury not otherwise appropriated. The third bill makes provision for payment of annuities for back services out of a fund created by deductions from the salaries of new entrants and the salaries of those promoted, but this provision has been discarded by the House com- mittee as unfair to the younger employees, and is no longer proposed. The bill discussed in this report provides for the payment of annu- • See Special Report of United States Clyil Service Commission to tlie President, p. 3. 180 KETIEEMENT OP SUPEEANNUATED CIVlL-SEEVICE EMPLOYEES. ities for back services by the Government. Section 11 reads as follows: Sec. 11. That beginning with the first day of July next following the pas- sage of this act every employee to whom this act applies shall be entitled, on reaching the retirement age, or having already passed that age, to retire from the service under the provisions hereinbefore contained, and also. In addition to the annuity herein provided for by his own contributions from his salary, to receive from the United States during the remainder of his life an annuity equal to one and one-half per centum of his total compensation during service prior to the taliing efCect of this act; and the Secretary of the Treasury is hereby authorized and directed to pay such annuity quarterly, upon proper certification of the retirement of such employee by the appointing oflBcer under whom he last served. Annuities from the United States for the period of service prior to the passage of this act shall be payable only on condition that the employee remains in the service until he reaches the age of retirement: Provided, however. That employees of group one may receive the annuity granted by this section on retirement at the age of sixty years or thereafter. On the death of the employee the payment of annuities provided for by this section shall cease and determine. Annuities payable by the United States on salaries in excess of two thousand five hundred dollars per annum shall be based upon an annual salary of two thousand five hundred dollars. This is followed by a section which makes provision for reckoning the period of service prior to the passage of the bill. Section 12 reads as follows: Sec. 12. That the period of service upon which the annuity to be paid by the United States is based shall be computed from original employment, whether as a classified or unclassified employee, and shall include periods of service at different times and service in one or more departments, branches, or independent offices of the Government, the Signal Corps prior to July first, eighteen hundred and ninety-one, and the general service in or under the War Department prior to May sixth, eighteen hundred and ninety-six. Plan Can Be Put into Operation Without Additional Appropriation by Government. The study and discussion which have been given to the subject in recent years seem to have convinced those interested that the only way to put the plan into operation is by means of appropriations from the Government. The following arguments have been used to discredit the suggestion that the annuities for back services should be paid by any form of taxation on the employees. (1) That the plan is constructed primarily for the benefit of the public service. The removal of superannuated employees is more to the interest of the Government than to the interest of the clerks as a body. (2) That the Government was the beneficiary of all services rendered prior to the adoption of the plan, and if anyone is charged for such services it should be the beneficiary. RETIKEMENT OP SUPERANNUATED CIVIL-SEBVICE EMPLOYEES. 181 (3) That an appropriation for this purpose puts the Government into position to act logically in the matter of readjusting salaries in the Government service. It has long been contended that the average salary of $948 a year paid by the Government '■ is inadequate in these days of high prices. Salaries can not be consistently advanced, how- ever, while there are a large number of worn-out employees in the service already receiving more than they earn. Expulsion from the service and readjustment of salaries through demotion are not satis- factory solutions for those who are superannuated but needs must continue at their desks, for those who are efiicient but underpaid, or for the Government who is overpaying some and underpaying others. (4) That the necessity for appropriations fron^ any source is only temporary. (5) That the appropriation of a reasonable sum for only 50 years is an economy and not an expense to the Government, since it removes from the service the evil of superannuation, which under the present system is fully as costly as the establishment of the proposed plan and besides is a permanent and probably growing expense. (6) That practically nothing is asked of the Government toward the support of a retirement plan except a chance to establish one at the expense of the employees themselves. (7) That it would be very unfair to force the younger employees to pay for annuities on the past services of their elders and, at the same time, contribute to their own retirement. Opposition to the proposal that the plan shall be put into opera- tion by means of appropriations from the Government is only heard on the ground that the people of the country may look on such appro- priations with disfavor. It i^ doubtful, however, if there would be opposition from those who understood the need for the measure, and the nature of the proposed plan. As suggested on page 33, the proposal that the plan be put into operation by means of appropriations from the Government does not necessarily mean that these appropriations will be in addition to the present appropriation for salaries. It is difficult to state with abso- lute precision just what the saving to the Government would be if the aged employees who do not fully earn their salaries were retired, for the reason that efficiency records of work performed by these aged people are not generally kept throughout the service. Such statistics as are available would seem to indicate that the amount lost the Government through the inefficiency of the aged about equals the cost of superannuation. As notfid on page 13, an effort was made a few years ago by the Civil Service Commission and the National Civil Service Reform I See Census Bulletin 94, p. 32. 182 RETIREMENT OF SUPERANNUATED CIVTL-SERVICE EMPLOYEES. League to determine what loss the Government was then sustaining through superannuation. Schedules were prepared and sent out to the various departments, and from the returns made on these schedules it was found that the loss in the District of Columbia amounted to approximately $400,000 a year. Assuming that employees at various ages possessed the same degree of efficiency in the District of Colum- bia and elsewhere, it was found, by applying the percentages obtained for the District to the employees elsewhere, that the Government wae sustaining an annual loss in the District and elsewhere of $1,200,000. This estimate was made in 1906, when the service was considerably smaller than it is now, in 1911, and, of course, much smaller than it will be in future years. It is obvious that unless a retirement system is adopted the actual number of superannuated employees in the serv- ice must increase with the growth of the service. It is obvious also that unless the growth of the service continues at no less rate here- after than it has in the past the proportion of superannuated to active employees must also increase. That the service is likely to continue to grow may be assumed without argument, but that it will continue to grow at the rapid rate of the past 30 years is debatable. The present superannuated employees represent the residue of the active service of 30 or 40 years ago. The superannuated employees 30 or 40 years hence will represent the residue of the present active service. Thirty or forty years ago the service was composed of not more than 30,000 employees. To-day the classified service is composed of about 200,000 individuals. If the residue of 30,000 employees of 30 or 40 years ago is now costing the Government $1,200,000 annually, then the cost of superannuation 30 years hence may fairly be estimated to be as 30,000 is to 200,000, or nearly seven times as great as at present. This estimate is, of course, based on the assumption that the rate of separation from the service by resignation and death will continue the same, which would seem to be a fair assumption, and perhaps more than fair, since commercial opportunities outside of the service are likely to be no greater than they have been in the past, and, there- fore, to attract away no greater proportion of the service, and the rate of mortality at the ages up to about 70 years is known to be steadily decreasing. On this basis the cost of superannuation 30 or 40 years hence would be approximately $8,000,000 annually, or more than twice the maximum amount required to be appropriated in any one year for back services under the Perkins bill. This phase of the problem was of much interest to the Hon. Frank- lin MacVeagh, Secretary of the Treasury, and in order to determine whether the cost of superannuation in 1910 was not greater than the amount that would have to be appropriated under a fair contributory system, he undertook, in the spring of 1910, to ascertain how many young clerks could be employed out of the residue of present appro- priations for salaries if the old clerks were first paid annuities out EETIEEMENT OF STTPEEAKNUATED CIVIL-SEKVICE EMPLOYEES. 183 of those appropriations on the scale proposed under the Perkins bill (S. 1944). Since the annuities for past services would be paid wholly from public funds, it seemed to him entirely fair to place a minimum and a maximum on the amount that would be given to any one individual. He accordingly had prepared a statement showing the amount of money that would be required the first year to pay annuities under the Perkins bill, but with a minimum of $300 and a maximum of $600, with a minimum of $360 and a maximum of $720, and a minimum of $360 and a maximum of $1,000. The following table shows that the cost under the respective scales is $146,116, $168,080, and $194,308. The number of younger clerks under the respective scales that could be employed at $900 a year by expending for that purpose the difference between those amounts and the present salaries of these aged employees is as follows: 282, 258, and 229. Statistics relative to clerics in the Treasury Department 70 years of age and over. Total number Average age Total of present annual salaries- Average annual salary Average years of service Aggregate salaries paid One and one-half per cent of aggregate salaries- Present salaries Annuities (minimum, $300; maximum, Balance available for clerk hire- Number that can be employed at $900-. Present salaries Annuities (minimum, $360; maximum, $720). Balance available for clerk hire Number that can be employed at Present salaries Annuities (minimum. ; maximum, $1,000). Balance available for clerk hire- Number that can be employed at $900— 300 73§ $400, 559 $1, 835 32 $12, 727, 750 $190, 916 $400, 559 $146, 116 $254, 443 282 $400, 559 $168, 080 $232, 479 258 $400, 559 $194, 308 $206, 251 229 Ages of clerks in Treasury Department 70 years of age and over. No. Age. No. Age. 1 95 8 78 1 94 12 77 2 86 19 76 2 M 25 76 1 83 39 74 2 82 26 73 7 81 43 72 4 80. 37 71 U 79 60 70 184 KETIREMENT OF STJPEBANNUATED CIVIL-SEEVIOE EMPLOYEES. As between the three different scales of annuities, the one giving a maximum of $720 a year would be the most expedient. Annui- ties from $300 to $600 would be inadequate, and the number of clerks that could be employed with the residue of the appropriations after paying these annuities would be more than is really necessary. An- nuities from $360 to $720 would be much more satisfactory, and the 258 young clerks that could be secured under this arrangement would manifestly be of greater value to the department than the present 300 aged ones. Annuities with a maximum of $1,000 would greatly relieve the difficulty of removing inefficient employees in the higher grades, but the number of clerks (229) that could be employed with the residue of the present salaries is so small as to raise the question whether the departments would not be compelled to ask for addi- tional appropriations to increase their forces if this scale were adopted. Similar investigations were made at the request of the Secretary of the Treasury in representative bureaus of the Post Office Department and the Department of Commerce and Labor, and indicate that aged clerks can be retired on the basis suggested and younger clerks em- ployed to take their places and do their work, and that not only can these two things be done at the present cost of employing the older clerks, but that an actual saving of money would be effected from the beginning. In three divisions of one of the departments there are 17 employees receiving $24,940 a year in salaries, or an average of $1,467 each, who are rated as performing services worth slightly less than 50 per cent of their salaries. These 17 clerks could be retired under the plan outlined above on 48 per cent of their average pay, or say $700 a year each, and leave $767 a year each, or $13,040 for the employment of younger clerks at the lower grades. As these people are only performing 50 per cent of what is considered a fair day's work, it may be stated with accuracy that with these aged clerks retired on annuities aggregating $11,900 it would be possible with the balance of $13,040 to obtain better and more efficient service by the employment of, say, 13 young, energetic clerks, than the Government now has with the 17 old ones. It should be noted, in this connection, that the mortality among these aged employees is very high, and as they died off the annuities thus released could be used to increase salaries. From the foregoing it is apparent that the establishment of this plan along the lines of the Perkins bill, but with minimum and maxi- mum limitations, as suggested by the Secretary of the Treasury, on the amount of annuities on services rendered prior to the adoption of the plan, would not only cost the Government nothing, but would probably result in a small saving even the first year, and tliat this saving would steadily increase from year to year as the employees' BETIEEMENT OF SUPERANNUATED CIVILi-SEEVICE EMPLOYEES. 185 savings accumulated for their own retirement, until finally the cost of superannuation to the Government would be nothing. COST OF ADMINISarEKING THE PLAN. Besides the cost of putting the plan into operation, the cost of ad- ministering it needs to be considered. It is believed that a small annual appropriation will be sufficient for this purpose. Section 17 of the proposed bill, which makes provision for that need, reads as follows. Sec. 17. That for the clerical and other service and all other expenses neces- sary in carrying out the provisions of this Act during the fiscal year nineteen hundred and ten, including salaries and rent in the city of Washington, there is hereby appropriated the sum of twenty thousand dollars out of any money in the Treasury not otherwise appropriated, to be available until expended. It is estimated that the savings accounts of the 170,228 employees included in the estimates of cost for the entire classified service could easily be taken care of by 26 bookkeepers. This estimate takes into account a most liberal number of Sundays, holidays, days of annual leave and sick leave, and presupposes that the Government book- keepers would not average more than 300 entries a day and keep their accounts balanced. (If the plan is limited to 23,254 classified em- ployees of the District only four bookkeepers would be required to do the work.) The computation is as follows: Boolckeepers for entire service. Number of employees in service 170, 228 Number- of entries per year for each employee (12 monthly deposits, and the equivalent of 4 entries to cover crediting of interest, balancing accounts, and statement work) 16 Total number of entries per year for entire service (170,228X16)— 2,723,648 Number of days in year 365 Less Sundays and holidays 60 Less days of sick and annual leave 40 100 Working days per year 265 Entries per day for each bookkeeper 400 Entries per year for each bookkeeper (265X400) 106,000 Number of bookkeepers for entire service (2,723,648-^-106,000) 25.7 Bookkeepers for District of Columbia. Number of employees in service 23,254 Number of entries per year for each employee (12 monthly deposits, and the equivalent of 4 entries to cover crediting of interest, balancing accounts, and statement work) 16 186 RETIREMENT OF StJPERAN-NUATED ClVlL-SERVlCE EMPLOYEES. Total number of entries per year for service In the District (23,254X16) - $372,064 Number of days in year 365 Less Sundays and holidays 60 Less days of sick and annual leave 40 100 Working days per year 265 Entries per day for each bookkeeper 400 Entries per year for each bookkeeper (265X400) 106,000 Number of bookkeepers for service in District (372,064_f-106,000) — 3. 5 The appropriation of $50,000 to cover the cost of administration included in the first " Gillett bill " is about correct as an estimate of that cost for the entire classified service. Twenty-six bookkeepers at an average annual salary of $1,400 would cost $36,400, and the other expenses of administration, including the salary of the head of the office and his assistants, would probably consume the balance of $13,600. For conducting the plan in the District of Columbia alone the sum of $20,000 a year would suffice. Four bookkeepers, at $1,400 each, would cost $5,600. The other expense would not be much less for the District of Columbia than for the entire service, so that it is not safe to estimate the cost at much less than $20,000 a year. These estimates would seem to be all on the side of safety when compared with statements made by various savings-bank officia,ls who were consulted on the subject. Mr. Andrew Mills said that the Dry Dock Savings Institution of New York, of which he is president, employs eight bookkeepers, with salaries ranging from $1,200 to $2,500 a year, to keep its 70,000 accounts. They make in all approximately 197,000 entries, compute the interest twice a year, enter the interest, and balance the ledger. This means a daily everage of 400 items for each bookkeeper. Twice a year about five extra men are employed for a week to assist in post- ing the interest. Mr. Mills said that in his judgment the Govern- ment should be able to handle the accounts of 150,000 employees, each of whom requires one cash entry a month and an interest credit twice a year, with the help of 12 bookkeepers of the class employed by his bank. Mr. William E. Knox said that the Bowery Savings Bank, New York, of which he is comptroller, employs 12 bookkeepers to handle their 151,000 accounts, which represented in 1907, 346,000 transactions. This means a daily average of about 500 items for each bookkeeper. Mr. Pierre Jay, formerly bank commissioner of Massachusetts, was of the opinion that it would cost from $30,000 to $35,000 annually, so RETIKEMENT OF SUPERANNUATED CIVIL-SEEVICE EMPLOYEES. 187 far as clerical and incidental expenses are concerned, to collect and administer the Government retirement fund. He said that about one-third of the salary expense shown in his report on savings banks of Massachusetts is chargeable to salaries of officers and the other two-thirds to salaries of clerks. Emphasis should be laid on the fact that the labor involved in keeping the accounts of a savings bank is much greater than the labor that would be required to keep the accounts of the Government em- ployees. In the savings bank the entries are made at irregular inter- vals and are for varying amounts, whereas in the Government's case the entries would be made at regular intervals and for uniform amounts. The computation of interest credits would accordingly be simplified also. CHA.PTEK V. PROVISIONS FOR INVESTMENT OF RETIREMENT FUND. Provision for the investment of the fund created under this plan by the savings of the civil service employees is made in section 2 of the proposed bill which reads as follows : Sec. 2. That the amounts so deducted and withheld from the salary, pay, or compensation of each employee shall be deposited in the Treasury of the United States and shall be credited, together with interest at three and one-half per centum per annum, compounded annually, to an individual account of the employee from whose salary, pay, or compensation the deduction is made. The moneys so deducted and the Income derived therefrom may from time to time be deposited in savings banks designated by the Secretary of the Treasury for that purpose: Provided, That the savings banl^s receiving such deposits shall pay Interest thereon at a rate of not less than three and one-half per centum per annum, compounded annually. For the safe-keeping and prompt payment of the money deposited with them the Secretary of the Treasury shall require the savings banks to give satisfactory security, by the deposit of bonds of the United States, bonds or other Interest-bearing obligations of any State of the United States, or any legally authorized bonds issued for municipal pur- poses by any city or town in the United States which has been in existence as a city or town for a period of twenty-five years, and which for a period of ten years previous to such deposit has not defaulted in the payment of any part of either principal or interest of any funded debt authorized to be contracted by it, and which has at such date more than twenty-five thousand inhabitants, as established by the last national census, and 'whose net indebted- ness does not exceed five per centum of the valuation of the taxable property therein, to be ascertained by the last preceding valuation of property for the assessment of taxes; or any legally authorized bonds issued for municipal pur- poses by any city or town in the United States which has been In existence as a city or town for a period of twenty-five years, and which for a period of ten years previous to such deposit has not defaulted in the payment of any part f)f either principal or interest of any funded debt authorized to be contracted by it, and which has at such date more than two hundred thousand inhabit- ants, as established by the last national census, and whose net indebtedness does not exceed seven per centum of the valuation of the taxable property therein, to be ascertained by the last preceding valuation of property for the assessment of taxes. In this clause the words " net Indebtedness " means the indebtedness of any city or town, omitting debts created for supplying the Inhabitants with water, and debts created in anticipation of taxes to be paid within one year, and deducting the amount of sinking funds available for the payment of the Indebtedness included. The Secretary of the Treasury shall accept, for the purposes of this act, securities herein enumerated In such pro- 188 EETIEEMENT OF SUPERANNUATED CIVIL-SEEVICE EMPLOYEES. 189 portions as he may from time to time determine, and Le may at any time require the deposit of additional securities, or require any bank to change |he character of the securities already on deposit. It shall be the duty of the Secretary of the Treasury to obtain Information with reference to the value and character of the securities authorized to be accepted under the provisions of this section, and he shall from time to time furnish Information to savings banks as to such bonds as would be accepted as security. When consistent with the best interests of the fund created by this act, the Secretary of the Treasury shall distribute the deposits herein provided for, as far as practicable^ equitably between the different States and sections. If, for any reason, the Secretary of the Treasury shall not be able to make satisfactory arrangements with savings banks for all of the funds, then he may Invest the balance in any of the aforementioned securities. The moneys deducted from salaries and the Income derived therefrom shall be held and deposited or Invested, as above described, by the Secretary of the Treasury until paid out as hereinafter provided. Any deficiency in the fund hereby created to carry out the provisions of this act shall be paid out of any money in the Treasury not otherwise appropriated. For the purpose of aiding the Secretary of the Treasury In depositing and investing the funds created by this act a board of investment is hereby created, composed of the Treasurer of the United States, the Comptroller of the Cur- rency, the chief of the office created by the provisions of this act, and two persons to be designated by the President from among the employees of the classified civil service. The members of the board of investment shall be sworn, and shall hold office until others are appointed and qualified in their stead. TWO PROVISIONS FOE INVESTMENT OF FUND. It vrill be seen from this that the bill provides for the investment of the retirement fund in tvFO ways : (1) Indirectly, by deposit in savings banks meeting certain require- ments. (2) Directly, by investment in a certain limited class of securities. The bill provides that the banks receiving these funds must pay not less than 3^ per cent interest on the deposits, and that they must give Federal, State, or municipal bonds as security for these deposits. Failing fo make satisfactory arrangements with savings banks for all of the fund, the Secretary of the Treasury is authorized to invest the balance directly in the aforementioned securities. NOT FEASIBLE AT PRESENT TO DEPOSIT FUND IN SAVINGS BANKS. Several men prominent in savings-bank circles have been asked for their opinion of the investment clause in the proposed bill. The consensus of opinion seems to be that the provisions in the bill for handling the funds are theoretically sound, but that one of them is not at present practicable. While there is no good reason for chang- ing the two main provisions— that the funds be deposited first in savings banks, and, secondly, invested in a limited class of securi- ites— the fact should be brought out that the first provision is not 190 RETIEEMBNT OF SUPERANNUATED CIVIL-SEKVICE EMPLOYEES. likely to be of much service. Under present conditions it would not be possible to deposit any large amount of the retirement fund in the savings banks of the countiy. Differences between eastern and western savings hanks. In considering the subject it is necessary to bear in mind several important differences between the savings banks of the East and those of the West. Generally speaking, the savings banks of New York and New England may be put in one class and those of the rest of the country in another. Those of the former class operate under the strictest laws governing such institutions. The rate of interest which they pay is usually 3^ or 4 per cent, whereas the savings banks of the West seldom pay more than 3 per cent. The savings banks of the East are generally mutual banks, and the profits of their investments are distributed among the depositors, whereas the sav- ings banks of the West are more often the property of stock com- panies and are run mainly for the profit of the stockholders. These differences in bank administration would prevent the wide- spread acceptance of the Government's superannuation fund by the savings banks of the country. The provision in the bill that 3^ per cent interest must be paid on the clerks' savings would exclude the fund from the majority of western banks, because they are unwilling to guarantee that rate of interest. On the other hand, the eastern banks paying 4 per cent interest on deposits could not accept the fund, because the bill provides that savings banks receiving the employees' savings must give satisfactory security in the shape of United States, State, or municipal bonds, or other stipulated interest-bearing obliga- tions. The New York and Massachusetts laws prohibit the prefer- ring of depositors. One practical objection to the provision in the bill that the em- ployees' savings be deposited in savings banks is the fact that the deposits would have to be received in the names of the individual depositors. Under existing laws they could not be accepted as a lump deposit from the Government. This requirement would neces- sitate considerable accounting, and constitutes in the minds of some bank officials, though not of all, an objection to the acceptance of the employees' savings. Also the limited amount allowed individual depositors would make it impossible for some banks to accept the savings of the higher-salaried employees for the full period of ac- cumulation. Altogether, it seems plain that the greater portion of the Government employees' savings could not now be deposited under existing laws in savings banks, but would have to be invested in the securities named in the bill. UiiTIKEMENT OP SXJPEEANNUATBD CIVIL-SEKVICE EMPLOYEES. 191 INVESTMENT OF FUND SHOULD BE BESTRICTED TO PUBLIC SECUEITIES. Although it does not appear feasible to deposit any large amount of the retirement fund in savings banks, the officials consulted were agi'eed in thinking that the securities in which it is invested should be limited to those acceptable to the New York and New England sav- mgs banks, with the exception of railroad bonds, real estate, and notes secured by personal indorsement. The liability of loss to the employees, if the investment of the fund is limited to Federal, State, and municipal bonds, they believe to be negligible. Mr. Andrew Mills, president of the Dry Dock Savings Institution, of New York, stated that during the past 30 years that institution had not lost a dollar through securities of that class, although it had had an average of $12,000,000 invested in that way. The nature of the retirement fund, which would be made up of the savings of a large body of people, makes the propriety of limiting its investments to the best of savings-bank securities hardly debatable. SAVINGS-BANK INVESTMENTS. Savings banks are defined by Hamilton as " institutions established by public authority, or by private persons, in order to encourage habits of saving by affording special security to owners of deposits, and by the payment of interest to the full extent of the net earnings, less whatever reserve the management may deem expedient for a safety fund; and in furtherance of this purpose bank offices are located at places where they are calculated to encourage savings among those persons who most need such encouragement." ^ According to the same authority, a savings bank is distinguished from an ordinary commercial bank in several ways. Its object is to promote thrifty habits among the laboring classes and to increase their resources. Its first concern, therefore, is safety of the deposits, its earnings being a secondary consideration. As its directors and managers have no special financial interest in the returns, the methods are therefore extremely conservative. A commercial bank, on the contrary, is primarily a money-making institution, run in the interests of stockholders, the managing officials being often heavily interested in the stock. They want safe investments, but there is a constant temptation to waive considerations of safety in the interest of larger net returns to stockholders. Commercial' banks discount paper and are tempted to take risks in speculation. Savings banks do not, but invest their deposits in public securities or in loans secured by real- estate mortgages. An earlier writer, J. Howard Van Amringe, says that banks of issue and discount have only one point in common with savings banks, and ^ See Sarings and Savings Institutions, by James H. Hamilton, p. 161. 192 BETIBEMENT OF SUPERANNUATED CIVIL-SEEVICE EMPLOYEES. that is the receipt of deposits. He emphasizes the difference still more by declaring that the former exist for the convenience of the rich, the latter for the benefit of the poor. The poor he defines as those who have no invested capital. The charter for the first savings bank in New York State was granted on the plea of the New York Society for the Prevention of Pauperism.^ It seems proper, therefore, in discussing the investment of the fund that will be created from the employees' savings, to emphasize the fact that the legal restrictions placed upon the investment of savings bank funds vary greatly in different States of the Union. Some of the States have enacted laws which are very strict and conservative, properly safeguarding the interests of the depositors, while others allow so-called " savings banks " to do business in a loose, unsafe way that is directly contrary to the traditional spirit of savings institu- tions. This abuse, is well described in the following quotation: The stock savings banks are numerous in Western and Southern States, and, In addition to being institutions conducted for the benefit of shareholders, have, with but few exceptions, little to distinguish them from ordinary commercial banks, possessing all the powers and privileges of such institutions, and differ- ing only in the added privilege of accepting savings deposits. Some of these savings deposits, too, are held subject to check, thus practically nullifying any added security that a savings institution is supposed to give. Again, in in- stances, particularly in the Western States, the only apparent difference between a savings bank and a State bank, other than the name and the statute under which the organization may have been effected, rests solely in the now obsolete privilege of issuing currency — the State bank still nominally possess- ing that right which is denied to the savings bank.^ At present the States which regulate most carefully the activities of their savings banks are New York, Massachusetts, Connecticut, and then, perhaps, Vermont, Maine, and New Hampshire. The result is that savings bank failures are not often heard of in these States. The nimiber of savings banks that have failed under the Massachu- setts law during the last 72 years is shown in the following tabular statement, which is taken from the annual report for 1906 of the Hon. Pierre Jay,^ bank commissioner of the Commonwealth of Massa- chusetts. 1 See Life Assurance and Sayings Banks, a lecture by J. Howard Van Amringe, New York, 1872. 2 See Savings Banks and Safe Securities, by J. G. Dater (1898), p. 11. 'Now vice president. Bank of the Manbattan Company, of New York. RETIEEMENT OF SUPEEANNUATED CIVIL-SERVICE EMPLOYEES. 193 '-I •fc. "S. s eS ^ .^ s n m "a !S » a ,3 S S m I:: I o s « O c§ S s t ^9 X X X n n H |§ss§ jd ^ 73 03 dd III I h 03 ft " fl o § gs SS-Sg-S 3 §"= Nil o O ^ O u, - -- >>-' a " 0)-^ CD ^ (U . . ..£;S.>g.& . . o-S o S o 83 a SSS13i O CO ra D » o M > 0) S 3 a> o , g=sa A * 3 ai ■a 2^.2 "S =^ t^' S 03 09 (U O O 00(N lOCCOlC^CSlOt-*00)000«OOCOM* M< o'cTo'M'oo'i-rci'oraf od"oo h <» - ^ CO ^ 3MOa eo "* 01 W t~» t- CO 00 00 CO 00 00 00 CO OS O i-l >0 CD 00 00 ^ Tt< lo t^ D~ r- 1-- 1^ r— t— r^ t— t— t^ P- 00 C3S 01 en Oi oi 00 00 00 00 CO 00 00 00 00 00 CO CO CO 00 00 00 00 00 00 00 00 :-S'2 liiiiiiiidlii|iiia C3-SO03OMOOO rt^^^o ■'f S °i;i2 ;.g I Pi g ^dS 1^ ^S uod-t^ > Si+3 d apd m bbm r/,'? S^« > ooo-fwcscnoo "^i-H^oop5od-*o6" CO 0000000000060001 74196°— S. Doc. 745, 61-3 13 0) g^ am^'fe « ma 194 RETIREMENT OE SUPERANNUATED CIVIL-SERVICE EMPLOYEES. It will be seen from the above that the principal causes of the savings-bank failures in Massachusetts have been unwise investments in real estate,^ bad management, and the defalcation of bank officials. It will be noted, however, that the terms of the proposed law do not permit investment of the retirement fund in real estate, bvtt restrict it to investment in public bonds alone. PUBLIC BONDS SAFE INVESTMENTS. A bond may be defined as follows: "An instrument by which a government, municipality, or corporation contracts and agrees to pay a specified sum of money on a given date (sometimes reserving the right for earlier payment) , the bond itself being a coupon-bearing (or registered) note under seal ; the coupons representing the quarterly, semiannual, or annual interest, as the case may be, at a fixed rate." ^ The strength and security of Federal, State, and municipal bonds as investments rest on the fact that they are based primarily on the power of taxation, although they themselves are usually exempt from taxation. FEDERAL BONDS. The bonds of the United States Government have been issued at various times to cover the national debt. As investments they are secured by the national credit and the national honor. As the Ameri- can people have shown themselves to be essentially a debt-paying people, their promise to pay is regarded as among the most unimpeach- able securities in the markets of the world. It has been said that " the Government of the United States enjoys to-day the proud distinction of having outstanding bonds bearing the lowest rate of interest at which bonds have been issued by any nation, and, furthermore, its bonds are selling in the market at a price which indicates that its credit is not surpassed by that of any other nation." ^ VABIOUS ISSUES OF FEDERAL BONDS. The good credit of the Nation began with the foundation of the Government and is largely due to the fine understanding and high ideals of Alexander Hamilton, first Secretary of the Treasury, who persuaded the new Government not to repudiate the colonial debts, amounting to $72,775,895, but on the contrary to assume them. The people of the country have always shown themselves eager to pay a public debt and willing to submit to heavy taxation to do so. By 1812 the national debt was down to $45,000,000. The war of 1812 increased it, so that in 1816 it amounted to $127,334,933, but in 1835 1 See Money and Investments, by Montgomery Rollins, p. 44. "" " See Memorandum Concerning United States Bonds, revised to Oct. 1, 1902, prepared bj Flsk and Robinson, p. 18. EETIBEMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 195 it was all paid. The Mexican War piled it up again so that in 1851 it amounted to $68,304,796. By 1857 it was down to only $28,699,831. Several Indian wars increased it to $98,580,873 by 1861. At the opening of the Civil War the Treasury was empty and the national credit reduced to a 12 per cent basis. All kinds of borrowing followed. Over 20 different forms of obligations were issued, bearing rates of interest varying from 7^^ per cent down to nothing, and with maturities of from 30 days to 40 years. The expedient most criticized was the issue of legal-tender notes. There were several great war loans, all of which the people of the country floated with alacrity. One was the 6 per cent five-twenty year loan of 1862, issued in denominations from $50 to $10,000. Another great war loan was the seven-thirties of 1864 and 1865. The maximum of public debt was reached August 31, 1865, and amounted to $2,844,649,626, against which there was only $88,218,055 in the National Treasury. The war being over, however, the Nation began at once to recover financially, as well as in every other way, from the effects of the struggle. In 1879, specie payments were resumed, and by 1893 the debt had fallen to $1,545,985,686.13, with a balance of $778,604,339.28 in the Treasury. In 1894, however, on account of currency laws which made it neces- sary to maintain the parity of various forms of currency with gold, an increase in the gold reserve was secured through two sales of 5 per cent bonds, of $50,000,000 each. In 1895 the Government sold $62,000,000 of 4 per cent bonds redeemable after 1925, and in 1896, $100,000,000 more of 4 per cent bonds of 1925. In 1898, the war with Spain made necessary an issue of 3 per cent ten-twenty year bonds amounting to $198,792,660. After the war the Government had large revenues, and the process of debt-paying began again. The refunding act of 1900 provided for the refunding of the threes, the fours of 1907, and the fives into new 2 per cent 30-year gold bonds. Upward of $646,000,000 have thus been converted. It will be seen from the following tabular statement that these consols of 1930, bear- ing 2 per cent, constitute approximately 70 per cent of the interest- bearing national debt. The Panama Canal loans, negotiated in 1906 and 1908, called for issues of 2 per cent 10-year bonds. The principal Government issues now outstanding, all of which date since the year 1895, are therefore as follows : Table XXXV. — Showing prmcipal outstanding tonds of the United States. Title ol loan. Bate. When issued. Eedeemable after- Outstanding May 1, 1911. Consols, 1930... Loan 011908-18 Loanofl92.'i..- Panama Canal. Do Per cent. 2 3 4 2 2 1900 1898 1895-96 1906 1908 Apr. Aug. Feb. Aug. Not. 1,1930 1,1908 1,1925 1,1916 1,1918 5646,260,150 63,945,460 118,489,900 64,631,980 30,000,000 196 RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. FEDBEAL BONDS NOW ISSTIM) TO PAT FOR PUBLIC WOEKS. I In connection with the last loan made by this Government it is interesting to note that formerly the debt of governments repre- sented the cost of wars, but more recently an increasing portion of government debts in other countries as well as our own represents the cost of industrial undertakings. It follows, therefore, that bond- holders have a further security for the payment of the interest in the earning power of properties, such as the Panama Canal or the Russian railway system, in addition to the regular source of public revenue, that is, the taxing power of the nation. FEDERAL BONDS SAFEST OF INVESTMENTS. Of all possible investments, therefore, the United States Govern- ment bond is probably the safest. BATE' OF INTEREST ON FEDERAL BONDS LOW. By reason of this fact, however, the interest return is correspond- ingly low. The splendid credit of the nation is such that our Govern- ment bonds sell at a higher price than the bonds of any other nation, over $730,000,000 of the $913,000,000 outstanding bearing only 2 per cent interest, the lowest rate of any national issue. This is due, however, not merely to the greatness of our resources and the small- ness of our debt, but also to the fact that our national banking sys- tem is largely based on the bonds of the Government, the national banks being required to put Government bonds in the United States Treasury as security for their issue of notes or bank bills. The exact status of the Government bond as a form of investment is summarized as follows by the editor of the Bankers' Magazine: Government bonds are an Ideal investment for trust funds, but the artificial stimulus given to the price of these securities, owing to the uses made of them by the national banks, has tended to place them beyond the reach of fiduciary, institutions. In fact. United States bonds are rapidly losing their investment character and are becoming more or less speculative. The 2 per cent bonds selling at 103 and upwards maintain their price not because of the interest yield, but because of the special uses to which the bonds may be put by the national banks. It is hardly necessary to say that if the special privileges with reference to security for bank circulation and deposits were removed from United States bonds, their price would fall to a level to make them attractive investments for savings banks and trust companies.' While yielding a very low rate of interest at present, it is well to remember, however, that the purchasers of Government bonds dur- ing the Civil "War realized 6 and 7 per cent on their purchases when the war issues were refunded, and that, in the long run, part at least of a permanent fund might be invested profitably in Government bonds. 1 See Bankers' Magazine, vol. 72, p. 371. RETrREMENT OF StTPERANNUATED OIVIL-SEEVICE EMPLOYEES. 197 FEDEBAI, BONDS ATTBACTIVE TO LIPE-INSURANOE COMPANIES DtTBINO WAB. The desirability of Federal bonds as an asset is also attested by the history of lif erinsurance investments. Except the savings banks, life- insurance companies were, until the recent days of corporation growth, the only conspicuous and extensive repository of the people's savings. Since the organization of the insurance department of the State of New York in 1859, the annual statements of the insurance companies have made the public familiar with the merits and earn- ing power of the various classes of investments. These statements seem to show that different kinds of investments have been profitable at different periods in the history of the United States. Statistics compiled from reports of the 29 largest life-insurance companies in the country display an interesting variation in the life-insurance companies' record of investments in public bonds. Beginning with 5.9 per cent of life-insurance assets in 1860, these investments in- creased to 16.1 per cent in 1870, 23.4 per cent in 1880, and then fell off to 9.2 per cent in 1890 and 8.6 per cent in 1900.^ The general significance of these different variations in life-insurance investments at different periods would seem to be this : That in times of public peace and ordinary business activity Federal bonds yield too low a return to be attractive investments, but that in times of public peril and prolonged industrial depression they are in great demand. In the beginning of the history of the big life-insurance companies in this country there was no large field of investment open to them outside of mortgage loans, notes on policy premiums, and public loans. The great transcontinental railroads were not yet built or projected, the era of gas light, electric light, and water companies had not yet dawned. The most remunerative investments of half a century ago were mortgages and premium notes and the life-insurance companies accordingly put 80 per cent of their money into those securities. Not until the Civil War broke out did public bonds rival mortgages or premiums in favor. With the outbreak of hostilities, however, and the cessation of industrial activity the life-insurance companies hastened to transform their mortgage loans into public securities. While gold was, at a premium Government bonds could be purchased at a price which yielded a rate of interest in paper as high as 10 per cent. The maximum price of 285 per cent was reached in July, 1864, at which point the purchasing price of greenbacks was but 36 cents on the dollar. When at length the effects of the war began to wear off and the premium on gold declined, while chances for remunerative investments began to multiply, the Government bonds c^ne gradually to look less and less attractive to the insurance com- panies, until at the present time they are only used as investments for 1 See " The Investments of Life-insurance Companies," by Lester W. Zartman, instructor In insurance, Yale University (1906). 198 BETIEEMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. unemployed funds. It is important, however, when considering the safety of investments to note that, during the financial depression of the seventies, the insurance companies purchased a large amount of Federal bonds and held them, even though the Government was re- funding them at a lower rate of interest, until after 1880. About that time railroad securities began to come into high favor, and since then the insurance companies have become heavy purchasers of rail- road bonds, nearly 29 per cent of their assets in 1900 being in that form of securities. STATE BONDS.. Only less secure than United States bonds, according to the testi- mony of numerous writers on investments, are the obligations of the sovereign States of the Union. State bonds usually sell [says one author] upon a basis whicli may be taken as the equivalent of pure interest, with no element of risk or speculation involved. The obligations of different States sell at different prices, in ac- cordance with market conditions and the relations of supply and demand, but there can be no question of the equal ability of all States to pay their obliga- tions. Repudiation of State debts has occurred in our history, but only in cases where an overwhelming majority of the citizens were opposed to the creation of the debt at the time of its issue, but lacked the means to control the situation. Such instances are chiefly to be found in the case of the so- called carpet-bag governments of the Southern States after the Civil War.' STATE BONDS NOW SAFE HOLDINGS. The conditions under which the repudiated State bonds were issued are so different from any that now obtain or are likely to occur again that there is to-day no reason for believing that any of our State issues of recent date are anything but safe holdings. The bonds of those States which have maintained an unbroken record for payment of their debts are in such high favor that, like Government bonds, they are out of the reach of the majority of investors. During the War of the Rebellion Massachusetts met all its obligations in gold, even when gold was selling at a stupendous premium. Its credit is consequently very sound. The issues of New York State are like- wise in high favour and yield the investor approximately 3 per cent.= Nearly all the States are now, however, on a sound financial basis, so that their bonds are among the safest of securities. Some State issues [says Montgomery Rollins] have valuable assets In the shape of income-producing property, which contribute toward the payment of the principal and interest of its obligations; such, for instance, are the large Income-producing State-owned veharves and docks in San Francisco. ' See How to Invest Money, by George Garr Henry, vice president Guaranty Trust Co., New York (1908). •See Invpstment Problems, by Fisk and Eobinson (1907). KJSTiBEMJiNT OF SUPEKANNUAIED CrVIL-SERVICE EMPLOYEES. 199 Again, an indebtedness of thiis nature may be incurred for some improvement more or less local in its nature, the particular section benefited being primarily responsible for the liquidation of the debt, for which, nevertheless, the State has obligated itself for payment, an example being bonds issued by the Common- wealth of Massachusetts for the benefit of the Metropolitan Water District. BATE OF INTEREST ON STATE BONDS NOT HIGH. The interest return from most of our State securities is not large, and con- sequently their purchase is more or less limited to institutions such as insur- ance companies and savings banks, or to trustees of estates, or to those seek- ing a particularly c(toservative form of investment and who can afford the low rate of interest.' MUNICIPAL BONDS. Municipal bonds are declared by one writer to be " among the most popular and safest forms of investments." ^ Municipal bonds [says another author] have steadily grown in favor for individual investment. They have always been in demand by institutions, and the savings banks of the country at the very outset were permitted to purchase and loan upon them, or to loan money to towns and cities, which is substantially the same thing. Numerous favorable court decisions have further established their position, and no one to-day hears the theory advanced, as was the case 40 years ago, that a municipal bond is a third mortgage, the Federal and State debts taking precedence as first and second mortgages. One of the strongest points in their favor has been the decision of the United States Supreme Court in the celebrated income-tax case, In which It was held that these bonds were exempt from the operation of the income tax. As a result of this conclusive opinion by the court of highest resort any shade of doubt that may have remained as to the desirability of municipal bonds for the investment of indi- vidual or trust funds has been swept away.* In this connection Judge Dillon has written : The Supreme Court of the United States has upheld the rights of the holder of municipal securities with a strong hand, and has set a face of flint against repudiation, even when made on legal grounds deemed solid by the State courts, by municipalities which had been deceived and defrauded. [Further:] The value of such securities is largely due to the course of adjudication in respect thereto by the Supreme Court and the reliance which is felt by the public that it will stand firmly by the doctrine It has so frequently asserted.* In his little book on Municipal Bonds, Eben H. Gay quotes the case of Moultrie County v. Fairfield (see 105 U. S., 370 (1882), to prove that should repudiation be attempted judgment may be secured against the city for the amount of interest or principal in default, and the oiScials who have hitherto refused to levy the necessary tax com- pelled, by writ of mandamus, so to do.° 1 See Money and Investments, by Montgomery Eollius, p. 373. ' See " Investment Securities," by George B Caldwell, manager bond department, Ameri- can Trust and Savings Bank, Cbicago, 111., in American Investment, February, 1906. » See Savings Banks and Safe Securities, by J. G. Dater, p. 58. ' See Dillon's Municipal Bonds, p. 7. » See Municipal Bonds, by Eben H. Gay, published by N. W. Harris & Co., bankers, Boston, 1890. ^00 BETIEEMEiSTT OF StJPEiRANNtJAlEb CIVIL-SEEVICE EMPLOYEES. LARGE INVESTMENTS IN MUNICIPAL BONDS. With the safety of municipal bonds assured, their increased popu- larity as an attractive form of investment has caused a phenomenal growth in the municipal indebtedness of the country. According to the Federal census of 1902, the funded debt and special assessment loans of minor civil divisions amounted to $1,561,433,680. The steady increase in urban population, as shown in the following table, explains this large indebtedness. Table XXXVII. — Shewing population living in cities at each decade.^ Census year. Population of the United States. Population living in cities. Inhabit ants of cities in each 100 of the total population. 1790 1800 1810 1820 1830 1840 1850 1860 1870 1880 1890 1900 1910 3,929,214 5,308,438 7,239,881 9,633,822 12,866,020 17,069,463 23,191,876 31,443,321 38,668.371 60,166,783 62,947,714 75,994,676 91,972,266 131,472 210,873 356,920 475,135 864,509 1,463,994 2,897,686 6,072,266 8,071,875 11,318,647 18,317,783 25,126,668 35,726,720 3.3 4.0 4.9 4.9 6.7 8.5 12.5 16.1 20.9 22.6 29.1 33.1 38.8 iThis table Includes cities of 8,000 and o¥er. The development of cities and the wonderful advance made In material com- fort through waterworks, pavement, gas and electric plants, sewers, drains, and sanitation within the last half century, while creating a new form of in- debtedness, has greatly advanced the valuation of ceal property, which, despite increased obligation, furnishes more than adequate security for the indebted- ness. Wise legislation has afforded still further protection to these obligations by limiting the bonding power of communities, so that to-day the net municipal debt of the country bears an exceedingly low ratio to the assessed valuation of the property upon which it is a lien. Another point In favor of municipal bonds is that,, while furnishing adequate security to investors, they possess also a highly recognized standard of value in all money centers. Thus they are readily accepted as collateral in bank loans and, while not fluctuating widely in the market, or subject to the attacks of unprincipled speculators, they are readily marketable. In nearly all the important cities of the country invest- ment bankers are ready and anxious to buy, sell, or exchange such securities in order to supply the enormous investment demand for them from Individuals and corporations.' The purposes for which municipal bonds are issued is illustrated by the following classification of the funded debt and special assess- ment loans of minor civil divisions in 1902, compiled from census returns. 'See Savings Banks and Safe Securities, by J. G. Dater (1898), p. 64. EETIHEMENT OF STTPEBANNUATED CIVIL-SERVICE EMPLOYEES. 201 Table XXXVIII. — Showing purposes of municipal hond issues. Purpose of issue. Amount. Total. Waterworks ' $320,986,519 11,116,323 82,685,338 Electric light and gas works All other industries Total tor municipal industries $414,688,180 Municipal buildings 69,271,842 7.607,763 127; 806, 525 19,628,835 78,491,792 93,403,831 129,266,201 14,229,869 65,669,942 50,849,728 113,883,183 47,794,885 122,140,626 96,760,808 111,040,780 Police and fire departments School buildings and sites Libraries, art galleries, and museums Parks and gardens Sewers General street improvements Street paving General improvements Another Issued for refunding Total 1,146,745,600 1,561,433,608 CHABACTEE OF MUNICIPAL BONDS ACCEPTABLE. Attention is directed to the fact that the proposed bill makes the acceptability of municipal bonds determined by four factors : (1) The population of the municipality; (2) its period of existence as a city or town, which must be not less than 25 years; (3) its good record in the payment of debts, the bonds of no city being acceptable if it has defaulted within 10 years in the payment of any part of either princi- pal or interest of any funded debt authorized to be contracted by it ; and (4) its net indebtedness, which must not exceed 5 per cent of the valuation of the city's taxable property in the case of cities or towns of less than 200,000 inhabitants, and must not exceed 7 per cent of the valuation of the taxable property in cases of cities of more than 200,000 inhabitants. BONDS OF SMALL MUNICIPALITIES. The last bill introduced during the first session of the Sixtieth Congress (H. E. 21261) limited investments in municipal bonds to cities of 100,000 population and over. A number of financiers con- sulted advised that the investment provision be changed to include cities of much smaller population, care being taken to preserve the clause as to the time the municipality had been a city. Mr. Louis D. Brandeis, of Boston, author of the savings-banli and annuity law which was recently enacted in Massachusetts, said that, in his opinion, many of the smaller cities are better security than the larger ones, and that it is not in the interest of the people generally or of the employees to discriminate against the smaller municipalities. The proposed bill accordingly limits investments in bonds to bonds of cities having a 202 RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. population of 25,000 and over. According to the census of 1900, there are 156 cities in the United States which have a population of 25,000 or over.^ In support of the contention that the smaller municipalities are often better security than the larger ones, and that it is not in the interest of the people generally to discriminate against the smaller municipalities, the following quotation is of interest : While differing only moderately from one another in point of safety and income return, municipal bonds may be divided into two distinct classes in accordance with the degree of convertibility which they possess. Some mu- nicipal bonds possess great convertibility; others almost none. The feature which chiefly determines the activity or -inactivity of a municipal issue is the size and importance of the municipalty, together with the amount of bonds which it has outstanding. The bonds of large and important cities, whose out- standing debt reaches considerable proportions, usually possess great activity. They are constantly traded in and command a broad market, because dealers are willing to buy or sell ii) blocks at prices within a fraction of 1 per cent apart. On the other hand, the bonds of counties, townships, and small cities are usually quite inactive. Transactions rarely occur in them, dealers do not make market in them, and they can be sold only to genuine investors. It Is often impossible to have them even quoted. At first sight it would appear that active municipal bonds would be much more desirable, but inactive municipals possess a special advantage which the active ones do not enjoy. They possess more stability of market price. It is true that their stability of value is due to the fact that they are not traded in or quoted and is therefore largely fictitious, but nevertheless it accomplishes a useful purpose. It enables the investor to carry Inactive municipals at cost price upon his books through periods In which active market bonds would re- quire to be marked down in conformity with prevailing market prices. No other class of Investment except real-estate mortgages possesses to the same degree this quality of price stability. For many classes of buyers — savings banks, for example — stability of price is a consideration of prime importance. The preservation of the savings bank's surplus and. Indeed, the continued solvency of the Institution depend upon maintaining the Integrity of the prin- cipal which it has invested. A savings bank requires, also, great safety of principal and interest, i. e., the certainty that principal and interest Installments will be paid at maturity. It needs only a fair, but not high, yield, and it does not need to place emphasis upon convertibility or prospect of appreciation in value. Comparison of these requirements with the characteristics of inactive municipal bonds discloses a striking adaptability on their part to the real needs of the case. As a consequence, it is not surprising to discover that inactive municipals are greatly sought by savings banks. The desirability of inactive municipals for savings-bank investment was never more forcibly illustrated than on the first of last January, when the savings banks came to make up their annual statements. Broadly speaking, there can be no doubt that they were saved by the large quantity of inactive municipals and real-estate mortgages which they carried. Had any considerable portion of their assets consisted of railroad bonds and active municipals, upon which 1 The number of cities of 25,000 inhabitaats bas probably Increased since 1900. It does not follow, bowever, tbat all will come witbln the provisions of the bill, for 'the reason that their net indebtedness may be greater in some cases than allowed under the bill. RETmEMENT OF SUPERANNUATED CIVILrSEEVICE EMPLOYEES. 203 they should have had to write off a loss of 10 to 15 points, their solvency would almost certainly have been Impaired.' " NET INDEBTEDNESS " DEFINED. I In accordance with the suggestion of Mr. Pierre Jay, former bank commissioner of the Commonwealth of Massachusetts, and others, the proposed bill contains a definition of the term " net indebtedness " similar to that contained in the Massachusetts law relating to in- vestments of savings banks. While it is generally conceded that municipalities can not usually stand a greater " net indebtedness " than 5 per cent of the assessed valuation, it is a rule that has some striking exceptions. The assessed valuation is the value fixed upon the property of the municipality by authorized officials for the pur- pose of taxation, but the rules for fixing the assessments vary in dif- ferent places. In New York, for instance, property is assessed at about its true value, whereas in Chicago the assessment of real prop- erty is based upon about 75 per cent of its real value. In munici- palities where the assessed valuation is only a fraction of the real value of the property, the net indebtedness of the city may safely be more than 5 per cent of the valuation of the city's taxable property. The Massachusetts law for savings banks has been followed in this as in other respects, and the proposed bill therefore fixes the limit of indebtedness allowed on the smaller municipalities — those having less than 200,000 inhabitants — at 5 per cent of the assessed valuation, and raises the limit of indebtedness allowed municipalities of more than 200,000 inhabitants to 7 per cent of the valuation of their tax- able property. By net indebtedness is meant " the indebtedness of any city or town, omitting debts created for supplying the inhabit- ants with water and debts created in anticipation of taxes to be paid within one year, and deducting the amount of sinking funds avail- able for the payment of the indebtedness included." ESSENTIAL POINTS IN CONSIDERING SAFETY OF MUNICIPAL BONDS. Before dismissing the subject of the safety and desirability of the municipal bond as a form of investment, it may be proper to empha- size the fact that municipalities are not all governed by the same laws nor possessed of the same degree of , civilization and material wealth, and that their credit therefore varies like that of different individuals. The statement is made by the manager of a Chicago bond house that "the important elements of security in a municipal bond are the legality of its issue, the moral hazard, the assessed valuation of the property that must be taxed to pay the bond, and the ratio of the debt to real assessment valuation." ^ 1 See How to Invest Money, by George Garr Henry, vice president Guaranty Trust Co., of New York (1908). 2 See "Investment Securities," by George B. Caldwell, manager bond department, Ameri- can Trust and Sayings Bank, Chicago, 111., in American Investments, February, 1906. 204 KETIEEMENT OF SUPEHANNXJATED CIVIL-SERVICE EMPLOYEES. The points which should be considered in the investigation of a municipal bond are similarlj defined by another bank official as follows : (1) The proportion which the total debt of the municipality bears to the assessed valuation of the property subject to taxation; (2) the purpose of issue, which must be a proper and suitable one; (3) the proceedings under which the bonds were issued, which must be in full compliance with the law. " If these points are found to be satisfactory, the investor may rest content that no other form of security is so greatly safeguarded and that his bonds rank upon a substantial equality with Government and State obligations.' BATE OF IN,TEREST ON MUNICIPAL BONDS. After the safety of the municipal bond, the most important thing to be considered is the rate of interest which it will yield. Since United States and State bonds are now so high in value, it follows that the Government employees' retirement fund will have to depend mainly on municipal bonds to lift the interest rate above an average of 2 or 3 per cent. Can they be depended on to yield the 3^ per cent provided for in the bill, or the 4 per cent recommended as more de- sirable? In the opinion of savings-bank officials of New York and New England who have been consulted it is safe to guarantee that rate of interest on the employees' savings. According to the state- ment of a prominent bond house, the yield on the investments in municipal bonds may be said to range between 3^ and 4^ per cent.^ The vice president of the First National Bank of Chicago, 111., states that " municipal bonds yield, according to their grade, from 3^ to 5 per cent to the investor, and as a class they are one of the best investments in the market." * PROBABLE FUTOBE COURSE OP RATE OP INTEREST. The profitable investment of the retirement fund created under the provisions of the proposed bill will depend on the rate of interest which can be obtained on the securities to which it is restricted. Many persons believe that the rate of interest is lower now than it has been in the past and that it is likely to be still lower in the future. The student finds, however, that the interest rate fluctuates constantly, so that it is impossible to know whether the general tendency of the rate is upward or downward unless a long period of years is taken under observation. It may be stated, of course, as a general proposi- tion that the interest rate is always low in an old and settled country in comparison to what it is in a new and undeveloped one, and that 1 See How to Invest Money, by George Garr Henry, vice president Guaranty Trust Co., New York (1908). " See Investment Problems, by Pisk & Robinson. » See " Investments," by David R. Porgan, vice president Pirst National Bank, Chicago, in American Investments, February, 1906, E.ETIEEMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 205 money therefore is not likely to bring in future years the large return it has brought here in the past when the Great West was first opened up to industry. The fact, too, that these are days of swift and easy communication between widely distant countries lowers the general rate of interest by making our American securities well known the world over and bringing to us from all points of the compass without much effort the capital desired. Nevertheless, in spite of the fact that these modern conditions might be expected to depress the interest rate and keep it down, there are those who say, not only that the rate of interest is now on the upward trend and has been so for some time, but that it never will stay down for any great length of time. It is illuminating in connection with this discussion to read what Lester W. Zartman, instructor in insurance at Yale University, has said on this subject If we study the rate of interest in the United States from the period of the Civil War, we shall find that there has been one tendency through the whole period, the movement toward lower rates. Much discussion in insurance circles has been based on the showing of this period. The conclusion has been that the tendency of interest is to decline, and investments, especially during the past 15 years, have been made on the assumption that the rate of interest for a long time was to continue to decline. It is a mistake to base conclusions on a study of the period since the Civil War and on this period alone. Valid conclusions must be based on a wider study. There is a belief widely prevalent that the rate of interest has been high throughout the history of the United States until recent years, and that there has been a gradual decline to what is known as the present low rate. This is not exactly true. It is a fact that in general the rate of interest in the United States has been higher than in Europe, especially in England, but, relatively speaking, the rate was not steadily high during the early history of the country, nor has there been a gradual decline. The real situation is that the rate has been a fluctuating one. During colonial times 6 per cent was altogether a common rate of interest. Before the Revolutionary War loans could be secured on desirable mortgages in New York State at 5 per cent, which can not be considered as a high rate on mortgage loans, for many borrowers are paying more even now.' Zartman goes on to describe the fluctuations in the rate of interest in succeeding years. He finds that during the thirties the rate fluctu- ated rapidly, being extremely high in 1836 and then, during the severe depression following the crisis of 1887-1839, going as low as 4 per cent on many loans, the ordinary rate fluctuating around 6 per cent. Life-insurance statistics were not available before 1850, but savings- bank statistics show that for such investments as the savings banks were allowed to make the rate of interest for 50 years was probably under 6 per cent. From 1850 to 1860 the statistics of the income and assets of seven life-insurance companies are available, and show, in a general way, that the rate of interest for the decade 1850-1860 was somewhat below 6 per cent. »See The InveBtments of Life Insurance Companies, by Lester W. Zartman. 206 KETIKEMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. After 1860 we have abundant data as to the rate of earnings secured by the life companies on their investments. In the early part of the sixties there was a decrease in earnings, but in 1863 the interest rate began to rise, and in 1864 the rate was the highest known in the experience of the insurance companies. This was due to the fact that they had large investments in Government bonds, the interest on which was paid in gold, and gold was at a premium. The prevailing rate was more than 7 per cent and 8 to 12 per cent was not uncommwi. Since the latter part of the sixties the interest rate has declined more or less unsteadily, but none the less surely. The decade of the seventies was a period of widespread financial depression. In the early part of the decade the prevailing interest rate was 6^ per cent, in the latter part 6 per cent. After 1880 the decline in the rate of interest became more pronounced. Not a single company maintained a level of 6 per cent unbroken. The general interest rate was 5^ per cent. The rapid decline in the rate of interest continued in the decade of the nineties, reaching its lowest point in 1893 and 1894. The aver- age rate for the decade was about 5 per cent, but in the worst years it sank as low in numerous cases as 2^ and 3 per cent. The latter part of the decade was a turning point. Since 1900 the average rate of interest earned by the life-insurance companies has been 4^ per cent, though there have been sharp fluctuations. It may be safely stated that since 1896 the general tendency of interest rates has been slowly but steadily upward. From this survey of the interest returns obtained by the principal life-insurance companies on their invest- ments, thus collected and classified by Zartman, the main conclusion to be drawn would seem to be this, that the tendency of the interest rate is not to decline but to fluctuate. Remembering that the future is long, it is safe then to argue that while the rate of interest may be low at some time in the future, it is sure, also, to be high at some other time in the future. It is true, however, that some writers hesitate to hazard a predic- tion as to the rate of interest in the future. Among them is Prof. Irving Fisher, of Yale University, whose conclusions are thus sum- marized in his exhaustive work, " The Eate of Interest : " In order to estimate the possible variation in the rate of interest we may, broadly speaking, take account of the following three groups of causes : (1) The thrift, foresight, self-control, and love of offspring which exist in a community ; (2) the progress of inventions; (3) the changes In the purchasing power of money. The first cause tends to lower the rate of interest ; the second to raise it; and the third to affect only the nominal rate of interest, though practically it usually produces also a dislocation in the real rate of interest. Were it possible to estimate the strength of the various forces thus sum- marized we could base upon them a prediction as to the rate of interest in the future. Such a prediction, however, to be of much value would require more BETIEBMENT OF SUPEE.ANNUATBD CIVIL-SEKVICE EMPLOYEES. 207 painstaking attention than has ever been given to existing historical conditions. Without such a careful investigation any prediction is hazardous.' Numerous actuaries have declared that it is folly to say that the rate of interest will continue to decline, since the time would come if that were true when money would be loaned without interest, a condition contrary to all probability. Carried to its logical con- clusion, the idea of constantly declining interest would lead ulti- mately to the theory that the rate of interest must eventually become a minus quantity, and the time arrive when the money lender would pay the borrower for taking the money off hie hands, a theory not likely to gain much credence in the business world. The probable future rate of interest was discussed with great earnestness at the Fourth International Congress of Actuaries, held in New York in August, 1903. Two papers were presented, one on " The Probable Future Course of the Rate of Interest," by Mr. J. Burn, of Great Britain, and one on " Der wahrscheinliche Lauf des Zinssatzes in der Zukunft," by Dr. Ludwig Grossmann, of Austria. Mr. Bum's conclusion was as follows : The most probable future course of the rate of Interest (providing no exceptional disturbances occur) would therefore seem to be: A fall, small but rapid, within the next year or two; then a less rapid fall lasting possibly for several years, and gradually settling down to a general tendency to fall at a slower and slower rate.^ It is interesting to note that since 1903, the year when this paper was read, the rate of interest has steadily advanced, and that most of the actuaries who participated in the discussion which followed the reading of these papers indorsed rather the views of Dr. Gross- mann, who held that the marked decrease in the returns from invest- ments appeared to be mainly of a temporary nature.^ Dr. Alfred Manes, of Germany, called attention to a recent work by Ernst Voye, of Halle, entitled, " On the Extent of the Various Rates of Interest and their Reciprocal Dependence on Each Other. The Course of the Rate of Interest in Prussia from 1807 till 1900." In this the author divides the century into four periods, discussing the rate of interest in Prussia in each period. He finds that in the first period, from 1807 to 1844, there was a general decline in the rate of interest, which, owing to extremely unfavorable political relations (until 1814) was as high as 8 per cent and then dropped about 1844 to 3^ per cent. In the second period, from 1845 to 1870, it rose, inter- rupted several times by a retrograde movement. The years from 1871 to 1895 comprise the third period, in which an .almost uninter- rupted decline is to be noticed and the rate of interest dropped to 3 per cent, the minimum of the entire century. Finally, in the fourth J See The Rate of Interest, by Irving Fisher, Ph. D., p. 334. " See Documents, Fourth International Congress of Actuaries, p. 574. • See Documents, Fourth International Congress of Actuaries, p. 922. 208 BETIEEMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. period, from 1896 to 1900, was observed a rather'rapid upward move- ment to over 3J per cent. The author states the fact that in America, Eussia, France, and Austria the rate of interest has also declined since 1870, and comes to the following conclusion : Constantly increasing commerce converts tlie national money markets into an international money market, contracting more and more, so that the rates of the separate countries tend to adjust themselves each to the other. Whether the rate of interest in one of the civilized states will ever again deviate from that in another by 4 per cent, as was the case in 1869 between the United States and England, is highly questionable. * » * The development of an inter- national rate of interest produces the natural result that by an extension of the market, the rate of interest In the separate countries is secured against too low a decline as well as against an immoderate rise. * * * The reac- tion of the foreign upon the domestic rate of Interest can, therefore, be generally only favorable and by no means predominantly unfavorable." Another strong speech, bringing out the same point, was made on that occasion by Mr. Charlton T. Lewis, of the United States. Said he: It has beeb often asserted in the public press and sometimes in the writings of economists, * * * that there is a progressive and secular tendency to diminution in the rate of interest. This theory has been widely accepted among financial men, yet on examination it proves to be without foundation. All these diagrams, all these tables, the whole history of the rate of interest go to disprove it. He then went on to trace the history of the rate of interest in Europe and the United Sta.tes from the time of the Napoleonic wars down to the present day, showing the same general fluctuations in the rate that had been noted by Ernst Voye in his book. From 1815 to 1845 a general decline, from 1846 to 1871 a general rise, from 1872 to 1897 a general decline, and from 1897 to 1903, the year in which he spoke, a general rise again, "so marked that it is astonishing to me that the facts have not obtained more prominence in this debate." He opposed next " another theory by which many economists have been influenced," and that is "that the accumulation of capital in itself has a tendency to lower the rate of interest, and that as the world grows richer the rate of interest must progressively decline." If there is any established fact in the financial history of the world, any general truth which is demonstrated by experience on the largest scale, it is that this theory is unfounded. Is there a man with any knowledge of economic history who doubts that the world's wealth made enormous progress in the century from 1760 to 1860? Is there any possible question that the growth of capital in the period which some of us are able to remember, from 1845 to 1870, was rapid and magnificent, far outstripping the growth of population? Yet if we inquire into the market of each of these epochs we shall find that in each case the rate of interest at the later date was materially and universally much higher than it was at the early date. * » * ' See Proceedings of the Fourth International Congress of Actuaries, Vol. II, p. 150. RETIEEMBNT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. 209 These facts, which can not be disputed, show that while the normal rate of interest is a function of the average productiveness of capital, its fluctua- tions depend not simply day by day and month by month, and even year by year, but sometimes from generation to generation upon other influences. These are mainly the forces which shape the imaginings and expectations of men. The most potent of them is the spirit of enterprise, the degree in which the tendency prevails among men to reach forward energetically for the future and to shape it for themselves with confidence. Reasoning thus, Mr. Lewis comes to the conclusion that the rate of interest — Will undergo fluctuations, but as long as capital in the hands of human Indus- try and of human ingenuity can reproduce its kind, the rate at which it prom- ises to increase will be the only limit beyond which enterprise and sanguine hope will be unwilling to pay for the use of It' Bearing all these facts and arguments in mind, it would seem reasonable to assume that a permanent fund invested in stable se- curities will yield, on the average, a moderate rate of interest such as it is here proposed shall be guaranteed the Government employees on their savings. 1 See Proceedings of the Fourth International Congress of Actuaries, Vol. II, pp. 156-161. 74196"— S. Doc. 745, 61-3 14 Appendix A. TEXT OP PERKINS BILL. [S. 1944, Slxty-flrst Congress, first session.] A BILL For the retirement of employees In the classified civil service. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, Tliat beginning with tbe first day of July next following the passage of this act there shall be deducted and withheld from the monthly salary, pay, or compensation of every officer or employee of the United States to whom this act applies an amount, computed to the nearest tenth of a dollar, that will be sufficient, with interest thereon at three and one- half per centum per annum, compounded annually, to purchase from the United States, under the provisions of this act, an annuity, payable quarterly through- out life, for every such employee on arrival at the age of retirement as herein- after provided, equal to one and one-half percentum of his annual salary, pay, or compensation for every full year of service or major fraction thereof between the date of the passage of this act and the arrival of the employee at the age of retirement. The deductions hereby provided for shall be based on such annuity table as the Secretary of the Treasury may direct, and interest at the rate of three and one-half per centum per annum, compounded annually, and shall be varied to correspond to any change in the salary of the employee. Sec. 2. That the amounts so deducted and withheld from the salary, pay, or compensation of each employee shall be deposited in the Treasury of the United States and shall be credited, together with interest at three and one-half per centum per annum, compounded annually, to an individual account of the employee from whose salary, pay, or compensation the deduction is made. The moneys so deducted and the income derived therefrom- may from time to time be deposited in savings banks designated by the Secretary of the Treasury for that purpose : Provided, however, That the savings banks receiving such deposits shall pay interest thereon at a rate of not less than three and one-half per centum per annum, compounded annually. For the safe-keeping and prompt payment of the money deposited with them the Secretary of the Treasury shall require the savings banks to give satisfactory security, by the deposit of bonds of the United States, bonds or other interest-bearing obligations of any State of the United States, or any legally authorized bonds issued for municipal pur- poses by any city or town in the United States which has been in existence as a city or town for a period of twenty-five years, and which for a period of ten years previous to such deposit has not defaulted In the payment of any part of either principal or interest of any funded debt authorized to be contracted by it, and which has at such date more than twenty-five thousand inhabitants, as established by the last national census, and whose net indebtedness does not exceed five per centum of the valuation of the taxable property therein, to be ascertained by the last preceding valuation of property for the assessment of taxes; or any legally authorized bonds Issued for municipal purposes by any 210 RETIREMENT OP SUPERANNUATED CIVILrSERVICE EMPLOYEES. 211 city or town in the United States which has been in existence as a city or town for a period of twenty-five years, and which for a period of ten years previous to such deposit has not defaulted in the payment of any part of either principal or interest of any funded debt authorized to be contracted by it, and which has at such date more than two hundred thousand inhabitants, as established by the last national census, and whose net indebtedness does not exceed seven per centum of the valuation of the taxable property therein, to be ascertained by the last preceding valuation of property for the assessment of taxes. In this clause the words " net indebtedness " mean the indebtedness of any city or town, omitting debts created for supplying the inhabitants with water, and debts created in anticipation of taxes to be paid within one year, and deducting the amount of sinking funds available for the payment of the indebtedness included. The Secretary of the Treasury shall accept, for the purpose of this act, securities herein enumerated in such proportions as he may from time to time determine, and he may at any time require the deposit of additional securities, or require any bank to change the character of the securities already on deposit. It shall be the duty of the Secretary of the Treasury to obtain information with refer- ence to the value and character of the securities authorized to be accepted under the provisions of this section, and he shall from time to time furnish information to savings banks as to such bonds as would be accepted as security. When consistent with the best interests of the fund created by this act, the Sec- ■ retary of the Treasury shall distribute the deposits herein provided for, as far as practicable, equitably between the different States and sections. If, for any reason, the Secretary of the Treasury shall not be able to make satisfactory arrangements with savings banks for all of the funds, then he may invest the balance in any of the aforementioned securities. The moneys deducted from salaries and the income derived therefrom shall be held and deposited or invested, as above described, by the Secretary of the Treasury until paid out as hereinafter provided. Any deficiency in the fund hereby created to carry out the provisions of this act shall be paid out of any money in the Treasury not otherwise appropriated. For the purpose of aiding the Secretary of the Treasury In depositing and Investing the funds created by this act a board of Investment Is hereby created, composed of the Treasurer of the United States, the Comptroller of the Cur- rency, the chief of the office created by the provisions of this act, and two persons to be designated by the President from among the employees of the classified civil service. The members of the board of investment shall be sworn, and shall hold office until others are appointed and qualified in their stead. Sec. 3. That the retirement age herein referred to shall be sixty-five years for group one, sixty-five years for group two, and seventy years for group three. And the President of the United States shall designate the branches of the service to be included in each group. Sec. 4. That if within thirty days before the arrival of an employee at the age of retirement the head of the department or independent office in which he Is employed certifies to the Secretary of the Treasury that by reason of his efficiency and his willingness to remain in the service the continuance of such employee therein would be advantageous to the public service, such employee may be retained for a term not exceeding two years; and at the end of the two years he may by similar certification be continued for an additional term cf two years, and so on. Upon the failure of the head of the department or independent office to make the above-described certificate it shall be the duty of the Secretary of the Treasury to place such employee upon the retired list In accordance with the provisions of this act 212 KETIBEMENT OP SUPERANNUATED CIVIL-SEEVICE EMPLOYEES. Sec. 5. That If an employee is retained In the service after reaching the retirement age a deduction of ten per centum of his monthly salary, pay, or compensation shall thereafter he made while he remains in the service, and the same shall be treated as other deductions under section two of this act. Sec. 6. That upon retiring at the age of retirement, or thereafter, the em- ployee may withdraw his savings, with the increment of interest as herein provided, under one of the following options, and if Option I or Option II is selected, receive in addition thereto such annuity, if any, as may be apportioned by the Secretary of the Treasury out of accumulations In excess of three and one-half per centum guaranteed by the provisions of this act, and such appor- tionment by the Secretary of the Treasury shall be conclusive : Option I. In an annuity payable quarterly throughout life. Option II. In an annuity payable quarterly throughout life, with the provi- sion 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 eleven of this aqt. Option III. In one sum. If after retirement the employee does not avail himself of one of the fore- going options, but leaves the amount due him on deposit, interest at the rate of two per centum per annum on the original sum so left on deposit on retire- ment shall be credited thereto for a period not exceeding twenty years, and If not then withdrawn the money so left on deposit, without Interest, shall be covered into the Treasury as a miscellaneous receipt. Sec. 7. That upon absolute separation from the civil service prior to the retirement age, and only upon such separation, the employee may withdraw his savings in one sum, and in case he has been in such service not less than six years he may also receive in addition thereto interest on his savings at the rate of three and one-half per centum per annum, compounded annually; or. In case his savings amount to at least one thousand dollars, he may withdraw the same under any one of the foregoing options computed on the basis of his attained age. In case of the death of an employee while in the service the amount of his savings, together with the interest credited thereon, shall be paid to his legal heirs. Sec. 8. That beginning with the first day of July next following the passage of this act there shall be deducted and withheld from the monthly salary, pay, or compensation orf every employee newly entering the service to whom this act applies an amount equal to one-fifth of his monthly salary, pay, or compensation during the first six months of his employment; and in every case of promotion of any person to whom this act applies there shall be deducted and withheld from the monthly salary, pay, or compensation of such person an amount equal to the Increase made by such promotion during the first three months from the taking effect thereof; and the amounts so deducted and withheld shall be de- posited in the Treasury of the United States to the credit of a special fund to carry out the provisions of section nine of this act. Sec. 9. That beginning one year after the first day of July next following the passage of this act, any employee to whom this act applies, who has served the United States for not less than twenty years, and who, by reason of acci- dent or illness not due to vicious habits or by reason of exigencies of the service but without fault or delinquency on his part, has become totally and permanently disabled, may retire from active service prior to the age of retire- ment, and, on certificate from the head of the department or independent office in which he is employed to the Secretary of the Treasury setting forth sucti EETIEEMENT OP SUPEEANNTJATED CIVIIi-SERVICE EMPLOYEES. 213 disability and the approval of sucli certificate by the Secretary of the Treasury, may receive, -out of the fund created by section eight of this act, an annual disability allowance, payable quarterly, equal to one and one-half per centum of his total compensation during service prior to such retirement. Allowances under this section shall be discontinued on arrival of the employee at the age of retirement unless sooner terminated by the Secretary of the Treasury. If upon the retirement of an employee on a disability allowance the money then to his credit under section two of this act, together with interest thereon at three and one-half per centum per annum, compounded annually, will not- be sufficient to purchase an annuity, payable quarterly throughout life, for such employee on arrival at the age of retirement equal to his annual disability allowance, the Secretary of the Treasury shall deduct and withhold from his quarterly disability allowance an amount, computed to the nearest tenth of a dollar, that together with the money then to his credit, with interest, will be sufficient to purchase such annuity. Amounts deducted and withheld from dis- ability allowances shall be treated as deductions under section two of this act. If the money to his credit as aforesaid Is in excess of the amount that will be required to purchase such annuity he may withdraw such excess in one cash sum, or in an annuity certain limited to the age of retirement. The Secretary of the Treasury shall reduce or terminate the disability allowance granted to any employee whenever in his judgment it is proper to do so, and such action on his part shall be final and conclusive. In case of the death of an employee while in the receipt of a disability allowance, the amount to his credit under section two of this act shall be paid to his legal heirs, and the disability allowance shall cease and determine. The disability allowances hereby provided for shall at all times be limited to the fund created by section eight of this act, £^nd if the total allowances shall at any time be in excess of such fund the allowances shall be reduced pro rata to a sum within such fund. Sec. 10. That in case of reinstatement in the classified civil service of any person who at the time of his separation therefrom received a refund under section seven of this act, his period of service for the purpose of retirement and of making the monthly deduction from his salary shall be computed from the date of such reinstatment, unless he shall, within ninety days after rein- statement, pay to the Secretary of the Treasury the amount refunded to him, with interest at three and one-half per centum per annum, in which case the same shall be replaced to the credit of his account, and the former period of service shall be counted. Sec. 11. That beginning with the first day of July next following the pas- sage of this act every employee to whom this act applies shall be entitled, on reaching the retirement age, or having already passed that age, to retire from the service under the provisions hereinbefore contained, and also, in addition to the annuity herein provided for by his own contributions from his salary, to receive from the United States during the remainder of his life an annuity equal to one and one-half per centum of his total compensation during service prior to the taking effect of this act; and the Secretary of the Treasury is hereby authorized and directed to pay such annuity quarterly, upon proper certification of the retirement of such employee by the appointing officer under whom he last served. Annuities from the United States for the period of service prior to the passage of this act shall be payable only on condition that the employee remains in the service until he reaches the age of retirement: Provided, however, That employees of group one may receive the annuity granted by this section on retirement at the age of sixty years or thereafter. On the death of the employee the payment of annuities provided 214 RETIEEMENT OF SUPERANNUATED CIVIL-SEKVICE EMPLOYEES. for by this section shall cease and determine. Annuities payable by the United States on salaries In excess of two thousand five hundred dollars per annum shall be based upon an annual salary of two thousand five hundred dollars. Sec. 12. That the period of service upon which the annuity to be paid by the United States is based shall be computed from original employment, whether as a classified or unclassified employee, and shall include periods of service at different times and service in one or more departments, branches, or independent offices of the Government, the Signal Corps prior to July first, eighteen hundred and ninety-one, and the general service in or under the War Department prior to May sixth, eighteen hundred and ninety-six. Sec. 13. That every person to whom this act applies who shall continue in the classified civil service after the passage of this act, as well as every person to whom this act applies who may hereafter be appointed to a position or place, shall be deemed to consent and agree to the deductions made and provided for herein, and shall receipt in full for the salary, pay, or compensation which may be paid monthly or at any other time, and such payment shall be a full and complete discharge and acquittance of all claims or demands whatsoever for services rendered by such person during the period covered by such payment, notwithstanding the provisions of sections one hundred and sixty-seven, one hundred and sixty-eight, and one hundred and sixty-nine of the Revised Statutes of the United States, or of any other law, rule, or regulation affecting the salary, pay, or compensation of any person or persons employed in the classified civil service to whom this act applies. Sec. 14. That the Secretary of the Treasury shall prepare and keep all need- ful tables, records, and accounts required for carrying out the provisions of this act. The records to be liept shall include data showing the mortality experi- ence of the employees in the various branches of the service and the rate of withdrawal from the classified service, and any other information that may be of value and may serve as a guide for future valuations and adjustments of the plan for the retirement of employees. The Secretary of the Treasury shall make a detailed comparative report annually to Congress showing all receipts and disbursements under the provisions of this act, together with the total number of persons receiving annuities and disability allowances and the amounts paid them. Sec. 15. That the provisions of this act shall apply only to the classified civil service in the District of Columbia, which is hereby defined to include all officers and employees in the executive civil service of the United States in the District of Columbia, except persons appointed by the President and confirmed by the Senate, and unskilled laborers. No person serving in a position excepted from examination or registration as defined in the civil-service rules shall be included within the provisions of this act unless he has served in a competitive position for at least one year. Whenever any person becomes separated from the classi- fied service by reason of appointment in the unclassified service, such separa- tion shall not operate to take him out of the provisions of this act. The Presi- dent shall have power, in his discretion, to exclude from the operation of this act any group of employees whose tenure of office is intermittent or of uncer- tain duration. Sec. 16. That none of the moneys mentioned in this act shall be assignable either in law or equity or be subject to execution or levy by attachment, garnish- ment, or other legal process. Sec. 17. That for the clerical and other service and all other expenses neces- sary in carrying out the provisions of this act during the fiscal year nineteen hundred and ten, including salaries and rent in the city of Washington, there is hereby appropriated the sum of twenty thousand dollars out of any money in the Treasury not otherwise appropriated, to be available until expended. HETlEEMEHt OF StTPERANNtTATED CIVIL-SEBVIOE EMPLOYEES. 2l5 Sec. 18. That the Secretary of the Treasury is hereby authorized to perform or cause to be performed' any and all acts and to make such rules and regula- tions as may be necessary and proper for the purpose of carrying the provisions of this act into tfull force and effect. Appendix B. text of gillett bill. [H. R. 22013, Sixty -first Congress, second session.] A BILL for the retirement of employees In tlie classified civil service. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assemiled, That beginning with the first day of July next following the passage of this act there shall be deducted and withheld from the monthly salary, pay, or compensation of every officer or employee of the United States to whom this act applies an amount, computed to the nearest tenth of a dollar, that will be suflicient, with interest thereon at three and one- half per centum per annum, compounded annually, to purchase from the United States, under the provisions of this act, an annuity, payable quarterly, through- out life, for every such employee on arrival at the age of retirement as here- inafter provided, equal to one and one-half per centum of his annual salary, pay, or compensation for every full year of service or major fraction thereof be- tween the date of the passage of this act and the arrival of the employee at the age of retirement. The deductions hereby provided for shall be based on such annuity table as the Secretary of the Treasury may direct, and interest at the rate of three and one-half per centum per annum, compounded annually, and shall be varied to correspond to any change in the salary of the employee. Sec. 2. That the amounts so deducted and withheld from the salary, pay, or compensation of each employee shall be deposited in the Treasury of the United States and shall be credited, together with Interest at three and one-half per centum per annum, compounded annually, to an individual account of the em- ployee from whose salary, pay, or compensation the deduction is made. The moneys so deducted and the income derived therefrom may from time to time be deposited in savings banks designated by the Secretary of the Treasury for that purpose : Provided, however, That the savings banks receiving such de- posits shall pay interest thereon at a rate of not less than three and one-half per centum per annum, compounded annually. For the safe-keeping and prompt payment of the money deposited with them the Secretary of the Treasury shall require the savings banks to give satisfactory security, by the deposit of bonds of the United States, bonds or other interest-bearing obligations of any State of the United States, or any legally authorized bonds issued for municipal pur- poses by any city or town in the United States which has been in existence as a city or town for a period of twenty-five years, and which for a period of ten years previous to such deposit has not defaulted in the payment of any part of either principal or interest of any funded debt authorized to be contracted by it, and which has at such date more than twenty-five thousand inhabitants, as es- tablished by the last national census, and whose net indebtedness does not ex- ceed five per centum of the valuation of the taxable property therein, to be ascer- tained by the last preceding valuation of property for the assessment of taxes ; or any legally authorized bonds issued for municipal purposes by any city or 216 RETIREMENT OF SUPERANNUATED CIVILi-SEKVIOE EMPLOYEES. town In the United States which has been in existence as a city or town for a period of twenty-flve years, and which for a period of ten years previous to such deposit has not defaulted in the payment of any part of either principal or interest of any funded debt authorized to be contracted by it, and which has at such date more than two hundred thousand inhabitants, as established by the last nitional census, and whose net indebtedness does not exceed seven per centum of the valuation of the taxable property therein, to be ascertained by the last preceding valuation of property for the assessment of taxes. In this clause the words "net indebtedness" mean the indebtedness of any city or town, omitting debts created for supplying the inhabitants with water, and debts created in anticipation of taxes to be paid within one year, and deducting the amount of sinljing funds available for the payment of the indebtedness in- cluded. The Secretary of the Treasury shall accept, for the purpose of this act, securities herein enumerated in such proportions- as he may from time to time determine, and he may at any time require the deposit of additional securi- ties, or require any bank to change the character of the securities already on deposit. It shall be the duty of the Secretary of the Treasury to obtain in- formation with reference to the value and character of the securities author- ized to be accepted under the provisions of this section, and he shall from time to time furnish information to savings banks as to such bonds as would be accepted as security. When consistent with the best Interests of the fund cre- ated by this act, the Secretary of the Treasury shall distribute the deposits herein provided for, as far as practicable, equitably between the different States and sections. If, for any reason, the Secretary of the Treasury shall not be able to make satisfactory arrangements with savings banks for all of the funds, then he may invest the balance in any of the aforementioned securities. The moneys deducted from salaries and the income derived therefrom shall be held and deposited or invested, as above described, by the Secretary of the Treasury until paid out as hereinafter provided. Any deficiency in the fund hereby created to carry out the provisions of this act shall be paid out of any money in the Treasury not otherwise appropriated. For the purpose of aiding the Secretary of the Treasury in depositing and Investing the funds created by this act a board of investment is hereby created, composed of the Treasurer of the United States, the Comptroller of the Cur- rency, the chief of the office created by the provisions of this act, and two persons to be designated by the President from among the employees of the classified civil service. The members of the board of investment shall be sworn, and shall hold office until others are appointed and qualified in their stead. Sec. 3. That the retirement age herein referred to shall be sixty-five years for group one, sixty-five years for group two, and seventy years for group three. And the President of the United States shall designate the branches of the service to be included in each group. Sec. 4. That if within thirty days before the arrival of an employee at the age of retirement the head of the department or independent office in which he is employed certifies to the Secretary of the Treasury that by reason of his efficiency and his willingness to remain in the service the continuance of such employee therein would be advantageous to the public service, such employee may be retained for a term not exceeding two years; and at the end of the two years he may by similar certification be continued for an additional term of two years, and so on : Provided, however, That after the first day of July, nineteen hundred and twenty, no person to whom this act applies shall be con- tinued in the service beyond the age of retirement as herein provided. Upon KETIEEMENT OF STJPEEANNUATED CIVIL-SERVICE EMPLOYEES. 217 the failure of the head of the department or independent office to make the above-described certificate it shall be the duty of the Secretary of the Treasury to place such employee upon the retired list in accordance with the provisions of this act. Sec. 5. That If an employee is retained in the service after reaching the re- tirement age a deduction of ten per centum of his monthly salary, pay, or compensation shall thereafter be made while he remains in the service, and the same shall be treated as other deductions under section two of this act. Sec. 6. That upon retiring at the age of retirement, or thereafter, the .em- ployee may withdraw his savings, with the increment of interest as herein provided, under one of the following options, and if Option I or Option II is selected, receive in addition thereto such annuity, if any, as may be apportioned by the Secretary of the Treasury out of accumulations in excess of three and one-half per centum guaranteed by the provisions of this act, and such appor- tionment by the Secretary of the Treasury shall be conclusive : Option I. In an annuity payable quarterly throughout life. Option II. In an annuity payable quarterly throughout life, with the pro- vision 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 eleven of this act. Option III. In one sum. If after retirement the employee does not avail himself of one of the fore- going options, but leaves the amount due him on deposit, interest at the rate of two per centum per annum on the original sum so left on deposit on retire- ment shall be credited thereto for a period not exceeding twenty years, and if not then withdrawn the money so left on deposit, without interest, shall be covered into the Treasury as a miscellaneous receipt. Sec. 7. That upon absolute separation from the civil service prior to the retirement age, and only upon such separation, the employee may withdraw his savings in one sum, and in case he has been in such service not less than six years he may also receive in addition thereto interest on his savings at the rate of three and one-half per centum per annum, compounded annually; or, in case his savings amount to at least one thousand dollars, he may withdraw the same under any one of the foregoing options computed on the basis of his attained age. In case of the death of an employee while in the service the amount of his savings, together with the interest credited thereon, shall be paid to his legal heirs. Sec. 8. That beginning with the first day of July next following the passage of this act there shall be deducted and withheld from the monthly salary, pay, or compensation of every employee newly entering the service to whom this act applies an amount equal to one-fifth of his monthly salary, pay, or compen- sation during the first six months of his employment; and in every case of promotion of any person to whom this act applies there shall be deducted and withheld from the monthly salary, pay, or compensation of such person an amount equal to the increase made by such promotion during the first three months from the taking efCect thereof ; and the amounts so deducted and with- held shall be deposited in the Treasury of the United States to the credit of a special fund to carry out the provisions of section nine of this act. Sec. 9. That beginning one year after the first day of July next following the passage of this act, any employee to whom this act applies, who, by reason of accident or ilkiess not due to vicious habits or by reason of exigencies of the service but without fault or delinquency on his part, has become totally and 218 EETIEEMENl? OF SUPERANNUATED ClVlL-SERVlCE EMPLOYEES. permanently disabled, may retire from active service prior to the age of re- tirement, and, on certificate from the head of the department or independent office in which he is employed to the Secretary of the Treasury setting forth such disability and the approval of such certificate by the Secretary of the Treasury, may receive, out of the fund created by section eight of this act, an annual disability allowance, payable quarterly, equal to one and one-half per centum of his total compensation during service prior to such retirement: Provided, however, That, unless prorated by the Secretary of the Treasury as hereinafter provided, the allowance for disability due to accident shall be equal to not less than twenty per centum of the average annual compensation of the disabled employee prior to such retirement: And provided further, That the allowance for disability due to illness shall only be granted after twenty years of service. Allowances under this section shall be discontinued on ar- rival of the employee at the age of retirement unless sooner terminated by the Secretary of the Treasury. If upon the retirement of an employee on a disability allowance the money then to his credit under section two of this act, together with interest thereon at three and one-half per centum per annum, compounded annually, will not be suflicient to purchase an annuity, payable quarterly throughout life, for such employee on arrival at the age of retirement equal to his annual disability allowance, the Secretary of the Treasury shall deduct and withhold from his quarterly disability allowance an amount, computed to the nearest tenth of a dollar, that together with the money then to his credit, with interest, will be sufficient to purchase such annuity. Amounts deducted and withheld from disability allowances shall be treated as deductions under section two of this act. If the money to his credit as aforesaid is in excess of the amount that will be required to purchase such annuity he may withdraw such excess in one cash sum, or in an annuity limited to the age of retirement. The Secretary of the Treasury shall reduce or terminate the disability allow- ance granted to any employee whenever In his judgment it is proper to do so, and such action on his part shall be final and conclusive. In case of the death of an employee while in the receipt of a disability allow- ance, the amount to his credit under section two of this act shall be paid to his legal heirs, and the disability allowance shall cease and determine. The disability allowances hereby provided for shall at all times be limited to the fund created by section eight of this act, and if any valuation of the fund shows the liabilities for allowances to be in excess of the resources of such fund, then the allowances shall be reduced pro rata to a sum within the fund. Sec. 10. That in case of reinstatement in the classified civil service of any person who at the time of his separation therefrom received a refund under section seven of this act, his period of service for the purpose of retirement and of mailing the monthly deduction from his salary shall be computed from the date of such reinstatement, unless he shall, within ninety days after reinstate- ment, pay to the Secretary of the Treasury the amount refunded to him, with interest at three and one-half per centum per annum. In which case the same shall be replaced to the credit of his account, and the former period of service shall be counted. Sec. 11. That beginning with the first day of July next following the passage of this act every employee to whom this act applies shall be entitled, on reach- ing the retirement age, or having already passed that age, to retire from the service under the provisions hereinbefore contained, and also, in addition to the annuity herein provided for by his own contributions from his salary, to receive from the United States during the remainder of his life an annuity equal to one and one-half per centum of his total compensation during service fiETIEEMENT OF StTPEBAN-NUATED CIVIL-SEEVICE EMPLOYEES. 219 prior to the taking effect of this act : Provided, however, That no annuity shall be paid by the United States for services prior to the passage of this act, which, together with the annuity earned by the enaployee's own contribution, shall amount to more than six hundred dollars ; and the Secretary of the Treasury is hereby authorized and directed to pay such annuity quarterly, upon proper cer- tification of the retirement of such employee by the appointing officer under whom he last served. Annuities from the United States for the period of serv- ice prior to the passage of this act shall be payable only on condition that the employee remains in the service until he reaches the age of retirement : Provided, however. That employees of group one may receive the annuity granted by tWs section on retirement at the age of sixty years or thereafter. On the death of the employee the payment of annuities provided for by this section shall cease and determine. Annuities payable by the United States on salaries in excess of two thousand five hundred dollars per annum shall be based upon an annual salary of two thousand five hundred dollars. Sec. 12. That the period of service upon which the annuity to be paid by the United States is based shall be computed from original employment, whether as a classified or unclassified employee, and shall include periods of service at different times and service in one or more departments, branches, or Independent offices of the Government, the Signal Corps prior to July first, eighteen hundred and ntnety-one, and the general service in or under the War Department prior to May sixth, eighteen hundred and ninetj'-six. Sec. 13. That every person to whom this act applies who shall continue in the classified civil service after the p.nssage of this act, as well as every person to whom this act applies who may hereafter be appointed to a position or place, shall be deemed to consent and agree to the deductions made and provided for herein, and shall receipt in full for the salary, pay, or compensation which may be paid monthly or at any other time, and such payment shall be a full and complete discharge and acquittance of all claims or demands whatsoever for services rendered by such person during the period covered by such payment, notwithstanding the provisions of sections one hundred and sixty-seven, one hundred and sixty-eight, and one hundred and sixty-nine of the Revised Statutes of the United States, or of any other law, rule, or regulation affecting the salary, pay, or compensation of any person or persons employed in the classified civil service to whom this act applies. Sec. 14. That the Secretary of the Treasury shall prepare and keep all needful tables, records, and accounts required for carrying out the provisions of this ace. The records to be kept shall include data showing the mortality experience of the employees in the various branches of the service and the rate of with- drawal from the classified service, and any other information that may be of value and may serve as a guide for future valuations and adjustments of the plan for the retirement of- employees. The Secretary of the Treasury shall make a detailed comparative report annually to Congress showing all receipts and disbursements under the provisions of this act, together with the total number of persons receiving annuities and disability allowances and the amounts paid them. Sec. 15. That the provisions of this act shall apply only to persons in the classified civil service in the departments and independent offices in the District of Columbia. No person serving in a position excepted from examination or registration as defined in the civil-service rules shall be included within the provisions of this act unless he has served in a competitive position for at least one year. Whenever any person becomes separated from the classified service by reason of appointment in the unclassified service, such separation shall not operate to take him out of the provisions of this act. The President shall have 220 EETIEEMENT 01" StrPEBANNITATED CIVIL.-SERVICE EMPLOYEES. power, In his discretion, to exclude from the operation of this act any group of employees whose tenure of office is intermittent or of uncertain duration. Sec. 16. That none of the moneys mentioned in this act shall be assignable either in law or equity or be subject to execution or levy by attachment, garnish- ment, or other legal process. Sec. 17. That for the clerical and other service and all other expenses neces- sary in carrying out the provisions of this act during the fiscal year nineteen hundred and ten, including salaries and rent in the city of Washington, there is hereby appropriated the sum of twenty thousand dollars out of any money in the Treasury not otherwise appropriated, to be available until expended. Sec. 18. That the Secretary of the Treasury is hereby authorized to perform or cause to be performed any and all acts and to make such rules and regula- tions as may be necessary and proper for the purpose of carrying the provisions of this act into full force and effect. Appendix C. TEXT OP AUSTIN BILL, [H. E. 729 — Sixty-second Congress, first session.] A BILL For increasing the salaries and for tlie retirement ol employees In the classified civil service. Be it enacted ty the Senate and Souse of Representatives of the United States of America in Congress assernbled, That beginning with the first day of July next following the passage of this act the annual salary, pay, or compensation of every officer or employee of the United States to whom this act applies shall be increased to an amount, computed to the nearest multiple of twelve dollars, that will be equal to one hundred and fifteen per centum of the present grade of salary, pay, or compensation of such officer or employee, and from such salary, pay, or compensation there shall be deducted and withheld monthly an amount, computed to the nearest tenth of a dollar, that will be sufficient, with interest thereon at five per centum per annum, compounded annually, to purchase from the United States, under the. provision of this act, an annuity, payable quarterly throughout life, for every such employee on arrival at the age of retirement as hereinafter provided, equal to one and one-half per centum of his annual salary, pay, or compensation for every full year of service or major fraction thereof between the date of the passage of this act and the arrival of the employee at the age of retirement. The deductions hereby provided for shall be based on such annuity table as the Secretary of the Treasury may direct, and Interest at the rate of five per centum per annum, compounded annually, and shall be varied to correspond to any change in the salary of the employee. Sec. 2. That the amounts so deducted and withheld from the salary, pay, or compensation of each employee shall be deposited In the Treasury of the United States and shall be credited, together with interest at five per centum per an- num, compounded annually, to an individual account of the employee from whose salary, pay, or compensation the deduction Is made. The moneys so deducted and the income derived therefrom may, from time to time, be de- posited In savings banlcs designated by the Secretary of the Treasury for that purpose: Provided, however. That the savings banks receiving such deposits shall pay interest thereon at a rate of not less than three and one-half per centum per annum, compounded annually. For the safe-keeping and prompt payment of the money deposited with them the Secretary of the Treasury shall RETIREMENT OF SUPERANNUATED CIVIL-SERVIOE EMPLOYEES. 221 require the savings banks to give satisfactory security by the deposit of bonds of the United States, bonds or other interest-bearing obligations of any State of the United States, or any legally authorized bonds issued for municipal pur- poses by any city or town in the United States which has been in existence as a city or town for a period of twenty-five years, and which for a period of ten years previous to such deposit has not defaulted in the payment of any part of either principal or interest of any funded debt authorized to be contracted for by it, and which has at such date more than twenty-five thousand inhabitants, as established by the last national census, and whose net indebtedness does not exceed five per centum of the valuation of the taxable property therein, to be ascertained by the last preceding valuation of property for the assessment of taxes; or any legally authorized bonds issued for municipal purposes by any city or town in the United States which has been in existence as a city or town for a period of twenty-five years, and which for a period of ten years previous to such deposit has not defaulted in the payment of any part of either principal or interest of any funded debt authorized to be contracted by it, and which has at such date more than two hundred thousand inhabitants, as established by the last national census, and whose net indebtedness does not exceed seven per centum of the valuation of the taxable property therein, to be ascertained by the last preceding valuation of property for the assessment of taxes. In this clause the words " net indebtedness " mean the indebtedness of any city or town, omitting debts created for supplying the inhabitants with water, and debts created in anticipation of taxes to be paid within one year, and deducting the amount of sinking funds available for the payment of the indebtedness included. The Secretary of the Treasury shall accept, for the purpose of this act, securities herein enumerated in such proportions as he may from time to time determine, and he may at any time require the deposit of additional securi- ties, or require any bank to change the character of the securities already on deposit. It shall be the duty of the Secretary of the Treasury to obtain infor- mation with reference to the value and character of the securities authorized to be accepted under the provisions of this section, and he shall from time to time furnish information to savings banks as to such bonds as would be accepted as security. When consistent with the best interests of the fund created by this act, the Secretary of the Treasury shall distribute the deposits herein provided for, as far as practicable, equitably among the difEerent States and sections. If for any reason the Secretary of the Treasury shall not be able to make satisfactory arrangements with savings banks for all of the funds, then he may invest the balance in any of the aforementioned securities. The moneys deducted from salaries and the income derived therefrom shall be held and deposited or invested, as above described, by the Secretary of the Treasury until paid out as hereinafter provided. Any deficiency in the fund hereby created to carry out the provisions of this act shall be paid out of any money in the Treasury not otherwise appropriated. For the purpose of aiding the Secretary of the Treasuy in depositing and Investing the funds created by this act, a board of investment is hereby created, composed of the Treasurer of the United States, the Comptroller of the Cur- rency, the chief of the oflSce created by the provisions of this act, and two persons to be designated by the President from among the employees of the classified civil service. The members of the board of hivestment shall be sworn and shall hold office until others are appointed and qualified in their stead. Sec. 3. That the retirement age herein referred to shall be sixty-five years for group one, sixty-five years for group two, and seventy years for group three. And the President of the United States shall designate the branches of the serv- ice to be included in each group. 222 RETIREMENT OF SUPERANNUATED CIVIL-SERVICE EMPLOYEES. Sec. 4. That if within thirty days before the arrival of an employee at the age of retirement the head of the department or independent office in which he is employed certifies to the Secretary of the Treasury that by reason of his efficiency and his willingness to remain in the service the continuance of such employee therein would be advantageous to the public service, such employee may be retained for a term not exceeding two years, and at the end of two years he may by similar certification be continued for an additional term of two years, and so on : Provided, however, That after the first day of July, nine- teen hundred and twenty, no person to whom this act applies shall be continued in the service beyond the age of retirement as herein provided. Upon the failure of the head of the department or independent office to make the above-described certificate it shall be the duty of the Secretary of the Treasury to place such employee upon the retired list in accordance with the provisions of this act. Sec. 5. That if an employee is retained in the service after reaching the retirement age a deduction of ten per centum of his monthly salary, pay, or compensation shall thereafter be made while he remains in the service, and the same shall be treated as other deductions under section two of this act. Sec. 6. 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, and if Option I or Option II is selected, receive in addition thereto such annuity, if any, as may be apportioned by the Secretary of the Treasury out of accumulations in excess of five per centum guaranteed by the provisions of this act, and such apportionment by the Secretary of the Treasury shall be conclusive: Option I. In an annuity payable quarterly throughout life. Option II. In an annuity payable quarterly throughout life, with the pro- vision 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 eleven of this act. Option III. In one sum. If after retirement the employee does not avail himself of one of the fore- going options, but leaves the amount due him on deposit, interest at the rate of two per centum per annum on the original sum so left on deposit on retirement shall be credited thereto for a period not exceeding twenty years, and if not then withdrawn, the money so left on deposit, without interest, shall be covered into the Treasury as a miscellaneous receipt. Sec. 7. That upon absolute separation from the civil service prior to the retirement age, and only upon such separation, the employee may withdraw his savings in one sum, and in case he has been in such service not less than six years, he may also receive in addition thereto interest on his savings at the rate of five per centum per annum, compounded annually, or, in case his savings amount to at least one thousand dollars, he may withdraw the same under any one of the foregoing options, computed on the basis of his attained age. In case of the death of an employee while in the service the amount of his savings, together with the interest credited thereon, shall be paid to his legal heirs. Sec. 8. That beginning with the first day of July next following the passage of this act there shall be deducted and withheld from the monthly salary, pay, or compensation of every employee newly entering the service to whom this act applies an amount equal to one-fifth of his monthly salary, pay, or compensation during the first six months of his employment ; and in every case of promotion of any person to whom this act applies there shall be deducted and withheld from the monthly salary, pay, or compensation of such person an amount equal ■ EETIKEMENT OF SUPERANNUATED OIVILr-SBBVICE EMPLOYEES. 223 to the increase made by such promotion during the first three months from the taking effect thereof; and the amounts so deducted and withheld shall be deposited in the Treasury of the United States to the credit of a special fund to carry out the provisions of section nine of this act. Sec. 9. That beginning one year after the first day of July next following the passage of this act, an employee to whom this act applies, who, by reason of accident or illness not due to vicious habits or by reason of exigencies of the service, but without fault or delinquency on his part, has become totally and permanently disabled, may retire from active service prior to the age of retire- ment, and, on certificate from the head of the department or independent office in which he is employed to the Secretary of the Treasury, setting forth such disability, and the approval of such certificate by the Secretary of the Treasury, may receive, out of the fund created by section eight of this act, an annual diasability allowance, payable quarterly, equal to one and one-half per centum of his total compensation during service prior to such retirement : Provided, however, That, unless prorated by the Secretary of the Treasury as hereinafter provided, the allowance for disability, due to accident, shall be equal to not less than twenty per centum of the average annual compensation of the disabled employee prior to such retirement : And, provided further, That the allowance for disability due to illness shall only be granted after twenty years of service. Allowances under this section shall be discontinued on arrival of the employee at the age of retirement unless sooner terminated by the Secretary of the Treasury. If upon the retirement of an employee on a disability allowance the money then to his credit under section two of this act, together with interest thereon at five per centum per annum, compounded annually, will not be sufficient to purchase an annuity, payable quarterly throughout life, for such employee on arrival at the age of retirement equal to his annual disability allowance, the Secretary of the Treasury shall deduct and withhold from his quarterly dis- " ability allowance an amount, computed to the nearest tenth of a dollar, that, together with the money then to his credit, with interest, will be sufficient to purchase such annuity. Amounts deducted and withheld from disability allow- ances shall be treated as deductions' under section two of this act. If the money to his credit, as aforesaid, is in excess of the amount that will be required to purchase such annuity, he may withdraw such excess in one cash sum, or in an annuity limited to the age of retirement. The Secretary of the Treasury shall reduce or terminate the disability allow- ance granted to any employee whenever in his judgment it is proper to do so, and such action on his part shall.be final and conclusive. In case of the death of an employee while in the receipt of a disability allow- ance, the aniount to his credit under section two of this act shall be paid to his legal heirs, and the disability allowance shall cease and determine. The disability allowances hereby provided for shall at all times be limited to the fund created by section eight of this act, and If any valuation of the fund shows the liabilities for allowances to be in excess of the resources of such fund, then the allowances shall be reduced pro rata to a sum within the fund. Sec. 10. That in case of reinstatement in the classified civil service of any person who at the time of his separation therefrom received a refund under section seven of this act, his period of service for the purpose of retirement and of making the monthly deduction from his salary shall be computed from the date of such reinstatement, unless he shall, within ninety days after reinstate- ment, pay to the Secretary of the Treasury the amount refunded to him, with interest at five per centum per annum, in which case the same shall be replaced to the credit of his account, and the former period of service shall be counted. 224 BETIBEMENT OF SUPERANNUATED OIVIL-SEEVICE EMPLOYEES. Sec. 11. That beginning with the first day of July next following the passage of this act every employee to whom this act applies shall be entitled, on reacji- ing the retirement age, or having already passed that age, to retire from the service under the provisions hereinbefore contained, and also, in addition to the annuity herein provided for by his own contributions from his salary, to receive from the United States during the remainder of his life an annuity equal to one and one-half per centum of his total compensation during service prior to the taking effect of this act; and the Secretary of the Treasury is hereby authorized and directed to pay such annuity quarterly, upon proper certification of the retirement of such employee by the appointing officer under whom he last served. Annuities from the United States for the period of serv- ice prior to the passage of this act shall be payable only on condition that the employee remains in the service until he reaches the age of retirement: Pro- vided, however, That employees of group one may receive the annuity granted by this section on retirement at the age of sixty years or thereafter. On the death of the employee the payment of annuities provided for by this section shall cease and determine. Annuities payable by the United States on salaries in excess of two thousand five hundred dollars per annum shall be based upon an annual salary of two thousand five hundred dollars. Sec. 12. That the period of service upon which the annuity to be paid by the United States is based shall be computed from the original employment, whether as a classified or unclassified employee, and shall include periods of service at different times and service in one or more departments, branches, or independent offices of the Government, the Signal Corps prior to July first, eighteen hundred and ninety-one, and the general service in or under the War Department prior to May sixth, eighteen hundred and ninety-six. Sec. 13. That every person to whom this act applies, who shall continue In the classified civil service after the passage of this act, as well as every person to whom this act applies, who may hereafter be appointed to a position or place, shall be deemed to consent and agree to the deductions made and provided for " herein, and shall receipt in full for the salary, pay, or compensation which may be paid monthly or at any other time, and such payment shall be a full and complete discharge and acquittance of all claims or demands whatsoever for services rendered by such person during the period covered by such payment, notwithstanding the provisions of sections one hundred and sixty-seven, one hundred and sixty-eight, and one hundred and sixty-nine of the Revised Statutes of the United States, or of any other law, rule, or regulation affecting the salary, pay, or compensation of any person or persons employed in the classified civil service to whom this act applies. Sec. 14. That the Secretary of the Treasury shall prepare and keep all needful tables, records, and accounts required for carrying out the provisions of this act. The records to be kept shall include data showing the mortality experience of the employees in the various branches of the service and the rate of withdrawal from the classified service and any other information that may be of value and may serve as a guide for future valuations and adjustments of the plan for the retirement of employees. The Secretary of the Treasury shall make a detailed comparative report annually to Congress showing all receipts and disburse- ments under the provisions of this act, together with the total number of per- sons receiving annuities and disability allowances and the amounts paid them. Sec. 15. That the provisions of this act shall apply to all persons entering the classified civil service after the first day of July next following the passage of this act, and to all persons in the classified civil service prior to the taking effect of this act who shall, by written application to the Secretary of the Treasury within one year after the first day of July next following the passage of this KETIEEMENT OF SXJPEEANNUATED CIVIIrSEBVICE EMPLOYEES. 225 act, elect to become subject to the provisions of this act. The classified civil service is hereby defined to include all officers and employees in the executive civil service of the United States except unskilled laborers and persons ap- pointed by the President and confirmed by the Senate. No person serving in a position excepted from examination or registration as defined in the civil-service rules shall be included vyithin the provisions of this act unless he has served in a competitive position for at least one year. When- ever any person becomes separated from the classified civil service by reason of appointment in the unclassified service, such separation shall not operate to take him out of the provisions of this act. The President shall have power, in his discretion, to exclude from the operation of this act any group of employees whose tenure of office is intermittent or of uncertain duration. Sec. 16. That none of the moneys mentioned in this act shall be assignable either in law or equity or be subject to execution or levy by attachment, gar- nishment, or other legal process. Sec. 17. That for the clerical and other service and all other expenses neces- sary in carrying out the provisions of this act during the fiscal years nineteen hundred and eleven and nineteen hundred and twelve, including salaries and rent in the city of Washington, there is hereby appropriated the sum of fifty thousand dollars, out of any money in the Treasury not otherwise appropriated, to be available until expended. Sec. 18. That the Secretary of the Treasury is hereby authorized to perform or cause to be performed any and all acts and to make such rules and regula- tions as may be necessary and proper for the purpose of carrying the provisions of this act into full force and effect. 74196°— S. Doc. 745, 61-3 15 APPENDIX B. (Senate Document No. 290, 61st CongreBs, 2d Session.) CIVIL-SERVICE RETIREMENT— GREAT BRITAIN AND NEW ZEALAND BY HERBERT D. BROWN. Prepared under the direction of Chas. P. Neill, Commissioner of Labor. In the Senate of the United States, April S, mo. Ordered, That 1,000 copies of Senate Document No. 290, Sixty-first Congress, second session, entitled "Civil-service retirement in Great Britain and in New Zealand," ty Herbert D. Brovm, te printed, with corrections, for the u:e of the Committee on Civil Service and Betrencliment. Charles G. Bennett, Secretary. LETTER OF TRANSMITTAL. Department of Commeecb and Labor, Office of the Secretary, Washington, January IS, 1910. Sm: In pursuance of Senate resolution of January 11, 1910, direct- ing this department to furnish, as soon as practicable, "such infor- mation as may now be in the possession of the Bureau of Labor on the subject of foreign and domestic retirement plans for employees of government civil service and in the service of industrial and trans- portation corporations," I have the honor to transmit herewith reports relating to civil-service retirement in Great Britain and in New Zealand. The Bureau of Labor now has in course of preparation reports covering civil-service retirement systems in Austria-Hungary, Canada, France, Germany, New South Wales, and other foreign countries, and also a report covering existing provisions for retirement for public- school teachers and other municipal employees, and for employees of railroads in the United States. These reports will be transnaitted at as early a date as practicable. The forthcoming Twenty-third Annual Eeport of the Bureau of Labor, which will be available within a few days, covers quite fully old-age retirement systems in force in industrial and transportation companies in this country. Respectfully, Ben. S. Cable, Acting Secretary. Hon. James S. Sherman, President of the Senate, Washington, D. G. 3 CIYIL-SERYICE RETIREMENT IN GREAT BRITAIN. CONTENTS. Page. Letter of transmittal 3 Civil-service retirement in Great Britain, by Herbert D. Brown: Summary 11 Superannuation provisions before 1810 16 Through life offices, sinecures, pluralism, and substitute schemes 16 Through funds created in various departments from fees and taxes 18 Through funds created in the excise and customs by deductions from salaries 20 Superannuation act of 1810 — first general law, a provision for free pensions. 21 Report of committee on public expenditures, 1808, the basis for act of 1810 21 Main features of the act 23 Superannuation act of 1822 : 24 Treasury minute of 1821 establishing principle of deductions from salaries the basis for act of 1822 24 Main features of the act 25 Repeal of the act 25 Second period of free pensions, 1824-1829 26 Report of select committee on public income and expenditure, 1828, recommending reestablishment of the system of deductions 26 Treasury minute of 1829 reestablishing system of deductions 28 Superannuation act of 1834 ' 30 Scale of deductions and superannuation allowances 31 Comparison of schemes of 1822 and 1834 32 Select committee of 1856 34 Grievances presented by committee of civil servants 34 Three general grounds of complaint against act of 1834 39 (1) Dislike of distjnctions between different classes of civil serv- ants 39 (a) Pensions paid chief officers of state and members of legal establishments compared with those paid other civil employees 40 (6) Pensions paid employees whose appointments antedated 1829 compared with those paid other civil employees. . 44 (2) Dislike of pension scale and forfeiture of contributions 45 (a) Forfeiture provision objectionable as a form of tontine. . . 46 (5) Forfeiture provision especially unjust in cases of clerks dying in the service 48 (c) Forfeitable deductions together with inadequate salaries a bar to life insurance 51 (d) Free pensions desired with compulsory deductions for purpose of life insurance 54 7 8 CONTENTS. Civil-service retirement in Great Britain, by Herbert D. Brown — Continued. Select committee of 1856 — Continued. Page. Three general grounds of complaint against act of 1834 — Continued. (3) Distrust of actuarial soundness of plan embodied in act of 1834 57 (a) Flat-rate assessments considered inequitable and possi- bly inadequate 59 (6) Accrued liabilities possible cause of insolvency in case of fund. , 65 Defense of act of 1834 by men responsible for its enactment 68 Defense of wisdom of providing superannuation allowances 70 Investigation of actuaries proved deductions inequitable and inade- quate 70 Resolutions of the committee condemning system of deductions and recommending revision of salaries 72 Superannuation commission, 1857 73 Commission's reasons for advocating a superannuation system 73 Commission's objections to a contributory scheme 75 Recommendation that deductions from salary be abolished 76 Refusal of the commission to recommend an insurance fund 77 Indifference of the commission to actuarial phases of the problem 78 Indifference of the commission to cost of free pension scheme 80 Repeal of the twenty-seventh section of the superannuation act of 1834, 1857 : 80 Bill for repeal introduced by Lord Naas 80 Bill opposed by the ministry 82 Debate on the bill 85 Vote on the bill 92 Text of the repeal 93 Analysis of the vote 94 Superannuation act of 1859 ; '. . . 95 Bill embodied minor recommendations of superannuation commission . 95 Bill introduced and defended by the Government 97 Debate on the bill 100 Main f eatxu-es of the act 104 Select committee of 1873 105 Testimony showing — Value to the public service of a superannuation system 106 Compulsory retirement at a given age advisable 107 Cost of maintaining free pension system 108 Pension charge reduced by reducing number of pensionable clerks . 109 Development of idea that pension is a substitute for part of salary. 109 Committee's recommendation of compulsory retirement at a given age . 110 Playfair commission, 1874 Ill Optional retirement after twenty years' service proposed and rejected . Ill Select committee of 1885 " ^ 112 Committee's recommendation of a contribiltory pension scheme 112 Ridley commission, 1886 113 Growth of the deferred-pay argument 113 Abolition of pensions proposed by Sir Robert Hamilton in favor of sav- ings scheme through accumulation of deferred pay 114 Approval of Sir Robert Hamilton's proposal expressed by officers of the Treasury 117 Assumption that postponed charge is made by the State to pay pensions accepted by Sir Reginald Welby 118 CONTENTS. 9 Civil-service retirement in Great Britain, by Herbert D. Brown— Continued. Ridley commission, 1886 — Continued. Page. Confusion in Sir Reginald's mind aa to amount of postponed charge. . . 119 Assumption that postponed charge is made by the State to pay pensions accepted by Sir Herbert Maxwell 120 Confusion in Sir Herbert's mind as to amount of postponed charge 123 Disapproval of Sir Robert Hamilton's proposal expressed by Mr. Mowatt 123 Confusion in public mind regarding Mr. Mowatt' s testimony as to amount of postponed charge actually made by the State 125 Approval of Sir Robert Hamilton's proposal expressed by other high officials 126 (1) Would prevent pensions being charged to posterity . 126 (2) Would facilitate dismissal of inefficient employees 127 Approval of Sir Robert Hamilton's proposal expressed by civil serv- ants 130 Growing cost of civil pensions 133 Report of the commission 134 Rejection of Sir Robert Hamilton's proposal 135 Recommendation that deductions be made from salary to be re- turned on separation from service but forfeited on acceptance of pension 135 Minor recommendations 137 Criticism of the commission's chief recommendation 139 Superannuation act of 1887 , .. 141 Summary of law under superannuation acts of 1834, 1859, 1887 143 Courtney commission, 1902 147 Appointment of commission due to "deferred pay committee" 147 Growth in cost of civil pensions since Ridley commission 148 Relation between cost of pensions and salary charge confused with amount of postponed charge made by State to pay pensions 150 Request of civil servants that theoretical contributions be funded 155 Request of civil servants for insurance out of surplus theoretical con- tributions 156 Fact of postponed charge established but amount not determined . . . . 158 Request of civil servants that amount of postponed charge be deter- mined 160 Voluntary insurance organizations maintained by civil servants 161 Per cent of salaries paid for life insurance by civil servants 162 Testimony of commission's actuary, showing necessity of provision for refund of contributions 163 Report of commission 165 Pensions acknowledged to be " deferred pay " 165 Theoretical deductions from salary held to be only sufficient for pension 166 Funding of theoretical contributions held to be not justified 166 Recommendation that pensions be reduced one-quarter and differ- ence given in insurance and cash 166 Minority report of commission adverse to any change 168 Workmen's compensation act, 1906 171 Superannuation act, 1909 173 Main features of the present law 173 Discussion of the act in Parliament 175 Conclusions » 181 10 CONTENTS. Page. Appendix I. Superannuation act of 1834 188 Appendix II. Superannuation act of 1859 195 Appendix III. Superannuation act of 1887 198 Appendix IV. Warrant regulating grant of gratuities, etc., under section 1 of act of 1887 201 Appendix V. Scheme of compensation in case of injury to government workmen . 203 Appendix VI. Superannuation act of 1909 205 CIVII-SERVICE RETIREMENT IN GREAT BRITAIN. BY HERBERT D. BROWN." SUMMARY. The British Government has been experimenting for over a century with diflferent schemes for solving the problem of superannuation in the civil service. The first general act deahng with the subject of superannuation in all the offices of the Government was passed in 1810. From a very early period, however, superannuation funds had existed both in the Customs and the Excise departments. After 1810 those funds were appropriated by the Government and paid into the exchequer, and a general system obtained of granting superannuation allowances to the civil service out of the revenues of the country, without the existence of any superannuation fund. This system continued in force for twelve years. The expenditures for pensions increasing very rapidly, Parhament passed an act in 1822 which readopted the liberal scale of super- annuation allowances of the year 1810, but with the provision that deductions should be made from the salaries of those employees of the civil service receiving more than £100 ($486.65) per annum. The deductions were formed into a fund, and when a civil servant died in office or when he resigned or was removed from office without receiv- ing a retiring allowiance, the whole amount of his contributions was repaid to him. The law also provided that half of the superannua- tion allowances granted after that period should be paid from the fund so created and that the other half should be paid from the Con- sohdated Fund. This scheme was not given a fair trial, for only two years later, in 1824, Parliament repealed the act and ordered that the sums which had up to that time been deducted be paid back. From 1824 until 1829 followed a second period during which pen- sions were granted by the State, without deduction from the salaries of civil-service employees. In 1829 the Treasury, accepting the contention that it had no right to tax existing members of the service, but desirous of lessening the pension charge, passed a minute directing that contributions should be paid by all those who might afterwards be appointed to the oMr. Brown desires to give credit to Harriet Connor Brown for valuable assistance in the collection of historical data. 11 12 CIVIL-SEKVICE KETIKEMENT IN GEEAT BRITAIN. civil service. The deductions from salary were 2J per cent from salaries not exceeding £100 ($487) per annum and 5 per cent from those exceeding that amount. This was understood to be a provi- sional measure, subject to the final decision of Parliament. The Superannuation Act of 1834 gave parhamentary sanction to this Treasury minute of 1829, and from 1829 to 1857 the contributory system of granting superannuation allowances was in force for all who entered the civil service subsequent to August 4, 1829. This act contained no express direction for the creation of a superannua- tion fund and it made no provision for the return of contributions in case of death or resignation before the contributor had received a retiring allowance. Owing to the fact that the contributions of the employees were turned into the general exchequer instead of being funded and that no account was kept of the amounts thus collected and the amounts returned in the shape of pensions, it was not known whether the contributions were adequate in the aggregate to meet the expenditure for pensions, or whether they were inadequate. An impression prevailed that they were more than sufficient and that the Government was, therefore, making a profit out of its employees. In view of the fact that the salaries were felt to be inadequate, this impression created widespread discontent in the service. This dis- content was deepened by the fact that the law required forfeiture of contributions in the case of all employees save those who lived to the pensionable age. It was calculated that only one of every seven employees lived and remained in the service to that age. The fact was bitterly resented that many employees contributed for years to their pensions but, dying in harness, or soon after retirement, had to forfeit all or nearly all they had thus set aside, while their famihes were perhaps left in want. The fact, too, that pensions were paid those who had entered the service prior to August 4, 1829, without deductions being made from their salaries, and on a more liberal scale than that allowed the general body of the service, was another cause of discontent. Because of these various inequities and dis- criminations the dissatisfaction of the service with the provisions of the act came in time to be very intense. In 1846 a large number of civil employees formed thenaselves into an association for the purpose of bringing their grievances to the attention of Parhament. This association was in existence for about ten years, during which time it worked out various data and classi- fications which it laid before a select committee of the House of Commons appointed in 1856 to consider the regulations respecting the grant of superannuation allowances to members of the civil service. Besides desiring that the scale of pensions should be made more liberal, and that pensions should be granted free by the State, one branch of this committee of civil servants was desirous that CIVIL-SEKVICE KETIKEMENT IN GREAT BRITAIN. 13 compulsory deductions should continue to be made from salaries, but that they should be used to create a mutual insurance fund. The Select Committee took testimony from a great number of public officials and clerks and also engaged the services of two actua- ries to investigate the question of the sufficiency of the deductions made from the salaries of the civil servants to meet the pensions provided under the Act of 1834. To the surprise of the public gen- erally, since an impression to the contrary had prevailed, the actua- ries reported that the contributions of the civil servants were not adequate to meet the charges to which the public was liable under the Act of 1834. In other words, had the deductions from salaries been funded from the first, the fund would, by that time, have been hopelessly insolvent. Before the report of the actuaries had been submitted, however, the Civil-Service Superannuation Commission, which succeeded the Select Committee, had recommended the abolition of the contribu- tory system on the ground of its inequities and the consequent dis- satisfaction of the civil employees with its provisions. Section XXVII of the Superannuation Act of 1834, providing for deductions from salaries, was accordingly repealed in 1857. Following this repeal, the Superannuation Act of 1859 was passed. It repealed most of the Act of 1834 and estabhshed a system of uniform free pensions for all persons employed in the "permanent civil service of the State." The scale of pensions estabhshed was that of one-sixtieth of salary for every year of service, with a maxi- mum allowance of forty-sixtieths. Retirement on a superannuation allowance was permitted at the age of 60, or in case of mental or physical infirniity after ten years' service, but no power was given the State to compel retirement at any age. In cases of infirmity when the period of service had been less than ten years, a gratuity of one month's pay for each year of service was given. The desire of the civil employees for the creation of an insurance fund was ignored. As regards the main body of pensionable civil employees the scheme inaugurated in 1859 has remained substantially unaltered down to the present year (1909). The Superannuation Act of 1887 and the Workmen's Compensation Act of 1906 have made supplementary provision for the award of pensions and gratuities to various classes of government employees not provided for by the Act of 1859. There are also special acts relative to the pensions of judges, diplomatic and consular officers, colonial governors, police and constabulary, elementary-school teach- ers, etc. Except in the case of the elementary-school teachers, who have a contributory fund, these pensions have been paid out of the public treasury. No special funds are set aside for the purpose, but Parliament votes from year to year the amount required. 14 CrVIL-SEKVICE EETIEBMBNT IN GEEAT BEITAIN. Although it might be supposed that the establishment of a straight pension system would have been entirely satisfactory to the em- ployees themselves, the evidence submitted to various select com- mittees and special commissions shows that such was not the case. The theory gradually gained ground — especially after the investi- gation of the civil establishments made by the Ridley Commission in 1886-1888— that the pensions were taken into account in fixing salaries, and that the salaries were accordingly less than they would be had no pension system been adopted. This theory was based on the contention that pensionable members of the civil service are paid less than nonpensionable members. The Ridley Commission recommended that a deduction of 5 per cent of salaries be set aside to form a savings account, but the recommendation was not acted upon. A committee of employees, which took the name of the Deferred Pay Committee, was organized, and as a result of their agitation, the Courtney Commission was appointed in 1902 to investigate the grievances of the civil employees. The latter held that not only were their salaries lower than they would have been had the pension system not been adopted, but that the amount withheld from their salaries was more than sufl&cient to pay the pensions. They thought at first that they had high Treasury authority for believing that from 16 to 20 per cent was withheld from salaries to pay pensions. Know- ing that that per cent of pay is considerably more than had been found necessary in industrial pension systems for the payment of retiring allowances, they asked that life insurance be given them in addition to the pension and as an offset to the excessive deductions from salary. Inquiry developed the fact that the current idea that from 16 to 20 per cent was deducted from salaries was based on an erroneous interpretation of statements made by Treasury ofiicials. The employees then urged that an investigation be made to ascer- tain just what percentage of salary was being deducted for that pur- pose. This request was not granted, the commission holding arbi- trarily that no more than the amount necessary to pay pensions was withheld from salaries. They recommended, therefore, that life insurance be granted the employees, not in addition to the pension, but in substitution of part of it. The recommendations of the Courtney Commission were submitted by the Deferred Pay Committee to a plebiscite of the civil service, with the result that 80 per cent of the service declared themselves in favor of the change. On September 20, 1909, a law was accord- ingly passed reducing the amount of the pension by one-quarter, and substituting in its place a provision for a cash payment in case of death or retirement from the service. Instead of receiving a pension of one-sixtieth of salary for each year of service rendered, CIVIL-SEBVICE RETIREMENT IN GREAT BRITAIN. 15 as forinerly, the civil employee of England will receive, henceforth, a pension of one-eightieth of salary for each year of service. Since the maximum period of service which is recognized is forty years, it follows that the pension is reduced from a maximum pension of two-thirds pay to a maximum pension of one-half pay. To balance this reduction of pension several new benefits are given. Any employee who retires after two years' service gets, in addition to the pension (if any) or the gratuity (if any), an additional lump-sum allowance of one-thirtieth of his annual salary for every year he has served. In case an employee dies after five years' service, a cash sum, as a life insurance, equal to one year's pay, is given to his legal representatives. If an employee dies after he has retired from the service, before receiving the whole of a year's pay, the State pays the difference to his family. This last legislation must be regarded as a recognition of the employees' contention that, in fixing salaries, the practice has grown up of taking into account the value of the pension. The civil pension in England has come to be the equivalent of a deferred annuity paid for by the difference between the salary actually received and the salary that would be received were there no pension. Hence, in practical operation, the pension system of England is virtually a contributory system. (") The cost of the British system is interesting. Under date of Feb- ruary 19, 1909, the British Foreign Office made the following state- ment, in reply to an inquiry sent out by the Department of Com- merce and Labor cpncerning Great Britain's pension plan for civil servants : Speaking generally, the greater part of the clerical establishment of the civil service (except persons engaged in routine duties such as copying) is pensionable, while in the arsenal, dock yards, etc., pension rights are, as a rule, confined to the directing posts, and a proportion only of the lower staff. The number of existing civil pensioners is approximately 22,500, and the amount voted for pensions, etc., in respect of the- civil service proper (i. e., exclusive of provision for ele- mentary school-teachers, constabulary, and police), in the current year, was £1,842,260 (18,965,358). The great majority of existing pen- sioners are men, the employment of women in the public service in anything like considerable numbers being of comparatively recent date. What the total noneffective charge is, including pensions for the established employees and gratuities for the nonestablished, besides the pensions payable to teachers, constabulary, police, members of the judiciary, and other public servants provided for under special acts of Parliament, is not given. Since, however, the total charge for pensions, gratuities, and compensation allowances was stated in 1902-3 to the Courtney Commission to be approximately two and a " See Conclusions, p. 181. 16 CIVIL-SEEVICE EETIKEMENT IN GKEAT BRITAIN. half million pounds ($12,166,250), it is safe to estimate that it is no less than that in 1909. That it will grow less is very unUkely, for the history of civil pensions throughout the world shows that there is always a constant tendency to extend the benefits of a pension system to new classes of public servants. SUPERANNUATION PROVISIONS BEFORE 1810. From an early date it seems to have been taken for granted in Great Britain that the Government was under a moral obligation to make provision for its civil employees in case of retirement from office by reason of age or infirmity. Such an opinion was rendered by the commissioners of inquiry appointed in 1786 by the act of 25 Geo. 3, c. 19, to inquire into the fees, gratuities, perquisites, and emoluments received in certain public offices. It was indorsed in the report of the. three principal Secretaries of State to the Lord President, dated February 23, 1795, in the following words: When an officer either from age or infirmity is obliged to retire, we agree with the commissioners in opinion that a decent provision oilght to be afforded him, and we do not see that any objection can arise to its being paid out of the general fund; but with respect to the extent of such provision, we think it ought to be decided on a consideration of the merit and service of such an officer, and not by any fixed rule. Pensions to officers of the Crown, especially those who had held high and important positions in the civil service for a shorter or longer period, had accordingly been granted from time to time. Through Life Offices, Sinecures, Pluralism, and Substi*ijte Schemes. Not, however, until the beginning of the nineteenth century was any general system of superannuation established. Before that time, recourse was had to inconvenient devices for securing the funds necessary for the payment of old age and infirmity allowances. PubKc officers who retired from the civil service were provided for in various ways. In some cases the practice of granting certain offices for life dispensed with the necessity of any such provision. The case of an employee in the Treasury, who had become superannuated without retirement, was noted in the following language by the commissioners of 1786: The attendance of one of the chief clerks having been of late years dispensed with on account of his age and infirmities, the duty has devolved entirely upon the remaining three, who have been found sufficient for the execution thereof. (") In some cases the existence of sinecures proved a haven for the worn-out and inefficient. In the opinion of the Commissioners of a Report on the Operation of the Superannuation Act. 1857. Appendix XII, p. 152. CIVIL-SERVICE BETIEEMENT IN GREAT BRITAIN. 17 Inquiry, for instance, the establishments of the Home Secretary, with an office force of sixteen, and the Foreign Secretary, with a corps of fifteen, might have been maintained with half the number. They said: From what we have been able to collect, the general business of the office is scarcely sufficient to furnish full employment for the clerks at present borne upon the establishment, and we consider their present number as rather to be justffied by the propriety of having fit persons always in readiness upon any extraordinary pressure of business than from the degree of employment which the office ordmarily affords. If they were reduced to eight in each department. Your Majesty's service might not suffer from such reduction. (") Only the official records can give any adequate idea of the extent of pluralism in the British civil service during the eighteenth century. Provision was made for old age by officers in active service through saving and investment of incomes derived from offices, the duties of which were executed by deputies. For years almost every officer of rank in the Treasury had some provision of this kind. In other departments also there were many receiving double salaries. The receiver-general of the Post-Office was a commissioner of the Salt Office. The superintending president of the Post-Office was searcher of the customs for the port of Chichester. The receiver and registrar of the Hackney Coach Office was comptroller of the Tea Warehouse under the Board of Customs. Nor was the system confined to the higher appointments. A clerk in the Penny Post-Office was also deputy to the husband of the Four-and-a-half per cent duties in the Customs. A messenger in the Bye-letter Office was a stamper in the Stamp Office. Concerning this state of things the commissioners of 1786 had this to say: So far as these emoluments (alluding to those arising from sinecures) have been applied to increase the incomes of officers inadequately paid, and to form a provision for them on retirement, but so far only they have been or use, and, while officers remain on their present footing, are, perhaps, in some degree, necessary. But we think that an establishment may, and ought in wisdom, to be found, in which such a species of emolument would be superfluous and redundant; an establishment by which every public officer should be paid for his services, not under false pretenses and in uncertain measure, but openly, and in proportion to the service he performs; an estab- lishment which should entitle him to a provision upon retirement, not dependent upon caprice or accident, or arising from the per- petuation of abuses, but known and certain, free from the competition of individuals, or the animadversion of the public. C") 1 Report on the Operation of the Superannuation Act. 1857. Appendix XII, p. 151, 6 Idem, p. 154. 35885— S. Doc. 290, 61-2 %* 18 CIVIL-SEEVICE KETIREMENT IN GKEAT BRITAIN. The practice, at that time common, of charging the salaries of public officers with retiring allowances to their predecessors — a form of what is now advocated in the United States in certain quarters under the. name of the "substitute plan"— afforded still another means of providing for retired employees. The following case was noted in the Treasury by the Commissioners of 1786: The keeper of the papers has a salary of £400 [$1,946.60] a year, reduced by the one shilling duty, and an allowance of £40 [$194.66] to his deputy, to £340 [$1,654.61], the whole of which he pays to Thomas Pratt, esq., during hfe, who resigned office in his favor in the month of January, 1783. (") A similar and more flagrant case recorded by the commissioners in their report on the Post-Office Department was that of the packet agent at Dover, who granted allowances to his predecessor and received them from his successor in another office. He has a salary of £150 [$729.98] a year, reduced by taxes, etc., to £123, 13s. 8d. [$601.90]; he has an allowance of £200 [$973.30] a year for providing extra boats when the service requires, reduced by agency m London to £194, 18s. 8d. [$948.64], and an allowance of £10 [$48.67] a year for stationery; he likewise derives certain emoluments from agency on the passage, which is at the rate of 10s. in every guinea on what is called 'allowed freight;' the average of which, from the 15th July 1775, to the 5th January 1787, being eleven years and a half, was £941, 18s. [$4,583.76], making the average of his net annual receipt £1,270 10s. 4d. [$6,182.97], which he now receives for his own use; but previous to the death of Mr. Barham, which happened in October last, he paid to him £800 [$3,893.20] a year, as a compromise for the clear annual income of this office, which by order of the Postmaster-General, dated 16th Novem- ber 1774, he was directed to pay to him during his life; to indemnify him for such payment, he was to receive from Mr. Lees, his successor in Ireland, the clear annual income of his oflBce, as secretary to the Post Office there, during the life of Mr. Barham, which was likewise compromised for a net payment of £750 [$3,649.88] during the life of Mr. Barham, and of £150 [$729.98] annually after his death; which engagement is now in force, and will add so much to his annual receipt. ( *) Through Funds Created in Various Departments from Fees AND Taxes. The power then existing in different departments of granting pen- sions chargeable upon various funds, such as fee funds and contin- gencies, offered another means of providing for the superannuated. The commissioners of 1786 found three instances in the Treasury in which allowances had been charged to the fee fund, which proved inadequate for the strain thus put upon it. The record is as follows : = Report on the Operation of the Superannuation Act. 1857. Appendix XII, p. 152. 6 Idem, p. 153. CIVIL-SEEVICE BETIREMENT IN GREAT BRITAIN. 19 One of the tkree superannuated clerks, Thomas Tomkins, retains only his salary of £100 [$486.65] out of the civil list. The two others, Frederick Reynolds and James Royer, have allowances by order of a mmute of the Treasury Board of 16th December 1783, of £300 [$1,459.95] a year each, charged on the fee fund, besides which the latter has a salary of £200 [$973.30] a year out of the Customs, having been formerly a clerk m the Revenue Office, and his name still remain- ing on that establishment; but Mr. Royer, notwithstanding frequent applications, has not yet received any part of his allowance of £300 [$1,459.95] a year out of the fee fund, this fund not having proved sufficiently productive for that purpose, in which case the minute directed that it should be paid out of any other fund the board might think fit. («) From taxes levied on official salaries an annual sum was obtained which formed a substantial addition to the national revenue and was regarded as an offset to the amount paid out by reason of superan- nuation in office. The taxes so levied appear to have been three in number. A land tax, amounting in certain cases to a deduction of 20 per cent and originally intended to operate as an equitable income tax on real and personal property, was still charged on some classes of salaries. A duty of 6d. in the pound (termed the civil-list duty) and a duty of Is. in the pound were also imposed. The amount produced in 1796 from these two last-named duties was no less than £73,991 ($360,077.20). These duties were not collected, of course, without expense. The receivers were remunerated by a poundage; "one class of servants having, it must be presumed, been overpaid, it was necessary to pay others in order to cover the excess." In cases where salaries were avowedly not more than sufficient, it was pointed out by the commissioners that such taxes only recoiled upon the pubhc "by creating new claims to consideration, which must in justice be satisfied," and they recomm'ended, therefore, that the salaries of officers should be exempted from all taxes and duties. As afterwards pointed out by the Commissioners of 1857, any such mode of retiring servants as those just described, was "obviously most objectionable in principle, and liable to great abuse in practice, both as regards due economy in the public expenditure, and the fair and equal remuneration of pubhc servants. Indeed, it may be doubted whether such a state of things could have continued so long, had not the whole number of civil servants been at that time small, as compared with the amount of our present establishments. In time, however, it became apparent that, if a provision were to be made for retired servants, the objectionable means hitherto employed for that purpose had become quite inadequate ; as well from the great increase in the number of civil servants, as from the effects of financial reforms in drying up the sources from which means had been obtained." a Report on the Operation of the Superannuation Act. 1857. Appendix XII, p. 152. 20 civil-seevice ketikement in great britain. Through Funds Created in the Excise and Customs by Deduc- tions FROM Salaries. An attempt was made, therefore, early in the nineteenth century, to establish a system of granting superannuation allowances, and to make it apply to the rank and file of the civil service as well as to the high officials. From a very early period superannuation funds had existed both in the departments of Excise and of Customs. The Excise fund, which was originally called "The Excise Charity Fund," was established by a Treasury minute, dated February, 1686, by a deduction of 3d. in the pound on the salaries of all "general riders, general supervisors, collectors, surveyors, gangers, and clerks." In the disposal of the money the following rules were to be observed: First. No officer who had not served seven years was to receive any sum of money or pension, unless disabled by accident. Second. The pensions were to vary according to the grade of the officers, the maximum being £30 ($146) and the minimum £15 ($73). Third. No officer was to be allowed a pension, if, from any other source, he possessed an income equal to the pension assigned to his grade. An act (49 Geo. 3, c. 96) was passed in 1809, which granted to officers incapacitated by age or infirmity, after ten years' service, three-fourths of their salary, taken on the average of the last seven years. The same proportion of last salary was granted to officers disabled by accident, irrespective of length of service, but it was provided that no such superannuation should be granted to an officer in receipt of less than £180 ($875.97) per annum. The Customs fund appears to have existed at least as early as the year 1708. It was confined at first to the inferior officers of the service. The rate of deduction was 3d. in the pound and the fund was increased by the fines imposed on officers for breach of discipline. Gradually the benefit of the fund was extended to classes higher in . rank than those for which it had originally been formed. A Treas- ury warrant of 1779 added landing surveyors, landing waiters, and other superior officers. Fees belonging to 196 offices, abolished in 1798 by the 38th of Geo. 3, c. 86, were turned in to the superannu- ation fund. The first formal proceedings of the Government looking toward the establishment of a general system of superannuation allowances are found in Treasury minutes of 1802, 1803, and 1807. The first minute, dated July 30, 1802, granted allowances ranging from £100 ($486.65) to £200 ($973.30) on retirement in consequence of physical infirmity, under the name of compensation, to a few classes of officers of the Customs. No regulations were made as to age or length of serv- ice. The second minute, dated the lOth of August, 1803, was passed GIVIL-SEEVICE BETIKEMENT IN. GEEAT BRITAIN, 21 because the Lords of the Treasury had discovered that the allowances granted the previous year did not bear a fair proportion to the emoluments of the respective offices. They fixed, therefore, the sums which were to be taken as the annual incomes of the several grades and then prescribed a graduated scale of allowances, accord- ing to which one-third of the salary was aUowed to ofiicers who had served ten years and were reported incapable of executing their duties; one-half was allowed after service of from ten to twenty years, and two-thirds after twenty years, to officers retiring at less than sixty years. In the case of officers more than sixty years of age two-thirds of salary was allowed after only fifteen years of service. The third minute, dated November 7, 1807, extended the arrangement to numerous other classes of officers of the Customs, and in this position the matter stood at the passing of the general act of 1810. SUPERANNUATION ACT OF 1810. Report of Committee of 1808 the Basis for Act of 1810. In the year 1808 a report was made by the Committee on Public Expenditures on the subject of the pensions, sinecures, and rever- sionary grants paid out of the public revenues, which led to the first general enactment on the subject of superannuation. Although there was at that time no regular system of superannuation, except in the Customs and Excise, as explained above, a large number of retired allowances, included under the general head of "pensions," came under the notice of the committee. The entire want of fixed rules governing the grant of superannuation allowances was noted and deplored by them. Their attention was drawn particularly to a large amount of "dead wood" in some offices, the practice having arisen, in case of deficiency of the fee fund, of carrying pensioners on the regular civil list. This meant that much of the sum voted for any office for current expenses was not paid out in the form of salaries to those carrying on the work, but was spent for pensions to those no longer able to work. The committee held that "annual allowances ought not to be granted generally, and without special reasons, to persons retiring from official situations," and that when pensions^ were granted in any office the accounts should be kept entirely separate from the salary account. In view of the loose way in which provision was made for the pay- ment of superannuation allowances, the committee recommended that a stricter account be kept of pensions granted and the reasons for their bestowal. They suggested the expediency of limiting allowances to a certain proportion of the former salary and laid stress on the principle that duration of service should be taken into consideration 22 CIVIL-SEEVICE EETIKEMENT IN GEEAT BRITAIN. in fixing the amount of the allowance. Their recommendations are contained in the following extract : Under all these circumstances your committee do not hesitate in submitting to the House, that all allowances in the nature of pensions, which are not strictly superannuations, should be classed under their proper head, and paid at the exchequer; preserving, at the same tirne, entries of such pensions, together with the circumstances under which they have been granted, on the establishment of the ofiices in which the services have been performed. It may be also expedient to limit the sums in which allowances may be applied to cases of superannuation, so as not to exceed a certain proportion of the former salary. The regulations under which superannuations are granted in the Customs deserve the attention of the House, as uniting a due con- sideration toward long and meritorious service, with a just atten- tion to economy. By a resolution of the House of Commons of Ireland, 7th April 1784, no yearly allowance was permitted to be placed on incidents in cases of superannuation, except for officers who shall have served forty years without censure, or ofl&cers who shall have received a wound or hurt in the service, amounting to a total disability, or for widows of officers who shall have lost their lives in the service of the revenue; but by a subsequent revision of that resolution, 26th July 1793, twenty-five years were substituted instead of the term of forty years, as being sufiicient to answer the purposes of the said resolution respecting the placing on incidents any yearly allowance for superannuated officers of the revenue, who have already served, or shall have served, the said term of twenty-five years without censure. These general, unqualified expressions, have been, perhaps, liable to misconstruction, as if they were calculated to convey a sort of right of superannuation after twenty-five years of service ; whereas it is to be presumed that it never would have been the intention of the House of Commons to countenance a new claim on the part of the officers, but, on the contrary, to impose a restraint upon executive govern- ment, from granting any such allowances even to superannuated offi- cers, unless where they had served meritoriously the prescribed num- ber of years, or had otherwise been incapacitated in the public serv- ice, as described in the resolution. With regard to the salary and emolmnents of each separate depart- ment, the public ought unquestionably to be served as cheaply as is .consistent with being served with integrity and ability; but it must be recollected that what makes office desirable in the higher depart- ments is not the salary alone, but the consequence and consideration attached to it, the power of obliging friends, and of creating depend- ents; and in the lower degrees the chance of gaining advancement by industry and talent. The principle of gradually mcreasing salaries after certain periods of service, and at fixed intervals, if they are not made too short, is highly to be approved, as holding out a due encour- agement to diligence and fidelity. In all cases of superannuation, dm-ation of service should be an essential requisite, and even then regard should be had to the condition of each individual, as to his ability of continuing the official labors, and to his situation in life from other causes. CIVIL-SEBVICE EETIEEMENT IN GREAT BEITAIN. 23 In many instances, where allowances have been granted as com- pensation for the loss of office, or upon the plea of superannuation, the persons who have obtained them have, at subsequent periods, . been appointed to other offices, in both which cases it is obvious that the allowances ought to have ceased. The true principle applicable to all offices is, that public money should not be granted without reference to duty; and all exceptions whatever ought to be justified under the special circumstances attend- ing such case. (") Main Features of the Act. As a result of the report of the Committee on Public Expenditure and their recommendation that the regulations under which super- annuations are granted in the Customs should be considered by the House, "as uniting a due consideration toward long and merito- rious service, with a just attention to economy," the Act of 1810 (50 Geo. 3, c. 117) was passed. The principal features of this act were the provision for an annual statement of the increase and dimi- nution of public salaries, pensions, and allowances, the prohibition of the practice of charging superannuations or compensations on the expenses or funds of any office without the concurrence of the Treas- ury, and the separation of military and naval pensions from civil allowances in the annual estimates of the Army, Navy, and Ordnance. Provision was also made that in offices having a fee fund, compensa- tion and superannuation should be chargeable in the first instance on such fund, the deficiency, if any, being made good, in the offices of the Secretary of State, the Privy Council, and the Treasury, out of the civil list; in other cases by a parliamentary vote. The scale of remuneration was similar to that prescribed by the minute of 1803 for retired officers of the Customs, with the addition that any officer over 65 years of age might receive a pension of three-fourths of salary in case he had served forty years or more, or the whole of salary in case his length of service had been fifty years or more. Since this act made pensions to Customs and Excise officers payable out of the pubMc revenues, a Treasury minute was passed March 26, 1811, directing that the accumulated Customs fund, consisting of about £165,000 ($802,972.50) stock should be paid into the exchequer. Two acts were passed in the year 1812 directing that the Excise fund, consisting then of £73,900 ($359,634.35) three per cent consols, the value of which was £45,324 ($220,569.25), should also be paid into the exchequer. (*) The superannuation funds which existed in the Customs and Excise having been appropriated by the Government and paid into a Report on the Operation of the Superannuation Act. 1857. Appendix XII, pp. 154, 155. b Report on Civil Service Superannuation. 1856. p. 2. 24 CIVIL-SERVICE RETIREMENT IN GREAT BRITAIN. the exchequer, there existed then under the Act of 1810 a general system of granting superannuation allowances to the civil service out of the revenues of the country without the existence of a superannu- ation fund of any kind. This act continued in force for twelve years, and during that period pensions were granted from the Consolidated Fund without any abatement from salaries, and entirely at the cost of the public. The Act of 1810 was undoubtedly intended to operate as a check upon the grant of pensions. It had, however, exactly the opposite effect. The act made no regulations to check retirements from ofl&ce. The liberality of the pension scale estabhshed was really a tempta- tion to seek retirement. It should be noted that although one-third was fixed as the maximum allowance for ten years' service, the Treas- ury was left at hberty, as soon as the ten years had been exceeded by the smallest interval, to grant one-half. Furthermore, the superan- nuation was to be calculated upon the salary of which the individual was in receipt at the time of retirement, not on the average of that received during a certain number of years. A great increase in the pension charge resulted. The charges of the years 1810 and 1820 for superannuation allowances, including compensations for loss of office, in the purely civil departments were, respectively, £94,550 ($460,- 127.58) and £291,068 ($1,416,482.42), and those of the civil branch of the Ordnance Department had increased from £27,916 ($135,- 853.21) to £54,718 ($266,285.15). («) SUPERANNUATION ACT OF 1822. Tbeastjey Minute of 1821 the Basis for Act of 1822. The next important step in the history of English superannuation measures was taken by the Treasury. In a minute of August 10, 1821, it laid down a principle that proved to be extremely influential in the subsequent legislation on the subject. This was a period of marked reduction in pubhc expenditure following the war, and it was the spirit of retrenchment which animated the Treasury minute. "My Lords are of opinion that it is essentially necessary that some new regulations should be adopted, with a view of limiting this branch of the public expenditure in future (that is, the superannuation allow- ances), and they are of opinion that the mode of regulation which seems in all respects most eligible, is, to require that the individuals themselves who may hereafter enjoy the benefit of superannuation allowances, should be called upon to contribute to a superannuation fund, to be administered under the direction of their Lordships." This Treasury minute contained recommendations for a plan along the lines afterwards established by the Act of 1822. On January 8, a Report on the Operation of the Superannuation Act. 1857 . Appendix XII, p. 157. CIVIL-SEKVICE RETIREMENT IN GREAT BRITAIN. 25 in the following year, another minute was issued recommending a general revision of the salaries of the civil establishments. Main Features of the Act. Based on these two minutes, an act of Parliament was passed in August, 1822 (3 Geo., 4, c. 113), which granted the same liberal scale of retiring allowances authorized by the Act of 1810 but required con- tributions from all civil servants whose salaries exceeded £100 ($486.65) per annum. This act required that upon salaries between £100 ($486.65) and £200 ($973.30), 2^ per cent should be deducted; that upon salaries of upwards of £200 ($973.30), 5 per cent should be deducted, to the extent of the regulated salary authorized by the minute of January, 1822; and that for any salary which any officer then holding office might receive above the regulated amount, 10 per cent should be paid. It was also directed that the abatements so made from salary should be formed into a fund, to be carried to the credit of the commissioners, for the reduction of the national debt at the Bank of England. Provision was made that, if any civil servant died in office, the whole amount of his contribution was to be paid to his legal representatives. Even after his resignation or removal from office, his contribution was paid back to him, provided he had not received any benefit from the fund. The object of this act was thus explained by the Chancellor of the Exchequer : The persons who, in ordinary cases, were to receive these allow- ances, it was intended to make contribute to a fund out of which such allowances in future were to issue. That arrangement would operate as something like reduction of salaries; but it would be a case of infinitely less hardship to make persons contribute in the active part of their lives to a fund which, in the decline of life and in retirement, would be a provision for them, than suddenly, and at one blow, to cut down their salaries without holding out any correspond- ing advantage. ("*) Repeal of the Act. This law held less than two years, for on June 24, 1824, it was repealed by an act of Parliament (5 Geo., 4, c. 104), which directed that all superannuation allowances granted after that date were to be paid from the Consolidated Fund and all contributions received under the previous act were to be returned to the contributors. There is a Treasury minute, dated January 25, 1824, which contains the details of that repayment. The sum then in hand, after pay- ing the few pensions during the interval, amounted to £107,800 ($524,608.70), which was repaid in the proportions there specified. (*) " Report on the Operation of the Superannuation Act. 1857. Appendix XII, p. 158. 6 Report on Civil Service Superannuation. 1856. p. 3. 26 CIVIL-SEEVICE EETIEEMENT IN GBEAT BRITAIN. The reason for the repeal of the Act of 1822 was the plea on the part of the civil servants that compulsory deductions from their salary constituted a violation of contract on the part of the Gov- ernment. The debates which occurred in Parliament on the subject indicate that the repeal was made entirely on that ground. The system of deductions was not popular with either Parliament or the civil service. In the meantime the charge of superannuation allowances con- tinued to increase. In 1827 it amounted, including compen- sation allowances, in the purely civil departments to £484,081 ($2,355,780.19); in the civil branch of the Ordnance to £64,364 ($313,227.41). (°) SECOND PERIOD OF FREE PENSIONS (1824-1829). Report of Select Committee of 1828, Recommending Reestab- LISHMENT OF StSTEM OF DEDUCTIONS. In the year 1828 the Select Committee on Pubhc Income and Expenditure made important recommendations in regard to the salaries and pensions of civil employees. This committee inquired into the salaries given to the clerks in the India House, the Bank of England, two insurance oflBces, and one of the principal banking houses of London, and compared them with the salaries granted clerks in the civil service. As a result of this inquiry they stated in their report on salaries that "there does not appear to be any fixed system of superannuation allowances in commercial houses, and although some such allowances are given, the amount of them is small." They then proceeded to indorse the principle of deduc- tions from salary for the purpose of creating a superannuation fund in the following language: The committee are aware that there is not a strict analogy between the duties performed by clerks in public offices and those m commer- cial establishments ; still, as far as comparison can be made, it appears that the salaries in the Ordnance Department admit of . diminution. At present, without precluding themselves from hereafter advising a furuier reduction on a general and systematic principle, should it appear proper on more accurate investigation, they confine them- selves to a recommendation to revert to the principle laid down in the minute of the Treasury in 1821, of making these salaries sub- ject to a charge for forming a superannuation fund, the details of which they intend in the course of a few days to submit to the House in a separate report on superannuation allowances, half-pay, and pensions. C") In the committee's report they accordingly recommended the reestablishment of the system of deductions. They alluded with = Report on the Operation of the Superannuation Act. 1857. Appendix XII, p. 158. b Idem, p. 159. CIVIL-SEKVICE EETIEEMENT IN GKEAT BRITAIN. 27 approbation to the principle laid down in the Treasury minute of August 10, 1821, that pensions should be provided by making deduc- tions from the salaries of the persons entitled to them. The select committee proposed that deductions should be made from all salaries, both of those who had taken service previously to that date and of those who might afterwards enter the service. They recom- mended that those already in the service should be pensioned on the then existing hberal scale (the difference between the value of their pensions and the value of their contributions to be made up from the public purse), but that those who might afterwards enter the service should be given pensions equivalent only to the value of the deductions from their salaries so that the public might not eventually have to bear any part of the expense of these allowances. They pointed out that the loss occasioned the public by the repeal of the Act of 1822, which they considered to have been an admirable measure, was no less than £500,000 ($2,433,250). They stated that from 1822 to the end of 1827 the superannuation and compensation allowances had increased in annual amount from £331,746 ($1,614,- 441.91) to £484,081 ($2,355,780.19). (») The Chancellor of the Exchequer accordingly introduced a bill founded upon this report, and intended to give effect to the recom- mendations contained in it. He introduced it in language which showed plainly enough that the main interest of the Government in connection with the bill was the reduction of expenses rather than the establishment of a model superannuation measure, and that the deduction from salaries was preferred to a reduction of salaries. His speech is reported as follows: The House had appointed a committee for the purpose of revising the expenditure of the country; and that committee had almost unanimously declared that such a measure as that which he had introduced ought to be carried into effect. Standing in the situa- tion which he had the honor to fill, he should have been charged with a high degree of cowardice, if, after such a recommendation, he had refused to bring the measure before the House. On that account he was prepared to vindicate the bill, and to state the reasons on which the committee had come to their decision. The whole expendi- ture for the service of the country, the committee found to amount to twenty-one millions, and of this, five millions were appropriated to the ineffective service, including superannuation, pension, and retired allowances. The committee was anxious not to deprive the country of the active service of those who were engaged in the public departments; and they therefore turned their attention to consider if it were possible, without any deviation from just principle, pros- gectively to diminish the expenditure for services that were passed. If the five millions which the ineffective service of the country cost, the committee found that nearly half a million was appropriated to the payment of the civil pensions, and this sum has been increased oReport on the Operation of the Superannuation Act. 1857. Appendix XII, p. 160. 28 GIVIL-SEHVICE KETIBEMEBTT IN.GBEAT BBITAIN. within a few years from £330,000 [$1,605,945] to £447,111 [$2,175,- 865.68]. Finding that this sum was increasing so rapidly, they thought it their duty to recommend the measure before the House. He knew that the committee had balanced long between a reduction of the salaries, and this measure of making the officers contribute to their own superannuation. He, for one, opposed the reduction of salaries, because they had been fixed in the year 1821, after the effects of peace h^d been fully felt, and the measures for restoring the metal- lic currency had been adopted. It was better, on the whole, he thought, and the least likely to affect the future prospects of the different officers of our civU establishments, to adopt this measure relative to their superannuation, than to alter their salaries. C*) Sir Henry Parnell also stated that the opinion of the committee was in favor of a considerable reduction of salaries, but that they had taken, instead, a course much more favorable to the clerks, namely, that of proposing to reduce them by a small percentage, in the way provided in the Act of 1822. And he added his conviction that "the clerks had much better consent to this arrangement than defeat it, and thus make it necessary to examine more closely what ought to be the exact reduction which the public interests required to be made. " The bill was withdrawn, however, in consequence of an objection made on hehalf of the civil servants, on the same ground as before, that the imposition of deductions would, as regards them, be con- trary to their terms of service. Strong statements were also made to the effect that the salaries were not sufficiently high to bear deductions, although the select committee had recorded its opinion otherwise, as follows: It is obvious that in recurring to the provisions of the Act of 1822, the rate of salary attached to each office should be such as may be deemed fairly sufficient to bear the deduction which it is proposed to make from it; and when it is considered that the Treasury revised and fixed the salaries of the several departments in 1821, when the deductions in aid of the superannuation fund were first established, it does not appear that a revival of that principle would press too hardly at the present time, and under the present circumstances of the country, upon the fair emoluments of the officers and clerks who are now in office. (*) Treasury Minute of 1829 Reestablishing System of Deductions. Although the bill was withdrawn. Treasury officials did not give up the notion of reducing pension charges by exacting contributions from the civil servants. They observed that the objection which had been made successfully against the Act of 1822 and the proposed bill of 1828 that deductions from salary would mean a violation of the terms of contract did not apply to future entrants. They accord- = Report on the Operation of the Superannuation Act. 1857. Appendix XII, p. 160. 5 Report on Civil Service Superannuation. 1856. p. 4. CIVIL-SEEVICE BETIKEMENX IN GKEAT BKITAIN. 29 iiigly proceeded to issue the famous minute of August 4, 1829, direct- ing that contributions should be paid by those who might afterwards be appointed to the service. The text of this important minute reads as follows : My Lords have under their consideration the necessity of adopting some regulation, with a view to reduce, at a future period, the heavy charge which is now annually incurred in providing superannuation for such persons as are incapable, from infirmity of mind or body, of discharging the duties of their public situations. My Lords trust that they shall be enabled, at an early period, to make such an arrangement as shall be just to parties entering into the public service, while it shall ultimately lead to a large reduction of expense. My Lords therefore deem it advisable that a distinct intimation should be given to every individual who may hereafter enter into the civil service of the Crown at the time of his admission to office; that he will be subjected to a deduction from his annual salary and emolu- ments, and to such regulation with respect to superannuation as my lords may hereafter lay down. Let a communication therefore be made to the several ofiices hereinafter mentioned, directing them, in every case of appointment to office, to make such a communication to the person appomted, a,nd to make a deduction from all salaries and emoluments not exceeding £100 [$486.65] a year at the rate of 2^ per centum per annum, and from all other salaries and emoluments at the rate of £5 [$24.33] per centum per annum, for the purpose of providing, in such manner as my Lord^ may hereafter direct, for superannuation on retirement of such persons as shall hereafter enter the civil service. C') In issuing this minute the Lords of the Treasury acted under the general financial powers entrusted to them by Parliament. This Treasury minute was in effect nothing more than a prospective regula- tion of the salaries of all civil servants who might enter the service after the date of the minute. The Treasury had always been accus- tomed to exercise the full and entire right of raising and reducing the salaries of the lower grades of the permanent civil service, submitting the salaries so revised to Parliament, at its next meeting, in the estimates. A minute dated June 15, 1832, directed that the fund realized by these deductions from salaries was to be invested in exchequer bills to be held subject to the disposal of Parliament, and it was so held till Parliament decided on the question by the Act of 1834. After Parliament had sanctioned the deductions by that act, the amount of the deductions was directed by a minute of November 14, 1834, to be stated on the face of the estimates submitted to Par- liament for the ensuing year, and to be deducted from the sum voted to defray the charge of superannuation and retired allowances. Previous to 1832 the superannuation estimate had been confined to the pensions of officers of certain departments which possessed no a Report on Civil Service Superannuation. 1856. Appendix No. 1, p. 346. 30 CIVIL-SEEVICE RETIREMENT IN GREAT BRITAIN. fee funds, whereas the pensions of officers of departments possessing fee funds (namely, the Treasury, the ofiices of the three Secretaries of State, the Council Office, and the Board of Trade) were not sub- mitted to Parliament, though, of course, such pensions contributed to the deficiencies in the fee funds which Parliament had to vote. Fur- ther, some of the departments without fee funds included the pen- sions to their officers in the same estimate as their salaries. But in 1832 all that was changed; in the estimates of that year all the fee fund pensions, and most of the other pensions hitherto included in the votes for salaries in the other departments were brought together in a superannuation estimate. The cost, however, of super- annuation in the Revenue Departments, the Admiralty, the War Office, and the Royal Irish Constabulary was not included in the civil service vote, but was provided for in the votes for their depart- ments, as will be seen in the various returns showing the annual charges for civil pensions. (°) SUPERANNUATION ACT OF 1834. The last stage in this course of legislation was reached when the Superannuation Act (4 and 5 Will. 4, c. 24) was passed July 25, 1834. By this act the Treasury minute of August 4, 1829, requiring deductions from salary was confirmed, and by it the old scale of pensions prescribed in the Act of 1822 was maintained as regards the persons who had taken office previously to the date of the Treasury minute of August 4, 1829, but as regards the persons who entered subsequently to that date, a lower scale of pensions was prescribed, which seemed to be calculated as equivalent to the value of the de- ductions directed to be made by the minute, according to the prin- ciple of the report of 1829. Section XXVII of the act reciting the minute of 1829 and adopting the precise scale of deductions laid down in it reads as follows : And whereas the commissioners of the Treasury did, by a minute dated the fourth day of August, one thousand eight hundred and twenty-nine, record their intention to adopt certain regulations with a view to reduce prospectively the charge incurred in providing for superannuation allowances, of which notice was given m the several public departments, for the information of those who should there- after enter the public service: And whereas in pursuance of the said minute, an annual abatement hath been made from the salaries and emoluments of the several persons who have entered the public service subsequent to the date thereof: And whereas it is expedient to continue such abatement in those cases, and to extend it to others, as herein after provided; Be it therefore further enacted, That from and after the passing of this act there shall be an annual abatement made, in quarterly proportions, by the proper officer in each respec- " See pages 41-i3. i^iviij-oiiiWVUJJS KlSTiKEMENT IN GREAT BEITAIN. 31 tive department, from the salaries and emoluments of the several ofl&cers and persons employed in the several civil offices and depart- ments specified in the schedule to this act, or to be specified in the addition authorized to be made thereto, and not within the excep- tions thereof, who have since the date of the said minute entered or shall hereafter enter the public service, in such manner and under such directions as shall from time to time be given in this respect by the commissioners of the Treasury or of the Admiralty, as the case may be, the amount of which abatement shall be according to the respective rates following; (that is to say,) Scale of Deductions and Superannuation Allowances. From salaries and emoluments not exceeding the annual sum of one hundred pounds [$486.65], an abatement after the rate of two pounds ten shillings per centum [2^ per cent] ; And from salaries and emoluments exceeding one hundred pounds [$486.65] five pounds per centum [5 per cent]; And in the cases of all persons whomsoever at present holding office and entitled to superannuation allowance under this act, who shall have been appointed to such office subsequently to the issue of the minute of the lords commissioners of His Majesty's Treasury, bearing date the fourth day of August one thousand eight hundred and twenty-nine, for the future regulation of the several civil depart- ments of the public service, and who shall hereafter, upon promotion, obtain any increase of salary or allowances in respect of their offices, an annual abatement, after the like rates respectively, shall be made from the amount of such increase from time to time, commencing from the period when the same shall take place. i The superannuation allowance to persons who had entered the service before August 5, 1829, was, according to section IX of the act, as follows: To an officer, clerk, or person who shall have served ten years and upwards, and under fifteen years, any annual allowance not exceed- ing in amount four-twelfths of the annual salary and emoluments of his office: For fifteen years and upwards, and under twenty years, not ex- ceeding five-twelfths of such salary and emoluments : For twenty years and upwards, and under twenty-five years, not exceeding six-twelfths of such salary and emoluments : For twenty-five years and upwards, and under thirty years, not exceeding seven-twelfths of such salary and emoluments : For thirty years and upwards, and under thirty-five years, not exceeding eight-twelfths of such salary and emoluments : For thirty-five years and upwards, and under forty years, not exceeding nine-twelfths of such salary and emoluments: For forty years and upwards, and under forty-five years, not exceeding ten-twelfths of such salary and emoluments : For forty-five years and upwards, and under fifty years, not ex- ceeding eleven-twelfths of sucn salary and emoluments : And for fifty years or upwards, any annual allowance not exceeding the net amount of the salary and emoluments of his office. 32 CIVIL-SERVICE RETIREMENT IN GREAT BRITAIN. In contrast to these provisions was the superannuation allowance granted by section X to persons who had entered or who might enter the service subsequent to August 4, 1829: To an officer, clerk, or person who shall have served ten years and upwards, and under seventeen years, an annual allowance not ex- ceeding in amount three-twelfths of the salary and emoluments of his office : For seventeen years service and upwards, and under twenty-four years, not exceeding four-twelfths of such salary and emoluments: For twenty-four years service and upwards, and under thirty-one years, not exceeding five-twelfths of such salary and emoluments : For thirty-one years and upwards, and under thirty-eight years, not exceeding six-twelfths of such salary and emoluments : For thirty-eight years and upwards, and under forty-five years not exceeding seven-twelfths of such salary and ernoluments : And for forty-five years and upwards, not exceeding eight-twelfths of such salary and emoluments : And in no case, except as hereinafter is especially provided, shall any superannuation or allowance exceeding two-thirds of the salary and emoluments of any such officer, clerk, or person be granted. Comparison of Schemes of 1822 and 1834. The Superannuation Act of 1834 was the law of the land for twenty- three years. It will be noted that it was in every way distinctly less favorable to the civil service than the Act of 1822 which, owing to the protests of the civil employees themselves, had been thrown out after only two years' trial. In the first place, the scale of deductions established by the minute of 1829 and the law of 1834 was higher than that fixed by the law of 1822. The scale of 1822 exempted entirely salaries under £100 ($486.65) a year, while the scale of 1829 imposed 2^ per cent on sala- ries under £100 ($486.65) a year. The old scale of 1822 imposed 2^ per cent on salaries between £100 ($486.65) and £200 ($973.30) a year, whereas the scale of 1829 imposed 5 per cent on those salaries. In only one respect was the scale of 1822 less favorable than that of 1829 and that was in respect to the limited number of persons who happened in the year 1822 to have their salaries above what had recently been settled to be the regulated salaries of the offices, and who were charged 10 per cent on the excess. In the second place, the Act of 1822 contained specific directions with respect to the creation of a superannuation fund; namely that a fund should be created, and the account kept in the Bank of England, and the monies lodged in the hands of certain commissioners. The Act of 1834, on the other hand, contained no express direction for the creation of a fund. There was only a general presumption derived from the tenor of the act and the preliminary proceedings that the deductions were intended to defray the pensions of the contributors. CrVIL-SEKVICE EETIEEMENT IN GKEAT BRITAIN. 33 The only indication which the act contained as to the intention of Parliament in making those deductions was found in the words, "with a view' to reduce prospectively the charge incurred in providing for superannuation allowances." Undoubtedly, it was not intended to keep the same strict account of the deductions as was done under the law of 1822, but though no fund was created, those who stood sponsors for the bill of 1834 spoke as if there had been, seeming thus to indicate that the intention of the act was to limit the use of the deductions to the payment of superaimuation allowances. In intro- ducing the biU in the House of Commons, Sir James Graham said: "It was recommended by the Finance Committee in 1828, and this clause follows out the recommendation, that a deduction should be made in the salaries of all men in public offices, in order to provide a fund on the principle of insurance. They will pay the premiums themselves, and will receive the whole amount of the benefit." And Lord Grey, who had charge of the bill in the House of Lords said: "In August, 1829, a minute was made by the Lords of the Treasury of that day, by which it was provided, that in order to avoid the heavy charge which had been produced by this practice of superannuation, there should be in future a superannuation fund established arising out of a deduction of a certain percentage from the salaries of all civil officers who received their appointments subsequently to that time." In actual practice, however, according to the testimony of Sir Charles E. Trevelyan, no separate account was kept of deductions or of the mode of appropriating them. In the sense in which a professional accountant would use the word "fund," there was no fund. At first, the deductions were carried by the different departments to the credit of the votes for pensions for their respective departments, and after that, on a more improved arrangement of accounts, they were collected by the Paymaster-General, and carried to the credit of the aggregate annual vote for superannuations and compensations. Since all members of the service were pensionable but only part of the service — that which had entered subsequently to 1829 — contributed to the pensions and since those contributions were not funded, it was not known at any time during the more than quarter of a century that the Act of 1834 was in force whether the contributions were adequate or not. The general impression prevailed that they were more than adequate, probably because pensions were bestowed on noncon- tributors — those who entered the service before 1829 — as well as on contributors. In the third place, the Act of 1822 distinctly provided for the refund of contributions in case of the resignation or death of the contrib- utor before receiving a retiring allowance whereas the Act of 1834 made no such provision. The result was that a civil servant might 35885— S. Doc. 290, 61-2 3* 34 CrVIL-SERVICE KETIEEMENT IN GREAT BEITAIK. contribute for many years to the pensions of others, and if he hap- pened to die before reaching an age or condition which permitted him to retire, neither he nor his family could receive any "return from those contributions. While it was apparent from the beginning that the selfishness of those who had entered the service before 1829 had resulted in the passage of a law more advantageous for themselves but much less so for the service generally than the one first proposed, it was not apparent, for some time, how bad the law of 1834 really was. The class of public servants most vitally interested in the matter — those appointed since 1829— was hardly in existence. They were com- paratively few in numbers and officially less than 5 years old at the time of the passage of the act. They were not alert to their special interests as were the older civil servants, and there was no one in Parliament who seemed to perceive their pecuHar position or who at least undertook to defend them. It was only as time went on and those who had been youths in the service became elderly men that the body of employees generally began to realize the essential injustice of the law and the unfair discriminations sanctioned by it. SELECT COMMITTEE OF 1856. Geievances Presented by Committee of Civil Servants. In 1846 a committee of civil servants drawn from those appointed subsequently to the date of the Treasury minute of 1829 was formed for the purpose of bringing their grievances to the attention of the Government. It continued in existence until 1856, working out various data and classifications with reference to the civil service, but on the appointment by Parliament of a select committee "to consider the existing regulations respecting the grant of superannua- tion allowances to persons who have held civil offices in Her Majesty's service," the committee of civil servants felt that it was expedient for them to dissolve. The chairman of the civU servants' committee appeared before the Select Committee and testified to the dissatisfaction of the service. The committee of civil servants consisted of thirty deputies, repre- senting all the principal departments of the Government. Their complaint was twofold : That the scale of pensions was not sufficient, and that the abatements from the salaries were oppressive. They were divided in their request for increase of pensions, one faction requesting that the maximum scale of rates for ordinary pensions be increased from two-thirds to the full amount of salary, and the other faction contenting itself with the request for relaxation in the severity of the law relating to the amount of benefits. The two factions were CIVIL-SEEVItSE BETIREMENT IN GREAT BRITAIN". 35 agreed in considering the abatement from salaries a growing evil. Said Mr. Bromley, the representative of one of the factions: The general body of civil servants who have signed that petition, of 9,000 persons, agree with me, and agree with the committee with which I have been acting, that all those abatements ought to be abolished entirely for the purpose for which they are now levied. * * * There is this further distinction between us, that they [the other faction] wish to place the five per cent abatement in their own pockets; and those with whom I act, desire to have that abatement continued, if I may so speak, for the purpose of our widows and children; in fact, upon the principle of an insurance fund, so that every single man as well as every married man shall benefit by the abatement. (,"■) Each of these factions presented a petition to the Select Committee setting forth their grievances, with some variations of detail, but agreeing in the main line of argument. The petition of the first faction requesting that the maximum pension be equal to the full amount of salary, and that deductions from salary be abolished — in other words, that the petitioners be put on exactly the same footing as those civil employees appointed prior to the date of the Treasury minute of 1829 — was as follows :(*) Petition of civil servants of the Crown, whose appointments date subsequently to 1829. To the honorable the Commons of the United Kingdom of Great Britain and Ireland, in Parliament assembled. The humble petition of the undersigned civil servants of the Crown, whose appointments date subsequently to 1829, showeth, That the civil service numbers about 16,000 persons. That for the last 40 years a system of strict economy, by reducing J)ublic salaries and abolishing indirect emoluments, has so greatly essened the incomes of the civil servants, that the average salary of the entire body is only £141 [$686.18], while that of two-thirds does not exceed £86 [$418.52] per annum. That such incomes are very inferior to those of members of the open professions, and, considering the social position and educational requirements of government servants, are barely suflScient for the present maintenance and future provision of their families in that degree of respectability which is expected of them as servants of the Crown. That previous to 1829 this reduced rate of salary was paid without any deduction, and the civil servant was assured of a reasonable pension when worn out in the public service. That in the year 1834, however, Government, in answer to a demand for still greater retrenchment, passed the Superannuation Act, 4 & 5 Will. 4, c. 24 (having a retrospective effect to 1829), which greatly reduced pensions, and levied a tax of 5 per cent on salaries over £100 [$486.65], and 2^ per cent on salaries under that o Report on Civil Service Superannuation. 1856. Minutes of evidence, p. 80. 6 Report on Civil Service Superannuation. 1856. Appendix No. 16, pp. 461, 462. 36 CIVIL-SERVICE EETIKEMENT IN GKEAT^ BEITAIN. amount, with a view to reduce prospectively the charge for super- annuation. That by this act your petitioners, though conipelled to contribute towards superannuation, can not claim it as a right, nor retire from the service until 65 years of age, unless incapacitated by infirmity of body or mind; while the utmost that they can receive is two- thirds of their salary should they survive 45 years' service. That it has been calculated that this scale of pensions is only half the value of that which will be awarded to your petitioners' fellow officers who entered prior to 1829, and who, though belonging to the same social rank, and performing the same official duties, at present receive their salaries in full. Moreover, although all your petitioners during their entire official career are thus taxed for superannuation, yet, as it is estimated, according to the average duration of life, that not more than one in ten can be superannuated, it follows that the contributions of the remaining nine-tenths are absolutely lost to them and their families. That oppressive and disheartening as this act has already proved, its effects wiU be greatly aggravated as the period approaches when its enactments, as they apply to your petitioners, come into general operation, because that unwillingness to retire which is often mani- fested at present by old officers who are entitled to the better scale of pensions will be much increased, when to do so even after 31 years' service will involve, as in the case of your petitioners, a sacrifice of one-half of their income. That in the absence of strict regulations enforcing retirement, old and infirm men entitled to repose must be suffered to remain in office, to the detriment of the public service, as well as to the injury of the younger members of each department. Thus when the officers who entered before 1829 have all retired, and been succeeded by others subject to the tax. Government wiU be receiving the highest amount of deductions from your petitioners' salaries, while the latter are receiving the least possible benefit from superannuation. That the tax is felt to be the more unjust, because, while it is levied on the humblest salaried servant of the Crown, an exception is made in favor of the following, viz : ministers of State, diplomatic officers, judges, and other officials of the superior, county, and sheriffs' courts throughout the United Kingdom, and the chief officers of many of the civil departments of the State. That, though the amount gained by the nation from this tax is at present only £60,000 [$291,990] per annum, yet, as it bears exclusively on your petitioners, who are subject to all the ordinary taxes of the country, it has the effect of nearly doubling direct taxation in their case, as compared with all other classes of Her Majesty's subjects. That the principle of granting gratuitous pensions has been repeat- edly affirmed by Parliament, and is applied by the British Govern- ment to all its servants, with the exception of your petitioners; also by the East India Company and the Bank of England; and your petitioners humbly submit that it is an obligation sanctioned by necessity and sound pohcy, as weU as natural justice; because when an officer becomes infirm after spending nearly a lifetime in the J)ubhc service, at a scale of remuneration purposely reduced to the bwest rate, and which forbids the possibility of accumulating an independence, it is no less necessary, for maintaining the efficiency CrVIL-SERVICE RETIEEMENT IN" GEEAT BEITAlN. 37 of that service, that he should be withdrawn when incapacitated, than it is due to him that that withdrawal should be upon terms which he may willingly accept, as involving no serious privation during the few remaining years of his life. May it therefore please your honorable House — 1st. To amend the 10th, 11th, and 12th sections of the Act 4 & 5 Will. 4, c. 24, and to grant to your petitioners a scale of pensions equal in value to that at pi'esent given to those officers who entered prior to 1829, but graduated upon shorter intervals and smaller fractional allowances, and with permission to retire after 30 years' service, if 60 years of age. 2nd. To repeal the 27th section, levying the percentage tax, and thus leave your petitioners subject only to the ordinary taxation of the country. (9,791 signatures). The petition of the second faction requesting that more leniency in the matter of benefits be exercised, and especially that the abate- ments from salary be applied to the formation of a civU-service insurance fund was as follows: (") The humble petition of the general committee of civil servants of the Crown employed in the several public departments of the State, whose appointments bear date subsequently to the 4th day of August 1829, showeth. That your petitioners have been deputed by the officers and clerks in their respective departments to form a general committee, which committee has been m existence since the year 1846, for the purpose of endeavoring to obtain relief from the abatements made from their salaries for superannuation purposes. That your petitioners have since that period uniformly labored to effect that object, supported as they have been in their view by the general sympathy accorded to them. That a petition on behalf of the civil servants of the Crown was presented by your petitioners to your honorable House on the 3rd December 1852, and a letter to the late Chancellor of the Exchequer, dated 7th December 1853, was laid before your honorable House during the last session of Parliament, forwarding the signatures of more than 3,000 civil servants expressing their concurrence in the prayer of that petition. That your petitioners now respectfully beg, with reference to the aforesaid petition, to entreat the consideration of your honorable House to the following statement of the position in which the civil servants of the Crown are placed as respects superannuations under the provisions of the 10th, 11th, 12th and 27th sections of the Act 4 & 5 Will. 4, c. 24; viz: That the pensions granted to them have been reduced in value by one-half. That this reduction will effect a saving to the country of about £300,000 [$1,459,950] a year, or nearly 60 per centum of the entire amount of the annual charge for civil superannuations. That a permanent saving has also been effected, since that act was passed^ in the annual charge for civil salaries amounting to up- ward^ of £270,000 [$1,313,955] a year. o Keport on Civil Service Superannuation. 1856. Appendix No. 16, pp. 460, 461. 38 CrVIL-SEEVICE KETIEEMBNT IN GEEAT BRITAIN. That all other classes of public servants receive gratuitous pen- sions; but that class represented by your petitioners is subjected to a tax of 2i or 5 per centum on their salaries, for the purpose of reducing the charge to be incurred for their pensions. That the amounts so abated from their salaries have hitherto been applied in payment of the pensions of other classes of civil servants who are not subjected to the tax, and who are pensioned on a superior scale. That the abatements have not been formed into a separate fund for the individual benefit of the contributors as was intended at the time of passing the act. That the amount of abatements from salaries in excess of the pensions paid has already reached upwards of £750,000 [$3,649,875]; and, had those abatements been funded, they would by this date have accumulated to a surplus of £1,000,000 sterling [$4,866,650], producing, at the rate of only 3 per centum, the annual interest of £30,000 [$145,995]. That these abatements were imposed for the sole purpose of reducing the charge of civil superannuation allowances, which object has been, as shown above, already attained. They have, moreover, been ascertained to be so excessive and disproportionate, that, if continued, the mere interest on the surplus amount accu- mulated will, within 60 years from the present time, suffice to, defray the entire charge of civil pensions in perpetuity. That civil servants can now no longer be considered as receiving pensions from the State, but are compelled to purchase on excessive terms deferred annuities, not only for themselves, but also for all their successors. That in cases of death in active service the families of the deceased derive no benefit whatever from the abatements made for super- annuation, but, on the contrary, the tax is even imposed after death upon the residue of salary paid to the legal representatives. That these abatements made from salaries which average only £141 [$686.18] a year deprive the civil servants, as a body, of the means of effecting insurances on their lives. There are consequently numerous instances of men whose energies are depressed and spirit weighed down by the hopelessness of ever securing an adequate provision for those whose subsistence depends upon their precarious lives, and who are thus precluded from giving their best thoughts and exertions to their official duties. Your petitioners therefore humbly pray — That the limited number of civil servants who are incapacitated for active service may be granted, as formerly, during their few remainiag years, pensions at the expense of the State, in common with all other servants of the public. That your honorable House wiU be pleased to relax the severity of the 10th, 11th, and 12th sections of the above-mentioned act (4 & 5 Will., 4, c. 24), in such manner and to such extent as in the wisdom of your honorable House may be considered most conducive not only to the well-being of the civil servants, but also to the effi- ciency of the public service. That the abatements made from the salaries of the civil servants of the State, in pursuance of the 27th section of the said act, which have been proved to be excessive in amount and to be no longer required for the purposes specified therein, may be applied to the CIVIL-SERVICE BETiEBMENT IN GREAT BRITAIN. 39 formation of a ciTil service insurance fund, and be considered as pre- miums paid for the msurance of their lives for the benefit of their tamilies and representatives; upon which simple principle of insur- ance there would not be any annuitants either as widows or orphans chargeable upon the fund or the public, since the amount insured would m each case be paid over at death to the representatives of the deceased, whether he were married or single. Three General Grounds of Complaint Against Act of 1834. From these petitions and from the testimony given by various officials and clerks of the service in the course of the hearings it is apparent that the complamts agamst the superannuation scheme established by the Treasury mmute of 1829 and confirmed by the Act of 1834 may be roughly classed under three general heads: (1) Dishke of the invidious distinctions made in the act between different classes of the public service; (2) discontent with the provisions of the act, particularly the scale of pensions and the absence of a refund in case of death or withdrawal from the service before reaching the age of superannuation; and, (3) distrust of the actuarial soundness of the plan. (1) Dislike of distinctions between different classes of civil servants. • The body of civU servants generally felt aggrieved that all other classes of public servants received gratuitous pensions while on them, the humblest-salaried servants of the Crown, a tax which they could ill afford was levied to meet the expenses of their superannuation. They saw, on the one hand, that ministers of State, diplomatic officers, judges, and other officials of the superior, county, and sheriffs' courts throughout the United Kingdom, and the chief officers of many of the civil departments of the State were retired on Hberal pensions often after only a few years' service; and they saw, on the other hand, that their feUow-officers who had entered the service prior to 1829, individuals of the same social rank, performing the same official duties, received their full salaries without deduction and were retired on a scale of pensions about twice the value of those awarded themselves. The testimony of Sir Charles E. Trevelyan brought out the fact that particularly large pensions were paid to certain great officers of State appointed to their positions by reason of political favor and to members of the judicial establishments. Sir Charles E. Trevelyan, who was Assistant Secretary to the Treasury and deeply iaterested in the subject of civil-service reform, gave the committee much valuable information. Keturns prepared by him for the Chancellor of the Ex- chequer showed that the total annual salaries of the civil establishments of the United Kingdom were £5,599,409 ($27,249,523.90), and the total annual compensations and pensions, £1,122,844 ($5,464,320.33). (") The pensions, therefore, were to salaries in the proportion of nearly " Report on Civil Service Superannuation. 1856. Appendix No. 2, p. 357. 40 CIVlL-SEllVICE EETIBEMENT IN GKEAT BRITAIN. one to five, or 20 per cent, but this statement is hardly fair to the permanent civil service, for it covered two great divisions, one of the judicial establishments of the three kingdoms and the other of all other civil establishments. The total amount of pensions and compensa- tions of all the judicial establishments of England, Ireland, and Scotland was nearly 34 per cent (") of the total amount of salaries, whereas the total amoimt of compensations and superannuation allowances of what was commonly called the " civil service," including the departments which paid contributions, was only 18 per cent of the total amount of salaries. It should be noted also that this 18 per cent included the pensions paid to great ofiicers of State, especially provided under the first clauses of the Act of 1834 with pensions much more generous than any allowed the members of the general body of civil servants. These pensions included £1,000 ($4,866.50) each after ten years' service to Under Secretaries of State, to Clerk of the Ordnance, Second Secretary of Admiralty, and Secretaries of the India Board; those of £1,200 ($5,839.80) after five years' service to Joint Secretaries of the Treasury, First Secretary of Admiralty, and Vice- President of the Board of Trade; those of £1,400 ($6,813.10) after five - years' service to the Chief Secretary of Ireland and the Secretary at War; and those of £2,000 ($9,733) after only two years' service to the First Lord of the Treasury, Secretaries of State, Chancellor of the Exchequer, First Lord of the Admiralty, President of the India Board, and President of the Board of Trade. (a) PENSIONS PAID CHIEF OFFICERS OF STATE AND JUDICIARY COM- PARED WITH THOSE PAID OTHER CIVIL EMPLOYEES. All the objections which apphed to the ordinary pension Hst appHed in an aggravated degree to the pensions of the great legal estabhshments, the arrangements connected with which were, in 1856, in the same crude and elementary state in which those relating to the other civil establishments were at the beginning of the century. For instance, there was no check upon first appointments and there was no hmitation as to the age of entrance into the service, a matter which has a very important bearing upon the pension hst. Officers of the legal establishments paid no deductions, or if they paid them, it was only in the case of new appointments made subsequently to the date of the special acts by which the estabhshments were regulated. When an ordinary civil establishment was placed by the Treasury on the schedule of the superannuation act, the persons belonging to it were made to pay up the arrears of deductions from the date of their appointment, supposing they were appointed subsequently to the 4th of August, 1829; whereas under the special acts of ParUament, by which a few of the judicial estabhshments were placed under the o This should apparently be 31 per cent. See note to statement on p. 42. CrVIL-SERVICE EETIEEMENT IN GREAT BEITAIN. 41 superannuation act, the deductions always commenced not from the date of the commencement of the service of the officer, but from the date of the act. The return prepared by Sir Charles E. Trevelyan and submitted to the Select Committee on March 4, 1856, showing the total annual salaries, compensations, and pensions of the civil estabhshments of the United Kingdom was as follows : ("*) TOTAL ANNUAL SALARIES, COMPENSATIONS, AND PENSIONS OF THE CIVIL ESTABLISHMENTS OP THE UNITED KINGDOM. Total annual salaries of the civil establiehments of the United Kingdom £5, 599, 409 [$27, 249, 524] Total annual compensations and pensions 1, 122, 844 [5, 464, 320] Being in the proportion of nearly 1 to 5, or 20 per cent. JUDICIAL ESTABLISHMENTS. Couit. Salaries. Compen- satioDS and pensions. England: Court of chancery Court of Queen's bench Court of common pleas Court of exchequer Court of requests County courts Court of admiralty and others. Marsbalsea and Palace court. . . Abolished courts of record Bankruptcy court Insolvent court Total, England. Ireland: Court of chancery Court of Queen's bench Court of common pleas Court of exchequer Lord treasiurer's remembrancer and others. Eegistrar of judgments Clerks of writs Taxing officers in common law business Prerogative court Court of appeals Bankrupt court Insolvent court Admiralty court Assistant barristers Total, Ireland. Scotland: Court of session Sberifls of coimties . . Sheriffs' substitutes. Total, Scotland. «834,614 217,406 177,944 188,781 499,999 34,187 290,817 40,952 2,284,700 333,316 132,719 104,742 112,134 6,596 9,490 8,760 14,599 3,682 19,709 20,887 2,433 167,811 926,778 284, 664 100,128 164, 415 649,107 $461,991 76,039 61,858 65,206 49,867 15,673 6,682 18,167 2,929 119,069 1,727 142,447 23,693 15,631 28,255 5,786 2,920 1,633 72,331 72,331 SUMMARY OF JUDICIAL ESTABLISHMENTS. England. Ireland... Scotland. Total.. $2,284,700 926,778 549, 107 3,759,686 $869,088 6 229,222 72,331 1,170,641 oReport on Civil Service Superaimuation. 1866. Appendix No. 2, p. 367. . , ^ ,^, !> This amount does not agree with the total for Ireland shown above, but is the equivalent of the amount (£47,102) shown in the original report. No explanation is given for the discrepancy. 42 CIVIL-SEEVICE RETIREMENT IN GREAT BRITAIN. The total amount of compeneations and pensions of all the judicial eBtablishmenta of the United Kingdom is therefore nearly 34 per cent(o) on the total amount of ealaries. If the four superior courts of England and Ireland are taken separately, the per- centage is above 41 per cent, viz: ENGLAND. Salaries. Compen- sations. Covurt of chancery Court of Queen's bench. Court of common pleas. Court of exchequer $834,614 217, 406 177,944 188,781 {451,991 76,039 61,858 ' 65,206 1,418,745 656,094 54 per cent of the salaries. 35 per cent of the salaries. 35 per cent of the salaries. 34 per cent of the salaries. 46 per cent of the salaries. IRELAND. Court of chancery Court of Queen's bench Court of common pleas . Court of exchequer $333,316 132,719 104,742 112,134 682,911 $142,447 23,593 15,631 28,255 209,926 42 per cent of the salaries. 18 per cent of the salaries. 15 per cent of the salaries. 25 per cent of the salaries. 30 per cent of the salaries. OTHER CIVIL ESTABLISHMENTS. Names of offices. House of Lords House of Commons Great officers of State: Class I Class II Class III Class IV Diplomatic establishments Treasury Privy council office Board of trade and registrar of merchant seamen . Secretary of State, Home Department Secretary of State, Foreign Department Secretary of State, Colonial Department Secretary of State, for War Commander in chief's office Adjutant-general's office Quartermaster-general's office War office Judge-advocate-general's office Chelsea hospital Royal military college Royal military asylum Army medical department Ordnance offices Artificers' wages for 1853-54 Commissariat office Admiralty offices Artificers' wages for 1853-54 Audit office Royal mint Paymaster-general's office Exchequer office Customs officers and coast guard Inland revenue Post-office Stationery office State paper office Record office Salaries. $75,431 236,093 128,962 19,466 38,932 60,831 681,310 153,777 57,361 190,066 68,048 114,723 73,781 41,069 30,172 20,026 18,366 187,871 8,735 14,570 28,878 9,339 11,534 1,044,541 763,166 23,364 1,222,728 3,618,516 210,763 53,098 103,588 35,998 5,165,239 3,798,157 3,910,739 48,668 7,275 36,601 Compensation and superan- nuation. Compen- sation. $2,920 21,631 146 8,298 1,946 2,925 60,627 78 14,950 4,764 808 3,628 45,809 15,923 105,949 18,862 28,328 80,915 270,149 213,688 18,945 Superan- nuation. $28,986 72,024 125,157 37,706 2,068 2,508 18,507 20,488 1,630 3,913 6,708 29,773 1,294 4,638 6,149 978 1,752 188,713 33,048 17,374 267,964 312,157 44,091 10,760 4,833 3,893 890,701 856,738 140,306 4,725 438 2,959 Total. $31,905 72,024 125,157 59,337 2,068 2,652 20,405 20,488 5,859 8,633 90,400 1,372 19,58S 9,913 1,786 5,280 234,522 33,048 33,297 373,913 312,157 62,953 39,088 85,748 3,893 ,160,850 ,070,426 159,251 4,725 ■ 438 3,494 a The percentage here given is according to the original report. According to the figures shown in preceding table it should apparently be 31 per cent. CrVIL-SERVICE EETIEEMENT IN GREAT BRITAIN. OTHER CIVIL ESTABLISHMENTS— Continued. 43 Names of oMces. Salaries. Compensation and superan- nuation. Compen- - sation. Superan- nuation. Total. Registrar-general's ofBoe Lunacy commission Metropolitan police offices Queen's prison National debt office Public works loan commission . Officeof woods, etc Office of works Colonial land emigration Consuls restricted from trade. . . India board Queen's remembrancer SCOTLAND. Board of fisheries General register office Queen's and lord treasin'er's remembrancer. . Chief secretary's office , Board of works Paymaster of civil services , General register office Kilmainham hospital, etc Hibernian military school Dublin metropolitan police offices. $62,588 47,692 166,936 14,726 62,204 11,996 69,236 81,246 35,637 223,372 77,231 27,238 24,060 4,818 12,779 63,182 92,809 31,944 7,932 11,675 12,517 46,470 S253 S253 $1,202 1,626 "46,"4i2 23,067 4,789 146 331 Total. 23,489,939 16,059 6,475 10,502 3,650 5,129 701 68 45,842 22,274 827 10,473 "2;273' 16,059 5,475 11,704 3,650 6,755 701 68 92,254 22,274 827 10,473 "2i273 6,054 6,701 6,319 253 837 628 8,161 29,121 11,490 5,319 263 983 969 8,161 3,292,455 4,293,660 Note. — ^The proportion wMch. the total amount of the! compensation allowancea of this class bears to the total >l-23 Jd part, or 41 per cent, amount of salaries is about J Note. — The proportion which the total amount of the! compensation allowances of this class bears to the superan- l-7th part, or 14 per cent, niiation allowances is about Note. — ^The proportion which the total amount of thel compensation allowances of this class bears to the compen- |l-5ith part, or 18 per cent, sation and superannuation allowances is about J Sir Charles Trevelyan considered the principle of abatements thor- oughly objectionable, but he took the stand that if it were to be con- tinued it should be extended to all ahke, both to the high poUtical ofl&cers of the State and to the judges, and from the judges down to the lowest paid messenger. He defended his position with great ability, showing how the pensions enjoyed by the diplomatic and political servants were not only paid for by the State, but that the rates of pension were much higher in proportion than those of ordi- nary civil employees, that they were granted after a much shorter period of service, and were altogether more easily and frequently obtained. As his opinion seems to have reflected to a great degree the sentiment of the civil service itself, some of his remarks should be quoted. He said: EquaKty belongs to the very essence of justice, but there are some independent, powerful classes, especially the large class of diploma- tists and lawyers, not merely the judges, but the much larger class of 44 CIVIL-SEEVICE EETIEEMENT IN GREAT BEITAIN. adminis'^.rative oflBcers of the courts in England, Ireland and Scotland, and the county court judges, and treasurers and clerks, and the as- sistant barristers in Ireland, and the sheriffs depute in Scotland, all together forming a very large class indeed, who are almost entirely exempted from the deductions. The Treasury, in its various deaUngs with the subject of superannuation, has from time to time endeavored to bring the several sections of this great class under contribution, but we have almost always been foiled; and even when we have succeeded in some degree, they have always prescribed conditions to us much more favorable to themselves than those to which the clerks are sub- jected; then, as the powerful few, so are the powerful many. There are 24,000 dockyard men, workmen employed in the arsenals, and post-office sorters and letter carriers ana so forth, all of whom have at this moment a contingent right to a pension, without paying any deduction whatever; and the inequality there is more remarkable, because the exemption from deduction is extended to £200 [$973.30] in the dockyards. I presume it was not considered advisable to touch any of the large class of workmen, so that although the clerks and messengers pay on whatever salaries they may receive, however small they may be, a large class of persons in the dockyards are exempted up to £200 [$973.30]. C) Although questioned very closely by members of the Select Com- mittee, Sir Charles Trevelyan would not admit that difference in the terms of service of different classes of public officers, permanence in office, or payment by fees, gave just ground for any difference of treatment with regard to deductions. He said: My argument is, that all should be dealt with alike. If it is proper that one class of public servants should contribute to their own pen- sions, it is proper that all should contribute toward their pensions. If it is proper that large sections of the civil service should be ex- empted from deductions, and should have their pensions provided for them by the State, it is equally proper that all other sections should be so exempted. * * * j -^rould have either a system of universal superannuation fund, or a system of universal free pension, granted by the State ; and of the two I very much prefer the latter. C") (6) PENSIONS PAID EMPLOYEES WHOSE APPOINTMENTS ANTEDATED 1829 COMPARED WITH THOSE PAID OTHER CIVIL EMPLOYEES. If the opposition of the members of the civil service forced to make contributions from their salaries to a hypothetical fund on which the chances were seven to one they would never draw was stimulated by the exemption of the great officers of State and the lowest work- man of the Government from such requirement, it was fanned to a flame by the exemption of certain fellow-officers thus favored simply because their appointments antedated August -4, 1829. The civil servants appointed subsequently to 1829 saw that they suffered in comparison a double disadvantage; they had a lower scale of pen- a Report on Civil Service Superannuation. 1856. Minutes of evidence, p. 23. b Idem, p. 29. CrVIL-SEKVICE EETIEEMENT IN GREAT BRITAIN. 45 sions, and their salaries were subject to considerable deduction. The law was very liberally interpreted for the benefit of the early comer. Even if he had held a very inferior situation previous to 1829, if he had been an extra clerk, for instance, or had held only a temporary situation, he was considered to have entered the service previous to 1829, and was therefore exempted from deductions. However small his salary before 1829 and however large his salary in 1856, at the time of the investigation, he was exempted from deductions upon the whole of his salary. About one-third of the service was at that time exempt from paying deductions. As the other two-thirds were working in the same offices, at the same tasks, often more efficiently, it can easily be understood that there seemed to be some ground for complaint. (2) Dislike of pension scale and forfeiture provisions. In the second place, the civil servants were discontented with the provisions of the law. Not only did they think the scale of pensions too low (apart from the matter of deductions), but they felt it unjust that they should be required to pay a tax during the whole of their official lives and receive nothing in return except in case of retire- ment under the rigid rules of the service. The complete forfeiture of their contributions in case of voluntary withdrawal from the serv- ice before reaching a condition of superannuation or infirmity, in case of dismissal from office, or in case of death while in office, was resented as a confiscation of property. This lack of provision for refund of contributions, and not so much the fact that deductions were made from salaries, was the deep-seated reason for the antago- nism of the civil servants to the system of abatements. There was a general feeling- that the Government should pension outright the whole body of permanent employees, as was not unnatural in a country where political pensions were awarded frequently and on a most liberal scale, but it is equally apparent that had the law of 1834 established a' contributory plan which was equitable as between different classes of employees and which made provision for refund of contributions in each and every case the chief complaints to which the Select Committee of 1856 listened would never have been made. The opinion of a distinguished civil employee. Sir John Herschel, no longer in the public service, in regard to the injustice of con- fiscating contributions, was quoted by Mr. Bromley: Whatever is paid to any person employed in remuneration of service should be absolutely his property, at least so far as not to be revocable at the pleasure of the employer, or defeatable by the accident of death. The payment, no doubt, may be made partly in money, and partly in the form of a right; but the right should be a vested one, and not liable to annulment. The only mode consistent with justice of dealing with such portion of a man's salary as may be withheld from 46 CrVIL-SEEVICB EETIEEMBNT IN GKEAT BRITAIN. him is to regard it as held in trust and managed for his absolute benefit, to be either handed over to him, with accumulations, at the termination of his service, or paid over to his executors, etc., in case of death, or invested for him (if possible on more advantageous terms than he could individually obtain) in such way as he shall himself approve, to meet his case as a bachelor, husband, or father. Whatever is kept back as constituting a lien upon him for the con- tinuance of his services, or as affording a hold upon him for good conduct, ought rather to be called caution money than salary. So far as its accumulation is an advantage, it is yet one contingent con- ditional and hable to forfeiture. It is not his, and may never becorne his. If he die in the service, it is lost; he has been mulcted of it without fault on his part; and if it be forfeited by misconduct he has in effect been fined by anticipation. To men from whose motives fortune and fame are excluded; who labor in obscurity, and see their equals passing them in the career of life; the sole redeeming feature of whose position is its certainty, it does seem most incongruous to introduce an element of this nature. An objector to the present system might say, "If you assert that a man has a salary of £100 [$486.65] per annum, you are bound to give it him in some form or other of hard cash, and not of expectations, which may be disappointed. If with his consent, by means of a forced bargain, or in his ignorance of its nature at the moment of his engagement, you keep back a part of it, you are bound to pay it, not to some other party in whom he has no interest, but to himself or his nominees, and that whether his conduct has been good or bad (pun- ishing bad conduct by dismissal, and criminal by the penal law). You incur this obligation, not with him, but with mankind, that words should correspond to things and mean realities. You assume pro tanto the position of a savings bank, and are bound to account to the uttermost farthing, not to the mass of your contributors, but to each individual. An act of Parhament may legalize, but can not justify, a contrary view of the matter. (") It will be remembered that in the petition to the committee signed by 9,791 members of the civil service, out of an aggregate number of about 16,000 persons, the following statement was made: Although all your petitioners during their entire official career are thus taxed for superannuation, yet, as it is estimated, according to the average duration of life, that not more than one in ten can be superannuated, it follows that the contributions of the remaining nine-tenths are absolutely lost to them and their f amihes. C") (a) rOEFEITTIEB PEOVISION OBJECTIONABLE AS A FORM OF TONTINE. The calculation of Dr. Wilham Farr, head of the Statistical Office of the Department of the Registrar-General, was that about one in eight of the whole number of persons in the civil service whose salaries are liable to deductions became superannuated, while Felix John Hamel, esq., solicitor to the Board of Customs, told the Select "Report on Civil Service Superannuation. ]856. Appendix No. 9, p. 416. *Idem, Appendix No. 16, p. 462. CIVIL-SERVICE EETIEEMENT IN GREAT BRITAIN. 47 Committee that, according to his calculations, not more than one in seven of the contributors in the Customs reached the age of super- annuation. The others died or left the service before reaching the age at which they could claim a superannuation allowance, so that the statement of the civU servants in their petition that "according to the average duration of life" not more than one in ten can be super- annuated was apparently an exaggeration of the fact, being based on incomplete reasoning, since the average rate of resignations and dismissals is a factor in such calculations as much as "the average duration of life." The truth, however, was bad enough and showed that the civil employees were justified in their lack of enthusiasm for a system which compelled them to contribute to an object by which not more than one-seventh or one-eighth of their number could possibly profit. Mr. Hamel's calculation showed the volun- tary resignations before the age of 61 at 14 per cent of the whole number of clerks, the dismissals at 20 per cent, and the deaths at 50 per cent, making a total of 84 per cent of the civil servants who never reached superannuation. "Under this arrangement for granting allowances out of deduc- tions," declared Doctor Farr to the Select Committee, "you necessarily have to take the deductions from men who never derive any benefit whatever from the fund. This is, I conceive, an insuperable objection to the system. The families of the men who die are harshly dealt with; you take from the widow and fatherless children the deductions of the men who die, to enable you to pension those who live. Now, it is impossible to convince the widows or the orphan children of the officers who die in the service that it is just to deprive them of the advantage derived from the contribution of the parent, to enable you to pay the superannuation allowances of those officers who are so fortunate as to live."^) And a week later he told the Select Committee the same thing with a different choice of words: "Sup- posing that 1,000 men commence paying those deductions, and you receive those deductions, and invest them at interest, and let them go on accumulating for forty years, at the end of that time you will have to divide the money among the survivors only of the 1,000. This system of the Government is a tontine, and the objections against tontines hold against this scheme of deferred annuities." (*) Doctor Farr was one of the most eminent actuaries of his day and his testimony to the committee in the course of this investigation was particularly helpful in making clear the unsoundness of the superannuation scheme established under the Act of 1834. The civil employees did not need to be actuaries, however, to perceive the natm-e of the system of which they were victims. oReport on Civil Service Superannuation. 1856. Minutes of evidence, p. 176. 6 Idem, p. 243. 48 CIVID-SERVICB KBTIEEMENT IN GREAT BRITAIN. Asked what was the objection of the civil service to the system of abatements, Mr. Bromley, chairman of the committee of civU serv- ants, said: The main objection which we entertain is this: that the scale of pubHc salaries is fixed as a just payment for the work to be done, and that the abatement made from those salaries to secure a deferred annuity is an object for which we consider the State itself ought to provide; that is the broad issue. We consider that the State itself ought to provide for its worn-out servants. The present law of 1834 directs that the servants shall provide for themselves; but the abate- ment is not now levied upon a mutual principle; it is upon the principle of a lottery, or rather upon the principle of a tontine, that a great many gentlemen shall put in a certain sum, and the longest liver shall derive the benefit. Upon these grounds we object to the abatements. (") (&) FORFEITURE PROVISION ESPECIALLY UNJUST IN CASES OF CLERKS DYING IN HARNESS. The hearings abound in citations of cases of civil servants who contributed for years to the supposed "Superannuation Fund" and dying left their families in destitute circumstances. Letters from individual clerks bring out this grievance strongly. The widow of John Kendall, who held the position of consul in the Cape de Verde Islands from 1839 to 1854, begged the committee to grant her indemnification for the pecuniary loss she had sustained by the death of her husband, on the ground that during the sixteen years of his service he had contributed to the "Superannuation Fund" with the impression that he was at the same time securing to his wife and family benefits to be derived in the future, and that the deduction from his salary precluded him devoting any other proportion of his income to the insurance of his life. D. H. Harris, a landing waiter in the Customs service, wrote, on March 24, 1856, to F. J. Hamel, solicitor to the Board of Customs, a letter setting forth the woes of his class : My nominal salary is £200 [$973.30] per annum; I only receive £167 6s (1814.16). The remainder is swallowed up in income tax, superannuation tax, and premium for insurance of £300 in the customs benevolent fund. These deductions amount to about 17 per cent, or one-sixth of my actual receipts. As the relative condition of the ofiicers in the civU service has formed part of the inquiry before the committee of the House of Commons, permit me to draw your attention to the fact that, with this same salary of £200 [$973.30] per annum, either in the service of the Bank of England, the East India Company, or the London Dock Company, I should be at least 12 per cent better off than as a o Report on Civil Service Superannuation. 1856. Minutes'of evidence, p. 80. CrVIL-SERVICE RETIREMENT IN GREAT BRITAIN. 49 civil servant of the Crown, because the former pay the salaries of their servants in full, and give retiring allowances without deductions; the latter deduct not only income tax, but abatements for superan- nuation also. The hours of work and attendance are similar. I find that, as a body, the condition of the officers of the Customs is a depressed one; they are for the most part ill paid, and, in the event of early or sudden death, their families are often left in a most wretched state of destitution. * * * After enumerating a number of cases that had come under his observation, he continued: Under the superannuation law a man may pay twenty, thirty, or forty years, and never receive a shilling. The longer he serves the less chance he has of receiving any benefit, because the older he gets the less the probability of his surviving to receive it; and if he dies with part of his salary due, his widow is actually mulcted five per cent of the balance due, though it is then utterly impossible that any benefit can accrue from it. Another feature presents itself: when the poor day-pay officer is sick his day pay is stopped; but from his small salary, when the quarter comes round, is deducted the super- annuation tax of 2J per cent upon the sums which he did not receive. If he should die, his widow would be forced to contribute to the super- annuation tax upon the unreceived half-crowns, the lack of which, perhaps, induced exhaustion to her husband, and want of bread to her children. When the officer entering the service first hears of this deduction, he consoles himself with the idea that it is for some certain though perhaps far-off benefit which will accrue to him; he next finds that it is a tax to reduce the charge upon the country for his probable superannuation; next, that it is not only more than enough to reduce that charge, but sufficient to confer a large benefit on noncontributors, and that he who must pay may possibly never get a shilling. (") W. B. Hambly, a clerk in the Royal Engineer Department, wrote the committee on the civil service superannuation bill partly as follows : Whilst this momentous question is under consideration by your honorable committee, and before its fate is sealed by act of Parlia- ment, something is due to the widow and orphan of the civil servant ; for it seems hard indeed that his last dying thoughts were to be em- bittered by the terrible idea that his wife and children, whom, whilst the Almighty had been pleased to grant him life and health, he had toiled to provide for, cherish and comfort, should at his death be thrown peimiless on the world, and the fund to which he had all his life subscribed be shut against them. It seems but j ust, that whatever allowance this fund entitled him to, should, at his death, be handed down as a support (if bona fide required) to his wife and children; for I may here remark, that it is not in the power of any Government "Report on Civil Service Superannuation. 1856. Appendix No. 15, p. 453. 35885— S. Doc. 290, 61-2 4* 50 CrVIL-SEEVICE EETIEEMENT IN GREAT BRITAIN. clerk (except those in the high offices) to provide out of their pay anything for the future support of either wife or children. The pay is altogether too inadequate for such a purpose, and the Government deductions are so heavy, that it is with difficulty they can Uve on the pay received. Therefore, out of the civil servants' superannuation fund, it is the more incumbent on Government to provide for their wives and children; and that in the event of the husband dying in office, that they should receive the full allowance the length of service would have entitled the deceased to; or when death occurred, after being superatmuated, that the same allowance should be continued to the wife as the husband had been enjoying, and, as he had paid for it, his family might fairly be entitled to it. (") The fact that the committee of civil servants was seeking chiefly not an abohtion of the compulsory deductions but a Umitation of the deductions to 2i per cent for the creation of an insurance fund is sufficient proof that among a large number of the civil employees there was no serious objection to the deductions, as such, provided they were used for the benefit of the families of those whose salaries were thus taxed. This point is brought out even more clearly by William Willis, esq., the secretary of the committee of civil servants. Asked by the chairman of the parhamentary committee to state the objections entertained by the members of the association which he represented to the present system of superannuation, he said: The objections are numerous. The first is, that the _ abatements operate with very great severity upon a class whose incomes are small; coupled with the income tax, they amount to a deduction of 11 per cent. The origin of the movement arose in our finding such great distress to exist amongst the families of the clerks. I was my- self aware of it to some extent, and have had applications before me of a most painful nature from the widows of officers petitioning for the collection of even a few shillings ; in one case the body of an officer could not be buried for want of means, nor until subscriptions had been collected in the office to which he had belonged. Finding that this distress was very general, and as our inquiries also led us to believe that insurance was effected in but a very small minority of cases amongst the civil servants, we were induced to inquire whether means could not be adopted of providing some insurance fund. "If I understand your statement correctly, the first object that your society had in view was the establishment of an insurance fund for the widows and children of deceased public servants?" asked the chairman. "It was." "How did you propose to accomplish that object? "We proposed' to establish an insurance fund by means of con- tributions from the service; but we found that that was wholly out of the question, because these abatements precluded the civil serv- ants from subscribing to any such association. It was these abate- ments which debarred them from the power of making insurances." (*) a Report on Civil Service, Superannuation. 1856. Appendix No. 15, p.455. 6 Idem. Minutes of evidence, pp. 144, 145. CIVIL-SEKVICE EETIKBMENT IN GREAT BRITAIN. 51 On this point Doctor Farr was also equally clear. "One objection to the deduction in its present form," he told the Select Committee, "is that it prevents so large a number of the public servants from insuring their lives; but if you remit the deduction for the purpose of super- aimuation they would be enabled to appropriate at least a part of their salaries for the insurance of their lives." (") (c) FORFEITABLE DEDUCTIONS WITH INADEQUATE SALARIES A BAR TO LIFE INSURANCE. Doctor Farr had been consulted a number of years before this by the committee of civil servants formed for investigating the subject of superannuations. They had claimed that cases of distress occurred very frequently in the service in consequence of the fact that many of the civil employees were unable to msure their lives, owing to the insuf- ficiency of their salaries and the deductions made from those sala- ries. Doctor Farr had requested them to procure information from the public departments. They did so, and he embodied the infor- mation in a paper read before the Statistical Society of London on December 18, 1848. This showed that 16,353 officers, either paying contributions or in offices liable to pay contributions to the superan- nuation fund, had, on an average, salaries of £141 ($686.18) a year; that is the nominal salary, which would be further reduced by the deduction to £135 ($656.98) a year. Two-thirds of those salaries did not exceed £100 ($486.65) a year; they were on an average £86 ($418.52) a year. Information of another kind showed that of the 16,353 officers, about 11,023 had wives living, as well as 21,952 children under 15 years of age, making in the aggregate 49,328 per- sons more or less dependent on the salaries. Each married civil employee in the station of life in which he is would keep one or more servants; that would imply that there was about £34 ($165.46) a head on the total number of persons dependent on the civil servants contributing to the fund. Doctor Farr stated to the Select Com- mittee that that appeared to him to substantiate the statement of the civil servants that their salaries scarcely permitted them to insure their lives. (*) In connection with the oft-repeated statement that the salary of the average civil service clerk was not sufficient to bear deductions the statement of the annual expenditure of a married clerk, compiled by J. T. Hammack, of the Statistical Department of the Kegistrar- General's Office, "from information that can be relied upon," is inter- o Report on Civil Service Superannuation, 1856. Minutes of evidence, p. 188, b Idem, pp. 159, 160, 52 CrVIL-SEBVICB EETIEEMBNT IN GREAT BRITAIN. esting. This statement showed "the annual expense, regulated with the strictest regard to economy, of a family consisting of five persons, viz, a civil service clerk, his wife, two children, and a servant." The total annual expenditure was shown to be £183 7s. 5d. ($892.37). The salary of a civil service clerk appointed after August, 1829, amounting to £200 ($973.30), was subject to a superannuation abate- ment of 1 shilKng in the pound (5 per cent) or £10 ($48.67), and to an income tax of Is. 4d. in the pound (6f per cent) or £12 13s. 4d. ($61.64) (°), or a total deduction of £22 13s. 4d. ($110.31). This left him a net amount of salary of £177 6s. 8d. ($862.99), so that a nominal salary of £200 ($973.30) per annum, unsupported by private resources, would be insufficient to enable the clerk to meet the above expendi- ture to the extent of £6 9d. ($29.38). This estimate omitted all allowance for the education of children, sittings in a place of worship, life assurance, excursions into the country during vacation, and indeed all other recreation attended with expense, made no provision for lengthened illness or death in the family of the clerk; and in the event of the death of the clerk himself there was no provision what- ever for his wife and children or other dependent relatives. It was argued that the sum deducted for superannuation, £10 ($48.67) would, if remitted, enable the clerk to effect a small insurance upon his life. Fuller details of the statement of expenses are as follows : (*) ANNUAL EXPENDITURE OF A MARRIED CLERK. [Statement showing tlie annual expense, regulated with the strictest regard to economy, of a family con- sisting of five persons, viz, a civil-service clerk, his wife, two children, and a servant.] ITEMS OF^ EXPENDITURE. House rent and taxes: Rent of a six-roomed house (in the suburbs of London) $121. 66 House tax (9d. in the pound (3f per cent) on the rent paid) 4. 56 Poor rate (say, 3s. in the pound (15 per cent) on a rating of £22 ($107.06) 16. 06 Lighting, paving, and highway rates (say) 6. 09 Water rate 7 5. 11 ^ . $153. 48 Provisions and other household necessaries (per week, for five per- sons) : Bread, 32 lbs., at 2id. (4.6 cents) per lb., 6s. ($1.46); flour, 1 quartern, lOd. (20 cents) 1. 66 Meat, 14 lbs., at 8d. (16 cents) per lb 2. 27 Tea, i lb., 2s. (49 cents); coffee, f lb.. Is. (24 cents) 73 Sugar, 3 lbs., at 5d. (10 cents) .30 Butter, 2 lbs., 2s. 4d. (57 cents); eggs, bacon, cheese. Is. 4d. (32 cents) gg aThe amount here given is according to the original report. Calculated on the basis shown it should apparently be £13 6s. 8d. ($64.89). 6 Report on Civil Service Superannuation. 1856. Appendix No, 14, p. 451. CIVIL-SEBVICE EETIKEMENT IN GREAT BRITAIN. 53 Provisions and other household necessaries (per week, for five per- sons) — Continued. Vegetables and fruit, 3d. (6 cents) per day $0. 43 Beer, 3 pints per day, 21 per week, at 2d . (4 cents) 85 Milk, 1 pint per day, at 2d. (4 cents) .29 Candles .37 Firewood, and materials for cleaning house .24 Soap, mustard, vinegar, pepper, rice, &c .16 Washing (done at home), 6d. (12 cents) per head .61 Per week 8. 80 Per annum 457. 61 Coals (in the year), 5 tons, at 25s. ($6.08) 30. 42 $488.03 Servant's wages 38. 93 Clothing: The clerk 73. 00 His wife 43. 80 His children 38. 93 155.73 Medical attendance on family (average) 14. 60 Renewal and repair of furniture, house linen, &c 19.46 Fire insurance on furniture £200 ($973.30), premium 58. ($1.22), duty 6s. ($1.46) 2. 68 Pocket money for omnibuses, and other incidental personal expenses 19. 46 Education of children Sittings in place of worship Excursion into country during vacation Wine and spirits Insurance on life, to make some small provision for his family in the event of his decease Total annual expenditure 892. 37 The salary of a civil-service clerk appointed since August, 1829, amounting to £200 ($973.30) is subject to the following deductions: Superannuation abatement. Is. in the pound (5 per cent) £10. $48. 67 Income tax. Is. 4d. in the pound (6f per cent) £12 13s. 4d. . " 61. 64 $110. 31 Leaving the net amount to be received by him 862. 99 So that a nominal salary of £200 ($973.30) per annum, unsupported by private resources, would be insufficient to enable the clerk to meet the above expenditure to the extent of 29. 38 892.37 The combined effect of superannuation abatements and income tax on the salary of the civil servant was shown by the following statement : ('') a The amount here given is according to the original report. Calculated on the basis shown, it should apparently be £13 6s. 8d. ($64.89). b Report on Civil Service Superannuation, 1856. Appendix No. 14, p. 452. 54 CIVIL-SEEVICE EETIEEMENT IN GREAT BRITAIN. COMBINED EFFECT OF SUPERANNUATION ABATEMENTS AND INCOME TAX. [Statement showing the difference between the nominal salary of a civil servant appointed since August, 1829, and the net amomit payable to him after deducting the superannuation abatement and income tax, on salaries from £80 (S389) to £500 (12,433).] Deductions for— Net amount. Nominal yearly salary. Super- annua^ tion. Income tax. Total. Remarks. J389.32 437.99 486.66 510. 98 0535.32 683.98 632.65 681.31 729.98 778.64 827.31 875. 97 924.64 973.30 1,216.63 1,459.96 1,703.28 1,946.60 2,189.93 2,433.25 6 2,433.25 39.73 10.95 12.17 25.55 26.77 29.20 31.63 34.07 36.50 38.93 41.37 43.80 46.23 48.67 60.83 73.00 85.16 97.33 109.50 121.66 m "$24.'36" 26.58 28.77 31.00 33.21 49.31 52.40 55.48 68.56 61.64 77.05 92.46 107.87 123.28 138.70 164.11 162.22 $9.73 10.95 12.17 25.55 61.12 65.78 60.40 66.07 69.71 88.24 93.77 99.28 104.79 110.31 137.88 165.46 193.03 220.61 248.20 275.77 162.22 $379.59 427.04 474.48 485.43 484.20 628.20 572.25 616.24 660.27 690.40 733. 54 776.69 819.86 862.99 1,078.75 1,294.49 1,610.26 1,726.99 1,941.73 2, 157. 48 62,271.03 Superannuation, 6d. (J0.12) per pound ($4.87). Superannuation, Is. ($0.24) per pound ($4.87). Superannuation, Is. ($0.24) per pound ($4.87). Income tax, Hid. ($0.23) per pound (14.87). Superannuation, Is. ($0.24) per pound ($4.87). Income tax, Is. 4d. ($0.32) per pound ($4.87). o It win be observed that upon the promotion of a clerk from £106 ($510.98) to £110 ($535.32) he is a posi- tive loser by the step. 6 Salary of an officer appointed prior to August, 1829, and therefore exempt from superannuation tax. (d) FREE PENSIONS DESIRED WITH COMPULSORY DEDUCTIONS FOE PURPOSE OF LIFE INSURANCE. Taking all these facts into consideration, and realizing besides the actuarial unsoundness of certain features of the existing superannua- tion scheme, as will be explained later on. Doctor Farr threw the weight of his influence with the arguments of those civil servants who asked that pensions be granted free by the State and that a compulsory- insurance fund be formed out of 2^ per cent deductions from all sal- aries above £100 ($486.65) a year. This would have been a decided improvement over the existing scheme, as it meant practically an increase of 2^ per cent in salary, an insurance benefit in case of death, and a pension in case of superannuation. The advisability of so arranging matters as to make it possible to compel the civil employee to insure his life was thus set forth by Doctor Farr: The utility of life insurance is universally admitted. Insurance could be effected on very advantageous terms by the servants them- selves: it would save many hundreds of famiUes from deep distress; and it would raise the character of the service. Upon this subject there are now differences of opinion, but those who differ from the committee are equally animated by a desire to leave a provision for their wives and their children: they think that it should be done entu-ely on the voluntary principle; I, on the contrary, think that it should be to a certam extent on a settled principle, for reasons which I will very briefly state to the committee. Children, women and CIVIL-SERVICE EETIEEMENT IN GREAT BRITAIN. 55 men advanced in years can rarely earn enough to supply themselves with subsistence. Men who enter a profession have therefore, during their years of active life, not only to supply the current wants of their families, but to make a provision for the infirmities of sickness or age, and, in consequence of the mortahty of their nature, for their widows and children. In Great Britain, to every 100 wives, there were at the census 23 widows living: there are now living about 2,300 widows of deceased civil servants, and an unknown number of fatherless chil- dren, which the returns leave undetermined. The children of pos- sessors of property are naturally provided for under our laws, and the children of the man whose income is derived from his industry gener- ally enjoys the same privilege; but the source of income depending on his life, they are liable at any time to be thrown on the community for support, which is, in a high degree, precarious. In the middle and m the higher classes they are practically thrown upon the hands of their relatives, of the charitable, and, in some rare instances, of the parish. Life insurance meets the risk of mortality; but it unfortu- nately happens in all professions, and in the civil service among others, that life insurance to an adequate extent is not effected by the great majority of husbands, and more particularly by those whose fives are most fiable to be cut short, and whose large families are fikely to prove the severest pressure of want — the heaviest burden on the commu- nity. Society has therefore a right, and, whenever an opportunity offers, perhaps a duty, to see that such a deduction is made from the adequate income in active life as will lighten the sufferings of the fatherless children and widows of its members. If the Government set the example in the pubfic service, it may be copied by other classes, and would ultimately prove a great boon and an economy to the nation. (") The amendment to the superannuation bill relating to insurance proposed by Mr. Bromley and his adherents and indorsed by Doctor Farr was as follows : And whereas great distress from time to time occurs amongst the families of deceased civil servants, and various efforts have been made to establish departmental benevolent funds for their relief, but all such funds have failed without contributions being made in aid thereof by the State, or indirect assistance afforded in the collection of the same ; it is expedient that such contributions or assistance, if given at all, should be for the general benefit of the whole service, and not for particular departments ; it is therefore directed that from and after the first day of April one thousand eight hundred and fifty-six, when the abatements made under the twenty-seventh section of the aforesaid act shall cease, there shall be an abatement made in quarterly or monthly proportions, by the proper officer in each department, from the annual salaries of the several officers and persons employed in the civil offices and departments to which this act applies, who have since the fourth day of August one thousand eight hundred and twenty- nine entered or shall hereafter enter the public service, the amount of which abatement shall be at the annual rate of two pounds and ten shillings per centum [2J per cent]. The amount so abated and brought to account in the books of each respective department shall "Report on Civil Service Superannuation. 1856. Minutes of evidence, p. 184. 56 CIVIL-SERVICE RETIEEMENT IN GREAT BRITAIN. be paid over quarterly to the National Debt Commissioners, for the purpose of forming a "Civil Service Insurance Fund," in which name an account shall be opened in the books of the Bank of England, and such fund shall be directed and controlled for the benefit of each individual contributor, upon the common principles of lite assurance, bv such persons and in such manner as the lords commissioners ot Her Maiesty's Treasury may from time to time direct; and mmakmg such settlement full credit shall be given to each individual who may have aheady contributed in aid of the aforesaid sum of eight hundred thousand pounds [$3,893,200], in fixing the amount of insurance to which his contributions may entitle him; all which proceedings and regulations shall from time to time be laid before Parliament and the accounts of the said fund shall be submitted periodically to the com- missioners for auditing the public accounts, and after each annual audit by them, a copy of the said account, with the report ot tne auditors thereon, shall be by them laid before Parhament.r) Mr. Bromley's reasons for advocating this measure, as explained to the committee, make an interesting contribution to a discussion which has continued down to the present year. Said he : The very great distress in the lower ranks of the service induced me to take up this question, and I was at the time encouraged to do so by the debate in Parhament in March 1844, relative to the distressed state of the family of Doctor Morrison, who died in China, after he had rendered valuable public service. i j. -, j All attempts to form voluntary funds for the purpose had failed; an order in council was obtained in 1819 to establish a fund in the Admi- ralty, but it did not succeed. Indeed, the distress in the revenue de- partments was admitted by the Government to be so general, that in the Customs a benevolent fund was established by act of Parliament in 1816; it was however found necessary to require a compulsory con- tribution for its support, added to which, the profits of the bill of entry (somewhat analogous to the profits of the London Gazette) were given up by the Government in aid thereof. In the Post-Ofl&ce the Government have allowed the property found in dead letters to be applied in aid of a charitable fund. In the Inland Revenue, the Government assist the Atlas Assurance Office in collecting premiums, &c., from officers who insure in that office under certain advantages. In the Ordnance Department certain pensions are paid to the widows of clerks by the Government. If the principle is correct in these cases, it does not appear to be just to exclude other civil servants from such advantages; and as the compulsory principle has been adopted by Parliament with re- spect to a large body of its civil servants, although the great majority of them derive no benefit therefrom, it does appear to be sound policy to extend that system to all, to be coupled, however, with this most just provision, that the proposed contributions shall be applied for the benefit of each individual, according to the value of his contribu- tion. a Report on Civil Service Superannuation. 1856. Appendix No. 9, p. 417. CIVIL-BEEVICE RETIREMENT IST GREAT BRITAIN. 57 _ It has been ascertained that 83 per cent of civil servants are un- insured m the local funds already estabhshed, notwithstanding the aid attorded them hy the Government. It is doubtless higher ground to advocate the voluntary rather than the compulsory principle of life insurance, and were its truth- fulness equally enforced by experience, it might require no arguments to recommend its adoption; but unfortunately in this, as in most other instances, there is a wide discrepancy in human conduct be- tween what ought to be and that which actually takes place; and it IS to be feared there is no alternative in this case but to fall back upon some inflexible law external to itself; and this I conceive will best be met by a compulsory conversion of a moiety of the present super- annuation assessments into an insurance fund, for the benefit of rep- resentatives of deceased civil servants. This is no new theory which it is desired to urge upon the State or the pubhc; as, in the case of the navy and army services, provi- sion is made, as a rule, for the wives and families of naval and military servants, independently of the additional pension granted for loss of life in action, there is likewise a compulsory abatement imposed upon the whole medical force of the Navy for the support of their widows only; the East India Company likewise enforces a contribu- tion from its servants for the support of their families; the Emperor of the French has also established a compulsory provision for the families of the employees of the State. The Bank of England re- quires its servants to insure their lives, and several private estab- lishments have adopted a similar course. Such a concurrence of testimony, and from such various sources, must be considered, upon all fair terms of reasoning, as incontro- vertibly establishing the principle under consideration. It is, therefore, from the conviction that the position of the civil servants will be materially improved by the adoption of the com- pulsory principle of life insurance, and also from the consideration that the State is preeminently interested in relieving its servants as much as possible from the cares and desponding influences which can not fail to have a most depreciating effect upon their official energies, that I am induced to lay such stress upon the formation of this fund by an appropriation of one-half of the present superannua- tion percentage to that purpose, remitting the remaining half to the civil servants to meet immediate exigencies. (°) (3) Distrust of actuarial soundness of plan embodied in Act of 183 4. In the third place there was distrust of the actuarial soundness of the plan. This was not so general, however, as might be supposed. The statement is frequently made that the contributory plan failed in England because it was found in 1857 that the superannuation fund was hopelessly insolvent; that it was therefore turned into the general exchequer and pensions were thereafter paid by the Govern- ment. This is not strictly correct, because, as has been shown in the previous pages, no fund was established under the Act of 1834, <• Report on Civil Service Superannuation. 1856. Appendix No. 9, p. 417. 58 CIVIL-SEEVICE EETIEEMENT IN GREAT BRITAIN. and the contributions had been turned into the general exchequer from the very beginning. Furthermore, even if there had been a fund and it had been found in a very satisfactory condition, the sec- tion of the act which provided for contributions from the civil serv- ants would probably have been repealed in 1857 just as it was, for the discontent of the civil servants, which moved Parliament to act, rested, as has been shown, on quite different grounds. They brought no charge of insolvency against the fund, but rather one against the Government of confiscation of property rights and inequitable treat- ment as between different classes of the service. Instead of believing the fund insolvent — supposing their contributions had been funded — the civil employees were inclined to believe that their contributions had been much more than adequate for the payment of their pen- sions, as shown, for instance, in the last sentence of Mr. Harris's letter quoted above: "It (the deduction) is not only more than enough to reduce that charge, but sufficient to confer a large benefit on noncontributors." The final action of the Civil Service Super- annuation Commission which was appointed to succeed the Seliect Committee in 1857 was taken quite without reference to this actuarial question of the adequacy of the contributions; in fact, it was not known until nearly a year after the abolition of deductions had been recommended by the commission that the contributions of the civil servants were inadequate for the payment of the pensions provided under the Act of 1834. Before the Select Committee went out of existence it engaged Messrs. Arthur Morgan, F. E. S., actuary to the Equitable Society of London, and Charles Ansell, F. E. S., actuary of the Atlas Assur- ance Office, to prepare answers to certain questions. Messrs. Anseli and Morgan furnished the committee with such information as was within their power; but with reference to the most important question submitted to them, namely, whether the deductions taken under the Act of 1834 were more than adequate to meet the charge under the act for this class of civil servants, they declared their ina- bility to give a satisfactory answer "until they should be provided with certain- voluminous statistical returns with reference to the civil servants employed in the different public offices, and until they should have had time to complete the laborious calculations which would be required for extracting the desired information from these returns." The committee was obliged, therefore, to conclude its labors without the desired information, and the Superannuation Com- mission, which succeeded it, was prepared with its report in May, 1857, long before the actuaries were ready to answer the question asked of them. So laborious did they find their task that not until March 19, 1858, were the actuaries able to submit their report. In the meantime, the commission, not comprehending the technical CIVIL-SEBVICE EETIEEMENT IN GREAT BRITAIN. 59 difficulties of the subject, and therefore not inclining to distrust their own conclusions, had made various recommendations, and toward the latter end of the session of Parliament, 1857, an act was passed for effecting the abolition of abatements from salaries, the most iniportant of their suggestions. "Having found," wrote the com- missioners, "on a full consideration of the subject referred to us, that our recommendations could not be affected by the result of these inquiries of the actuaries^ we did not consider ourselves justified in withholding our report until we were acquainted with the conclu- sions at which they might arrive." When the report of Messrs. Ansell and Morgan was finally com- pleted the following year, the commissioners transmitted it to the Lords Commissioners of the Treasury with the following comment: It will be seen that, with regard to the main subject of their inqiu- ries, Messrs. Ansell and Morgan are decidedly of opinion that the deductions made from the salaries of the civil servants, under the authority of the Act of 1834, were not adequate to meet the charge to which the pubhc was liable under that act. This conclusion may be considered a sufficient answer to the claim which was made on behalf of the civil servants, on the ground that the deductions were more than sufficient to provide the retired allowances, and that the public were making a profit of the transaction at the expense of the civil servants. But as we expressly repudiated in our report the notion of any contract between the public and the body of the civil servants, and as we founded our recommendation of the abolition of deductions upon totally different grounds, our conclusions cannot be affected by any opinion at which the actuaries may have arrived on this question. (") While it can not be said, therefore, that there was any general appreciation of the fact that the superannuation scheme established by the Act of 1834 was actuarially unsound, study of the hearings shows that most of the witnesses questioned the reasonableness as well as the justice of some feature of the plan, and those witnesses who had special knowledge of statistical or actuarial problems pointed out its inconsistencies or dangers. The chief actuarial faults of the plan were two, and these two faults were criticised more or less blindly by various witnesses before the Select Committee who felt that something was wrong but found dif- ficulty in defining it. They were (1) the provision for flat-rate assess- ments, and (2) the lack of provision for taking care of the accrued liabilities. (a) FLAT-EATB ASSESSMENTS CONSIDERED INEQUITABLE AND POSSIBLY INADEQUATE. The law provided for a flat-rate assessment of salaries regardless of the age at which contributors entered the service — an arrangement which is always unjust to the younger contributors. The rates of " Supplemental report on the Operation of the Superannuation Act. 1858. p. 3. 60 CIVIL-SEKVICE KETIBEMENT IN GREAT BEITAIN. contribution of 2^ per cent on all salaries of £100 ($486.65) and under and 5 per cent on all salaries above £100 ($486.65) were, of course, inadequate to provide retiring allowances ranging from fifteen-six- tieths of salary after ten years' service up to forty-sixtieths after forty-five years' service. "While this was not the issue before the civil service or before Parliament, which had become disgusted with the plan on other grounds, it is fortunate for students of the subject that actuaries were engaged to inquire into the sufficiency of the deduc- tions to meet the claims under the law, because the result of their valuation shows very clearly the practical difficulty of making any plan self-supporting which is based on flat-rate contributions required without reference to the age at which the contributors enter the serv- ice. While theoretically it may be a simple matter to fix a flat rate of contribution which will be adequate in a given problem, practi- cally it never seems to be feasible owing to the diflSiculty of valuation, and the experience of Great Britain is simply corroborative of the general rule that a superannuation plan based on flat-rate assess- ments usually means too low a rate and therefore inadequate con- tributions, leading ultimately to the insolvency of the superannuation fund. Since there really was no fund to be insolvent in this case, and since there was nothing in the Treasury minute of 1829 or the Act of 1834 to indicate that it had been the intention of the Government to make the contributions sufficient to meet the charges, the inadequacy of the rate of contributions can hardly be justly criticised in this plan. The language of the act sanctioning the Treasury minute, "with a view to reduce prospectively the charge incurred in providing for super- annuation allowances," was not such as to indicate that the Govern- ment did so with the expectation of making the plan entirely self- supporting. The discovery that the contributions were inadequate, unexpected as it was, merely showed the British public the undesir- ability, from a new viewpoint, of the plan which they had already set aside for other reasons. But the injustice of the flat-rate assessment as between individ- uals was apparent to many before it was known that the rate was inadequate. "It is the grand and fatal objection to the scheme as it at present exists," said Doctor Farr to the committee, "that there is no proportion between what is taken and what is given." And again he said, "Under the present arrangement there is no equitable rela- tion between the premium paid and the benefit granted; I prove to you that in a large class of cases you take too much, and, on the other hand, I say that in those cases where a clerk remains on a low salary for a great many years, and then goes up to a high salary, and is superannuated on the high salary, he evidently gets from you more than his premium would entitle him to under the principles of equita- ble insurance." In answer to a request of the committee that he CIVIL-SEEVICB RETIREMENT IN GREAT BRITAIN. 61 explain the effect of the deductions, looking at the question as a ques- tion of insurance, Doctor Farr differentiated very clearly between the two questions involved in the flat-rate deductions from salary and the benefits provided thereby — the question of equity on one hand and the question of the adequacy of the contributions on the other. Said he: I have looked into that question carefully, and I will state very shortly my opinion upon that subject. I gather from the 27th sec- tion of the Superannuation Act that it was the intention of the Legis- lature to make the officers in the civil service pay only a portion of the premiums to provide for superannuation allowances, not the full premium. But the question of equity, which was, I believe, first raised by Mr. Gladstone, can only be discussed in this form: Does the act take from the salary of each officer quarterly the precise pre- mium which, on the principles of life insurance, will provide the super- annuation allowance? Is more or less deducted than the just pre- mium? The question of equity must thus arise on each case, and on every separate class of cases, as in life insurance, where a man of the age of 30 can insure £100 [$486.65] by an annual premium of £2 [$9.73], and if this man is compelled to pay £4 [$19.47] a year instead of £2 [$9.73] the injustice is not repaired by another transaction in which a premium of £2 [$9.73] only is taken from a man of 51 years of age, who ought strictly to pay £4 [$19.47] a year premium to secure £100 [$486.65] at death. It is important, then, to discuss the two questions separately. First, Is each civil servant dealt with as fairly and equitably under the Superannuation Act as a person who insures his life at a life office? The second question would be, Will the public exchequer gain or lose by the superannuation system of the Act of 1834? That is a totally different question from the question of equity; the first question I answer, without any hesitation, in the negative. The scheme is full of injustice, for there is no definite rela- tion between the premium and the promised annuity. Doctor Farr then proceeded to illustrate the inequity of the scheme by a calculation relative to fixed salaries, showing that in a numerous class of cases a great deal too much was deducted for the object con- templated. As regards ascending salaries, he showed that the deduc- tions were often much too low and often too high. He said: The act stops 6d. in the pound [2^ per cent] on salaries not exceed- ing £100 [$486.65] a year, and Is. [5 per cent] in the pound on salaries exceeding £100 [$486.65] a year. What does it promise in return? It is not easy to reply; but it lays down a maximum allowance rang- ing in amount from three to eight-twelfths of the salary; that is, from 15-60ths to 40-60ths, which the Treasury has practically reduced in many cases to 12-60ths and 32-60ths of the salary. In the calcula- "tions which I am about to submit to the committee I leave out of account all the contributions of persons who quit the service, and I assume that the maximum allowance is paid, that the fifth is not deducted. The salaries in the public service are paid in a great vari- ety of ways, which may be referred to two great classes; first, fixed salaries; second, ascending salaries on a great variety of scales, as 62 CITIL-SEEVICE RETIBBMBNT IN GEEAT BRITAIN. will be seen in the estimates of the year; sliding scales they may be called. I will take first the fijced salaries, on which the highest and many of the lowest officers are paid; they present the sinrplest cases; and I shall assume that the allowance is of the nature of a deferred annuity, the premium being uniform and constant. The annuity which the invariable premium will pin-chase varies, first, with the age of entry, and, secondly, with the age at the date of superannua- tion. Let the salary be £200 [$973.30] a year; it is difficult toform a calculation of this sort; I have therefore made the case as simple as possible, but on this case all other cases of this kind can be decided; then the premium will be £10 [$48.67] a year; the age of entry ranges from 17 to 45 years. I have returns showing the ages of entry, which are very various. The period of service ranges from 10 to 60 years, as is shown by the Table which I have submitted to the committee. If the age of entry is 25 years, and the period of service 40 years, the premium purchases £159 ($773.77), while the act allows at the utmost £116% ($567.76), which the Treasury rule may reduce to £93}i ($454.21). Assuming that the grant is represented by a deferred annuity, that is a strict calculation, which would be made on the same principle as a calculation for a life office. If the age of entry is 20, and the period of service 45 years, the premium pays for an annuity of £206% ($1,005.71) ; the act allows at the utmost £133^ ($648.87), or, after the fifth has been deducted,\£ 106% ($519.09). Take ahigh office, salary £2,000 ($9,733), age of entry 30, period of service 40 years; the premium purchases an annuity or £2,349 ($11,431.40) ; the act allows £1,166 ($5,674.34). If the period of service is 45 years, the officer pays for an annuity of £5,229 ($25,446.93), and is allowed £1,333 ($6,487.04). Again, the act grants the same proportion of salary for two entirely different rates of premium; this is a violation of the principles of equitable insurance; if 2^ per cent is enough, five is too much; but take one of the lower offices, salary £100 ($486.65); age of entry, 20; service, 50 years; the premium of 2^ provides an annuity of £99 ($481.78) ; the act allows £66% ($324.43), reduced by the rule to £53% ($259.54). The sickness and infirmity under the age of 65, if real, must in nearly all cases shorten life, shorten the term of the annuity, and therefore diminish its value. In this numer- ous class of cases too much is evidently deducted; in another series of cases the deduction is insufficient. The fund may even be worked against the public by officers being put in young and remaining for 10 or 15 years, and then leaving in a state of health little impaired. Thus by entering on salaries of £100 ($486.65) a year, and remaining 10 years, they would pay £2 10s. ($12.17) a year, or £25 ($121.66), which would purchase an annuity of £1 13s. ($8.03) during their future lives; the annuity granted is £25 ($121.60) or £20 ($97.33), and you might lose £18 ($87.60) a head annually. The sliding- scale salary is uncertain in its operation, and varies almost in every office; its tendency is to raise the rate of allowance; in some cases the fund gains, in others it loses enormously. In the absence of definite data as to the age, length of service, and salary increases of members of the service, such as were afterward collected and furnished to Messrs. Ansell and Morgan, Doctor Farr was imable to give a positive answer to the second question. Will the public exchequer gain or lose by the superannuation system of the CIVIL-SERVICE KETIEEMENT IN GREAT BRITAIN. 63 Act of 1834? While he said that he beUeved the Government would gain on the whole, under a strict interpretation of the act, thus con- curring in the impression which prevailed among the civil servants generally, he stated distiactly that his opinion was not the result of any strict calculation, such a calculation being impossible under the circumstances. He said : I think the committee clearly understands that the cases which I have put here, in a more distinct form, show that the deductions from a large number of the salaries will provide annuities of a greater amount than are actually paid under the act of Parliament. I con- ceive that in many cases the civil servants do not pay a sufficient sum to provide the annuity, and that is particularly the case in the various kinds of sliding scales, where the salaries begin very low, and remain low, and then go up to the high sum on which the super- annuation is paid; but the number of those scales is so numerous, that it is exceedingly difficult to form any calculation as to the aggregate result; that is, whether the Government will gain or lose by the whole transaction ultimately. * * * j^ appears to me, on the whole, that the public servants pay too much. If you take the whole, as a class, the Government would gain rather than lose by the transaction, if the act of Parliament was carried out strictly; but I merely wish the committee to consider that as my general opinion; it is not the result of any strict calculation; such a calculation is, as far as I see at present, impossible. Doctor Farr pointed out too that the 5 per cent deduction had not been fixed on as the result of any scientific calculation. Said he: I have often asked on what data the rate of deduction of five per cent was fixed; whether any calculations had been made by the Gov- ernment; and I have not been able to ascertain that any calculations have been made. The first traces of this rate appear in the Act of 1822; but the terms of that act were very different from the harder terms of the Act of 1834. * * * Tj^g committee will see that the Government of 1834 appears not to have had any calculation them- selves in fixing this rate of five per cent.C) While unwilling to commit himself, in the absence of a reliable salary scale, to any positive statement about the adequacy of the contributions in the aggregate to meet the charge of superannuation. Doctor Farr presented numerous tables to show that the value of the contributions was greater than the value of the pensions to all the faithful employees who had devoted many years to the service of the Government. "I think," said he, "that the faithful public servant who remains at his post, undoubtedly pays more than the value of his pension by his deductions, but those who remain a short time, or go out in a state of perfect health, make an excellent bar- gain. They derive a large profit from the Government." This was, however, an illustration of the inequity of the scheme and proved nothing as to the adequacy or inadequacy of the sum of contributions. oKeport on Civil Service Superannuation. 1856. Minutes of evidence, p. 173. 64 CIVIL-SEKVICE BETIBEMENT IN GEEAT BRITAIN. Doctor Farr's opinion that the existing superannuation scheme was unfair and inequitable was shared by other eminent actuaries of the day. Five of them signed a statement to that effect which they pre- sented to the committee in which they also upheld Doctor Farr's con- tention that the value of the pensions was considerably less than the value of the contributions. This declaration was as follows : (») We have examined the statements and calculations with reference to the pensions granted after various periods of service, to civil servants, and we are unanimously of opinion — 1st. That the deductions of 2^ per cent, on some salaries, and 5 per cent, on others, are unjust, because the pensions of those who remain long in the service, and have paid the higher rate for a longer time, are virtually diminished, to make up the pensions of those who retire early, the larger proportion of whose payments may have been Q + '(' rip QTYl fl 1 1 PT" Va f'f* 2nd. That the age of entry, and the age of receiving the pension, not being duly considered, those who have paid the fewest number of contributions may in many cases receive much more than the pro- portionate annuity; and the effect must necessarily be that the remain- ing pensioners have not the full benefit which they could obtain from their deductions of salary if the fund was managed on the same prin- ciples as it would be in an assurance or annuity company. ******* These tables show that the average value of the pensions actually granted is considerably less than that of the pensions that should be given for the contributions deducted from the salaries of officials in the civil service, even leaving out of view the profits arising from resignations, and discharges, and the Treasury deduction of 20 per cent. J. Hill Williams, English and Scottish Law Life Assurance Company. Edwin James Fareen, Actuary, Gresham Life Insurance Go. Robert Tucker, Pelican Life Insurance Office. Charles Jellicob, Eagle Insurance Co. Samuel Brown, Actuary of the Guardian Assurance Oompan/y. Doctor Farr's belief that the deductions from salary were more than sufficient to pay for the benefits under the act was also indorsed by every actuary called before the committee, including Thomas Rowe Edmonds, esq., actuary of the Legal and General Assurance Society of London, Charles Ansell, esq., actuary of the Atlas Insurance Office, and Peter Hardy, esq., actuary of the London Assurance Company. The fact that the careful investigation of Messrs. Morgan and Ansell later proved that the employees' contributions were inade- <» Report on Civil Service Superannuation. 1856. Appendix No. 14, p. 448. CIVIL-SERVICE EETIEEMENT IN GBEAT BRITAIN. 65 quate in the aggregate is a striking illustration of the difficulty attending any rough calculations in which there is a fiat-rate contri- bution made without reference to entrance age and resulting in a commuigling of assets. (&) ACCRUED LIABILITIES POSSIBLE CAUSE OF INSOLVENCY IN CASE OF FUND. It is possible, of course, that with the high rate of interest then prevailiag, the deductions of 2^ and 5 per cent might have been sufficient to meet the charges under the act, but for the second great actuarial fault in the plan, the fact that no provision had been made to take care of the accrued liabilities. There were naturally a great many elderly persons in the service in 1834 at the time of the passage of the act who became superannuated immediately and retired from the service on an allowance. There were a great many others retir- ing every year thereafter whose contributions had been small in comparison to the benefits which they began to receive immediately ^ on retirement. Had the contribution been funded, the fund would have become insolvent in its efforts to carry the retirement of the older employees through taxation of the younger employees alone. It would have reached this stage soon after the investigation of 1856, and when the employees who were young in 1829 and who had been contributing to the fund all the intervening years became super- annuated there would have been nothing left on which to retire them. Plain as the necessity for a sharp line of demarcation between past liabilities and future liabilities is to the student of retirement plans, it seems remarkable that it should have escaped the ministers of the British Government who brought forward the Superannua- tion Act of 1834, except that this mistake is one that has been com- mon to many ministers in other countries who have wrestled with the problem of superannuation and to the managers of fraternal benefit associations the world over. That "hindsight is better than foresight" was well exemplified, however, in the follewing colloquy between the chairman of the Select Committee and Sir Charles E. Trevelyan : Although the act of Paxliament is very loosely worded, yet, seeing the statements made by the two persons charged with bringing forward this measure, does it not appear to you that the intention clearly was, that the persons contributing to the fund were to have an interest in that fund for their own benefit, and that it was not to be made a subject of debtor and creditor with the whole civil service, including those branches of the civil service which, previously to 1829, had established their exemption from contribution? That is my view. Supposing the minister of the day had fairly put the question before ParHament thus: "Here is a service which, previously to 1829, 35885— S. Doc. 290, 61-2 5* 66 CIVIL-SERVICE RETIREMENT IN GREAT BRITAIN. has been chargeable upon the country for superannuation, but, in order to relieve the pubKc from that for the future, we will make a compact with those who hereafter enter the service that they shall contribute to a superannuation fund;" would not then a clear separa- tion have been made between those who contributed to the fund and those who were entitled to claim superannuation allowances without a contribution? In those days the class of public servants interested m this matter hardly existed; they only commenced in the year 1829; they were only five years old in official life in the year 1834, when the act was passed; they were mere youths; their interests were not thought of; that parliamentary return was made out with very little regard to them; the question had not been raised; there had been no discus- sion about it. I conceive that if the annual parhamentary return had been made out according to the intention and spirit of the act, it would have been divided into two; the first portion would have been for the old servants who received the higher rate of pension, and whose pensions were entirely charged upon the consolidated fund, and who had no deduction from their salary. The other portion would have shown a debtor and creditor account of the receipts in the shape of deductions from and of the payments in the shape of pensions to the new class. ('^) That the actuarial objections to the plan established under the Act of 1834 were not more generally understood was undoubtedly due to the fact that they were somewhat obscured by the failure of the act to direct the formation of a superannuation fund. Had there been a fund in the strict sense of the term and had the accounts been care- fully kept, the atmosphere would have been clearer, and the inade- quacy of the rates to meet future liabilities and the insufficiency of the fund to cover past liabilities as well would undoubtedly have been perceived much earlier than was the case. A great deal of the committee's time was consumed in questioning witnesses and dis- cussing with them the probable meaning and intention of the Legis- lature when it passed the Act of 1834 without mention of a fund and the difference such a provision would have made in the claims which the civil servant might or might not have had on the country. It was estimated that in the twenty-seven years that had elapsed since the passage of the Treasury minute of 1829 the civil servants had lodged about £800,000 (13,893,200) with the Government. A reading of the evidence shows that there was a deep sense of injury among the civil servants but no very clear perception of where the trouble lay. Frederick Locock of the Colonial Office wrote the Select Committee on April 13, 1856, in a way that suggests, however, that he at least felt the Government had done wrong in not investing the civil serv- ants' money and keeping a strict account of it. Said he: What greater advantage * * * will accrue to the clerks through their savings being invested by the Government, than when o Report on Civil Service Superannuation. 1856. Minutes of evidence, pp. 15, 16. CIVIL-SEBVICE EETIREMENT IN GREAT BRITAIN. 67 invested by themselves? Greater security, indeed, they would seem at first sight to gain ; besides also the expenses of management being saved to them. But to what has this plan already practically been found to lead? Calculations have been made which seem to show that the Government has, for these twenty years past and more, for- gotten what was the essential principle, the virtual understanding, on which such a plan must be framed. It has forgotten that the savings of a man's income are his own property equally with the income itseS. It has forgotten that contributions given for a special object can be applied to that object alone. It has forgotten to put out the deduc- tions to interest, and has not even so much as hid them in the earth, but has said, ' 'Lo, there thou has thine own in part, but the rest I have given to others." Yea, strong indeed in possession, but weak in posi- tion, it has even been driven to deny the right of the clerks to the full amount of their income itself. Where then is the security? Where the advantage ? Let not the Government any longer talk of special reward, when even the dailjr wages it has withheld ; for not reward, not bounty, not compensation is here in question, but the simple restitution of what is due, the rendering an account of monies entrusted. ("■) In the absence of knowledge to the contrary, the belief was general that the Government had made money by taxing its employees, and this belief undermined the loyalty of the service. Its demoralizing effect was set forth in strong terms by Sir Charles Trevelyan. Said he : I conceive that there has been no breach of faith in reference to the abatemento, but that the arrangement is in its nature inequitable, and that it belongs to that class of bad laws which are contrary to the natural sense of justice of mankind; in criminal jurisprudence the effect of such laws is that juries will not convict upon them. In civil administration the effect is, that they obstruct and baffle all our endeavors for the improvement of the civil service. However much we may endeavor to improve first appointments, (*) to establish the principle of promotion according to qualifications and merit, to con- solidate cognate establishments, to make a proper division of labor, or to fix responsibility, this question of abatements continually meets us, by raising discontent. Organization is a very important thing, but the maintenance of a proper feeling and spirit on the part of the public servant, is a still more important consideration ; rules and sys- tems are a poor security compared with that habitual sense of duty which induces a public servant, under all circumstances, to do the best he can for the public as a faithful steward of his time and opportuni- ties; and that sense of duty can not be practically arrived at without the sentiment and feeling that the servants are equitably and gener- ously dealt with. According to general understanding in such cases, the Government in withholding a portion of the salary; that is, of the property of its servants, incurs the obligation of applying it in some manner for the benefit of the owner. * * * ^| terms of service ought to be of a very simple kind. Hence the impossibility of getting rid of the idea o Report on Civil Service Superannuation. 1856. Appendix No. 13, p. 430. b The Civil Service commission had just been established the year before, 1855. 68 CIVIL-SEEVICE RETIREMENT IN GREAT BRITAIN. of an appropriated fund. It rises upon us continually, almost daily. We have always, although the act did not prescribe it so in detail, spoken and written, and in a great measure acted upon the supposition of its being an appropriation for the purpose of paying the pensions of the contributors. For instance, in the receipt which we give for our salaries at the Treasury at the end of every quarter it is said, so much deducted for superannuation fund. * * * But there is a more painful illustration of it. For years past, and to this day, we are continually receiving applications from widows and orphans of servants who have died in harness, applying to have the abatements restored, and they state that their fathers or husbands have paid for so many years, 10, 15, 20, or 25 years, those deductions from their authorized salaries, but that they never obtained any benefit from them. * * * The answer that has been always returned has been that the deductions were made in accordance with the act, and that we had no power to restore them; but nothing has been able to fersuade these poor people that they were not unjustly dealt with, lately got out a bundle of applications of that kind, and the answers to them for the last four or five years, a great number, and they alone represented a mass of discontent and presumptive grievance, which was enough to spoU the tone of any public sevice. (,"■) Defense of Act of 1834 by Men Eesponsible for its Enactment. Interesting light on the reasoning which had led to the passage of the Act of 1834 was given the committee by Sir James Robert George . Graham, a member of the House of Commons, who had introduced the measure a quarter of a century before in behalf of Lord Grey's Government and Sir Francis Thornhill Baring, a member of the com- mittee who had been a lord of the Treasury at that time. They both stoutly defended the act they had helped to pass in the one case and to interpret in the other, both in respect to the absence of a funding provision and the provision for deductions from salaries. Both stated positively their conviction that the formation of a fund was never contemplated by the Treasury minute of 1829, the Act of 1834, or the minute of November, 1834. Sir James Graham would not admit that the civil servants suffered any injury in consequence of the annual deductions not having been funded, maintaining, indeed, that the claim in equity of the civil servants was merely to the amount of superannuation laid down by the act, and administered through the Treasury, whether such amount were more or less than the deductions would provide. It was his recollection that the deduc- tions were intended to operate as a reduction of salaries, which should more than cover the superannuations of the parties contributing. Sir Francis Baring stated, on the other hand, that the reduction of salaries was at the time expected to be insufficient to meet the expenses of the superannuations, and he felt that if the contrary had proved to be the case, it was a question of equity whether they ought o Report on Civil Service Superannuation. 1856. Minutes of evidence, pp. 13, 14. CIVIL-SEEVICE RETIREMENT IN GREAT BRITAIN. 69 not to be revised. Both men were agreed that the main object of the act had been economy, and that a larger reduction of salaries would have been made in 1829 than really was carried out, had it not been for the imposition of the deductions. Both regarded the positive notice given in regard to the deductions as sufficient answer to the charge of inequity. Each of them made a statement in defense of the system, however, which is a sound and interesting contribution to the arguments in favor of a contributory plan as against a straight pension. After contending that the system was "the best arrangement, on the whole, that could have been made," Sir James Graham was asked if he did not think the deduction a firmer security for the continuance of the pensions than a mere act of Parliament, which might be abrogated by a future Parliament, and replied: "Infinitely more security, and more steadiness in its operation. This system has existed now for 28 years without disturbance, whereas in the short experience before that enactment, both Treasury minutes and acts of Parlia- ment varied almost every two or three years." In this connection. Sir Francis Baring stated that "there is one great advantage for the civil servant in the deductions, which is, that they are a shield against the House of Commons in any momentary feeling of economy running in, and making a great alteration with regard to the retired allowances. That is a feehng of which many honorable members now around me are not aware; but I was in the House of Commons when that feehng did strongly exist, and I know that at the time this deduction was taken many of the best and wisest of the civil serv- ants, such as Mr. James Stewart, the Assistant Secretary at the Treasury at the time, considered it as a great advantage to the civil servant as a protection to him, and that he would be safe in future from having his retired allowances interfered with." It had been argued, on the other hand, by those who opposed the system of abatements from salaries, that it put the Government in a position of less freedom in dealing with the civil servants than would have been the case had there been no such system of deductions. Sir Charles Trevelyan said : One incidental objection to the abatements is, that it deprives the Goverimient of its freedom of action in deahng with its servants; if the Government itself gave the pensions from the Consohdated Fund, it would be able to deal more freely with all classes of pubhc servants, because there would be no vested interests arising from the abate- ments. C) The special interest attached to this criticism and others hke it expressed to the committee is the fact that the speaker did not seem a Report on Civil Service Superannuation. 1856. Minutes of evidence, p. 55. 70 CIVIL-SEEVICE KETIEEMENT IN GREAT BEITAIN. to realize that it was an attack on the lack of provision for refund of deductions, not an attack on the system of deductions itself. Defense of Wisdom of Providing Superannuation Allowances. It is worthy of note that in all the mass of criticism and suggestion submitted to the committee there was no question of the wisdom of providing superannuation allowances for civil servants. On the con- trary, the policy was warmly indorsed by high and low, whether they argued for straight pensions or for a system of deductions. Doctor Farr said : Experience has shown that there are great advantages attending the present mode of remunerating public servants, partly by salaries, and partly by superannuation. * * * They are such as have led almost all the nations of Europe to adopt the system of paying partly by superannuation allowances. In the first place, it is a guarantee of fidehty; in the second place, it encourages efficient service; in the third place, it retains good men in the service; in the fourth place, it induces men to retire when they become old or inefficient from any cause; and in the fifth place, it prevents old pubMc servants from falling into a state of disgraceful dependence, or of distressing destitution, which would be a public scandal, and might deter young men from becoming candidates for office. These advan- tages appear to me to be so great that I should very much regret to see the system of superannuation abolished. (°) Investigation Proved Deductions Inequitable and Inade- quate. The Select Committee "having taken evidence for three months finally passed a resolution on May 20, that before coming to any deci- sion they would lay the evidence before Messrs. Ansell and Morgan, the actuaries, with instructions that they direct their attention to the two debatable points so clearly indicated by Doctor Farr: Q) Whether the system of superannuation pensions and deductions from salaries established by the Act of 1834 is founded on principles of fairness and equity, in a pecuniary point of view, with respect to civil servants whose salaries are liable to deductions ? Or whether the deductions taken under this act are more than adequate to meet the charge under the act for this class of civil servants ? On June 16, the actuaries responded that they found the system not estabhshed on principles of pecuniary fairness and equity. Their conclusion was in exact agreement with that of Doctor Farr and the other actuaries who had expressed their views : {") We are of opinion that there is sufficient reason for believing that the present rates of deduction do press unequally on different per- o Report on Civil Service Superannuation. 1856. Minutes of evidence, p. 180. t> See page 61. <= See page 64. CiVlL-SEEVICE KETIEEMENT IN GREAT BRITAIN. 71 sons in the civil service; so that, other things remaining the same, those who enter the service at early ages contribute relatively more than those who enter late in life. And further, that those who, starting with equally low rates of salary, but who subsequently rise to the highest salaries, and there- fore become entitled to a higher rate of superannuation, do contribute relatively less than those who, having entered on the same low rate of salary, are so placed in the service as to give them little prospect of advancmg beyond comparatively low or moderate salaries. (") Like Doctor Farr, Messrs. Ansell and Morgan were unable to answer the second question without more information concerning the ages, salaries, and periods of service of the employees. They requested that elaborate data regarding the personnel of the service be pre- pared for their use. With great detail they explained their difficulty to the Select Committee in a letter from which the following extract is taken: In respect to the second question, of the great importance of which we are fully sensible, we regret to be obliged to state that we do not find in the papers or evidence, the data on which we should feel ourselves justified in answering it with a conviction that we had made a sufficiently near approximation to the- truth; and it is our duty to state, that before we can arrive at such a conclusion as we should desire, other and additional data must be laid before us. The subject on which we are called upon to form an opinion, and to state that opinion to the committee, we consider to be far too important to the public service, and to the individuals comprising the civil service, to permit us hastily to draw conclusions from what appear to our minds insufficient statements of facts. * * * We think, therefore, that before we can form any opinion upon which we could ourselves rely, we ought to be furnished with returns from several of the large and principal civil services of the country, showing, 1st. A return of all the persons now employed in the civil service in their respective departments, stating the nature of their appoint- ments, their present ages, and present salaries. 2nd. A return of all the persons who have really left the service from other causes than death or superannuation during the last 10 years; the dates at which they respectively entered the service, and the dates at which they left it; also, the salary of each at the time of entry and the subsequent additions made thereto, with the date of each addition. 3rd. A return of all the persons who have been pensioned during the last 20 years; stating the dates of their entry into the service, the nature of their appointments, their salaries at the commencement, with the amount and date of each rise, the date of superannuation, and the amount of superannuation allowance. 4th. A return of all those persons who were on the superannuated list at the time when Return No. 3 might commence; stating their ages at that time, and the dates of death of such persons as having been on that list have died. Or such other details as would show the o Report oa the Operation of the Superannuation Act. 1857. Appendix I, p. 4. 72 CIVIL-SERVICE RETIREMENT IN GREAT BRITAIN. rate of mortality which has prevailed amongst those who have been superannuated. ■ With information of this character before us to a suihcient extent, we should be ready, satisfactorily to ourselves, to form a fair judg- ment on the second question submitted to us; * * * but we believe that delay must inevitably take place if we are to investigate the subject in a way satisfactory to our own minds. (") This letter was written June 16, 1856. The four returns asked for were furnished by practically all the departments of the Government, and Messrs. Ansell and Morgan set to work. On March 19, 1858, they submitted their report, showing that the deductions made from the salaries of the civil servants under the authority of the Act of 1834 were not adequate to meet the charge to which the public was hable under that act. Included in their report are fourteen tables covering a great variety of data concerning the 15,219 individuals comprising the British civil service. They had made "a most labo- rious arrangement of the facts communicated" to them and pre- sented "many collateral results" which they naturally thought would be matters of interest to the Superannuation Commission appointed to carry on the work begun by the Select Committee of 1856. Resolutions of the Select Committee. In the meantime, the Select Committee had agreed to certain reso- lutions, one condemning the principle of abatement of salaries, and one affirming the policy of a revision of salaries, with reference to the abatements. What they recommended therefore was not an absolute remission of abatements, but a qualified and conditional remission — that qualification and condition being that the salaries of the entire civil service should be revised with regard to the deduction. The resolution ran as follows: That in the opinion of this committee it is desirable to do away with the system by which a portion of the salaries of civil servants is deducted on account of superannuation allowances. That, as a condition of such deductions being done away with, the rates of payment in the various branches of the civil service shall, at the earliest possible period, be revised with a due regard to the amount of deductions remitted, as there is no ground for an indis- criminate augmentation of salaries, which would otherwise result from the change proposed; that the revision now referred to shall be made previous to the 1st of April, 1857, when the abatements shall cease. In consequence of this action of the committee, the Government brought in a bUl, which was introduced by the Chancellor of the Ex- chequer, Sir G. Cornwallis Lewis, at the close of the session. This bill proposed to remove the deductions paid by the civil servants and also "Report on tte Operation of the Superannuation Act. 1857. Appendix I, p. 4. CIVIL-SEEVICTE EETIBEMENT IN GREAT BBITAIN. 73 to reduce the salaries to the amount of the deduction remitted. The bill failed to meet with general approval, and owing partly to that cause and partly to the advanced period of the session it was with- drawn. SUPERANNUATION COMMISSION, 1857. Duruig the Parliamentary recess of 1857, following the failure of the Select Committee's bill, the Lords Commissioners of the Treasury proceeded to appoint a royal commission "to investigate this impor- tant subject in all its branches." It appeared from this that the Government was not willing to. attempt to force into legislation the recommendations of the parliamentary committee, but thought it wise to refer the matter to still another tribunal. Owing to the fact that it resulted in such important legislation, the report of this commission is worthy of special study. After reviewing the history of superannuation measures under the British Govern- ment, from the earhest times down to the passage of the Superannua- tion Act of 1834, the commission considered the inequalities and anom- alies under the existing law, noted the consequent dissatisfaction of the civil servants, and came to the conclusion that a new system of superannuation must be established. Commission's Reasons for Advocating a Superannuation System. There seems to have been no doubt in the minds of the commis- sioners that it was necessary for the good of the service to continue the practice of retiring the superannuated on an allowance. The only question was as to what was the best system, and how the existing regulations would have to be altered in order to adapt them to the new system. Said they : The first question which presents itself with reference to this sub- ject is the expediency of providing superannuation allowances at all. It has sometimes been argued that the only duty of the Government is to offer due remuneration in the shape of salary for the services performed, and that it ought to be the business of the civil servant to make provision out of that salary for his own future wants or those of his family. Although this question must be considered as settled by the established practice of this country, and also as assumed by the appointment of the present commission, it may be convenient, with reference to our future course of argument, that we should state the grounds for the opinion which we hold upon it. Having regard to public interests alone, we think that there are ample reasons for main- taining a system of superannuation allowances. 1st. It must be recollected that incapacity, caused by illness or other infirmity, may happen at any period of life, and is not a calamity for which it is easy to provide by means of insurance, as in the case of death; and it must also be borne in mind that, with a view to the due performance of his duty, it is important that a civil servant should feel 74 CIVIL-SERVICE BETIREMENT IN GREAT BRITAIN. himself in a safe and independent position, and that his mind should not be harassed or distressed by anxiety respecting his future con- 2nd. Supposing an assiduous and devoted pubhc servant, who has spent the best part of his life in the service of the State, to become suddenly incapacitated by disease or bodily infirmity, public opinion would not allow that such a man should be permitted to starve. Although the want of any provision may be attributable to bis own improvidence, this would not be considered as exonerating the Gov- ernment from making some special provision for him. Sir J. Graham says, in his evidence before the Committee of 1856: "I have the strongest opinion that whether there were any deduction made or not, and whether there were any specific contract made by the State or not, cases of such extraordinary hardship would present themselves on the part of faithful servants, worn out in the public service, that the claim for pension upon retirement would be irresistible." Such ' cases might not infrequently occur, and an irregular and objection- able practice of making special provision for particular cases would thus be gradually introduced. There can be little doubt that it would be more for the interest of the service to establish, beforehand, general rules under which superannuations should be awarded; and it is also probable that this system would, in the long run, be found more economical, inasmuch as the prospect of a provision on retire- ment would be considered as a part of the remuneration for the serv- ices to be performed, and would be taken into account in regulating the amount of the salary. 3rd. It is probable that, in many cases, the hardship of removing an estimable public servant without provision would be avoided by retaining him in the service after he had become incompetent to per- form his duties. This is, perhaps, the strongest argument in favor of a system of superannuation. It may be true that it is strictly the duty of heads of departments to remove from the service all public oflicers who have become, from any cause, incompetent fully to dis- charge their duties, without regard to their feelings or their future position; but experience has shown that this is a duty the perform- ance of which it is most difficult, if not impossible, to enforce; and as it is impracticable, by any regulations, to define beforehand at what stage of declining health or increasing bodily or mental infirmity incompetence begins, the result is that, in the absence of superannu- ations, inefficient persons are retained in the public service. * * * The injury caused to the service by the retention of inefficient officers might, no doubt, be in part corrected by increasing the numbers of the establishment beyond what would have been required had all the servants been effective; but it would be impossible to justify such an arrangement, and under such circumstances the public service would be a loser for want of superannuation allowances, probably in actual money, and, at all events, in the less direct results. The evil conse- quences of retaining a single civil servant in an important post for which he has become incompetent can not be estimated in money, and may be much more than an equivalent for the expense of the superannuation of a whole department. For these reasons we are unnesitatingly of opinion that the public interests will be best con- sulted by maintaining a system of superannuation allowances. (") = Report on the Operation of the Superannuation Act. 1857. pp. X, XI. civil-service retirement in great britain. 16 Commission's Objections to a Contributory Scheme. Having thus explained the grounds on which they thought it desirable to retain a system of granting superannuation allowances, they proceeded next to consider whether it was desirable to establish a fund for the purppse, to be supported by the contributions of the civil servants, and decided that it was not. Their reason for this decision was that experience had proved it difficult "to prescribe beforehand any scale of contribution which shall be so adjusted as to supply the requisite amount without material surplus or deficiency. If then, the fund should prove deficient," they argued, "such defi- ciency must be supplied from the public revenue, and no object will have been gained by carrying the compulsory contributions of the civil servants to a separate account. If, on the other hand, the fund should prove to be in excess, difficult questions must arise as to the equitable appropriation of the surplus." They were, therefore, dis- posed to agree with the legislature of 1834 in considering it inexpedient to establish a superannuation fund. Assuming that no such fund was to be created, the commission next considered whether the civil servants should be charged with deductions from their salaries on account of superannuations, and came to the conclusion that such a course was undesirable and that a system of "engaging public servants at a certain net amount of salary, with a conditional prospect of superannuation on certain terms," was simpler and more straightforward. They gave as one of the reasons for this conclusion the opinion that a system of deduc- tions "has an injurious effect in creating an erroneous impression as to the real nature of the transaction. The payment of a charge on the salary for the purpose of providing superannuations almost neces- sarily suggests the idea," said they, "of the existence of a fund to which each civil servant has contributed, and in which he, therefore, may be supposed to possess a certain right of property," and they were led to doubt whether the impression could be entirely removed, except by an alteration of the system. Their other objection to the system of deductions was the fact that it necessarily "raised questions as to the sufficiency or insufficiency of the superannuation allowances considered as an equivalent for the deductions paid, and this not only with reference to the whole service, but with regard to particular departments, or even individual cases." In this connection, they noted the complaint of individuals compelled to pay deductions, although from special circumstances there was little or no chance of their ever deriving benefit from superannuations. In short, the great overwhelming impression which the commissioners received of the system which they were investigating was of the inequahties which the system of deductions as administered sanctioned in the remunera- tion of different classes of civil servants. 76 civil-seevice eetikement in- geeat beitain. Eecommendation that Deductions feom Salaey be Abolished. They saw only two ways of removing these inequaUties— either by reducing the advantages of the favored classes or by improving the condition of the others. Feeling reluctant to interfere with the posi- tion of those civil servants entitled to full superannuation without the payment of deductions, they recommended as the only alternative the abohtion of deductions, thus increasing by that amount the incomes of the civil servants then paying deductions. They justified this recommendation with the statement that "by such a measure the members of all the leading departments of the civil service would be placed on an equal footing as to salaries, inasmuch as all would alike receive, without abatement, the salaries which are stated to have been awarded to them on equal terms." Besides recommending the abolition of deductions, the commission recommended six other changes in the system of granting superan- nuation allowances. They were: (1) The adoption of a new scale of retired allowances. (2) The reduction of the age of voluntary retirement from the public service from 65 to 60. (3) Compulsory retirement from the service at 65 years of age, except in certain special cases. (4) The application of a more liberal scale of superannuation to certain officers requiring professional knowledge, and the power of applying a special scale to other individual cases where, on the first appointment, it might appear, for special reasons, to be proper. (5) The application of the ordinary rules of superannuation to various officers and departments which had previously been treated as exceptional cases, so as to secure, so far as might be practicable, a uniformity of system. (6) The power to award gratuities or pensions in certain cases to civil servants who might by reason of ill health or bodily injury be required to retire before they had become entitled to a retired allow- ance, and to regulate the amount of compensation to be awarded on the abolition of offices. The fifth recommendation applied to the Permanent Under Secre- taries of State, the Second Secretary of the Admiralty, and the Per- manent Secretary of the India Board, who were all treated by the Act of 1834 as political functionaries, although those offices were never held by members of Parliament and never vacated on a change of administration. The commission held that they should be placed under the rules of the ordinary civil service, giving them, of course, the benefit of an exceptional rate of superannuation, if on inquiry they should appear to fall within the principles laid down. With regard to the judicial officers (whose pensions were regulated by CrVIL-SBRVICE RETIREMENT IN GREAT BRITAIN. 77 many different acts) the commission did not think it within their province to decide which of them should be placed under the provi- sions of the general superannuation act; but thought that in all cases in which it was deemed right to place them under the general act they should have the benefit of the exceptional rule recommended above. With regard to the inferior officers in the dockyards and victualing yards and to certain artificers in the arsenals, who had complained that they received their superannuation according to an antiquated scale considerably lower than that applied to the ordinary civil service, the commissioners held that there was no good reason for making any one department an exception from the general rule. To reform the anomalies in the Department of the General Post- Office, the commission recommended that the system of granting superannuation should be revised with a view to placing it on a more uniform principle. This recommendation applied also to the peculiar class of clerks employed in public offices under the name of extra clerks, although a portion of them at least had come to be permanently employed. The commission found that there was no good reason for pensioning them on a lower scale than the other clerks, assuming them to be permanently employed. EeFUSAL of THE COMMISSION TO ReCOMMEND AN INSURANCE FuND. The petition of a large body of civil servants that compulsory con- tributions be required for the purpose of creating an insurance fund, to be managed by the civil service but under the general control of the Government, received very slight consideration from the com- mission. Confusing this request apparently with the idea of pen- sions for widows and children — a very different proposal — they dis- missed it in the following words : In some countries the provision made by the State for its servants has been carried still further, and has included their widows and children after their death. As a question has been raised in some of the memorials of the civil servants as to the expediency of such an extension of the system, it may be right to notice the subject. It appears to us that none of the three reasons which have been stated in favor of superannuation allowances apply to the case of a provi- sion for widows and children. 1st. It is true that many civil servants may feel an equal anxiety for the future welfare of their wives and children as for their own; but against the chance of premature death there is a certain and easy mode of providing by means of insurance; and it can not be doubted that those who would suffer from anxiety on this subject would be likely to have recourse to this means. 2nd. It does not appear that in this country, at least, public opinion would require that the civil servant should be relieved from the duty of providing, by insurance or otherwise, for the future support of his family, and that this burden should be thrown upon the State. It is 78 CIVIL-SEKVICE EETTREMENT IN GEEAT BRITAIN. true that sympathy has of late years been excited in favor of some clahns for assistance made by the widows of deceased civil servants; but in these cases the applications were grounded, not upon a general claim for provision as widows of civil servants, but on the tact that their husbands had made large contributions under the name ot deductions to a supposed fund, from which they had themselves received no benefit, and on which it was, therefore, supposed that their families might have an equitable claim. The third reason is, of course, inapplicable to the present case.('^) Indifference of the Commission to Actuarial Phases of the Problem. This memorable report strikes the student of superannuation schemes as remarkable for two important omissions. It ignored absolutely all actuarial phases of the subject and it barely mentioned the interests of the British taxpayer. The most important recommendation — the abolition of deductions from salaries to meet the charges of superannuation — constituted a change of the whole system from a contributory to a noncontributory plan. It meant the establishment of a civil pension list similar to the military pension list. It meant that members of the civil service were to be retired thereafter out of the public revenues without cost to themselves. This momentous change was recommended by the commissioners because they saw the inequalities of the system in vogue, recognized the fact that the civil servants had just cause for complaint, and knew of no other remedy. Failing to perceive that fixed mathe- matical principles must underlie any sound superannuation scheme, and that if any given plan proves inequitable and unsatisfactory it is because it violates such principles, they came to the conclusion that the easiest and quickest way to cut what seemed to them a Gordian knot was to recommend a free, general pension for everybody in Her Majesty's permanent civil service. As previously explained, the eminent actuaries who had been engaged by the Select Parliamentary Committee to determine whether the deduction made under the Act of 1834 was adequate to meet the charges, had found it necessary, before they could answer this question, to make a thorough study of the whole civil service of the country, classifying the members according to age, length of service, average and aggregate salaries, and the amount of aggregate deduc- tion to which they would have been liable under the Act of 1834. From this mass of data they deduced some valuable tables. With these as a foundation it would have been entirely possible for them to work out a contributory plan of retirement based on scientific princi- ples, fair to the civil servant, fair to the taxpayer, and equitable as " Report on the Operation of the Superannuation Act. 1857. pp. XI, XII. CIVIL-SBKVICE EETIKEMENT IN GREAT BRITAIN. 79 between different classes of civil servants. Work similar to that done by Messrs. Ansell and Morgan with respect to the 15,219 individuals of the British civil service in 1856, who were contributing from their salaries, has recently been performed (in 1907) by Mr. Mor- ris Fox, the government actuary of New Zealand, with respect to the 5,593 individuals of the New Zealand civU service, and in 1906 by the author of this report with respect to 103,030 individuals ■ of the civil service of the United States, and again in 1908 with respect to 170,228 members of the service, including practically all those classified. The task of Mr. Fox and of the author was, in each case, more laborious than that accomplished by the British actuaries of 1856, because the former were required, in the one in- stance by the Public Accounts Committee of New Zealand's House of Representatives and in the other by the committees on civil serv- ice in the two houses of the American Congress, not only to make a classification of the members of the respective civil services as to age, salary, length of service, etc., but also to compute the cost of establishing a superannuation scheme based on sound actuarial principles and on the statistics of the given services. Had the British actuaries been asked to carry their work to its logical conclusion in similar fashion, they could undoubtedly, after their study of the serv- ice, have presented to the Government a superannuation scheme sound in principle and detail, and suited to the requirements of the British service, and with it a reliable calculation as to the possible maximum cost of putting it into operation. But the actuaries of Great Britain were entirely disregarded. Not even waiting to receive their report, and failing to perceive that the problem was a technical one capable of accurate and positive solution, the civil service super- annuation commissioners hastened to urge the abolition of the con- tributory system. The law establishing the pension system was passed before the actuaries had finished their report or before any one had had a chance to consider it. This haste of the commissioners to abolish the system of deductions seems all the more astonishing in view of the fact that a large number of the civil servants had gone on record as not averse to compulsory abatements from their salaries, provided those abatements were used to create an insurance fund — in other words, provided they were turned to the benefit of the contributor's family in case of death. Doctor Farr, who had advised a general pension system in preference to the exist- ing contributory plan, had not asked for the complete abolition of deductions. He knew that that would not meet the needs of the situation. He had urged the straight pension only in connection with the diversion of deductions to the payment of insurance pre- miums. Through the half century that has' elapsed since the Act of 1859 was passed, the need of some provision in case of death before 80 CrVIL-SERVICE EETIEEMENT IN GREAT BRITAIN. reaching pensionable age or just after has continued to be felt and to be dwelt upon. It has lately been ofladally recognized by passage of the Act of September 20, 1909. It seems strange, therefore, under all the circumstances, that the whole subject was not thrashed out with more thoroughness, with the help of the expert actuarial talent that was available at the time the momentous change was made. The indifference of the commissioners of 1857 to the actuarial phases of the problem is evidenced by various details in their report. They recommended, for instance, the adoption of a new scale of retired allowances, -without making a single calculation as to the cost of such a change. They also recommended that the age of voluntary retirement be reduced from 65 to 60 years, without apparently con- sidering the enormous increase in the cost of annuities purchased at the earlier age, an increase caused by two counts, the greater number eligible at the age of 60 and the higher scale of values. Indifference of the Commission to Cost of Free Pension Scheme. The most obvious and fundamental objection to any universal pension scheme is that of the expense which it puts upon the people of the country. This weU-known fact was noted by the commissioners, but did not deter them from recommending a general pension. Their discussion of that subject was confined to the following paragraph: The single, but not unimportant, objection to this solution of the difficulty is, the additional charge which it would impose on the pubhc revenue. We are not disposed to treat lightly the pecuniary view of the question, and we are well aware of the reluctance which the Legislature must feel in imposing an additional burden on the public finances. (") The commissioners appear to have made no attempt to calculate, or even estimate, the amount of that "additional charge" which they recommended. Convinced, apparently, that a civil pension, payable out of the public treasury, was the only solution of the problem which was puzzling them, they seemed resolved not to "count the cost." REPEAL OF THE TWENTY-SEVENTH SECTION OF THE SUPERANNUATION ACT OF 1834, 1857. The report of the Superannuation Commission was submitted to the Treasury Lords on May 15, 1857. On June 30 Lord Naas in the House of Commons moved for leave to introduce a bill to repeal the twenty-seventh section of the Superannuation Act of 1834, which was the section providing for deductions from salaries. The bill met with opposition from the Government, but was finally passed by a large majority in both houses of Parliament. o Report on the Operation of the Superannuation Act. 1857. p. XXI. civil-service retirement in great britain. 81 Bill for Repeal Introduced by Lord Naas. In fhe course of his speech asking for leave to introduce the meas- ure Lord Naas reviewed the history of superannuation measures in England down to the passage of the Act of 1834, and then proceeded to point out some of "the inequalities and anomalies" of that act, such as the fact that "out of 56,740 employed in the civil service, at salaries amounting in the aggregate to £5,595,000, ($27,228,067) only 15,311 were subject to abatements; the other 41,429, whose salaries amounted to £3,172,000 ($15,436,538), were guaranteed their pensions, but suffered no abatements." In addition to these ine- qualities, he considered that there were three weighty objections to the whole system of the civil service : First, that the civil servants were not altogether sufficiently remunerated, the average pay being only £141 ($686) per annum, and of two-thirds of that number the average salaries amounted to but £86 ($418) per annum; second, that many of those who contributed to the fund did not get any benefit from it, the most delicate calculations of all the actuaries in the world not being able to persuade the six out of the seven who never received any allowance that they were fairly treated ; and third, the fact that the amount of reduction was more than equal to the whole superannuation paid, the tax amounting to upward of £66,000 ($321,189) a year and the allowances paid to only about £11,000 ($53,531), and the entire contributions of the civil servants during the twenty-seven years the act had been in operation to £900,000 ($4,379,860), of which £80,000 ($3,893,200) only had been returned to the contributors in the shape of allowances, leaving a balance of £820,000 ($3,990,530), which if it had been funded would have amounted to £1,000,000 ($4,866,500). Lord Naas referred in terms of warm approval to the report of the Superannuation Commission, saying that, considering the high position and experience of the com- missioners, and the long time that the question had been debated, he was justified in looking at' their decision in the light of an arbi- tration between the civil servants and the Government. On their decision he rested his whole case, and he craved the attention of the House to this very important passage of their report (which is the one usually quoted wherever authority is sought for a sweeping condemnation of contributory systems, but which seems to the stu- dent only a frank confession of the commissioners' puzzled and baffled consciousness). It has not been without much anxious consideration that we have arrived at the conclusion that it is our duty to recommend the aboli- tion of deductions for the purpose of superannuation, without any corresponding reduction in the salaries on which such deductions have been charged. Our first impression in entering on the inquiry referred to us was adverse to this arrangement; but on a careful review of all the difficulties of the case we became satisfied that, with a view to public interests alone, we could recommend no other set- 35885— S. Doc. 290, 61-2 6* 82 CIVIL-SEEVICE EETIKBMENT IN GREAT BKITAIN. tlement of the question as likely to be permanent and satisfactory. We are aware that the present system of deductions has had high authorities in its favor, and at the time when it was introduced it may have been considered a convenient mode of carrying into effect the unpopular measure of a general reduction of salaries. Never- theless, for the reasons which we have already stated, we believe it to be unsound in principle; and we think that its inherent defects have developed themselves in difficulties of administration of which the effect has been to create a mass of anomalies and inconsistencies most injurious to the public service. In this as in other similar cases it may be found impracticable to escape from a vicious principle and to establish a reasonable and uniform system without some tempo- rary pecuniary sacrifice; but believing that there is no other satis- factory solution of the difficulty, being confident that the ultimate advantage of the public will be much more than a compensation for any possible temporary loss, and having regard to the importance of maintaining the character and efficiency of the civil service, we are of opinion that by the recommendation which we have made we shall best discharge the duty which has been assigned to us.C^) Lord Naas said, in conclusion, that he thought he had shown that there was a sufficient reason for the immediate abolition of the super- annuation tax, and as the Government declined to do anything in the matter, he called upon the House to support his bill. The remedy which he proposed was to introduce a bill containing but one clause, repealing the twenty-seventh section of the Act of 1834, which author- ized the deductions. This course, however, he said, would not pre- vent the Government from imposing such conditions as they might deem necessary. BILL OPPOSED BY THE MINISTRY. To the student of the subject it would seem that Lord Naas had given sufficient proof of the anomalies and inconsistencies of the law, but had hardly shown that the abolition of deductions was the cor- rect and only remedy for them. This failure of Lord Naas was pointed out by Sir. G. Cornwallis Lewis, the Chancellor of the Ex- chequer, who rose to the defense of the Government, saying: "The subject is too wide, the questions involved are too large, the civil service, whose interests are affected, is so important, and the sum of money which the noble lord proposes to vote away is too great to allow me to be silent on this occasion. " After reviewing the course of previous legislation he concentrated his arguments on the sensible plea that no piecemeal legislation should be enacted by the House, but that the subject should be considered, as a whole, in all its bear- ings, and action taken only after the actuaries' final report had been submitted and the subject thoroughly discussed in the light of that report. He said that : The question which now arises is whether the House shall at once proceed to repeal the clause in the Act of 1834 without any further ^Hansard's Parliamentary Debates, 3d series. CXLVI, pp. 690-698. CrVIL-SERVICE KETIEEMENT IN GREAT BRITAIN. 83 legislation on the subject, merely upon the suggestion o'f the facts brought under their notice to-night. The noble lord did not state to the House that the recommendations of the commissioners involved a great number of questions which do not belong strictly to the sub- ject of these abatements, and if he founds his case upon the report of the commissioners he is bound to give effect to the whole of their recommendations. * * * Another part of the question which must be considered is the great magnitude of the sum involved, and the importance of not taking a hasty step or legislating on imperfect information on account of the large pecuniary interests which are at stake. * * * I am perfectly willing to concede to the noble lord that the present system, under which superannuation allowances are granted, is full of anomalies and inconsistencies, and that the present rule with respect to the abatement is far from satisfactory. I can not admit, however, that the creation of a fund was ever promised, either by Parliament or by the Government; neither can I admit that there has been any breach of a contract by any Government. The com- missioners themselves distinctly state their opinion that no such breach of contract has taken place, and that the civil servants have no claim on the ground of equity for the proposed change. The commissioners recommend the change on the ground of expediency. They say, "the system is a bad one; you must pay forfeit for the abolition of it; you can not get rid of it without surrendering £60,000 ($291,990) or £70,000. ($340,655) a year, and we think the system is so bad that we advise you to abandon it, even at that cost." I admit, then, that the system is a bad one, and I regret that it was ever intro- duced. * * * Looking, then, to the extensive consequences of the simple alteration of one clause which the noble lord proposes, and considering the necessity of legislating upon this subject — if it is to be legislated upon at all — in a more comprehensive manner and with a wider regard to consequences than is now proposed, it is not in my power to vote in favor of the motion of the noble lord. I would also say that I do not see how the Government would be justified in undertaking to do anything with regard to this question until the report of the actuaries has ieen received. The subject is now under the consideration of the actuaries, and the commissioners promise the result in a supplementary report. Under all the circumstances then, and looking at the position in which the question stands, I do not see how it would be possible for me to accede to the motion of the noble lord. It is for the House to say whether the question can be decided in this summary manner, and whether, as guardians of the public purse, considering the large sum of money involved in this motion, they think themselves justified in deciding in favor of it.(°) The Chancellor of the Exchequer assented to the introduction of the bill, however, on the understanding that the object of such concession was merely to give an opportunity for fuller discussion.' The bill was accordingly read for the first time. On the motion for the second reading of the bill, on July 23, Mr. Wilson, then Secretary for the Treasury, stated the reasons for the Government's opposition to the bill. Taking up, first, the general belief that the contributions which the civil servants of the Crown "Hansard's Parliamentary Debates, 3d series. CXLVI, pp. 703-707. 84 CIVIL-SEEVICE EETIKEMENT IN GEEAT BEITAIN. had made toward their pensions were considerably larger than neces- sary to provide for those pensions, he said that he was prepared to admit that if that case could be established, whatever the terms of the compact, it would be politic to abandon the charge or at least to reduce the charge to what was merely sufficient to provide the pen- sions. Eepudiating the idea that there had been any breach of engagement on the part of the Crown with the civil servants, he next said that the whole question resolved itself into one of policy, and that it had been justly stated in the report of the commissioners that, after all, this was a question of the remuneration of public servants, and that the claim of pension could not be separated from the amount of salaries. Reviewing the salary question, Mr. Wilson argued that if there were injustices in the matter of remuneration paid different classes of employees, those injustices would only be increased by the general abolition of abatements from salaries. He said that: Although the insufficient remuneration of pubUc servants might be a just ground for revising the scale of salaries, it could be no reason for an indiscriminate increase of salaries, without regard to merit or efficiency. The proposition of the noble lord would amount to an indiscriminate increase of salaries throughout the pubUc service to the extent of 5 per cent upon salaries exceeding £100 and £2 10s. per cent on salaries below that amount. Now, supposing some por- tions of the public service were at present underpaid, an increase of 2^ or 5 per cent upon the existing salaries might be quite insufficient to raise those salaries to a proper amount ; and would it be any sat- isfaction to persons in such a position to receive this increase when the same increase was given to a large body of public servants who could not complain of being underpaid ? Some years ago a proposal was made to reduce the salaries in all public departments by a imiform rate of 10 per cent, and that proposal was opposed on the ground that if any portion of the public servants were overpaid it would be proper to reduce their salaries, but that the indiscriminate reduction proposed was neither just nor reasonable. * * * There was one point to which he begged to call the serious attention of the House. Until the noble lord introduced this bill no proposition had ever been made to give up the abatement unaccompanied by a revision of salary. C^) Coming to consideration of the bill itself, Mr. Wilson attacked it as bound to create an anomaly greater than any which now existed. He showed that the commissioners had pointed out existing anomalies without end, with not one of which the bill proposed to deal. Said he : It proposed to repeal a single clause in the Act of 1834 — the clause, namely, which imposed the abatements. The noble lord left the act in every other respect as it was. Now, the effect of that act was that certain persons only were entitled to pensions. The bill of the noble lofd sought to relieve these persons from the payment of abate- ments, but it did not propose to give pensions to any other class of public servants. The officers of the Poor-Law Board were not entitled aHaasard's Parliamentary Debates, 3d series. CXLyil, pp. 249-253. CIVIL-SERVICE RETIREMENT IN GREAT BRITAIN. 85 to pensions, and they felt that they had no reason to complain, because they were not required to pay abatements. The officers of the Treasury, on the other hand, were entitled to pensions, and therefore they had no right to consider themselves aggrieved in being called upon to pay abatements. Under the bill of the noble lord the officers of the Treasury would continue to be entitled to pensions, although relieved from the payment of abatements ; while the officers of the Poor-Law Board would not be more entitled to pensions than they were at the present moment. Nothing could be more unjust than such a distinction. If all public servants were to be put upon the same footing with regard to abatements, so ought they also with respect to pensions; and if the bill of the noble lord passed, it would be impossible to resist their demand. * * * That bill, if passed, would destroy the line of demarcation between those who were and those who were not entitled to pensions. It Was proposed that they should then give up a sum of £100,000 ($486,650) without any discrimination, to public servants ; but he would answer for it that if that proposal were adopted they would have to add another sum of at least £250,000 ($1,216,625) for pensions to persons who were not at present entitled to receive them. He would go farther and express his belief that, under that proposed arrangement, they should look forward to an addition to the public expenditure of not less than from £300,000 ($1,459,950) to £400,000 ($1,946,600) in the course of the next eight or nine years. (") Mr. Wilson closed his speech by declaring that the question was not between the civil servants and the Government, but between them and the taxpayers of Great Britain. He therefore hoped that if the House of Commons, judging between their constituents, the taxpayers, and the civil servants, should decide that the latter were inadequately paid and that therefore they were justified in throwing away £100,000 ($486,650) a year directly, besides some £300,000 ($1,459,950) or £400,000 ($1,946,600) a year indirectly, they would be equally willing, when they had forced the Government into a corner and it became necessary to propose new taxes for meeting that increased expenditure, to support the Government in adding to the income tax or imposing any new tax that might be required to equalize the expenditure and the means of the country. Debate on the Bill. At the close of Mr. Wilson's speech, Mr. Weguelin, who had been one of the commissioners who inquired into this subject, spoke in favor of the bill and against the arguments for delay urged by the Chancellor of the Exchequer and the Secretary for the Treasury. He said that: Another reason urged for delay was the non-presentation of the report of the actuaries. He could not understand why that should be urged as a reason. If the abatement had accumulated, and the Government admitted that a fund had been created, the case would be different. But if they said the clerks among themselves had no right to the principle of mutual assurance, he could not tell why they o Hansard's Parliamentary Debates, OXLVII, pp. 256-257. 86 CIVIL-SEKVICB KETIEEMENT IN GREAT BRITAIN. should wait for the report of the actuaries. The appointment of actuaries necessarily assumed that there was a fund — that the de- ductions paid by other classes had formed a fund out of which to pay the superannuations. They were then in this dilemma; either there was a fund, which was contrary to the statement of the honorable gentleman, or if not, then there was no occasion to wait for the report of the actuaries. He thought the real question for the House of Commons was, as to the policy of continuing these abatements. Everybody, when they came to examine the matter, abandoned them. The committee appointed to investigate the matter had thrown them over; the commissioners had given them up; every debate in the House had been conducted on the principle of the abandonment of the system of abatements, and the real question now before the House appeared to him to be, whether or not there ought to be an increase of salary on account of these deductions. That question of salary he admitted the House were incompetent to enter into ; it must be left to a committee of the Treasury. Judging from what he saw around him, he believed that salaries generally were on the increase. He knew they were in commercial concerns ; but with respect to that the right honorable gentleman made a statement which was not exactly in accordance with the fact. He stated that the average salaries at the Bank of England were lower than the average salaries paid to the civil servants. The general average, however, in the Bank was £195 ($948) per annum, whereas in the civil service it only amounted to £147 ($715). (°) The position of the Government was next defended by Sir Francis Baring. As one of those responsible for the passage of the Act of 1834, he was naturally inclined to defend the system of deductions, but he nevertheless conceded that the question of deductions had been settled, the Government having yielded that principle. The real question, he maintained then, was not about deductions, but the second reading of the bill, and to that he had objections. Not only did he object to the bill because it would be no settlement of the question, but because it would make a large increase in the sala- ries of the pubhc servants in a manner not required, and at the same time most injudicious. They were going to increase the higher serv- ices by 5 per cent, and to increase the salaries of the lower class of civil servants, by only 2^ per cent. The bill, therefore, gave advan- tage to the highest and best-paid class of public servants, which it withheld from the poorer and hardest-working servants. Mr. Seymour Fitzgerald, who had been a member of the Select Committee, defended Lord Naas's bill on the general ground that the civil servants had just cause for complaints, and that members of the House should be ready to face the extra expense for the sake of the extra advantage from the increased efficiency of the public service. An energetic speech against the bill was made by Mr. Rich, who said it was "imperfect in its form, would be unjust in its operation, was quite unnecessary, based upon erroneous statements, involved oHaBsard's Parliamentary Debates, CXLVII, pp. 268-269. CIVIL-SEBVICE RETIREMENT IN GREAT BRITAIN. 87 an extravagant expenditure of the public money and recognized a breach of contract." He said the question was not one of abate- ment, which had been inquired into and decided against; but it was a question whether £100,000 ($486,650) a year should be added to the salaries of the best paid of the public servants. Lord Naas next took up the debate, answering the attacks madr- on his bill by the members of the Government. Particularly inter- esting to the student of retirement plans are his conclusions, based on' the opinions of the several actuaries, who had testified that the average value of the pensions received was less in individual cases than what the contributions would have purchased. It has been shown that this opinion was perfectly sound, but it is also known (what Lord Naas was unwilhng to wait to find out) that the actuaries then investigating the matter discovered that the contributions would be inadequate in the aggregate to pay the pensions promised. Lord Naas said that: The Secretary for the Treasury (Mr. Wilson), whose motives in opposing the bill no one could doubt were very proper, had, however, made some statements of facts and figures in a manner which tended to create a false impression. The honorable gentleman had stated that there was "an impression" abroad that the civil servants of the public were called upon to pay more in deductions than they received back in pensions. That was not "an impression;" it was a distinct matter of fact, and it could be proved beyond all dispute that the contributions of the civil servants far exceeded in amount the pen- sions that were granted to them. That matter ought to have been set at rest after the evidence which had been taken before the com- mittee which sat last year upon the subject. They examined Doctor Farr, Mr. Edmonds, and Mr. Hardy, actuaries of the highest emi- nence, and documents were produced showing that six other dis- tinguished actuaries agreed with them in an opinion that the average value of the pensions actually granted was considerably less than what should have been given in return for the contribution paid by the civil servant, even omitting all profits arising from resignations and discharges. It was true that an inquiry was going on, or was supposed to be going on, directed in some measure to that point; but the evidence before the House would lead them to believe that it was unlikely there would be amy different conclusion arrived at than had been come to by the committee. Lord Naas closed his remarks with the argument that the system of abatements had been generally condemned and the House would do well to recognize that fact and act at once, rather than wait and allow the dissatisfaction of the civil servants to become intensified. He said that: Those who complained that the measure did not settle the whole question nor embrace the whole recommendations of the comnais- sioners ought to bear in mind that their great leading recommendation was contained in his bill. If the bill did not sweep away all the anomalies and inequahties that existed, still it swept away the most grievous anomaly, and he beheved it would pave the way for the 88 CIVIL-SEEVICE EBTIRBMENT IN GREAT BRITAIN. abolition of all the others. But the question he had now to ask was, what did the Government propose to do ? * * * He wished to know from the right honorable gentleman the Chancellor of the Exchequer whether the Government meant to set their face once and for all against every attempt to do away with the abatements made for superannuation allowances ? His decided opinion was that they must make up their minds to do away with these abatements or not deal with the" question at all; unless they made the principle of non- abatement the root of their measure it would be unsatisfactory to the civil servants, and, he beheved, to the House and country. The system had been condemned by that House, by the press, and by the good sense of the people of this country. * * * it had been condemned bv a committee of that House, which had given long consideration" to the subject; and lastly by a royal commission, whose report should be looked at more in the light of an arbitration than anything else. In fact, the whole system of taxing salaries stood condemned; and although there might be honorable members who thought the system just and proper, he trusted that with the weight of authority to wfdch he had alluded to support them, the Government would put the matter on a satisfactory footing. The continuance of the existing system caused great dissatisfaction among a large and important body of public servants whom it was most desirable to keep contented. They felt they had a grievance to com- plain of, and the House might depend upon it they would not be satisfied till that grievance was removed. The agitation would go on, and they would not rest contented with less than was now pro- posed for the rehef. Next year the demands of the civil servants instead of being lessened might be enlarged; and the House might find that it was not one grievance only they were called on to redress. We boasted in this country of the stability, the firmness, and the integrity with which the business of every department was conducted. These we owed very much to the exertions and abilities of the civil servants of the Crown, and when they were told by high authorities that this class labored under an oppressive grievance he maintained that the House ought to redress it at the earliest possible opportunity, and he trusted the House would, by accepting his bill, put an end to the grievance at once, and thus confer a boon and recognize a right. (") One of the strongest speeches against the bill was made by Mr. Gladstone, who took exception particularly to Lord Naas's statement that the system of deductions was a condemned system, and who pointed out that the matter could not be cleared up before the report of the actuaries was received. Said he: It is stated or assumed that the system of making deductions from the salaries of the pivil servants with a view to providing funds for superannuation is a system which has been condemned on all hands. It has been condemned, it is said, by a parliamentary committee, by the royal commission, and it is assumed to have been condemned by the Government. It was condemned, I am sorry to say, by the parliamentary committee — I greatly regret that such should have been the case — it has been condemned by a royal commission, which I look upon as being of less authority ; whether it has been condemned by the Government or not I am not aware. But the system which at "Hansard's Parliamentary Debates, CXLVII, pp. 649-656. CrVIL-SEKVICE EETIEEMENT IN GEEAT BRITAIN. 89 present exists was founded under recommendations entitled to quite as much weight as any of the recommendations which have been made in the opposite direction. Mr. Gladstone then quoted the opinions of such eminent, men as Sir James Graham, Mr. Tierney, Mr. A. Baring, Lord Althorp, Mr. Harries, Mr. Gouldburn, and Sir Henry Parnell to prove that the policy of making deductions from a salary as an equivalent for a prospective superannuation is "sound in principle and in effect is excellent." He said that: They were men, most of them among the most experienced ad- ministrators of their day, and one or more of them had originally belonged to' the permanent civil service. The weight of testimony, therefore, in favor of this system is sufficiently strong, not perhaps to induce you to maintain it under all circumstances, but at least en- tirely to deprive the noble lord of the right of saying that it is a condemned system. The noble lord and those who go with him argue that the pensions which are to be awarded out of the fund ac- cumulated by the deductions will not in the long run exhaust the whole proceeds of the fund. In the first place, that fact has never been proved, and if it had it would not affect the question. The noble lord quoted these opinions of certain actuaries, and he says that these opinions ought to settle the question; but the noble lord was very glad to fall back upon the royal commissioners as arbitra- tors when it suited the purposes of his argument. But the royal com- missioners do not state that this was a settled fact; on the contrary, in the last page of their report, they treat it as a matter not yet cleared up. The committee of last year did not treat it as a question which was decided. The right honorable gentleman the member for Portsmouth (Sir F. Baring), a great authority, is distinctly and strongly of opinion that the money value acquired in respect of pen- sions is greater than the money value paid in deductions. Beheving thus, that there was a great weight of expert authority on the side of the system of deductions as against it, and that the matter was not yet settled, Mr. Gladstone opposed the bill chiefly on the ground that what it really proposed was an indiscriminate increase of salaries and that such increase was not justified. Said he: It is all very well to come down here and say with a chivalrous air that it is beneath the House of Commons to inquire what is the value of labor in the market — that we ought to be above such consideration in fixing the payments of our pubhc servants. That would be all very well if we were dealing with our own private fortunes, but we happen to be dealing with, the pubhc taxes. The bulk of these taxes are levied upon the wages of the laborers of England, which are regu- lated by supply and demand; and if the laborer, whether artisan, mechanic, or peasant, can obtain no more than his labor is worth in open market, what right have we to make deductions from the fruit of his labor, and dehver them to servants of the Crown, according to our own ideas of generosity ? There is no doubt that the civil servant gets at least what his labor is worth in the market. Here let me draw a distinction. There is a labor so valuable that you can not pay for 90 CIVIL-SEBVICE EETIEEMENT IN GREAT BRITAIN. it in money. There are men who devote themselves to the civil service with so much enthusiasm, with such ability, and with such an entire absence of the ordinary motives which a prospect of fame affords, that it is impossible to commend or to pay them too highly. Men of that order we must set aside. You may give them salaries which are liberal according to the estimate of the world, but I grant that such salaries, even in the present liberal humor of Parliament, must fall far short of the value of the services which these persons render. I am not here to discredit the civil service in general. At the same time I must say that, so far as my experience has gone, the civil servants of the Crown are not only not an ill-paid, but are, hav- ing reference to their great mass, a well-paid body of servants. Recol- lect what has happened within the last two years. There is no reason to suppose that the candidates presented for employment in the civil service during that period have been inferior to those presented in previous years; but the establishment of the test of an independent examination has led to the rejection of one-third of them as unfit to enter the civil service of the country. At any rate, there is no doubt that these persons do not enter the civil service by compulsion. After listening to the debates in this House one would really_ suppose that the ballot, which has been abolished as regards the militia, had been established for the civil service; that every parish, every hun- dred, was called upon year by year to supply two or three youngmen for that service against their will ; and that the grievance of receiving only £141 per annum, taking tidewaiters and all together, was so great that there would be a market for substitutes, and that large payments would be made to induce persons to relieve the individuals chosen by ballot from this frightful evil. It would be needless to detain the House with a description of what is really the state of the case; but, while the quality of your candidates is improving, and their quantity undiminished, I want to know what will be our justifi- cation to the taxpaying constituencies, to the laboring classes of England, if we accede to the representation of the noble lord and pass a bill which, without reference to merit — on the contrary, with a decided preference of the higher classes of officers, to whom we are to make a double payment — will place a certain sum in the pocket of every civil servant. (") Mr. Disraeli made a speech in support of the bill, taking the stand that the principle of abolition of deductions in the salaries of a certain class of public servants had received the sanctions of three great authorities, a Parliamentary committee. Her Majesty's Government, and a royal commission, and should therefore be respected. He stated his agreement with Mr. Gladstone that, considering not only the present state of finances, but the gloomy future in prospect with regard to expenditure, it would be most unwise thoughtlessly to increase the expenditure of the country, but he said that "no one should refuse to perform an act of justice on considerations of mere economy." Mr. Disraeli, in conclusion, expressed his belief that the operation of the measure, if it became a law, would be "virtually to settle this important question." "Hansard's Parliamentary Debates, CXLVII, pp. 655-G65. CIVIL-SEEVICE EETIEEMENT IN GKEAT BRITAIN. 91 In this debate on the motion for a second reading of the bill, the Chancellor of the Exchequer, Sir G. Cornwallis Lewis, again made an attempt to show the House that hasty action was inadvisable, since it had not yet been proved by competent authority (that is, by the actuaries) that the civil servants had been unjustly +reated. Said he: The committee had a large amount of evidence brought under their consideration, and not being able to make up their mmds as to that which I may term the question whether the deductions which had been made from the salaries of the civil servants were or were not greater in value than the pensions to which they would become en- titled as an equivalent — resolved to refer the matter to two actu- aries, who were to be furnished with the whole evidence, and to report thereupon. The noble lord, the member for Cockermouth (Lord Naas), has indeed quoted the testimony of the actuaries who were ex- amined before the committee, to prove that its members were satis- fied with the information which had been laid before them; but I appeal to the recollection of those honorable gentlemen who were members of the committee to corroborate the statement which I have made, that the committee, not being satisfied with the evidence before them, came to a deliberate resolution to refer the question for the report of two actuaries specially selected, who were to be furnished with the evidence for that purpose. I therefore entirely dispute the statement that the Select Committee were satisfied upon the ground of equity and justice. The result of the investigation of the commit- tee was, in my opinion, to leave the question of insurance quite unde- termined, and I may add that their labors were brought to a close before the report of the two actuaries to whom the point had been submitted could be received. The claim of the civil service has, nevertheless, been reargued in this House upon the ground of justice * * * Now, I utterly deny the validity of the claim of the civil servants upon that ground. * * * j maintain that the contract which was entered into with them by act of Parliament is, in its terms, perfectly clear and precise; that every one of them who has taken office since the passing of that act has accepted it upon condi- tions which were well known ; that those conditions have been strictly adhered to by successive governments ; and that it is absolutely im- Eossible to prove that even if a fund had been created, any additional^ enefit to the members of the civil service would be the result. The Chancellor then went on to show the enormous additional ex-"" pense to which the country would be liable in case the bill passed and to combat the statement as to the general insufficiency of the salaries paid civil servants. In conclusion, the Chancellor said: This brings me to the last point which I have now to put before the' House, naniely, whether they are prepared to agree to the measure pro- posed by the noble lord, which involves the simple and unconditional abohtion of the deductions now made from the pay of the civil service. ' Ihave already stated my opinion that the right of the civil service to such a concession can not be established ; and in the official position which I hold, I do notf eel myself j ustified in asking the House to be generous with the public money. If the House think fit to perform an act of HberaUty and generosity, it is no doubt competent for the House so to act; but it 92 CIVIL-SEKVICE KETIEEMENT IN GREAT BBITAIN. would ill beseem me, as Chancellor of the Exchequer, to propose any increase in the salaries of the civil service, except upon the ground of justice, or of the insufficiency of the present scale of remuneration. No doubt it is perfectly competent for the House of Commons, if it think fit, in a spirit of gratuitous liberahty, to bestow upon the civil servants of the country this annual sum in addition to their existing salaries, and to diffuse the increase rateably over the whole service without any reference to individual merit, or to any augmentation m the amount of work performed. On the other hand, if the House is not disposed to take that step, they may accompany -the remission of these abatements by the principle which was adopted by the com- mittee of last session— that is to say, they may call on the Government to make a reduction in the salaries equivalent to the abatements re- mitted. In that manner either the whole or a considerable part of the deductions to be abolished would be recovered in the shape of a dimmution m the regular rate of pay. That, however, is a matter entirely for the House to consider. For my own part, standing in the situation which I have the honor to fill, I see no sufficient ground to justify me in acceding to the proposition of the noble lord. (") Vote on the Bill. Following the Chancellor's speech, the question was put and a division of the House resulted. The second reading of the bill was carried by a majority of 60 in a house of 282, all the members of the administration voting with the minority. On July 30 Mr. Seymour Fitzgerald asked the First Lord of the Treas- ury what course the Government proposed to pursue with reference to the civil service superannuation bill, the second reading of which had been carried the previous day by so large a majority. To this Viscount Palmerston replied that Her Majesty's Govern- ment felt it their duty to state to the House at considerable length the objections they felt to the bill proposed by Lord Naas, consider- ing that the effect of it would be to add a very large sum to the annual expenditure of the country, but the House having in a very full attendance and by a very considerable majority confirmed the second reading of the bill, the Government would not deem it respectful to the House to offer any further opposition to the progress of the measure. Mr. Gladstone then asked whether it was the intention of the Gov- ernment to institute any revision of the salaries of persons holding offices in the civil service in connection with the removal of the deductions to which they were liable. In answer to this question. Viscount Palmerston stated that the effect of the bill would be to add 2^ per cent in some cases and 5 per cent in others to those sal- aries, but the only revision that would naturally arise out of it would be a revision by which the salaries would be diminished in propor- tion to the alteration made by the bill, and that that would hardly be consistent with the decision of Parliament. ^Hansard's Parliamentary Debates, CXLVII, pp. 673-682. CIVIL-SERVICE EETIEEMENT IN GREAT BRITAIN. 93 When the motion for the third reading of the bill was put, the Chancellor of the Exchequer protested, for the last time, that he was not prepared to bring in a bill before he received the report of the actuaries who had been appointed, and he charged Lord Naas with undue impatience in trying to secure for the public servants "benefits to which in a spirit of good-natured credulity he considered them to be entitled." Sir John Trelawny then said the reason he had opposed the bill was because he wished to protect the national exchequer. The bet- ter plan, he thought, would have been to appoint a committee to inquire into the whole of the civil service. Mr. Berkeley said he was surprised to hear Lord Naas accused of good-natured credulity. The Government might more justly, he thought, be accused of ill-natured obstinacy. "Nine out of every ten men in cities," said he, "are in favor of the noble lord's bill." Finally, Mr. Ayrton said he must complain of the undue haste with which the bill had been pressed forward, and the extraordinary zeal which the civil servants had exhibited in soliciting members to support it. "The measure, in short" said he, "is the result of an organized conspiracy on the part of the public servants, is unjust in its provisions, and based on erroneous statements." The question was then put and the third reading of the bill was carried by a majority of 68. During the same session there were short debates in the House of Lords respecting the report of the royal commission, and it was very evident that the lords were almost unanimously in favor of the abolition of abatements. Text of the Repeal. The act as finally passed was very short and read as follows: An act to repeal the twenty-seventh section of the superannuation act, 1834. Whereas an act was passed in the fourth and fifth years of the reign of his late Majesty, intituled: "An act to alter, amend, and consolidate the laws for regulating the pensions, compensations, and allowances to be made to persons in respect of their having held civil offices in His Majesty's service;" and whereas it is expedient to enforce the provisions of the said act, so far as relates to the abatement to be made under the twenty-seventh section of the said recited act from the salaries of those civil servants of the Crown who have taken ofiice since the 4th day of August, 1829; be it therefore enacted by the Queen's Most Excellent Majesty, by and with the advice and consent of the lords, spiritual and temporal, and Commons, in this present Parliament assembled and by the authority of the same, as follows : 1. The said twenty-seventh section of the said recited act shall be, and the same is hereby, repealed from and after the 30th day of June, 1857. 94 oivil-seevice ketieement in great britain. Analysis of the Vote. It will be seen from a study of these debates in Parliament that, while there was an overwhelming sentiment in favor of the abolition of deductions, the bill which effected it was not passed without en- countering the intelligent opposition of some of the most thoughtful men in the House of Commons. These included not only the mem- bers of the Government, but such a distinguished member of the Opposition as Mr. Gladstone. Without understanding the techni- calities of the superannuation problem any better, in all probability, than did those in favor of the bUl, they yet took cognizance of the existence of such technicalities and seemed to feel that it would be only sensible and prudent to await the verdict of the men supposed to understand those technicalities who had been appointed to inves- tigate them before taking action in the matter. They realized that the subject of superannuation bears a close and inseparable rela- tionship to that of salaries and suspected that a just reform in one field could only be achieved through reform in the other. Although urged to remember that the commissioners of 1857 had recommended the abolition of deductions, "without any corresponding reduction in the salaries," they were also not disposed to forget that the par- liamentary committee of 1856 had recommended a revision of salaries as the condition on which the deductions should be abolished. Inas- much as the British public paid the salaries of its civil servants, they saw the importance to the public, as well as to the service, of consid- ering the whole subject thoroughly before enacting any legislation supposed to be remedial. Those who supported the bill were actuated by motives which were more of a credit to their hearts than to their heads. They saw the "anomalies and inequalities" of the existing law and hoped that by abohshing the system of deductions they could wipe out such objectionable conditions. They reaHzed that such a course might be expensive for the State, but argued that the State, as a model employer, should not hesitate to do right by its employees merely because that action was expensive. The keynote of Lord Naas's argument was the ciy that the civil servants labored under "an oppressive grievance" which, taken together with Mr. Berkeley's statement that "nine out of every ten men in cities were in favor of the noble lord's bill," showed that the people of the country sup- ported the bill because they believed that in so doing they were rendermg an act of justice. Undoubtedly this high tone appealed io many members of Parliament who failed completely to see that the problem was a technical one and was not to be solved by good intentions and generous resolutions. Then, too, many were weary of the agitation, and therefore inclined to think, like Mr. Disraeli, that CIVIL-SERVICE RETIREMENT IN GREAT BRITAIN. 95 it would be well to abolish the system of deductions, since they hoped by such action "virtually to settle this important question." How little this hope has been realized is shown by the fact that the dis- content of the civil employees with the superannuation system has persisted down to the present year and has only recently been appeased by the passage of a law making such radical modifications in the system as to change the character of it completely from a so-called free pension system to a scheme virtually a contributory plan. Parliament's generous action in 1859 failed to "settle this important question" simply because the solution offered was unsound and unscientific and ignored certain fixed principles of human nature, as will be shown in subsequent chapters. SUPERANNUATION ACT OF 1859. Bill Embodied Minor Recommendations of Superannuation Commission. A bill to embody the minor recommendations of the Superannuation Commission was introduced into Parliament late in the session of 1858 but was not pressed. A similar bill was accordingly introduced on February 7, 1859, by Mr. Benjamin Disraeli, then Chancellor of the Exchequer. In moving for leave to bring in the bill, the Chancellor said that the principal heads of difference between the proposed bill and the existing law were with regard to the duration of services and the time of superannuation. It was intended that superannuation should commence at the termination of ten years, and that the full superannuation allowance should be granted at the end of forty years' service. Under this bill every person in the civil service, of the age of sixty, would be permitted to receive his full superannuation, and at sixty-five retirement from the public service would be com- pulsory. The most important provisions of the bill, he said, were those which regulated the new scale of superannuation. One of the greatest defects of the existing system was that superannuation was fixed at the end of a septennial term of service and hence the same benefits were often enjoyed by persons who had really served very different terms. These defects were remedied by the proposed bill, superannuation being calculated by the yearly services of the public servants. The bill contained provisions regulating the superannua- tion to which professional men who entered the public service com- paratively late in life should be entitled. It also provided for the abolition of offices and other matters of an analogous character, which hitherto had not been satisfactorily settled; or if so, were arranged rather by the discretion of the Treasury than by the sanction of the law. 96 CIVIL-SEEVICE RETIREMENT IN GREAT BRITAIN. At the conclusion of the Chancellor's remarks, Mr. Wilson said he did not rise to oppose the introduction of the bill, but he wished to remind the House that when Lord Naas had brought in a bill for the abolition of deductions two years before, he (Mr. Wilson) had called attention to one of the consequences which would follow from it — that its effects would be to do away with all distinctions between the public servants in regard to superannuation. Under the Act of 1834, no persons in the civil service had any legal claim to superannuation allowances, except they had submitted to the abatements provided for under that act, but if the enactment creating abatements was repealed, allowances could not be denied to any person in the public service. Having, however, been induced to take that step, Mr. Wilson held that it now only remained for the House "to do justice, and to allow the superannuation allowance to bear the same proportion to the salary, whether great or small, of every man in the public service." Mr. Rich, who had made a strong speech two years before, in oppo- sition to the bill abolishing the abatement system, allowed himself the satisfaction, on this occasion, of saying politely: "I told you so." He reminded the House that when the bill of Lord Naas was debated, it had been said that this was not merely a question of abatement, but that the House would be "pestered" by every public servant for a pension. He said that they saw the beginning of that state of things now, for every public servant was claiming superannuation. He would throw out, for the consideration of the Chancellor of the Exchequer, that superannuation allowances represented a capital of £3,000,000 ($14,599,500). As the Government were changing their opinions on other poiats perhaps they would reinstate the abatement clause, which would furnish them with an answer to everyone asking for a pension. On the motion for the second reading of the bill. Sir H. Willoughby, who had previously declared himself to be "one of those who took a fearful view of the increasing charge for superannuation allow- ances," declared his beUef that the bill "would throw an enormous burden upon the country." He said that: The Government ought to inform the House what that superan- nuation would cost the country. In the shape of compensation and superannuation the country was at this moment paying £1,400,000 ($6,813,100), and if the whole civil service of the country was to be entitled to superannuation he would ask where was it to end ? Al- though the tax, which amounted to £70,000 ($340,655), had been abolished, there was nevertheless a new scale and state of things established. He objected to the form of the bill, and to that bit-by- bit legislation it proposed, for in dealing with the question of super- annuation they ought to deal with it as a whole. C') ^Hansard's Parliamentary Debates. 3rd series. Vol. CLII, p. 592. civil-seevice retirement in great britain. 97 ' Bill Introduced and Defended by the Government. Sir Stafford Northcote, then Secretary for the Treasury, next defended the bill as a Government measure, saying that it was "the vi^ish of the Government that the bill should accomplish that which it was principally intended to accomplish, namely, the putting all classes of the civil service on one uniform footing, as well as putting an end to these anomalies that had at present, and for a long time, existed in the system of superannuation." He also reminded the House very justly that, with regard to the additional expense which this bill would throw upon the country by taking off abatements, the Government had to consider not what were the recommendations of the select committee or the royal commission, but what was the act of that House. He said that : This question should not be looked upon as a mere question of pounds, shillings, and pence, as the honorable Baronet had put it. For what was the object of the superannuation system ? Its object was to get good men for the civil service at moderate prices, to keep them as long as their services were valuable to the country, and to provide for their retirement when their services were not sufficiently valuable to the country. If that system were to be continued it must be clear, intelligible, and uniform, because if you had a system by which people, when appointed were uncertain as to whether they would receive superannuation, you could not, on the one hand, when you engaged them, get the benefit of the system by engaging them at moderate salaries, nor could you, on the other, from consid- erations of humanity, dispense with their services just at the time when they began to be of less value to the country than when they were engaged. The last great settlement of the superannuation question was in 1834, but in that settlement there were several blemishes. One was that the superannuation was confined to a certain number of offices named in a schedule to the act. A great number of offices, however, had grown up since the Act of 1834, which did not come within the scope of its provisions. The persons holding those offices were not subject to abatements, but they got pensions, though on a very irregular and unsatisfactory systeiii. For mstance, the officers of the Poor-Law Board, and some others, were Said off, not on any established system, but in an irregular manner, ne of the objects of this bill was to put an end to the scheduling of offices, and to make the superannuation apply to the whole civil service. With regard to the additional expense consequent upon introducing all those other classes of persons, he thought the honorable Baronet formed an exaggerated opinion of it. Although it was perfectly true there was a large number of persons interested in the passing of this bill, it was to a great extent because they desired certainty and something like a fixed system that they were so inter- ested. The great class who would probably be brought within the superannuation provision, in addition to those who were now included, would be persons employed in country Post-Offices. He could not at that moment give an exact estimate of the number of that class of 35885— S. Doc. 290, 61-2 7* 98 CIVIL-SEKVICE EETIKEMENT IN GREAT BRITAIN. gersons ; but the Postmaster General and the authorities in the Post iffice had represented that the department suffered seriously by not having a proper system of superannuation and retirement, and by not being able to get rid of persons who were past service. The measure, therefore, if the House looked at it in a broad light, was one for the improvement of the civil service generally, and He believed it to be one of true economy. It was one of a series of measures which the present and the late Government had been taking for some time past for improving generally, and so economizing the civil service. (") On March 18 Sir Stafford Northcote moved that the House resolve itself into a committee on the bill, and in making the motion con- tinued his defense of the bill. In this speech he laid emphasis on the desire of the Government to treat all members of the civil service uniformly and equitably, something that had never been ' accom- phshed under the Act of 1834. He said the bill would apply only to persons who were permanently employed in the service in such capacities as rendered it necessary for them to give up all other busi- ness and devote themselves wholly to the service of the State, thus excluding country postmasters who were also the keepers of shops. Another condition necessary to entitle persons to such allowances was that they should be paid out of Imperial funds; and therefore all persons paid out of county rates — such as prison, workhouse, and other poor law officers — ^would be excluded from the benefit of the act. Neither would the bill apply to persons who were paid by fees. Such persons were not entitled to superannuation, because the prin- ciple upon which that system rested was that in fixing a man's remun- eration how much he ought to have by way of salary was considered and how much by way of retiring allowance; and the difficulty with regard to persons paid by fees was that, although they were employed in the service of the State and were to a considerable extent under its control, they generally held their offices partly at the will of other persons and might be dismissed by them. Discussing the important subject as to what increase of expense would be caused by the provisions of this bill Sir Stafford lamented that "that must be so much a matter of conjecture that he felt it quite impossible to make any satisfactory statement with regard to it." He said that there were three ways in which the expense of superannuations would be affected by the passing of the bill. In the first place there was the adoption oi the new scale. The existing scale was what was called a "jumping" one; it went by periods of seven years. That provided by the proposed bill was a "shding" scale, advancing year by year by sixtieths. It stopped at the same maximum as the existing scale, namely two-thirds, or forty-sixtieths' of the salary; but under it a man would arrive somewhat earlier at his maximum allowance than he did at present. The scale was, o Hansard's Parliamentary Debates, CLII, pp. 592-595. CIVIL-SBEVICE KETIEEMENT IN GREAT BKITAIN. 99 however, so arraaged that while it gave an advantage to those who had served long periods, it diminished the allowances of those who had been engaged in the service of the State for shorter ones. In order, therefore, to determine how much the expense of superannua- tions would be increased by the bill, it was necessary to calculate after what periods of service civil servants were likely to retire. Another way in which the bill might add to the expense of superannuation, Sir Stafford said, was by bringing new classes of officers under the provisions of the act. There again, however, he found it exceed- ingly difficult to come to any kind of conclusion. Upon being asked what classes and what number of officers would be brought under the bill, the different departments replied by inquiring to what classes the bill was intended to apply, and a difficulty arose as to who were and who were not to be included under the term "permanent civil servants of the State." A third way in which the bill would to some small extent add to the expense, Sir Stafford said, was by adding to the number of civil servants entitled to superannuation. One of the clauses gave permission to officers to retire at the age of 60, and another made it compulsory so to retire at the age of 65, unless they were specially asked to stay as being efficient servants. Upon inquir- ing at the different departments what number of officers would be required to resign on account of age he was met by the same kind of counterquestion instead of answer — namely, what classes of persons were intended to come under the provisions of the bill. The result of all their inquiries had convinced the Government of the necessity of limiting the operation of the bill and of laying down some more stringent rule than was afforded by the words "permanent civil serv- ice of the state. " He therefore intended to move the insertion of a clause, stating who were to be deemed civil servants. No person was to be deemed a civil servant unless he either held his appoint- ment directly from the Crown or was admitted with a certificate from the Civil Service Commissioners. He said that : The question of obtaining a certificate from the commissioners was distinct from, though connected in some degree with, that of open competition, because the system was applicable to all kinds of admissions, and included not only literary, but what were equally important, medical examinations. He believed, for his own part, that by adopting a system which seemed calculated not only to procure able and efficient officers, but to ensure them fair and equitable treatment, the House would do much to allay the present uncomfortable and excited state of the civil servants and to perma- nently improve the condition of the civil service itself; and although his statement with respect to the possible expense of the proposed scale of superannuation might appear unsatisfactory to some honorable members, he would entreat the House to look at this subject in a broader point of view. What the country really wanted was not to save so many pounds, shillings, and pence in the superannuation of 100 CIVIL-SEKVICE EETIKEMENT IN GREAT BKITAIN. its civil servants, but an adeq[uate supply of good, cheerful, and willing servants, and the adoption of measures which would enable those in its employment to retire at the proper time without a feeling of hardship. C) Debate on the Bill. As soon as Sir Stafford had taken his seat, Sir Henry Willoughby renewed his previously expressed objection to the bill, "an objection grounded upon the total ignorance in which the House was as to the increase of expense the bill would cause." He said that — This speech of the honorable baronet, clear as it was in other respects, was rather obscure as to the question of what would be the additional expense that would fall on the public by the passing of this bill, and this was a very serious question. The amount paid already yearly for pensions and superannuations was enormous — it amounted to a million and a half. As an approximation toward it, he would take the civil-service salaries at £5,339,000 ($25,982,243), and he inferred that the charge with regard to that sum imposed by the bill would be £1,122,000 ($5,460,213) for superannuations. Add to that the £74,000 ($360,121) lost by abolishing the deductions from the salaries and the compensations consequent on the abolition of the ecclesiastical courts, and other compensations amounting toward £1,500,000 ($7,299,750). The select committee who sat on this question had recommended the repeal of such portions of existing acts as provided for reductions from the salaries of the civil servants to form the superannuation fund, but they also recommended a revi- sion of the salaries. The point he desired to impress on the House was this: Let the civil servants have the benefit of it, but let the House not increase the scale of superannuation. His object was to do Justice to the civil service and certainly at the same time to the taxpayers. He said, therefore, by all means give them the advantage of a repeal of the tax, but adhere to the scale of 1834. He did not mean to argue for the infallibility of that scale, and if the Jump every seven years were unwise, let it be altered. Let them not, however, increase the scale of superannuation. (*) Mr. Gladstone next took up the debate, saying that he did not propose to enter at any length into a discussion of the bill, but he thought that his honorable friend, the Secretary for the Treasury, had made a large demand on the House when, as financial secretary, he exhorted them to take a broad view in this matter, and to enact a system of pensions on a new basis, without knowing what classes were to be included within the provisions of the measure, and with- out being aware of the extent of the burden about to be added to the already heavy burdens on the public finances. He further warned his hearers that this was a subject upon which it was emi- nently necessary the House should have full knowledge of that whi1,190 912,177 948,724 1,014,023 1,050,984 1,089,449 1,106,866 1,136,269 1,160,140 1,178,837 1,238,018 1,263,450 1,262,536 1,279,734 1,321,269 1,366,736 (6) (6) m (6) h) m m C) $1,066,150 977,402 962,699 938,904 905,140 891,791 892,297 876,160 851,635 ( t) b) b) b) b) b) I] $818,467 971,626 1,062,809 1,065,422 1,061,826 1,030,224 1,002,752 1,029,425 1,079,414 992,751 978,279 956,224 923,964 910,775 912,147 895,426 869,103 $5,742 77,226 25,402 28,260 18,483 9,392 11,373 6,346 14,132 12,666 13,592 14,089 11,782 11,816 12,687 11,972 13,316 $1,622,798 1870-71 1,900,042 2,000,438 1872-73 2,032,406 1873-74 2,094,332 2,090,600 1875-76 2,103,574 1876-77 2,142,627 1877 78 $14,264 15,349 15,680 17,320 18,824 18,984 19,860 19,266 17,568 2,229,815 1878-79 2,165,466 2,171,194 1880-81 2,208,330 1881 82 2,199,449 2,189,736 1883-84 2,204,668 1884-85 2,228,667 1885-86 2,239,165 a Second Report ol Commission on Civil Establishments. 1888. Appendix, p. 422. I> Not separately reported. 134 CIVIL-SEEVICE EETIEEMENT IN GEEAT BEITAIN. For the year 1887-88 Sir Herbert stated that a vote of £476,082 ($2,316,853) was taken in the civil service estimates for super- annuation and retired allowances, besides £1,412,622 ($6,874,525) provided for superannuation in the estimates of the several depart- ments. Thus the total sum voted for superannuation of pubHc ser- vants (exclusive of mUitary and naval pensions) was £1,888,704 ($9,191,378). It is not clear from Sir Herbert's statement whether this sum included aUowances to the Royal Irish Constabulary and the Dubhn Metropolitan Police or not, but comparison with Mr. Mowatt's statement of the cost of civil pensions for the foUowing year, 1888-89, would seem to indicate that it did. Mr. Mowatt's statement shows that the total sum voted for the superannuation of pubhc officers in that year amounted to £1,907,863 ($9,284,615), including the Eoyal Irish Constabulary and Dublin Metropolitan PoHce, and to £1,581,992 ($7,698,764) excluding them. Besides this great sum voted by Parhament for that year, civil pensions to the amount of £345,517 ($1,681,458) were granted out of the con^ solidated fund, which would make a total expenditure of £2,253,380 ($10,966,073) for civil pensions. Report of the Commission. The report made by the Ridley Commission on the subject of superannuation in the civil service, as the result of its investigations, contained recommendations that have not been perpetuated in legis- lative enactments, but the report is nevertheless significant and valu- able to the student as marking the development of certain ideas in England, in regard to the subject of pensions for civil servants, and it is well worthy of study. ("^ After first stating that the vote for superannuation and retired allowances in the year 1888-89 amounted to a gross total of £1,581,992 ($7,698,764.07), exclusive of £671,388 ($3,267,309.70), paid for pen- sions to the Royal Irish Constabulary, the Dubhn Metropolitan Police, and other pensions charged on the Consolidated Fund, the com- missioners reviewed the arguments advanced by the Commissioners of 1857, from the pubhc point of view, against the contention that the only duty of the Government should be to pay adequate salaries, and leave its servants to make proper provision for their own future wants and those of their families, and concluded, Uke their prede- cessors, that, in spite of the heavy charge, public interest would be "best consulted by maintaining a system of superannuation allow- ances." They then took up the proposal of Sir Robert Hamilton that the pension system be abohshed altogether by voting each year the whole additional sum which represents the calculated charge o See Report of Ridley Commission on Superannuation, pp. XIX-XXV. CIVIL-SEEVIOE EETIEEMENT IN GREAT BBTTAIN. l35 entailed by the present pension scale, investing it separately in a government fund, the amount of each member's deferred pay, with compound interesit, to be returned to him or his representatives on his separation from the service. Rejection of Sir Robert Hamilton's proposal. To this proposal the commission saw "fatal objections." Said they: We can not accept the conclusion that the present pension is deferred pay in any such sense as that, whereas it is now terminable with the pensioner's life, its capitalized equivalent should go to his representatives, and this as a mere addition to the present heavy charge, with no corresponding benefit to the public in the shape of a contribution by a civil servant, or otherwise. And whatever might be the proportion fixed between what should be regarded as deferred pay and the actual working salary, the immediate addition to the annual estimates would be very large; and seeing that these estimates now bear the noneffective charges imposed by the action of past generations, it would hardly be tolerated that they should also bear the burdens of the future. The payment, moreover, of a lump sum is open to the obvious objection that in the event of improvidence or misfortune in the use of it, the retired public servant may be reduced to circumstances which might lead to his being an applicant for public or private charity. (") Recommendation that deductions ie made from salary. Recognizing, however, that Sir Robert Hamilton's proposal had the two special advantages so strongly urged by officials and clerks of the service who had appeared before, them, namely, that it would assist in the dismissal of the inefficient and afford relief to the families of clerks dying in the harness, they proposed to gain such advantages by deducting five per cent from the salaries of all employees, and returning it with compound interest on the separation of the employee from the service. Their recommendation to this effect is thus set forth: With a view both of levying some direct contribution from the civil servant towards his pension, and of providing at the same time a sum of money which, in the event of a man's death or retirement without pension, should be available for his representatives or for tdmself, we recommend a compulsory deduction of 5 per cent from all future salaries. An account should be kept in favor of each clerk, and in the event of his dying or leaving the service voluntarily or otherwise, before becoming entitled to a pension, he, or his repre- sentatives, * * * should receive back the whole of his con- tributions, with the addition of compound interest at the rate allowed by the Post-Office Savings Bank. o Second Report of Commisaion on Civil Establishments. 1888. Report, pp. XX and XXI. 136 CIVIL-SEEVICE KETIKEMENT IN GREAT BRITAIN. We thinlc also that, while it would entail a very small extra charge upon the State, it would be fair and reasonable to provide that: in the event of the death of any pensioner before the total amount received as pension has reached the whole of the sum deducted from him during his serivce, his representatives should receive a sum equal to the difference between such total deductions and the amount received as pension. i i j i i. j It might be provided that the whole salaries should be voted an- nually, and the 5 per cent deductions be placed to a separate fund m the hands of the National Debt Commissioners, the amount due, as above, to each clerk, being secured to him by act of Parliament and being paid to him on the determination of his service. Under such an arrangement the State would, of course, have to receive in some form or other the sum standmg to the credit of every person who becomes entitled to a pension. _ On the other hand, it might be decided not to invest these deduc- tions separately or to create any fund. The salaries might be voted annually less the 5 per cent, the estimates of each year receiving the advantage of the deductions and the State being liable (as under the other arrangement) for the amount of them, whenever they became due, or, in the event of a pension bemg attained, for the amount of such pension, towards which it would have received such deductions in relief. . , If this whole charge, taking into consideration the conditions and regulations which we recommend, be actually calculated, it will be easy to determine the liabilities of each year. These liabilities m respect of new servants will, of course, increase annually, but they will ultimately be very much less than the present noneffective charges. (") This means that the commission recognized the truth of the state- ment that "pension is deferred pay," but that they repudiated the idea that the deferred pay should be returned to the civil servant in any other way than as a pension. They took the stand that the deferred pay was practically the same as a premium paid to a life insurance company for the purchase of a deferred annuity on the condition that if death occurred prior to the beginning of the annuity the premiums paid would be forfeited to the company. They held that this deferred pay of the civil servants was only sufficient to pro- vide the pension for those who survived to pensionable age and that if a refund of contributions .was desired — and they appreciated the advantages of such a refund — an additional contribution would be necessary. In the same way the premium paid to a life insurance company for the purchase of a deferred annuity on the condition that if death occurs prior to the pension age the premiums paid will be returned must be larger than if the annuity is purchased on the con- dition that the premiums will be forfeited to the company in case of death. The commissioners recommended, therefore, that in order 1 Second Report of Commission on Civil Establishments. 1888. Repor*, pp. XXI and XXII. CIVIL-SEEVICE RETIREMENT IN GREAT BRITAIN. 137 to secure this desirable refund a compulsory deduction of 5 per cent be made from all future salaries. They argued that the compulsory saving of 5 per cent of salaries would not only furnish some assist- ance in the elimination of the inefficient from office and relief of de- ceased employees' families, but it would have the additional advan- tage of lightening to that extent the heavy charge on the State for payment of superannuation allowances. The plan they proposed was, in effect, a return to the old contributory plan established by the Act of 1834 and abolished in 1857 with the important difference that provision was made for a refund of contributions in case of death or resignation before the servant reached the pensionable age. The idea of funding the contributions was expressly repudiated, the logic employed by the Commissioners of 1857 in regard to that question being accepted as good. Minor recommendations. This recommendation constituted the gist of the Ridley Commis- sion's report on the subject of superannuation in the civil service, but other important minor recommendations were also made. "With an eye to the injustice of having the pension system the spoil of the inefficient," they condemned clause 2 in the bill passed the previous year (the Superannuation Act, 1887) which gave power to the Treas- ury to grant retiring allowances to persons removed from office on the ground of their inabihty to discharge their duties efficiently. They recommended also the immediate repeal of clause 7 in the Act of 1859 which gave a compensation allowance to those retired on the pretext of "abohtion of office." They took the view that any large reorganization of an office or offices should invariably be carried out by means of an act of ParHament, or at least by provisional orders in council approved by ParUament, and that the abohtion of a single appointment should be effected by transferring the officer to another department, if possible, or by attaching other duties to him tempora- rily, or by not ffihng the vacancy when it occurred by promotion or otherwise. The two reforms so frequently urged — compulsory retirement at a given age and calculation of the pension on the average instead of the final salary received the commission's careful consideration. With the Superannuation Commission of 1857 and the Select Committee of 1873 they agreed that it was absolutely essential to fix an age for compulsory retirement. They suggested 65 as the age. Said they: There should be no exception to this rule, except in the case of certain scheduled offices, in which the officer if asked by the Govern-; ment to do so, might be allowed to extend his services for a further period never exceeding five years. 138 GIVIL-SEEVICE EETIEEMENT IN GREAT BRITAIN. It should be clearly understood that at the age of 60 a man may be required to retire by the head of his department upon such pension as by his length of service he is quaUfied to receive. He may, it he pleases, retire voluntarily, at this age, and the State should have the corresponding power of retiring him, if it be for the advantage ot the service. C) The proposal to calculate the pension upon the average salary dur- ing the whole period of service instead of upon the average salary of the last three years did not meet the entire approval of the commis- sion, and they recommended that it be calculated instead on the last ten years' service. Said they: We have satisfied ourselves that to calculate the amount upon the average salary throughout service would result in a reduction of pensions to an extent that would be altogether inexpedient, and we think, on the whole, that the case will be met by fixing the pension in proportion to the average salary of the last ten years of service. We do not propose any alteration in the existing scale of pensions, viz, for each completed year of service 1/60 of the civil servant's salary, subject to a maximum of 40/60, no pension being in any case awarded for less than ten years' service. (*) In this recommendation they were undoubtedly influenced by the contention of Sir Reginald Welby, when before them, that to calcu- late pensions on mean salaries instead of salaries ultimately attained to would cause too great a reduction in the pensions and might lead to a movement for increase of salaries, already a very difficult thing to control. He was of the opinion that the case might better be met by an extension of the number of years upon the average salary of which pensions are now calculated, and the commission appears to have shared his views. The award of a pension for life after a service of only ten years was justified by the commission as right and politic, since it must at best be small, beginning at one-sixtieth of the salary, and could only be awarded in the case of a real and permanent breakdown of health. The Government is further protected, too, in the matter of disabihty allowances by requiring candidates for office to pass a strict medical examination. The provision enabMng a higher pension to be given for professional offices by adding a number of years to the actual service years was condemned by the Ridley Commission. Said they: This was intended to meet the case of men coming into the service at a somewhat advanced age, and with special acquirements. But, in our opinion, such a man is better remunerated by a sufficient salary which, being an immediate charge, is Hkely to receive greater atten- tion than a prospective addition to pension, and we see no reason why the pension should bear a higher proportion to the salary in these " Second Report of Commission on Civil Establishments. 1888. Report, p. xxiii. * Idem, p. xxii. CIVIL-SEKVICE EETIKEMENT IN GEEAT BKITAIN. 139 cases than in others. If our proposal, too, is adopted of taking the average of the salary for the last ten years as a basis, an officer who has earned a high and non-progressive salary will get the advantage to which he is entitled. (") In closing their report on superannuation the commissioners thus summed up, the benefits which they believed would follow the adop- tion of their recommendations : If the above conditions are enforced, we beheve that the pension system so amended will be equitable aUke to the State and to the public servant. The pension, though less in amount than at present, in consequence of its being calculated on the average salary of the last ten years of service, will yet in our opinion be adequate, and the pubhc servant will have contributed something towards the charge. He will at the same time be secured the return of the whole of his contributions with compound interest in the event of his not coming on to the pension list. The State, on the other hand, will be reheved from the heavy pay- ments uiider the head of compensation allowances which it now has to bear, it being calculated that if these are omitted the charge for superannuation would be from 12 to 15 instead of 20 per cent, as at present, on working salaries. The State will also not only pay pen- sions at a lower rate, as explained in the preceding paragraph, but will also have received in aid of such reduced pensions a contribution of 5 per cent from the salaries of all those who become entitled to superannuation. (') Criticism of the commission's chief recommendation. While a casual reading of this report of the Ridley Commission gives the impression that a very plausible solution of a difficult prob- lem for a country burdened with a heavy pension charge is here offered, more careful study shows that two important points were entirely overloojjed by the commissioners when they made their chief recom- mendation. They neglected to consider, when they contemplated the cost of putting the plan suggested by Sir Robert Hamilton into operation, and condemned it on the score of costliness, the important part played by compound interest in all such calculations. In the second place, they failed to see that their proposal to make a deduc- tion of five per cent of salaries to be refunded, but only in case of death or resignation before reaching pensionable age, coupled with the assumption that pension is deferred pay, was distinctly unfair to the civil servant who lived to pensionable age. Sir Robert Hamilton's proposal that for every £100 ($486.65) paid a civil servant £20 ($97.33) should be deposited to his credit in the government savings bank was presumably based on the assumption that the amount of deferred pay was 20 per cent of salary. It has " Second Report of Commission on Civil Establishment?. 1888 Report, p. xxiii. 6 Idem, p. XXV. 140 CIVIL-SEKVICE KETIKEMENT IN GREAT BRITAIN, been shown that this assumption had its origin in the statement of an actuary in 1869 that the normal cost to the State of existing pep- sions was 20 per cent of past salaries, including compensations, or 12 to 15 per cent excluding compensations. Sir Robert Hamilton overlooked the fact that much less than 12 or 15 per cent of present salaries — proiaily not more than from 7 to 10 per cent would have to be set aside to pay for future pensions, owing to the fact that interest would be compounding during all the years the sum for the pension was accumulating. Sir Herbert Maxwell made the same error, as has been pointed out, in stating to the com- mission that "the contributions 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." It is clear that the establishment of the plan suggested by Sir Robert Hamilton would have meant a temporary increase in the already heavy charges paid for pensions, and on that ground alone the commissioners were unwilling to recommend it. Neglecting to take into consideration the operation of compound interest, they did not perceive the increase in the estimates would have been an increase of from 7 to 10 per cent only instead of from 12 to 20 per cent. This would have amounted virtually to an increase of that much in the general rate of salaries, but would have resulted finally, by the time all employees in the service at the time of the establishment of the plan were dead, in the complete aboHtion of the pension system and the full operation of a self-supporting savings scheme. Unfortu- nately for the success of his ideas with the commission. Sir Robert laid down principles merely, worked out no details to show how the principles should be appHed, and had no statistics of the existing civil service to demonstrate how the cost of estabhshing his plan, although large, would be a saving in the long run, since a general increase in salaries of from 7 to 10 per cent must be much less than the total vote for pensions. The proposal made by the commission in lieu of Sir Robert's plan was not fair to the employees for this reason: The commission admitted that the employees were already in fact siaffering a deduction equal to the value of the pure pension without return of premiums; to withhold an additional five per cent of salaries on the condition that, if the employee entered on the pension which he had alreadjj^ theoretically paid for, the five per cent actually withheld from his salary should go to the State to reduce the cost, and in case of death only such portion of the five per cent accumulations should be refunded which had not been paid to him in pensions, was equivalent to requiring the employee who entered on a pension to pay for a pure CIVIL-SEBVICE RETIKEMENT IN GEEAT BEITAIN, 141 deferred annuity on the scale provided for by law and then in addition to provide for the purchase of a second annuity (which was never granted him) by contributing five per cent of his salary throughout the whole term of his service. (") SUPERANNUATION ACT OF 1887. The superannuation act which had been passed in 1887 while the Ridley Commission was investigating the civil establishments of the United Kingdom made provision for certain classes of civil servants not provided for by the Act of 1859. Mention has already been made of the provision contained in clause 2 for the retirement of inculpable inefhcients and the disapproval of this clause expressed by the Ridley Commission. Pensions to civil servants compelled to retire in consequence of an injury sustained in the actual discharge of duty without their own default are granted under clause 1 of the act. Pensions are also awarded under this same section to the widows and children of civil servants killed in the execution of their duty. The scale of pensions is fixed in each case by treasury warrant. This clause constitutes a repeal of section 5 of the Act of 1859, being more liberal in its terms. The allowances granted to public servants under this section in case of injury are calculated in the Treasury warrant regulating the o To illustrate just what this proposal would mean, take a concrete case, and for sim- plicity of illustration suppose the salary paid in American money. Let the case be that of a person entering the service at 20 years of age, having a salary of $100 a month, and retiring at the age of 60 on a pension of $720 a year. The value of such a pension, payable quarterly, beginning at the age of 60 may be stated as $7,787. Therefore, under the provision proposed by the Ridley Commission that, in addition to the theo- retical deduction which he was already making to provide this $7,787, the employee should also contribute 5 per cent of salary during his period of service, the result would be as follows: That he had ptu-chased a deferred annuity, by theoretical deductions, having a value of $7,787, and that he had, by actual deductions of 5 per cent of salary improved by 3J per cent interest during a period of 40 years, purchased another deferred annuity having a value Of $5,169, so that in the aggregate, theoretically and actually, he had contributed $12,956 to purchase a pension the value of which under any of the condi- tions laid down was to the employee but $7,787. In case he accepted the pension he would forfeit all of his $5,169 except such excess as might remain at his death over and above the amount of pension which he might have received, or if he resigned the day before the pension began, he would receive a refund of $5,169 and forfe^* his pension having a value of $7,787, so that under only one condition would he have been fairly treated by the plan proposed by the commission and that would have been in case of death prior to the date of retirement, when his own accumulations with interest would have been retiu-ned. The only way then in which the commis- sion's proposal could have been made fair to the civil servant would have been by a general increase of 5 per cent in salaries to correspond to the 5 per cent deduction. If this had been done the practical result, however, would have been the same as under the plan suggested by Sir Robert Hamilton. 142 CIVIL-SEEVICE KETIKEMENT IN GEBAT BBITAIN. grants on three different scales. The first applies to established officers of prisons or criminal lunatic asylums injured by the violence of a prisoner or lunatic; or established officers of a manufacturing department of the War Office or Admiralty in which the duties are exceptionally dangerous. The second applies to all established civil servants not falling under the above description and all hired persons whose duties are exceptionally dangerous. The third scale applies to all other hired persons employed in a public department. When his capacity to contribute to his support is totally destroyed, a member of the first class receives twenty-four-sixtieths of his salary, a member of the second class twenty-sixtieths. When his capacity to contribute to his support is materially impaired, a member of the first class receives eighteen-sixtieths of his salary, a member of the second class fifteen-sixtieths. When his capacity to contribute to his support is simply impaired, a member of the first class receives twelve-sixtieths of his salary, a member of the second class ten- sixtieths. When his capacity to contribute to his support is but slightly impaired, a member of the first class receives six-sixtieths of his salary, a member of the second class five-sixtieths. This is with the proviso that no award on the first scale, together with the allow- ance for which the injured man would be qualified by length of service, shall exceed the amount of his salary or £300 ($1,459.95) a year, whichever is less, and that no award on the second scale together with similar allowance shall exceed fifty-sixtieths of his salary, or £300 ($1,^459.95) a year, whichever is less. For hired persons employed in a public department, constituting the third class affected by this injury warrant, Scale III provides a gratuity of one-third of the employee's salary if his capacity to con- tribute to his support is slightly impaired, two-thirds if it is impaired, and the whole amount of his salary if it is materially impaired, or else £100 (1486.65), whichever is less. When the injured man's capacity to contribute to his support is totally destroyed he receives an annual allowance ex:ceeding by fifteen-sixtieths of his salary and emoluments the rate of retired allowance for which he would have been qualified by length of service if he had been a civil servant, provided that the total award does not exceed forty-five-sixtieths of his salary, or £300 ($1,459.95) a year, whichever is less. Provision is also made by this Treasury warrant for the widows (or mothers) and children of the men of these three classes who are killed while in the discharge of duty. Widows of men pensioned on the first and second scales receive not more than ten-sixtieths of the husband's salary, and widows of men classified under the third scale receive not more than eight-sixtieths. Children of the first class are pensioned until the age of fifteen years. Children of the second and ' CrVIL-SEBVICE RETIREMENT IN GREAT BRITAIN. 143 third classes receive small gratuities, the total gratuity for each fam- ily ranging from £8 to £50 ($38.93 to $243.33). («) A gratuity of £1 ($4.87), or one week's pay for each year of service, is paid under clause 4 of the act, on retirement, to persons not form- ing part of the permanent civil service but engaged temporarily. Those who have the benefit of this provision include a great many hired laborers of the dockyards serving under the War Office. LAW UNDEK SUPERANNUATION ACTS OF 1834, 1859, 1887. A paper prepared for the information of the Ridley Commission in 1888 by Sir Reginald Welby gives a complete survey of the pro- visions of the three great superannuation acts in force, the acts of 1834, 1859, and 1887. The paper is here reproduced :(') 1. The grant of superannuation allowances to persons in the per- manent or established civil service of the Crown is regulated by the Acts — 4 & 5 Will. 4. c. 24. (Superannuation Act of 1834) 22 Vict., c. 26. " " " 1859 50 & 51 Vict., c. 67. " " " 1887 For practical purposes the two latter statutes only need be con- sidered. The greater portion of the Act of Will. 4. has been repealed, and the sections which are still in force are of an unimportant char- acter. 2. In order to qualify a civil servant for the grant of superannuation allowance, he must — (a) if appointed since the passing of the Act of 1859, have been admitted to the service with a certificate from the civil service com- missioners, or hold an office specially excepted from this requirement; (&) have given his whole time to the public service; (c) draw the emoluments of his office from public funds exclusively; (d) have served for upwards of 10 years; (e) if under the age of 60, be certified to be permanently incapable from infirmity of mind or body from discharging his official duties ; or have been removed from his office on the ground of his inability to discharge his duties efficiently. (f) be certified to have served with diligence and fidelity to the satisfaction of the head of his department. 3. The scale of superannuation allowance is, for each completed year of service, 1/60 of the emoluments enjoyed by the civil servant at the date of his retirement, subject to a maximum of 40/60. If the civil servant has not held his office for three years, then the pension is calculated upon the average of his emoluments during the last three years. Extra pension is granted to civil servants living in official houses. For the purpose of such pension the value of a house is reckoned at oFor warrant regulating the grant of gratuities and allowances under section 1 of the Superannuation Act, 1887, see Appendix IV. 6 Second Report of Commission on Civil Establishments. ISSS. Appendix, pp. 415 and 416. 144 CIVIL-SEEVICE BETIEEMENT IN GEBAT BEITAIN. one-sixth of the resident's salary, but in order to establish claina to Eension in respect of a house it must be shown that income tax has een paid upon the house. 4. Pensions may be granted at a reduced rate if thb misconduct or demerits of the officer appear to the Treasury to justify such a reduc- tion. 5. Pensions may also be granted in excess of the usual scale — (a) if the retiring civil servant has rendered any special services in the course of his career. Such awards are of very rare occurrence, and are only made when the special services have been extraordinary in kind, and such, as could not be considered as falling within the scope of the officer's ordinary duties. (&) if the civil servant is compelled to retire in consequence of an injury sustained in the actual discharge of his duty, without his own default, and specifically attributable to the nature of his duty. The scale of such pensions is prescribed by a warrant made under s. 1. of 50 & 51 Vict., c. 67. A special pension can in no case exceed the amount of the annual emoluments of the office from which the civil servant retires. (c) if the civil servant has served in a place which has been de- clared by the Treasury, under 39 & 40 Vict., c. 53, to be an "unhealthy " place. In such cases two years' service counts as three. 6. A higher pension than could be obtained by the scale mentioned in par. 3 can also be awarded to the holders of offices requiring pro- fessional or other peculiar qualifications not ordinarily to be acquired in the public service. The amount of the pension in such cases is arrived at by adding to the years of the officer's actual service a num- ber of years varying with the nature of the office and the amount of time which may be expected to be necessary to qualify the holder for the due discharge of its duties. 7. When a civil servant is compelled by ill health to retire before he has completed ten years' service, he may receive a gratuity of one month's pay for each year of service. ' 8. Any pensioner under 60 years of age may, if his health permits it, be required to serve again in any position for which his previous services may render him eligible. 9. If a civil servant is killed in the execution of his duty, a pension may be awarded to his widow and children,' the amount of which is regulated by the warrant referred to under par. 5 (&). 10. A civil servant whose office is abolished, or who is compul- sorily removed from the service, in order to facilitate arrangements by which greater economy and efficiency may be secured, may receive a compensation allowance, calculated on the same scale as if he were qualified for a pension (see par. 3), but with the addition to his actual service of a number of years varying with the length of such service, as follows : Under 5 years' service, addition of 1 year. Above 5 and under 10, addition of 3 years. 10 and under 15, addition of 5 years. 15 and under 20, addition of 7 years. 20, addition of 10 ye^rs. CIVIL-SEBVICE EETIKEMBNT I]S GREAT BRITAIN. 145 11. Persons not forming part of the permanent civil service, but engaged temporarily, are not entitled to superannuation allowance, but receive on retirement or discharge a gratuity of £1 [$4.87] or one week s pay, for each year of service. If, however, such a person is injured or killed in the discharge of his duty, a pension or gratuity may be awarded to him or his rela- tives as provided in the warrant referred to in par. 5 (6). 12. It should be added that the members of the diplomatic service and the members of the Royal Irish Constabulary are entitled to pensions calculated according to the rates laid down in the Acts 32 & 33 Vict., c. 43 and 46 Vict., c. 14, respectively; and that the award of pensions to the holders of certain high political offices is provided for by 32 & 33 Vict., c. 60. Pensions are also granted under special acts, 1865, 1872, and 1887 to colonial governors. Note.— The Act 4 & 5 Will. 4, c. 24 directed that a deduction should be made from the salaries of civil servants who entered the service after the 29th August, 1829, as a contribution towards pension; this deduction amounted to 2i per cent on salaries under £100 [1486.65] and to 5 per cent on salaries of £100 [$486.65] and more. The deduc- tion was abolished by the Act 20 & 21 Vict., c. 37. It will be noted that the first qualification for a pension is the possession of a civil service certificate. That is a document issued by the Civil Service Commissioners certifying to the age, health, char- acter, and education or other personal qualifications of the individual who receives it. A person may be an employee of the Government and not be pensionable, but as soon as he becomes "established," as the phrase is, he becomes pensionable. This occurs on examination or on appointment by the head of the department and the issue of the civil service certificate. In several branches, especially in the dockyards, there are a great many persons regarded as servants who are not established, but who may, after a time, become so. It is interesting to note that before issuing a certificate the Civil Service Commission subjects the candidate to a severe physical examination in order to lessen the chances of his early application for pension. There are two exceptions to the rule requiring pensionable mem- bers of the public service to have certificates from the Civil Service Commission. Officers appointed directly by the Crown, as for instance, some commissioners and heads of departments, are ex- empted from the necessity of holding certificates from' the Civil Service Commission. Officers appointed for their special professional qualifications are also exempted from the necessity of having certifi- cates from the commission by virtue of Section IV of the act, which says that persons of "professional or other peculiar qualifications" may be entitled to superannuation, though they may not hold their appointments directly from the Crown, and may not have entered the service with a certificate from the Civil Service Commissioners. ("■) a See Sec. IV, Act of 1859, Appendix II. 35885— S. Doc. 290, 61-2 10* 146 CIVIL-SBEVICE KETIEEMENT IN GREAT BBITAIN. The qualifications that the pensioner must have given his whole time to the public service and been paid out of public fimds do not exclude any persons who would ordinarily be regarded as civil servants. The first excludes, for instance, auxiliary or supernumerary postmen, who may be cobblers or blacksmiths by trade and choose to eke out their incomes by devoting certain hours of the day to the distribu- tion of the mail, having only one or two deliveries. If the qualification in regard to the indorsement from the head of the department is not complied with, the full amount of the pension is not granted the civil servant. The Treasury makes a reduction according as the circumstances of the case may seem to warrant. A principal clerk of the Treasury before the Courtney Commission in 1903 said: "There are a fair number of cases in which a small deduction is made, say, not more than ten per cent. The cases in which a greater deduction than that is made are rare." The fifth qualification as to length of service is very specific. The service must not be less than ten years, unless the holder retires on abolition or reorganization of ofiice. The sixth qualification for pension relates to the grounds for retirement from the service. The chief of these is attainment of the age of 60, the age chosen by the framers of the Act of 1859 as the age for voluntary superannuation. For the officer under 60 there were originally two conditions (now three) on which retirement on a pension was possible. They were: (1) in case of physical or mental infirmity, and (2) in case his place had been abolished on reorganiza- , tion. In case of ill health the officer is able to retire on a pension, pro- vided he has been ten years in the service and the infirmity is cer- tified as likely to be permanent. If he has been less than ten years in the service when he retires on account of ill health, he receives instead of a pension a gratuity of one month's pay for each year of service. If the invalidity pensioner recovers, the pension is not with- drawn except in the event of his declining reemployment in the public service if it is offered him. The power of recalling him to the public service is, however, in practice rarely exercised. He is free to follow whatever pursuits his condition may permit. The number of retirements for ill health short of 60 years of age is numerous. Of 14,185 civil servants retired with pensions during the ten years end- ing the 30th of November, 1901, 7,093 were retired for age, 6,585 for ill health, and 507 for abolition of office. The Act of 1859 made retirement on a pension voluntary at the age of 60. It is now optional at the age of 60 and compulsory at the age of 65, but the Treasury is permitted to allow a retention in employment up to an age not exceeding 70, if satisfied that an offi- cer's retirement at 65 would be detrimental to the service. This CIVIL-SEEVICE RETIEEMENT IN GREAT BHITAIN. 147 regulation was established by clause 18 of order in council dated November 29, 1898. Power was given to the Treasury by the Superannuation Act of 1869 not only to make a deduction from the full award of pension in case of misconduct or demerit, but also to award pensions in excess of the usual scale as a reward for special services, and to holders of professional offices, appointed at an age exceeding that at which public service ordinarily begins. In the case of officers required to possess professional or other special qualifications not ordinarily to be acquired in the public service the law provides that years not exceed- ing twenty may be added to the actual service for the purpose of calculating the pension. In practice an addition of ten years has been the maximum (except in very special cases), and since Decem- ber 20, 1888,wh(5n a Treasury minute to that effect was passed, the power to add years has not been exercised in respect of any newly created offices. COURTNEY COMMISSION, 1902. The agitation begun by the civil servants soon after the passage of the law of 1859 for a change in the pension system continued down to the present year (1909). Since the present inquiry began, that agitation has resulted in the legislative enactment of September 20, 1909, which undertakes to overcome the objection of the civil servants to the forfeiture of their theoretical contributions, in case of premature death, by providing insurance benefits in lieu of a part of the pension. This constitutes in effect, as will be shown, an important modification of the whole theory underlying the pension system. This parliamen- tary action was based on recommendations made by a royal commis- sion, of which the Right Hon. Leonard Henry Courtney was chairman, appointed in 1902, "to inquire whether it is possible so to amend the existing system of superannuation of persons in the civU service of the State as to confer greater and more uniform advantages upon those to whom it applies without increasing the burden which it imposes on the taxpayer." Appointment of Commission Due to "Defeeeed Pay" Com- mittee. This commission was appointed in response to a request for its nomination from a body of civil-service clerks organized under the name of the "Deferred Pay Committee." A memorial signed by 50,000 of their number (the membership increased soon aftet this to 60,000 or 70,000) was addressed by them to the Treasury asking that, as there was a considerable difference between their view of the existing pension system and the Government's view, the Government 148 CIVIL-SEEVICE RETIEEMENT IN GEEAT BEITAIN. would appoint a commission to go thoroughly into the matter from every possible aspect, and obtain figures in connection with the problem to which the Deferred Pay Committee did not have access. This committee Was formed originally of a number of civil servants selected from certain government offices. Later, subcommittees (22 in all) were formed in the leading towns of the United Kingdom. The smaller committees met from time to time in the different provincial centers, and large meetings were held at least once a year in London of representatives from all the subcommittees, with representatives from the leading public offices in London and from associations in the civil service, such as the Postal Clerks' Associa- tion, the Telegraph Clerks' Association, the Customs Federation, etc. The first evidence heard by the Courtney Commission was from representatives of the Treasury respecting the existing system. They next gave hearings to members of the Deferred Pay Committee. They sununoned also other members of the civil service who could give them information as to voluntary organizations which had been formed in various branches of the service for the purpose of providing benefits for civil servants and their dependents supplemental to the pensions given by the State. In further elucidation of the problem before them they heard witnesses with regard to pension funds and superannuation schemes applicable to the city of Manchester, the London County Council, the Great Eastern Railway Company, the London and Northwestern Railway Company, and the civil services of Lidia and New Zealand. Three eminent actuaries were also summoned before the commission to define and explain the principles that would be involved in any change of policy. Growth in Cost of Civil Pensions Since Ridley Commission. The first witness to be called by the commission was Mr. T. L. Heath, a principal clerk in the Treasury. He had the following figures worked out to show the amount of the original estimates for pensions during each of the fifteen years that had elapsed since the Ridley Commission reported in 1888. CIVIL-SEKVICE RETIEEMENT IN GKEAT BKITAIN. 149 SUPERANNUATION AND EETIEED ALLOWANCES— ORIGINAL ESTIMATES. Vote. Superannuation al- lowances Compensation allow- ances Gratuities Compassionate allow- Prison officers com- mutations Compassionate f und . . Middlesex registry, pensions, etc Mercantile marine, pensions, etc $1,489,568 756,896 9,733 16,507 Total War office Admiralty Customs Inland revenue Post-office, etc County court officers, Ireland Total. 1888-89. »1, 533, 911 735,608 9,733 16,266 40,392 3,407 2,309,203 867,697 1,609,838 964,905 1,138,975 854,377 5,378 7,750,373 1889-90. 2,338,217 864,290 1,636,117 957,854 1,006,593 865,634 5,377 7,764,082 1890-91. Jl, 543,873 717,337 14,599 12,862 43,798 3,407 $1,637,422 673,767 13,626 10,940 45,988 3,407 2,336,866 791,293 1,609,352 972,631 1,044,083 886,287 5,378 7,644,790 1891-92. $1,633,971 640,203 9,733 8,594 47,692 3,406 2,385,150 779, 127 1,663,387 966,078 1,018,889 931,964 5,377 7,639,972 1892-93. 2,343,699 749,928 1,626,621 949,094 1,026,863 1,013,269 6,377 1893-94. $1,793,602 600,920 9,733 10,040 33,301 3,407 2,711 $1,871,797 553,467 9,733 14,220 31,613 3,406 2,453,714 759,661 1,519,321 957, 966 1,019,001 l,-066, 163 5,377 1894-95. 2,486,947 801,513 1,519,321 931,380 1,028,574 1,117,606 6,377 07,888,0 1895-96. $1,977,215 537,140 9,733 14,010 27,296 3,407 2,711 2,571,512 824,385 1,544,140 916,021 1,053,602 1,159,633 5,377 18,071,476 Vote. Superannuation al- low sinces Compensation allow- Gratuities Compassionate allow- ances Prison officers com- mutations Compassionate fund . Middlesex registry, pensions, etc MereantUe marine, pensions, etc Total War office Admiralty Customs Inlptnd revenue Post-office, etc County court officers, Ireland Total. 1896-97. . $2,071,469 600,658 12,166 17,821 23,384 3,407 2,015 2,630,820 845, 798 1,578,693 896,288 1,040,112 1,224,699 3,106 ■18,217,499 1897-98. $2,134,346 459,836 12,166 15,013 17,729 3,407 1,723 2,644,218 853,097 1,693,292 900,750 1,054,892 1,317,162 3,105 1898-99. $2,171,418 422,909 12, 166 14,755 13,490 3,406 1,723 2,639,867 862,830 1,593,292 908,517 1,145,224 1,483,648 18,631,666 1899-1900. $2,244,771 395,033 12,166 34,980 9,402 3,407 1,324 59,186 2,760,269 893,976 1,661,910 935, 249 1,223,063 1,717,821 9,256,983 1900-1901. $2,263,312 381, 12, 19, 150 1,324 2,742, 876, 1,671, 941, 1,271, 1,863, 9,338,463 $2,387,057 354, 12< 33,910 2,847, 917, 1,667, 933, 1,271, 1,963, 09,538,335 $2,523,266 330,061 12,166 34,280 2,350 3,406 1,324 49,643 2,966,496 939,234 1,703,762 934,280 1,310,510 2,059,065 1,732 9,906,079 a The sum of the items does not equal this total; the figures are, however, the equivalents of those in the original. It will be noted tliat the return for 1902-3 showed that the charge for civil pensions, gratuities, compensation allowances, and all those allowances which tame within the scope of the Courtney Commis- sion's inquiry was £2,035,360 ($9,905,079), exclusive of pensions awarded under separate acts to the Eoyal Irish Constabulary and the Dublin Metropohtan Police which brought the total up to something like two and a half million pounds. It vidll be observed that the pen- sion charge as shown by the estimates had risen from £1,592,597 ($7,750,373) in 1888-9 to £2,035,360 ($9,905,079) in 1902-3. This increase in amount was explained by Mr. Heath to be due in some degree "to the expansion in the numbers of the civil service, but also 150 CIVIL-SEEVICE EETIEEMENT IN GREAT BRITAIN. to the fact that in the departments which have increased in numbers the pension charge comes more into force." He showed how in the Post-Ofl&ce, which was growing Rapidly, there was nothing like the normal number upon the pension vote, while in other departments, where there was little growth in the number of employees, the relative number on the pension roll was much larger. Eelation Between Cost of Pensions and Salary Charge Con- fused WITH Amount of Postponed Charge made by State to Pay Pensions. The members of the commission were desirous of comparing the amounts paid in the effective service (salaries) with the amounts paid in the noneffective (pensions). Mr. Heath pointed out that there was no fixed relation between them. He showed that the proportion of pensions paid for post-office employees to the salaries paid was something like 6 per cent only, whereas in the Customs the proportion of pension charge to salary charge was 30.6, the proportion being bound to decrease where the department was growing fast and in- crease as it stood still or reached an equilibrium. The average pension charge at the time throughout aU the service seemed to be about 16 or 17 per cent of salaries. He tried to make clear the point which seems to have given rise to so much misunderstanding, as was seen in the investigation of the Ridley Commission, that there is no fixed and necessary relationship between present pensions and present salaries, since present pensions are awarded on the basis of past sal- aries, and are payments to persons who are the residue of a service of prior years, which may have been much smaller , or much larger than at present. Said Sir Alexander Henderson: "Take 1889, the year that is given here; the £1,600,000 [$7,781,534], the number of the employees, and the salaries paid; then the figure £2,035,000 [$9,893,595] would work out exactly, would it not, as the salaries to one date; they would bear the same proportion as the in- crease in the pension?" "Not necessarily." "Why not?" "If the growth were continuous, it would be so, would it not?" interposed the chairman. "It depends upon whether the growth is contmuous, the £2,035,000 [$9,893,595] now eharged may be said to have reference to an average charge of an effective vote of fifteen years ago. The £1,600,000 [$7,781,534], of 1889 might have had reference to an effective charge of fifteen or twenty years before that; but if the growth during these periods had been continuous; and could be looked forward to being continuous in the future, so the pension charge would increase in proportion, would increase with the vote; it aU depends upon the continuity of it?" "It all depends upon the continuity of it." "But also upon those changes which are constantly happening in the departments?" queried Sir Ralph Knox. CrVIL-SEBVICE EETIEEMENT IN GREAT BKlTAIN. 151 "Also upon the increase of departments. That would vitiate the calculation of a normal charge. Supposing the numbers remained constant over a series of years, you could get a normal charge." "And the rates of pay continued constant?" "And if the rates of pay continued constant, you could get the normal charge. Then I think your comparison would be possible if there were no growth of salaries or numbers." (") This point seemed finally to have been made plain. Through the questioning of Sir Ralph Knox the mistake made by Sir Herbert Maxwell and others at the time of the Ridley Commis- sion's inquiry in supposing that the percentage of salary that would have to be deducted to create a superannuation fund that would pay the necessary benefits was the same as the average between the non- effective and effective votes, 12 to 20 per cent at the time of the calculation of 1869, was also made apparent. The fallacy of this view is well brought out in the testimony, and it was evidently fresh in the minds of the commissioners when the members of the Deferred Pay Committee came before them three days later to present their case. Said Sir Ralph Knox to Mr. Heath, "It has been stated now by you that in a certain class of depart- ments the pension charge amounts to as much as 29 per cent, in another to 32 per cent, in another 4 per cent, in another 5 per cent, and in another 14 per cent, I think? "Yes." "And it has been stated elsewhere that such a percentage repre- sented the addition that would have to be made to the salaries of the various departments in order to provide a fund for pensions. It has been stated, I think, before the last commission, that a calculated figure of 18 per cent gave the amount which would have to be added to the pay of everybody in order to give them the equivalent of the pensions ?" "I do not think that there is any necessary connection between the two things." * * * "In fact, as the amount of the pension charge at the present day represents the pensions on estabEshments of 20 or 30 years ago, they cannot have necessarily any coimection?" ''^No." "And your view would be that, supposing you wanted to ascertam what should be added or deducted from the pay of the various officers of the departments in order to provide the pensions, you would have to discount, as I should say, that charge. That is to say, you would calculate the present value of the deferred pension in order to pro- vide the subsequent pension charge?" "Yes * * * it would mean an actuarial calculation." "An actuarial calculation of the sum of money or the annuity to be paid or added to the pay of everybody in order to provide the deferred annuity at the termination of the man's service?" a Report of Commission on Superannuation in the Civil Service. 1903. Minutes of evidence, p. 8. 152 CIVIL-SEKVICE KETIEEMENT IN GREAT BRITAIN. "Yes." ^ , "And the idea which has got into many people's heads that there is a direct connection between the present charge for pension and the present charge for pay is, at all events to those who have given any consideration to the thing, an exploded idea?" "Yes."(») The confusion caused in the minds of many by the testimony which Sir Eeginald Welby had given before the Ridley Commission about the actuarial calculation made in 1869 as regards a normal establishment was cited. Said Sir Ralph: "What Lord Welby roughly calculated was that certain salaries would produce, supposing the thing were constant, a certain constant charge for pensions?" "Yes." "But the converse, or the reverse, is what I am driving at. What we want to know is what addition to a man's pay or deduction from a man's pay would produce the normal charge for pensioning him. That would be it, would it not?" "Yes, I am not aware of any actuarial calculation having been made to determine that point." "At all events, the notion that was given utterance to in the recent commission is no longer accepted by the Treasury?" "Exactly." {") The views of the Deferred Pay Committee were presented to the commission by two representatives of the London committee, Mr. Charles R. Moir, a chief examiner, and Mr. Herbert Rolfe, a clerk in the War Office, and by two representatives of provincial committees, Mr. H. Ellis, Collector of Customs at Manchester, and Mr. H. F. Dol- lond West, Collector of Inland Revenue at Hull. They stated that the main point they wished to emphasize was that "pensions in the civil service are really deferred pay." Their understanding was that from 16 to 20 per cent of their salaries was being withheld to pay pensions. They said they wanted the com- mission to find out what the real basis of deductions was and then make some rearrangement of the system that would be more equita- ble to different classes of the service. Considering that pensions were paid out of theoretical deductions from the salaries of all the civil servants, they held it inequitable that only those civil servants who reached the pensionable age received any benefit from those deduc- tions. They thought that the amounts deducted from salary should be put into a fund and these amounts, with whatever interest they had earned, retvirned to the contributor or his representatives on his separation from the service. They held especially that widows and orphans of those who died in harness should have a claim on the de- ferred pay of their deceased relatives. If the imaginary deductions a Report of CommiBsion on Superannuation in the Civil Service. 1903. Minutes of evidence, p. 9. CrVrL-SEEVICE RETIEEMENT IIST GREAT BKITAIN. 153 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 insm-ance 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 Oovernment, but that in fixing salaries and scales or 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 equiva- lent to the Government having- given the larger or fuir 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 ulti- mately 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 estab- lishment. It occurs also in all the dockyards, when the workmen, who are temporary and non-pensionable, are brought on the estab- lishment. 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 unestabhshed 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 de- duction is made — a definite, absolute deduction — because of the pros- pective pension that comes to the man if he lives to a certain age. C^) 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. Eolfe 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 pro- vide a pension for the persons * * * who remained in the serv- ice of the Crown for the ordmary period of 40 years, but the desira- bility of providing for those who dropped out of service before the natural termination of their service was not considered. (*) o Report of Commission on Superannuation in the Civil Service. 1903. Minutes of evidence, p. 12. 6 Idem, p. 13. 154 CIVIL-SEBVICE BETIREMENT IN GREAT BRITAIN. 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 instance — and 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 inequahty in its operation is not satisfactory. (") To this Mr. Eolfe added: Of course, we can bring any number of specific inistances, 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 (1291.99) a year for a period of five years. (°) 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 Ealph Knox, a member of the Com- mission, reminded Mr. Moir that "only the same charge is to be incurred," whatever the revision, Mr. Moir rephed: 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 hke 16 to 20 per cent. Of course, if that is ruled entirely out of the terms of reference, we tod the position is a httle 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 Govern- ment 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. ^ Report of CommiBsion on Superannuation in the Civil Service. 1903. Minutes of evidence, p. 14. b Idem, p. 43. CIVIL-SEEVICE RETIEEMENT IN GREAT BKITAIIT. 155 Mr. RoLFE. And not only desirable, but equitable, sir. Mr. MoiE. Quite fair. 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 super- annuation schemes developed since the adoption of the government system in 1859, by organizations like the Bank of England, the Lon- don and Northwestern Railway, the Cunard Steamship Company, and the Liverpool and the Manchester corporations. The charac- teristic features of all these superannuation schemes, as distinguished from the Government's pension system, was that they had a super- annuation 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 theo- retical 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 per- sonal 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 em- ployees; 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 possi- bilities 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 con- tributions would have earned. They thought that widows and « Report of Commission on Superannuation in the Civil Service. 1903. Minutes of evidence, p. 17. 6 Idem, p. 16. 156 CIVIL-SEEVICE EETIEEMENT IN GBBAT BRITAIN. 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 defi- nitely 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 desti- tute 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 I^ay Com- mittee 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 insur- ance point of view, the forfeiture of premiums by those who die pre- maturely 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 maia- tained by railway systems were financed on a deduction of 2 J 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 suffi- cient 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 le worth more man 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. " (") o Report of Commission on Superannuation in the Civil Service. 1903. Minutes of evidence, p. 25. CIVIL-SEEVICE RBTIKBMENT IN GREAT BKITAIN. 157 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 incHned to accept without question the assumption of the Deferred Pay Committee that from 16 to 20 per cent of the civil serv- ants' 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 Civil 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 ta?;payer is concerned, so to speak, it was really a charge of £118 [$574.25] ayear." "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 state- ments varied in different places, but as far as we can get them together they form somewhat of a general statement to'that effect. Undoubt- edly 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 Treasurer letter," added Mr. Moir, "written on the 1st of July, 1891, to the Board of Trade, where this passage occurred. * * * '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 wliat 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. 158 CIVIL-SEKVICB EETIBEMENT IN GBEAT BKITAIN. "What do you mean by the Treasury having allowed it to operate? "Well, if in fixing any scale of salaries they have considered that the noneffective charge or part of .the charge was 15 or 20 per cent, they have no doubt reduced the market rate of pay given to any particular class by that amount." (") The point of this is that Mr. Moir at least, and presumably other civil servants, too, had perceived the confusion of ideas which had arisen as a result of testimony before the Eidley Commission in regard to pension charges and the amount of deductions required for maintaining a fund, but thought that, whatever the basis on which the Treasury made deductions, the fact that they made them, regard- less of the percentage of deduction or the scientific or unscientific basis for such deductions, was sufficient to justify the theory of pensions as deferred pay and the demand of the clerks for a more equitable distribution of the contributions. Said he : What I meant was that even though the Treasury may have acted on a wrong basis, it does not foUow that the civil servant should suffer because of that. It is not for us to justify the ground on which the Treasury or whoever fixed the rates of pay may have arrived at the proportion. What I mean, if I can make myself quite clear, is this: that it is quite possible that the relation between the non- effective and the effective charges does not bear the same proportion as the value of the deferment, as we call it, does to the pay of any individual civil servant. For instance, we are advised by our actuary that in a few years, say ten or more years, the relation or proportion between the noneffective and the effective charges will probably rise to something like 25 per cent, whilst at the time the Treasury were dealing with these matters the relation was something like 16 to 20 per cent, so that the proportion may be a varying amount, but the value of a civil servant's pension bears a constant relation to his pay.(*) Discussing the matter in detail, the representative of the Deferred Pay Committee and the chairman of the commission agreed that in calculating the pension charge it was important that the element of interest should not be forgotten and that the actual deduction would probably be much less than the ratio of the noneffective to the effective vote. How much less would depend on the rate of interest. The Fact of Postponed Charge Established but Amount not Determined. Sir . Francis Mowatt, the permanent administrative Secretary to the Treasury— formerly Mr. Mowatt — was later called before the commission and questioned as to what he had meant in 1888 when he told the Kidley Commission that the real charge that the State had to undertake for a civil servant on £100 ($486.65) a year salary was o Report of Commission on Superannuation in the Civil Service. 1903. Minutes of evidence, p. 12. b Idem, p. 13. CIVIL-SEBVICE EETIKEMENT IN GKEAT BBITAIN, 159 £118 ($574.25) a year. "That has no reference to deduction," said he. "I meant no more than this: That the pension charge of an officer might be taken roughly at 16 to 18 per cent in addition to his salary." While it seems clear that he was thinking not of individual charges but of the charge of the whole service, grouping all cases together, since all individuals do not live to pensionable age, it is equally plain th,at his statement was a little misleading. It is not strange that the civil servants generally should have thought they had high authority for the contention that about 18 per cent of their salaries was being held back by the Treasury. The origin and fallacy of the theory of a 16 to 20 per cent deduc- tion was thus abundantly shown and admitted, but the theory of pensions being deferred pay remained substantially unshaken, although Sir Francis Mowatt declared that he had never heard of a public servant being reduced in salary on being transferred from a nonestabhshed to an established post. Members of the Deferred Pay Committee had told the commission that such was the common practice. When given the facts in a definite case, which had been cited to the commissioner. Sir Francis Mowatt said: I could not answer without looking fully into the case, but I should say that under no circumstances would a man without some express explanation suffer a reduction of 15 per cent on being transferred from a nonestabhshed to an established post. ("*) Mr. Heath, also an official of the Treasury, admitted, however, that deductions of about 5 per cent of salary were made on trans- ferring workmen from the unestabhshed to the established service. Mr. Morton, a member of the commission, said to him: "You were talking just now of two different classes of laborers in dock yards. You gave us an instance some time ago. It is well known that there are hired laborers and established laborers, and we are aware that the hired laborers receive a higher rate of pay than the established laborers." "Yes," answered Mr. Heath, "the difference being that the estab- lished laborer receives about 5 per cent less." "Yes, in point of fact, that is a species of contribution that he makes toward his future pension?" "No, I should not put it that way." "I should be glad to hear what your view is." "It might be regarded as a contribution toward the cost of giving him pension rights, but of course it is not put aside; it is not accu- mulated. It has no relation to a system under which a fund is established?" "Oh no, I am quite aware of that. It is a small contribution toward the cost of, making a man pensionable." "He receives less pay in consideration of pension, in point of fact?" "It is by way of a set-off against the pension charge." {'') o Report of Commission on Superannuation in the Civil Service. 1903. Minutes of evidence, p. 15S. 6 Idem, p. 9, 160 CIVIL-SERVICE EETIEEMENT IN GKEAT BRITAIN, Request of Civil Servants that Amount of Postponed Charge BE Determined. The members of the commission and representatives of the civil service having agreed that there was a deduction from salary^ but that it was less than 16 to 20 per cent, Mr. Eolfe defined the position of the civil servants thus : We should like it to be established in the first instance, if possible, what is the actual deduction, if such deductions exist, which the civil servants at present suffer, and we feel that the Treasury only is in a position to have the necessary calculations made to estabhsh that fact, if that fact can be established. It would then be seen whether the deductions at present made are sufficient in themselves to form a superannuation fund which would give benefits to survivors, and also to those who decease prematurely, but until that is defiiutely ascertained the position of the civil servant is that the deduction at present suffered is sufficient to provide the benefits for which we ask by the formation of a superannuation fund. (") The chairman argued that the result of making payments to those who do not now receive payments, namely, widows and orphans, must mean smaller payments to pensioners unless the total pay to the civil servant was increased. The civil servants argued, on the other hand, that something additional would be available, if the funds were set aside, bearing interest. Pressed for an answer whether the civil service was prepared to take less payment to the pensioner, Mr. Moir said that he thought a reduction of pensions, if combined with insurance benefits, would probably be acceptable to them. Mr. Ellis also held that a small diminution of pension would be accepted by the service to insure provision for dependent relatives. The sessions between the commissioners and the representatives of the civil service resulted, therefore, in a helpful clarification of ideas. It seemed to be conceded, on the one hand, that there was reason for thinking , that pensions were, to some extent at least, deferments of pay and it was admitted, on the other hand, that there was no sound basis for the contention that the amounts deferred were as much as 16 to 20 per cent of salary. The civil servants' representatives admitted reluctantly, also, that if it was impossible to increase the total charge, the only way to secure the insurance benefits desired might be by reduction of pensions. They hoped, however, that the creation and investment of a fund might obviate that necessity. The actuary whom the Deferred Pay Committee had consulted, Mr. Philip Lewin Newman, was later called before the commission and his testimony served to emphasize this clarification of ideas. He stated that they had wished to have certain benefits upon death « Report of Commission on Superannuation in the Civil Service. 1903. Minutes of evidence, p. 14. CIVIL-SEBVICE EETIBEMENT IN GREAT BEITAIN. 161 before superannuation or upon death after superannuation, but before the amounts assumed to be paid in contribution would equal the pension paid in addition to the present pension, and that he had estimated for them what the additional cost would be for providing benefits on death before superannuation. He did not take into consideration that the charge was to remain the same and said that, if that had been a condition of his investigation, the only way in which he could have given them any plan by which they could secure payment on death before superannuation would have been by reduc- ing the pensions or by requiring them to make a contribution. Such benefits could be secured only at the cost of the superannuation allowance or the cost of some contribution from the civil servant, such as a revision of the scale of salary; in other words, by either reduced pension or reduced pay. On being asked if he had advised the Deferred Pay Committee that they could get greater benefits by the institution of a pension fund instead of the maintenance of the existing system which charged the actual cost of the pensions each year to the annual estimates, he explained that he had done so, but only on the assumption urged by them that they were already suffer- ing a deduction from their salaries of a larger amount than was neces- sary to give them the pension provided. Having no data to go on, he said he had not been in a position to decide on the truth of their assumption. Voluntary Insurance Organizations Maintained by Civil Servants. Evidence given the commission by members of the civil service regarding the voluntary insurance organizations maintained by them to provide against that calamity most dreaded by them — "death during service" — showed that there was a commendably high aver- age of foresight and prudence in the service. They found that the largest of these organizations was the Civil Service Insurance Society. This society, which was then about twelve years old, was enabled by a special arrangement with an insurance company to effect insurance for civil servants on very favorable terms, the premiums being de- ducted quarterly from the salaries of the pohcy holders. They found that over 20,000 pohcies had been taken out for an aggregate sum assured of over £5,000,000 ($24,332,500). The Civil Service In- surance Society also deals in annuities both immediate and deferred, and it had recently estabUshed in connection with its general business a widows' and orphans' annuity fund. The commission heard evi- dence also in regard to two old-estabhshed and prosperous depart- mental organizations known as the Customs Annuity and Benevo- lent Fund and the Inland Revenue Benevolent Fund. They found that the former was mainly a Ufe assurance society and that the latter 35885— S. Doc. 290, 61-2 11* 162 CIVIL-SEEVICE BBTIEEMENT IN GREAT BEITAIN. undertook the provision of widows' annuities in return for the sur- render of bonuses on pohcies of insurance. They found two similar organizations in the Postmen's Mutual Benefit Society and the Post^- Office Insurance Society. The former had a membership of about 12,000 and provided a benefit averaging £25 ($121.66) which was payable on death or on retirement by reason of ill health, and, in some cases, on dismissal or on voluntary resignation of employment. To the Post-Office Insurance Society all grades of the established postal service are eligible for membership. The members numbered then about 20,000 and the amount of the benefit varied from £50 to £100 ($243.33 to $486.65). A similar institution had been in ex- istence for fourteen years among the Board of Trade surveyors under the name of the Board of Trade Surveyors' Mutual Trust. During that time the total sum paid out was nearly £5,000 ($24,332.50), or an average benefit of about £165 ($802.97). Another institution that the commission found very meritorious was the Civil Service Benevo^ lent Fund, which had been established in 1885, was supported by the voluntary subscriptions and donations of civil servants, and applied itself to reheving the necessities of the widows and orphans of those who died either in the service or shortly after retiring on pension. The annual income from subscription was about £1,600 ($7,786.40), the number of cases dealt with since 1885 numbering nearly 1,200, Though the amount of relief given in individual cases was not large, the fund accomplished a very useful work. Pee Cent of Salaries Paid for Life Insurance by Civil Servants. An interesting statement was made by the commission in their report showing the per cent of salaries devoted to insurance by the clerks of various grades : In some respects, the considerations which affect the civil servants whose salaries exceed £160 ($779), and who may be distinguished as the income tax-paying body of the service, are not precisely the same as those which affect the wage-earning body. We have obtained, by the courtesy of the heads of departments, a return showing that the total number of officers receiving a salary above £160 ($779) is 14,754, of whom (a) 11,827 or 80 per cent have sala- ries not exceeding £400 ($1,947); (b) 1,075, or 7^ per cent have salaries exceeding £400 ($1,947) and not exceeding £500 ($2,433); (c) 1,104 or 7J per cent have salaries exceeding £500 ($2,433) and not exceeding £700 ($3,407), and (d) 748 or 5 per cent have salaries exceeding £700 ($3,407). Of the (a) class 26 per cent, of the (b) 22 per cent, of the (c) 27 per cent, and of the (d) 34 per cent do not claim any deduction of income-tax in respect of insurance premiums, ihe remainder m the (a) class pay in premiums on the average 4.6 P®"^?!!"* ?.x ^®''' s^l'iries, the (b) 5.5 per cent, the (c) 5.9 per cent; and the (d) 6.9 per cent. In other words, each member of the (a) class, on an average salary of £247 ($1,202), pays away £11 6s. CIVIL-SEEVICE RBTIEEMENT IN GKEAT BRITAIN. 163 ($64.99) a year in life assurance premiums; the (b) class, on an average salary of £436 ($2,122), pays away £25 4s. ($122.64); the (c) class, out of £597 ($2,905) pays away £35 2s. ($170.81); and the (d) class, on an average salary of £950 ($4,623), pays away £65 lOs. ($318.76). From this it results that the larger a man's salary is, the more, not only in actual money, but also in proportion to his salary, he devotes to life insurance. The general average for the whole 14,754 officers is that 3,842, or 26 per cent, do not claim any return of income-tax in respect of insurance, and that the remain- der, on an average salary of £321 ($1,562), pay away £16 12s. ($80.78) each, or 5.2 per cent, in premiums. No similar statistics are obtain- able with regard to civil servants having an income not exceeding £160 ($779). (") The return on which the foregoing statement was based is as follows: (*") SUMMARY OF A RETURN FOR THE FINANCIAL YEAR ENDING MARCH .31, 1902, FROM THE SEVERAL DEPARTMENTS AS TO THE INSURANCE OF OFFICERS ON THE ESTABLISHMENT RECEIVING SALARIES EXCEEDING £160 ($778.64) AND CLAIMING REDUCTIONS OF INCOME TAX FROM THEIR DEPARTMENTS IN RESPECT OF THEIR INSURANCE PREMIUMS. Classified salaries. OfTicers receiving salaries. Amount ol salaries received. Officers not claim- ing re- duction. Officers claiming reduc- tion. Amount of salaries re- ceived by officers claiming reduction. Amount of insur- ance premiirais paid. S3,406.55 and over 748 410 694 1,075 11,827 $3,630,724 1,313,089 1,888,460 2,371,299 14,040,870 266 112 188 232 3,054 486 296 504 835 8,682 $2,248,080 943,940 1,382,130 1,869,364 10,440,414 $156,071 32 919 90 and under 53,406.55 56,230 12,433.25 and under $2,919.90 81,285 SI 946 60 and under $2,433.25 102,518 1778.64 and under $1,946.60 479,053 Total o 14, 754 23,144,442 3,842 10,803 16,883,928 873, 167 a Including 109 officers with regard to whom no official information was available as to whether they claimed reduction or not. Testimony of Commission's Actuary, Showing Necessity of Provision for Refund of Contributions. The Isit witness called by the commission was Mr. Henry W. Manly, actuary and secretary of the Equitable Life Assurance Society of London and ex-president of the Institute of Actuaries. As Mr. Manly had only a short time before published a paper on the "Valuation of staff pension funds" which had drawn particular at- tention to his skill in handling problems connected with such funds the commission called on him for assistance. The problem they set before him was a very definite one — to tell them "what advantages could be conferred in exchange for the reduction of a quarter of a pension." They stated that there was objection to the existing system on the ground that it provided benefits for those who sur- vived, while those who died in the service, or their representatives, received no benefits under it — a fact he had commented upon in his paper — and they had reason to believe from what witnesses had said a Report of Commission on Superannuation in the Civil Service. 1903. pp. viii and ix. 6 Idem., Appendix, p. 218. Report, 164 CIVIL-SERVICE RETIEEMENT IN GREAT BRITAIN. that the pension might be reduced by a quarter without diminishing the hold that the system had over the servants, or the power of dismissing them, or even the attractiveness of the service. They asked for no general criticism of the existing system, but wanted to know how it could be modified, in the suggested way, so as to be actuarially sound and at the same time be no additional tax on the country. In the course of his testimony Mr. Manly was asked if he had any knowledge of similar organizations of pension funds that could throw light upon the commission's labors. He replied that he had knowledge of a great many pension funds, but they were all more or less different from the government scale. He went on to make some remarks about the characteristic features of prevailing funds that show well why it was not strange that so many civil servants of England were dissatisfied with the existing pension system. Said he : Where there are funds and the men contribute a portion to those funds they always endeavor to get certain rules in by which they will get their money back, somehow. * * * Or some portion of it, and although that diminishes — sometimes very largely dimin- ishes — the retirmg allowance, they do not seem to mind that so much as the getting their money back. For instance, it is a very common rule now that if a man withdraws, resigns, or is dismissed from the service, he shall have his own contributions back. That diminishes the power of the fund to give pensions at the end. * * * (The added sum from the employer) he does not get back if he withdraws, resigns, or is dismissed. * * * If he dies in the service — this is a very common rule — if he dies in the service his relatives shall receive what he has contributed, and what the firm has contributed. Sometimes they try to get in compound interest as well. * * * Now, the trouble with these funds is the desire of the members, the con- tributors, at any rate, to get their money back with interest if they can. And they are getting now very generally in these funds a con- dition that if after attaining the pensionable age, after entering upon the pension, the amounts which they receive in pension do not amount to their contributions, that the difference shaU be paid to the rela- tives, all of which, of course— all these additional benefits— reduce the pension which they are able to get when they retire. (») Asked if old age annuities were increasing, Mr. Manly said: No; that is what we call deferred annuities; annuities to commence at a certain age. * * * There is something very pecuhar in that, that nobody, or very few people think it is worth while to make pro- vision tor then- old age by the way of purchasing old age annuities. Ihey would much sooner see their money— and that brings us back to the old point. They want to see their money. They will invest *^®i^ ™oney for that purpose, invest it sometimes rather badly, I am atraid, but stiU li they invest their money they know it is there and they can leave it, but they do not like sinking as they call it, sink- ing the money on the chance of getting it back, even in double or quadruple sums hereafte r. * * * They will provide for every- « Report of Commission on Superannuation in the Civil Service. 1903 Minutes of evidence, pp. 179 and 180. CIVIL-SEEVICE BETIEEMENJ IN GREAT BRITAIN. 165 thing except old age; provide for sickness, provide for strikes, pro- vide for anything— anything except old age; and— well, the largest industrial company, the "Prudential" devised a scheme— an exceed- ingly good scheme it was— by which for a certain fixed contribution of 2d. [4 cents] a week commencing under the age of 20 or so, they would provide on death the equivalent of Id. [2 cents] a week, and that the other penny should be accumulated to provide an old age pension at the age of 65, which worked out verv favorably, indeed, I think— very well indeed; but the number of those poKcies which they issued was very small compared with the total. Of course, if you mention the figure by itself, it looks large, but compared to the 8,000,000 of policies which they have, it is exceedingly small indeed, and I do not think that anything more favorable has ever been offered. (") Report of Commission. The results of Mr. Manly.'s calculations were embodied by the com- mission in their report and formed the basis of their recommendation. That report is the last of the series of important reports made by the various commissions appointed in England to inquire into the sub- ject of granting superannuation allowances to persons in the estab- lished civil service, and marks a step in the development of the English pension system. After noting briefly the conditions under which pensions are granted, the commissioners say: The simplest and most exact statement of the relations thus created between the State and its established servants is that each servant is assured of payment of a definite salary or wage during the continuity of his service and of provision of a pension for the remain- der of his life upon his retirement from the service, either upon reaching a certain age or through inability, due to medical disquali- fication or infirmity, to continue at work. But it has been contended before us that the pension thus secured, though deferred, is as much remuneration for the present services as a salary or wage immediately paid, that this salary or wage is less than what would have been paid had there been no pension, and that the difference thus deducted n'om the natural or market rate of remuneration is more than is necessary to provide for the deferred pension; and upon these premises a claim has been urged as of right, to further payments to civil servants and their representatives on retirement or death. (*) Pensions acknowledged to he deferred pay. The first question in dispute, as to whether pensions are deferred pay, was answered by the commissioners in the affirmative, but with an important qualification. They held that a deferred pension is remuneration for services, as much as an immediate money payment, but that it is, in part at least, remuneration for continuity of service contingently payable on the continuity being maintained during a defined period and not accruing from year to year. « Report of Commission on Superannuation in the Civil Service 1903. Minutes of evidence, p. 180. b Idem. Report, p. vi. 166 crv^IL-SEEVlCE EETIREMENT IN GREAT BRITAIN. Theoretical deductions from salary held to he only sufficient for -pension. The second question in dispute, as to whether the deductions made from salaries were more than sufficient, even if a fund were created, to provide the pensions, was answered by the commissioners in the negative. It will be noted, however, that they failed to prove their point by any mathematical demonstration as to the amount required for pensions and the amount actually deducted from salaries for that purpose. They merely entered a general denial. Said they: The allegation that the salary of the civil servant is diminished by more than is necessary to provide for his contingent pension is en- tirely fallacious. It must oe remarked that no sum is in fact set aside so as to provide for this pension, the pensions being paid as they fall due and included as noneffective pay in the yearly estimates sub- mitted to Parliament so that the State discharges its contractual obligations to its servants by appropriations of the precise sums as and when they become due. Nor would the condition of things be changed if a pension fund were created by setting aside annual amounts which, with accumulations, would be adequate to meet the ultimate charges. The amounts so set aside would have to be ascer- tained by strict calculation, so as to be enough to meet these charges, and hence they could not be more than sufficient for this purpose, unless in making the calculations, discounting the future, we pro- ceeded upon one rate of interest and then assume a higher rate of interest possible during the process of accumulation. (") Funding of theoretical contributions held to he not justified. Admitting that much might be said in favor of the creation and accumulation of a fund as a matter of accounts and as a means for charging each year as nearly as possible with the cost of administra- tion of that year, the commissioners nevertheless held that the estab- lishment of such a fund would necessitate the creation of a new office with new labors and new expenses and could hardly be justified. Their conclusion, therefore, was that the remuneration must be con- sidered as pay plus pension, and as such is offered to and accepted by those who enter the service, and "the theoretical contingent addi- tion to the pay is neither more nor less than the theoretically dis- counted value of the pension." Recommendation that pensions lie reduced one-quarter and difference given in insurance and cash. WhUe thus arbitrarily denying that a larger per cent of salary was deducted than was necessary to pay pensions, the commissioners never- theless conceded that the terms of service might be modified without detriment to the service so as to secure a wider distribution of bene- fits among all the members of the service, and quoted Mr. Manly as a Report of Commission on Superannuation in the Civil Service. 1903. Report, pp. vi and vii. CIVIIi-SEBVICB RETIREMENT IN GREAT BRITAIN. 16*7 authority for their recommendation that pensions be reduced from one-sixtieth to one-eightieth of salary for each year of service, and the amount thus saved be expended for assurance benefits. As set forth in the report of the commissioners : Mr. Manly based his calculations upon a division of civil servants into three classes — wage earners, lower division clerks, and higher staff officers, crediting each class with an approximately normal scale of pay and increments of pay, and he took as approxmiately repre- senting the ratio of numbers in each class the figures 83, 15, and 2. He used the Life Office tables known as OM, supplemented by some facts of experience in the civil service, and he proceeded upon an assumed rate of interest of 3 per cent. Upon the data thus descriJbed Mr. Manly proceeded lo ascertain the value which would be withdrawn from the remuneration of civil servants by reduction' of one-quarter of their prospective pensions, and then went on to calculate the results of various proposals for redistributing this withdrawn quarter amongst members of the service. His work was directed towards ascertaining in terms of a year's pay, what might be given to the representatives of a civil servant dying in the service, or what might be paid in addition to his pension to a person retiring, whether on reaching the full limit of his Sossible service or prematurely through incapacity to discharge the uties of his position. The results communicated to the commission were as follows: (1.) If the proceeds of this reduction of pension were to be given back wholly to the representatives of those who died in the service, it would enable the State to give to their representatives nearly two years' pay at the time of death. (2) If the proceeds of this reduction of pension were to be shared by those who retired from the service as well as by the representatives of those who died in it, one year's pay could be allowed to those who retired through old age and to the representatives of those who died and as many fortieths of one year's pay to those who retired pre- maturely from iU health as corresponded to their completed years of service. These benefits will still leave a slight margin of undistributed value which would be just exhausted if, in the case of servants retiring pre- maturely, it was provided that in the event of death before the sum allowed at retirement plus pension subsequently received amounted to one year's salary, the deficient balance should be paid to their representatives. On the other hand, the margin would be slightly overpassed if one year's pay were given to the retiring servant in addition to the pension. (°) Having considered these two alternatives, the commission recom- mended the latter, saying : We arrive at the following conclusion, that in lieu of the present system there should be secured pensions on the same conditions, except that they should be calculated on the base of one-eightieth instead of one-sixtieth for every year of service; plus a year's pay to a Report of Commission on Superannuation in the Civil Service. 1903. Report, p. xi. 168 CIVIL-SEEVICE EETIREMENT IN GEEAT BEITAIN. the representatives of the civil servant dying at any time in the service, and to a civil servant retiring after 40 years of service; and to a civil servant retiring by reason of ill health with less than 40 years' service as many fortieths of a year's pay as years he has served, coupled with a provision that if he should die before this payment and the pension subsequently received amounted to one year's pay, the deficiency should be paid to his representatives. The commission recommended further that the new system, if adopted, should be extended to all classes of pensionable servants, both wage-earning and salaried. They were of opinion that "the advantages of a money payment being secured in case of death with- out the pressure of periodic demands for the payment of premiurhs would be generally appreciated," especially by the wage-earners, and thought that "the risk that the habit of prudence would be endan- gered by such a provision would not be realized in practice." Said they: We attach great weight to the principle of similarity of treatment of all classes of pensionable servants so that all may feel that they are working under a common system, and that in the not unknown cases of a servant passing from one class into another no embarrassment may arise from the fact that his vested interests are undergoing a change which must be taken into account. (") Minority report of commission adverse to any change. The Courtney Commission was not unanimous in its findings. Two of its commissioners, Sir Ralph H. Knox and Mr. E. W. Brabrook, dissented from the views of their colleagues, and presented a minority report. They held that it was impossible, without increasing the burden of the taxpayer, to confer on civil servants greater and more uniform advantages than those granted by the existing system. They did not consider the plan recommended by the majority of the commission as more advantageous or more uniform than the existing one. They thought it wise, therefore, to let well enough alone. Said they: What is called a pension in the civil service is merely the con- tinuance, during the later years of life, of pay promised for a whole life service, durmg a period when services, if rendered, would prob- ably be useless, and, in many cases, worse than useless. The pay- ments made for the 61st or 66th years of life are no more deferred pay than those made for the 60th or 65th. This is the present excellent charter of the civil service, and it is not only under this system, but because of it that the English civil service has earned its high reputation for fidelity, zeal, and inde- pendence. The advantages of this life provision are given wholly at the charge of the State, and in their present form they have attained « Report of Commission on Superannuation in the Civil Service. 1903. Report, p. xii. CIVIL-SEEVICE EETIEEMENT IN GEEAT BEITAIN. 169 the objects in view. The same system has been introduced into very many estabhshments of the highest standing in the country, where continuous, zealous, and thoroughly honest service are the main requirements. C) The commissioners who signed the mmority report dissented particularly from the view of their colleagues that a cash payment should be made the representatives of the civil servant in case of death; in other words, that life insurance should be furnished him out of his pension. They contended that it were better that it be furnished out of his pay. Reduced pension or reduced pay were clearly the only alternatives. Reduced pension meant a change of law; reduced pay meant continuance of the existing system, since the great majority of the civil servants were doing that very thing, buying insurance for their families and paying for it out of their salaries. The argument of the minority was as follows: The provision most desired by the great mass of the service is the payment in case of death of as large an aniount as possible, approximating at least to the maximum rate of pay which a clerk may reasonably hope to reach, and not a sum governed by the creeping salary of the year in which he may prematurely die. The best, indeed the only method of obtaining this, is the system of life insurance, for which it is far better that the civil servant should provide from his pay than from his pension. It needs but a little self-denial in the early years of life on the rates of pay now current to make some provision, and the Government having sanc- tioned the deduction of premium from monthly and quarterly salaries before the salary is paid, the best security is obtained for regularity of payment with the least possible sense of burden on the part of the insurer. The scheme now proposed, however, seems to offer a premium on improvidence. A man is encouraged to sacrifice the provision made for his old age, though but sufficient to maintain him in decent comfort, in order that he may avoid the stress of making a present payment, all the prevaiUng influences towards thrift being thus inverted. * * * That this view is sound is shown by the remarkable statistics of insurance referred to by our colleagues as regards civil servants whose incomes are in excess of £160 [$778.64] a year. That it also applies largely to men whose income is small is evidenced by the numerous insurances effected in the postal service, and also may be inferred from excellent movements which have lately been made in connection with two great friendly societies for insurances for their members up to £200 [$973.30]. * * * The scheme of our colleagues disturbs the present excellent system in order to substitute a benefit which the vast majority of those who require it can and do already provide for themselves, and which is of no value to those who do not, because they need not provide it. (*) o Report of rommission on Superannuation in the Civil Service. 1903. Report, p. XV. 6 Idem, pp. xvii and xviii. 170 CIVIL-SERVICE EETIEEMENT IN GREAT BRITAIN. Colloquies which took place between Mr. Manly and the minority commissioners at the hearings suggest that the latter may have felt that their views would not be questioned by expert authorities. Said Mr. Brabrook to Mr. Manly: "The existing contract is the compulsory insurance of a deferred annuity on nonreturnable premium; and taking off one-fourth of that gives an equivalent compulsory endowment insurance of one year's salary?" "Yes." "That would apply to all civil servants whether male or female, or whether bachefors or otherwise, would not it?" "I presume I would make it apply to all." "If it be the fact that from one-fifth to one-third of the civil servants are better otherwise provided for, is not it a little hard to make them all accept this compulsory insurance which they do not want?" "WeU— " "I have reason to think that the general body of civil servants, having salaries above £160 [$778.64] a year, do now insure their lives for the benefit of their families to the extent of two or three years' income. Is there any necessity for making compulsory insurance of any further sum?" " I can not say that there is any necessity for it." "You are giving them by the deferred annuity a benefit whicli they certainly would not insure voluntarily for themselves." '^Quifce so." "And you are now proposing to deprive them of a portion of that benefit for the purpose of being applied to an insurance which they do provide for themselves?" "Yes; but so far as I understand the question we have before us, it has rather been raised by the civil service themselves, has it not?" "By a portion of the civil service?" "By a portion of the civil service." "And my own impression is that is not shared by the more well- informed portion of the service?" "I have no knowledge, of course, of that." (") Toward the close of Mr. Manly's testimony, after he had explained the way in which he had made his calculations. Sir Ralph Knox' said: "The scheme as sketched by you I think is very ingenious, and has its attractions. There is a persuasiveness in the direction of trying to make a man believe that he is not losing anything. The way in which you give ingeniously these sums back, the six years' purchase at 60 years of age, and so forth, makes up his old age pension to him at that period, and you try to persuade him therefore, that he is not losing anything at all, and I think that is the ingenuity of the scheme, but stUl the fact is none the less that he does gives up upon his maxi- mum pay twenty-five per cent of the ultimate pension?" "On, yes; what he gives up is the equivalent of what you are going to pay to the families or the relatives of those who die." « Report of Commission on Superannuation in the Civil Service. 1903. Minutes of evidence, p. 181. CIVIL-SEEVICE EETIEEMENT IN GREAT BRITAIN. 171 "You say you think it would be attractive, but as compared with the system of iasurance in which a man in these higher classes can secure £300 or £400 [$1,459.95 or $1,946.60] from the time that he enters the service by a very small payment at 20 years of age, as com- pared with that, do you think that this is distinctly an advantage, so as to present an attraction?" "You must not ask me to say that anything can be substituted for life insurance." "I am quite satisfied with that answer." "We say it is the best thing a man can do to insure his life." (°) Sir Ralph and Mr. Brabrook not only disagreed with their col- leagues, but predicted that the proposed changes in the law would not be acceptable to the members of the civil service. In concluding their report they said: If the present civil servants who are in good health were given the option of accepting these changes, we should be surprised if many of them should d!ecide to do so, and we are unable to join in the recom- mendation of these changes for future entrants, masmuch as they involve a reduction and redistribution of the present pensions which to us seem most inexpedient, and would be unequal in their effect. (') WOEKMEN'S COMPENSATION ACT OF 19C6. The Workmen's Compensation Act was passed in 1906. With that exception there was no more legislation relating to the pensioning of civil servants, after the passage of the Superannuation Act of 1887, until the present year (1909). Persons engaged in manual labor and other employees whose annual earnings do not exceed £250 ($1,216.63), including civil servants, are entitled, under the terms of the Work- men's Compensation Act or one of the schemes under and in sub- stitution of that act, to compensation for injuries suffered in the course of their employment. Members of the civil service not en- titled to compensation for injury under the ordinary law (Workmen's Compensation Act) are pensioned under the old law (the Superannu- ation Act, 1887), and the Treasury warrant under it. The warrant no longer appHes to persons entitled to compensation under the Workmen's Compensation Act. The employees of the Admiralty and War Office have almost uni- versally accepted the terms of the Scheme of Compensation (No. 116), in case of injury to workmen in government establishments, which was established in May, 1903, and revised December, 1907. This is accepted by them in lieu of the provisions of the act itself. These schemes have to be approved by the Chief Registrar of Friendly Soci- eties. This particular scheme for workmen in government establish- a Report of CommiBsion on Superannuation in the Civil Service. 1903. Minutes of evidence, p. 185. 6 Idem, Report, p. xviii. 172 CIVIL-SEKVICE RETIREMENT IN GREAT BRITAIN. ments was certified by the Chief Registrar of Friendly Societies under date of December 16, 1907, as providing scales of compensation not less favorable to the workmen and their dependents than the corre- sponding scales in the Workmen's Compensation Act, 1906. The main features of this scheme are as follows: When a govern- ment workman dies from injury received in his work his dependents, in case they are wholly dependent on him, receive a sum equal to his earnings during the three years next preceding the injury, or the sum of £150 ($729.98), whichever is the larger, but not exceeding in any case £300 ($1,459.95), and half that sum in case they are only par- tially dependent on him, minus in either case the amounts of weekly payments that may have been paid in the interval between the time of his injury and the time of his death. If the period of his employ- ment has been less than three years, the amount of his earnings dur- ing the three years is deemed to be 156 times his average weekly earnings during the period of his actual employment by the Govern- ment. In any case in which the authorities of a department consider that the interests of a workman's dependents would be better served by a pension to the widow or mother (where there is no widow) than by a lump sum, the Treasury may deduct a portion for the dependent child or children, if any (this portion must not be more than one-half of the entire amount if there is only one child or two-thirds if there are more than one), and grant a pension to the widow or mother equal to the annuity which the remainder of the lump sum would purchase, according to the post-office tables for the purchase of immediate annuities. On the death of a workman leaving no depend- ents a payment of not more than £10 ($48.67) is made to cover the reasonable expenses of his medical attendance and burial. When incapacity for work results from the injury, the injured workman receives, for the period he is on the "Hurt List" on account of the injury, half his average weekly earnings during the previous twelve months or for any less period during which he has been employed by the Government. In addition, he receives free treat- ment in a hospital or free medical attendance at home. If incapac- ity for work continues beyond the period for which the workman receives "hurt pay, " an allowance is paid him. This is twenty-four sixtieths of his average weekly earnings during the previous twelve months or during any less period of employment in case his capacity to contribute to his own support has been totally destroyed, eighteen sixtieths when it has been materially impaired, twelve sixtieths when it has been impaired, and six sixtieths when it has been but slightly impaired. Allowances by way of compensation for injury continue only during the continuance of the incapacity, and in cases of doubt CIVIL-SBEVIOE EETIEEMENT IN GEEAX BRITAIN. 173 they are granted in the first instance for a limited period, renewable only upon a further medical certificate. (") One or two minor departments have introduced regulations com- pelling their employees to purchase life insurance from some private company, but such regulations are applicable only to employees not entitled to superannuation privileges. The arrangement is at present experimental and only upon a very small scale. It is not encouraged by the Treasury. Life insurance can be effected and immediate or deferred annuities can be purchased either from the National Debt Commissioners or through the Post-Office. SUPERANNUATION ACT, 1909. The general scheme of providing life insurance in substitution of part of the pension recommended by the Courtney Commission was enacted into law on September 20, 1909, six years after the com- mission had submitted its report. In the interval, a nonofficial ballot was taken which showed that, contrary to the predictions of the minority members of the Courtney Commission, the proposed change was favored by a large majority of civil employees. Main Featuees of the Present Law. The scheme finally' embodied in a bill and presented to ParHament differs somewhat from that presented by the Courtney Commission. The changes were made in accordance with the recommendations of a committee of actuaries apf)ointed by the Treasury to review the work of the commission. They reported that a more Hberal hfe- insurance provision could safely be given by reduction of the pension one-quarter than that suggested by the commission. Provision was accordingly made that for male civil employees entering the service after the passage of the act the superannuation allowance should be one-eightieth instead of one-sixtieth of the annual salary for each year of service, as was the case under the Act of 1859. Authority was then given the Treasury to grant to a retiring civil employee "■ Regulations with regard to the payment o£ salary and wages during sick leave are charged throughout the civil service to the effective vote, and do not form part of the superannuation scheme. Sick leave on account of injury is granted under depart- mental regulations, as in the case of ordinary illness. The regulations vary in differ- ent departments. In some cases the ordinary sick leave regulations apply, while in others sick leave is allowed at a higher rate of salary for a longer period in cases where the illness is due to an accident arising out of the officers' official duties than in cases of ordinary illness. In cases of ordinary illness an established civil servant may be allowed (if necessary) six months' sick leaie on full pay, followed by six months' sick leave on half pay. If any further leave is required, and there is. a reasonable probability of the officer's recovery, he may receive for any such further period of sick leave the same rate of pay as if he had been retired on pension. 174 CIVIL-SEEVICE EETIBEMENT IN GEEAT BEITAIN. who had served not less than two years, in addition to the super- annuation allowance (if any) or the gratuity (if any) available under section 6 of the Superannuation Act of 1859, a lump sum equal to one-thirtieth (instead of one-fortieth, as recommended by the Court- ney Commission) of the annual salary multiplied by the number of years of service, provided that the additional allowance should in no case exceed one and one-half times the amount of the annual salary and emoluments. To discourage continuance in office after the age of 65, provision is made that this additional allowance shall be reduced one-twentieth for every completed year served after attaining that age. By order in council dated November 29, 1898, all persons in the estabhshed civil service are liable to compulsory retirement at the age of 65. The power of retention, in special circumstances, for a period not exceeding five years, is, however, lodged with the Treasury. This provision in the Act of 1909 for further reducing the pension in case of such retention is evidently intended to discourage the exercise of such power, and to force practically everybody out of the service at the age of 65. In the case of an employee dying after five years' service, while still employed in the service, his legal representatives receive a gratuity equal to the annual salary of his ofiice and emolu- ments. If, however, he is over 65 years of age when he dies the amount received by his representatives is reduced by one-twentieth for each year of service rendered after he has attained that age, another discouragement to remaining in office after the age of 65. In the case of an employee dying soon after retirement and before the sums actually received by him at the time of his death on account of superannuation allowance, together with the sum received by him by way of additional allowance, equal the amount of his annual salary and emoluments, a gratuity equal to the deficiency is granted to his personal representatives. While the act applies only to future entrants into the service, the option is given male employees under 60 years of age of accepting its provisions. In that case, the addi- tional allowance payable on retirement is increased by a bonus of one-half of one per cent for each year served before the passage of the act. With these modifications, the provisions of the various superannuation acts will still apply with respect to the qualifications for obtaining superannuation allowances and gratuities, to the man- ner of reckoning years of service and amount of annual salary and emoluments, to the diminution of superannuation allowances, and to the determination of questions by the Treasury. A bin along these lines "to amend the Superannuation Acts, 1834 to 1892," was introduced in the House of Commons on May 19, 1909. It was referred to a standing committee which considered it on July 16, and made some slight verbal changes. The amended bill was then sent to the House of Lords on August 30, where section 6 was amended, and on September 20 it became a law. civil-service bbtieement in geeat beitain. 175 Discussion of the Act in Parliament. The passage of this important bill through Parhament was marked by no notable discussion. On the second reading of the bill in the House of Commons shght objection was made to it by certain mem- bers, because its benefits were not extended to unestablished as well as to established members of the civil service, because employees over 60 years of age did not come within the purview of the bill, and because the compensation to be paid on abolition of office was hmited to the amount paid on retirement by reason of ill-health. In answer to these criticisms, Mr. Hobhouse, financial secretary to the Treasury, explained the intent and purpose of the bill, reviewing briefly the history of the movement which had led to its introduction, defending the points attacked, and laying emphasis on the fact that the bill made much more liberal provision for the civil servants than they had ever hoped to obtain. As his statement shows the Government's attitude toward the measure, the greater part of it is here given. Said Mr. Hobhouse :(») I think the reception which the bill has had at the hands of hon. gentlemen who have addressed the House has shown not merely that the bill itself was desired by the civil servants, but that the provisions of the bill, now that they have been examined by the civil servants, have proved eminently satisfactory to those servants. I may per- haps remind the House in what circumstances this bill has come into being. Throughout the four or five years between 1898 and 1903 there was considerable movement on the part of the civil servants in regard to the terms of superannuation, which, owing, I think, entirely to a misconception on their part, they thought involved a very considerable reduction in their pay, and also resulted in a comparatively small number of those who contributed to the pension fund ever receiving any return from that fund. Owing to that feehng on their part, a movement was started by the civil servants asking that the whole terms of superannuation should be recon- sidered and altered, and so strong was that feeling that a commission was appointed under the presidency of Lord Courtney, to go into the whole terms or the superannuation of civil servants, and that commission made certain definite recommendations which perhaps the House will allow me to recall to their recollection. Before I do that, however, I should like to point out that the original demand of the civil servants was a very limited one; it was then confined to asking that there should be a refund of accumulated deductions from pay in case of any civil servant who died while still in the service of the State. It was a very Hmited demand, confined strictly to that request. The Courtney Commission made certain definite recommendations. They suggested the alteration of the scale of pensions from one-sixtieth of the pay for every year's service to one- eightieth of pay for every year's service, and they also suggested a gratuity of a year's pay in the case of a civil servant dying in the service, or upon his retiring after forty years service. They also a Parliamentary Debates, House of Cominons, Vol. 7, No. 88, p. 766. 176 CIVIL-SERVICE EETIEEMBNT IN GREAT BRITAIN. suggested that in the case of a civil servant who retired with less than forty years' service, he should get a gratuity of one-fortieth of a year's pay for each year's service. These recommendations of the Courtney Commission were submit- ted to a plebiscite of the whole of the civil service, or so much of the civil service as can be reached by the arrangements of the Deferred Pay Committee. I Heed Hot go into the whole history of the plebis- cites — there were two such plebiscites, and the last was taken on the simple issue whether they preferred the Courtney recommendations or whether they preferred the terms of the existing civil service super- annuation, and the result was an overwhelming declaration — over- whelming in strength from those civil servants who were consulted — 80 per cent in favor of the terms recommended by the Courtney Com- mission. When that plebiscite had been taken it was quite clear that some alteration in the terms of the existing superannuation scheme must be made in order to meet the wishes of the service as a whole. There were two distinct defects about the Courtney scheme, and I think in that the hon. gentleman will entirely agree with me; namely, the hardships inflicted upon those civil servants who died in the service were met entirely at the expense of the potential pensioner, and the next defect was that there was no provision made for those who retired from the civil service before they had completed ten years' service, and thus became pensionable, except that gratuity of a month's pay for every year, which really was quite inadequate. When it was clear that the civil service wanted a reconsideration of the terms of superannuation it was quite clear that the pensionable treatment which would have to be given — which could be given — would have to be considered very carefuUy from the actuarial point of view, and I have had the services of three eminent actuaries who went very closely into the whole of the calculations necessary to evolve a scheme, and this biU is the outcome of that consideration. By it a pension of one-eightieth is substituted for the pension of one- sixtieth for each year's service given, and as the pension is confined to the earnable period, is confined to the maximum of forty years, it is clear that the pension is reduced from a pension of two-thirds to a pension of one-half. In order to make up to the servants the reduction in pension, the following proposals are made, and the first of these deals with the hardship resulting to the civil servant who retires before he has com- pleted ten years' service. Any civil servant who retires after two years' service gets in addition to the gratuity which he now earns an additional allowance of one-thirtieth for every year's service ren- dered. That is coupled with a deduction from his earnable allow- ance, if he serves to 65 years of age. Practically aU civil servants have to retire at 65 years of age, with the exception of one or two favored individuals, who may serve for a year or two more, and also with the exception of a certain number of oflOicers who are employed m and about the law courts, who may serve on for practicdly an mdefiiute penod. * * * Next, any civil servant dying after five years service gets a gratuity of a year's pay, and if a civil servant dies after he has retired from the service, but before he has drawn a whole year's pay, the State makes up to him the equivalent of a year s pay, whether by way of additional allowance or by making up the deficiency of the year's pay. These very favorable conditions, far exceeding anything that the civil servants expected, are dependent CIVIL.-SEEVICE BETIREMENT IN GKEAT BEITAIN. 177 upon two conditions, one that the option must be made within twelve months, and the other that the personnel of the service must be in a sound state of health. These are actuarial conditions laid down, upon which the whole scheme depends, and from which the Treasury would be quite unable to depart. Then I come to the provisions by which only those officers who were under the age of 60 were allowed to opt. The age of 60 is the age at which the head of a department has no power any longer to retaia the services of an officer. An officer can go, if he wishes, the m.oment he reaches 60, and draw his pension. It would be quite impossible, having regard to the actuarial calculations on which the scheme is based, to permit an officer who attains the age of 60 to take advantage of the new scheme and leave the service, carrying off, perhaps £1,000 [$4,866.50]. The possibility of doing that would clearly upset any actuarial calculations whatever. These proposals are to be made apphcable to aU future entrants and they can only be made applicable to existing servants if the actuarial calculations on which the scheme is based are observed. The whole of these proposals are based upon this, that no amount of money shall be taken away from the aggregate body of civil servants, and that in making these pro- posals no additional expenditure shall be incurred by the State. We have a block sum which we do not intend to increase or to diminish, but within the capacity of that block sum we have redistributed the conditions under which the pension is payable. If the wishes of the hon. member for Exeter (Sir G. Kekewich) were accepted the other resulting benefits of the scheme would have to be reduced in order to comply with his wishes. I think it is very much better to give what you can to the great majority of civil servants rather than to give an advantage to a small class of officials, none of whom will probably be in the service for more than two or three years longer. A further advantage is given, namely, that all the existing civil servants who adopt and take advantage of the scheme are to get i per cent bonus for each year served before the passing of the Act. That would be a substantial advantage to the civil servants, and it can only be done because in their case the State will escape the lia- bihty of life assurance which is receivable by all future civil servants and all those who accept the scheme — a liability which may press heavily upon the State in their case. The scheme does not apply to women, because so many of the women who voted were against the application of the scheme to them, and although I should be pre- pared, if there were any. evidence of a desire on the part of a large section of the existing women in the civil service to have the scheme applied to them to permit such an option, at the same time I have seen no indication of any desire on their part to have the scheme made optional. The proposal to substitute life insurance in lieu of a part of the pension naturally suggested questions as to the medical fitness of the Government clerks as a body. On August 17, Mr. Mitchell-Thomson, a member of the House of Commons asked the Secretary to the Treas- ury whether the new scheme of the superannuation biU was based on any actuarial calculation as to the average expectation of life of such existing civU servants as elect to come under the scheme, and if 35885— S. Doc. 290, 61-2 12* 178 CIVIL-SEEVICB KETIKEMENT IN GKEAT BEITAIN. the calculation was based on such an estimated average life, what necessity there was for a medical test of each candidate for admis- sion to the scheme; and whether it was intended to refuse admission to candidates whose lives were not good lives from an insurance point of view. There ensued the following : Mr. HoBHOUSB. The proposals as regards existing civil servants are based on the assumption that those electing to adopt the new scheme are in average good health. Mr. Mitchell-Thomson. Will the right hon. gentleman reply to the last part of the question ? Mr. HOBHOUSE. Yes, it is intended to exclude those who can not pass a reasonable test. Mr. Mitchell-Thomson. Is this scheme based upon actuarial cal- culations, and, if so, how does he defend it from the point of view of justice in excluding these people ? Mr. Speaker. That is a matter of debate. Mr. Snowden. Is it intended that they should submit to an examination? Mr. HoBHOUSE. Certificates will be required from the heads of departments. In accordance with the draft regulations before the House, which to some extent I mean to modify, all persons will have to submit a statement from the head of their department who are beyond a certain age. On the second reading of the bill in the House of Lords, on Septem- ber 13, a few explanatory remarks were made by Lord Denman in regard to the origin of the bill, including the statement that a com- mittee of actuaries appointed by the Treasury had "reported that they were able to recommend certain improvements in the scheme which would give better results for the men themselves than the recommendations of Lord Courtney's commission. This bill was regarded as a noncontentious bill," said Lord Denman. "Really all it does, or seeks to do, is to distribute in a slightly different way cer- tain charges which appear annually on the votes; and therefore I trust it may have a smooth and a rapid passage through this House." An amendment was brought up, however, by the Marquis of Lans- downe, who objected to section 6 of the bill which limited compen- sation for abolition of office to the amount allowed on retirement be- cause of ill-iealth and repealed section 7 of the Superannuation Act of 1859, the section which gave the Treasury power to grant abolition allowances. Said he: Now, my lords, I must say that prima facie there seems to me to be all the difference in the world between the case of a man who, owing to his own misfortune, is obliged to retire from the service, and the case of another man whose retirement is imposed upon him by the action of the Government of the day. The second case is one certainly of exceptional hardship, and I am surprised that it should have been thought proper to deprive those civil servants who are the sufferers from events of that kind of the special consideration which certainly in the time when I knew anything about these matters they used to receive. CIVIL-SEBVICB EETIBBMBNT IN GREAT BRITAIN. 179 Lord Denman explained that section 6 simply legalized what had been the practice of the Treasury, with certain exceptions, for over twenty years, since no abolition terms had been granted for that length of time. Said he:(") Perhaps I may be allowed for one or two minutes to go into the his- tory of the matter, because this clause has really rather a lengthy history. I understand that in 1888 a royal commission presided over by the late Lord Ridley, inquired into this matter. They found that these abolition terms had given rise to very great abuses and had been too often used to get rid of inefficient men. I think in the following year there was a debate in the House of Commons on this point, and a resolution was proposed protesting against the useless burdens which were placed upon the country by these abolition terms. An amendment was moved by the Government of the day, and the Gov- ernment were defeated on this point, possibly as a result of that de- bate. Mr. Goschen— as he was then— in August, 1889, said that for some time past these abolition terms had not been allowed ; and Mr. W. H._ Smith said— "It is our deliberate intention to legislate on this question at the earliest possible period next year." Then there was a question put by my noble friend, Lord "Wolver- hampton, on March 17, 1892. He asked whether it was the intention of the Government to introduce a measure relating to the superannua- tion of civil servants in accordance with the report of the royal com- missioners on civil establishments. Mr. Goschen, in reply, said that in view of possible delay before a new superannuation bill could be- come law, the Government had taken steps whereby effect had al- ready been given to the main recommendations of the royal commis- sion on the subject of civil superannuation. He went on to say that abolition of office no longer entitled the retiring officer to a special rate of pension. I believe it was formerly the practice of departments to organize and retrench on a very much larger scale than has been the case lat- terly, and no doubt abolition terms were much more useful in those days than they have since become. Nowadays it is very rarely that reductions of this kind are made in departments, and when a reduction takes place, if a man is an efficient civil servant a place for him is found in some other department. In the case of an inefficient man there is no hardship if the reduction takes place on the same terms as in the case of a person who is retired on the ground of ill-health. This clause really legalizes what has been the practice of the Treasury, with cer- tain, exceptions, for over twenty years. Despite Lord Denman's explanation, the lords amended section 6 so as to make it apply "only to persons entering the service after the date of the passing of this act," thus leaving those already in the service undisturbed in any of the privileges conferred on them by the Act of 1859. Immediately after the bill became a law regulations were made by the Treasury with reference to the conditions under which existing civil servants might be allowed to adopt the provisions of the act. o Parliamentary Debates, House of Lords, 14 Sep., 1909, Vol. 2, No. 59, p. 1184. 180 CIVIL-SEEVICB EETIEEMENX IN GEEAT BEITAIN. These stated that application must be made through the head of the department, and must reach him on or before December 31, 1909. Application must be made on the following form : Application to adopt the provisions of the act under the terms of section 3 (1) and the treasury regulations of September, 1909. (1) FuU. name of applicant. (2) Department and situation. (3) Age. (Give date of birth.) (4) Are you in a good state of health and, so far as you know, free from any disorder or disease tending to shorten life ? (5) Have you had any illness during last 10 years necessitating your absence from duty for more than 15 consecutive days? If so, state the nature of such illness. (6) Are you now and have you always been of sober and temperate habits? (7) State the number of days "in the under-mentioned years on which you have been absent from duty on account of sickness, and the cause in each case: Calendar year. Number of days. Cause of absence. 1905 1906 1907 1908 1909 (8) Declaration to be signed by the applicant: I hereby apply to be allowed to adopt the provisions of the Super- annuation Act, 1909, and I declare that the above statement of par- ticulars is true to the best of my knowledge and belief. Signature of applicant. Date. To he filed in hy the Applicant's Department. State whether the foregoing particulars correspond with the official records relating to the applicant so far as they can be verified, espe- cially under the Heads (3), (4), (6), and (7). Give the date of the applicant's first Civil Service Certificate. The applicant is employed in a pensionable capacity, and his case is recommended for the favorable consideration of the Treasury. Signature of the head of the department or of other authorized officer. Date. In the case of a civil servant above 65 years of age at the date of the passing of the act, the application must be accompanied by certificate m the following form, signed by the medical officer of his department, or, where this is not practicable, by his regular medical attendant : 1 . Are you the medical officer of the applicant's department, or his private medical attendant ? 2. How long have you known him ? CIVIL-SEEVICE EETIEEMENT IN GEEAT BEITAIN. 181 3. Does he appear to be now in good health, and free from any disease or disorder tending to shorten life ? 4. Do you believe him to be and to have been sober and temperate? 5. Do you consider him to be a person whom you could recommend to an assurance society for life assurance at the ordinary rate of premium? If not, do you consider him as — (a) insurable at an addition to his actual age; or (6) uninsurable. Signature. Date. The Treasury may call for further medical evidence as to the con- dition of the applicant's health in any case in which they consider it desirable. Should the statements made by the applicant be found to be untrue or inaccurate in any particular within the knowledge of the applicant, the Treasury may cancel the allowance of the application. CONCLUSIONS. The conclusions to be drawn from Great Britain's century of expe- rience ia pensioning its civil employees are very definite. That experience shows that pensions paid out of the public treasury as pure gratuities are certain to be taken into account in fixing salaries, and a pension system thus becomes, in effect, a contributory system. As soon as the employees realize that they are contributing to their own pension they at once demand that, on separation from the service for any cause whatever, the value of their contributions shall be returned to them in some form. It is in recognition of the reluctance of human nature to give something for nothing — shown first by the officers of the Government in taking the pension into account in fixing salaries, and next by the employees in their unwillingness to forfeit their con- tributions under any circumstance — that the pension system of England was modified by the Act of September 20, 1909. The full significance of the final action of Parliament in amending the various superannuation acts, especially the Act of 1859, by the Act of 1909, is not brought out in the Parliamentary debates. It is really more than "merely a redistribution scheme," as characterized by Mr. Hobhouse in the House of Commons, for it concedes the right of employees to the return of theoretical contributions. Actual deductions from salaries of employees were not contemplated by the former law. In the recognition by the Government of the fact that contributions are virtually exacted from employees through the practice of taking pensions into account in fixing salaries, lies the significance of this last legislation. In this last act the Government puts a legal stamp on the superannuation scheme of England as a contributory plan and not a pension system at all in the strictest 182 CIVIL-SEEVICE EETIEEMENT IN GREAT BBITAIN. dictionary meaning of the term pension as "a regular stipend paid by a government," that is, paid out of a common treasury. The general impression among people of the United States is that Great Britain had first a contributory plan of retirement which was found unsatisfactory and which was abandoned in 1859 for a straight pension that has proved eminently satisfactory. The well-known excellence of the British civil service is cited as sufficient proof of the merit of the British pension system and the failure of the contributory system which preceded it is taken by many to be conclusive evidence of the superiority of a straight pension over any plan which contem- plates contributions by the beneficiaries. It should be pointed out, however, that the excellence of the British civil service may logically be due, in part, to other causes than the pension system. The Civil Service Commission was established in England in 1855, just before the pension system, and it is safe to say that the appointment to office and promotion in office on the basis of merit would have had good results in the last half century even had the contributory plan of granting retiring allowances not been superseded by the system of free and universal pensions. Investigation has revealed the fact that very little objection was expressed by the employees to the contributory system of 1834 as such. It has also been shown that various people of wide official experience and consequence have, in recent years, expressed theit regret that the exaction of definite contributions was ever abandoned. The objections to the contributory system were based on the inade- quacy of salaries to bear deductions, and the faults in the details of the scheme, particularly the lack of provision for returning contribu- tions in case of death or resignation and the failure to fund the con- tributions and keep the employees' account with the Government separate from all others. It seems reasonable to suppose that the pension system which succeeded this contributory plan would have been popular with the employees themselves, if not with the country. Doubtless it was for a short time in the beginning. The evidence shows, however, that the employees soon ceased to regard the pension as a pure gratuity and came to consider it as a benefit paid for by themselves out of reductions in salary, and subject to large chances of forfeiture through death or resignation, since statistics showed that not more than one out of seven entrants into the service remained- to the pensionable age. Of about 100,000 individuals in the service in 1902, approxi- mately 70,000 were members of the Deferred Pay Committee, and claimed that pensions were deferred pay. This large body of employees held, in the second place, that the amount withheld from their salaries for the payment of pensions was more than necessary for the purpose. The Courtnev Commission CIVIL-SERVICE KETIEEMENT IN GREAT BRITAIN. 183 sustained them in their first contention but refused to admit the sec- ond. Without an actuarial investigation, which they were apparently imwilling to imidertake, it was not possible for the commissioners to disprove mathematically the claim of the employees that the amount withheld from salaries was excessive, and their denial of the claim must, therefore, be regarded as more or less arbitrary. Holding that the amounts withheld from salaries were entirely consumed in the payment of pensions, they were forced logically to refuse the request of the civil servants for a refund of the supposed excess in the form of free life insurance. They held, therefore, that the insurance could only be secured through a reduction of the pension. The important point to note is that the commission conceded that something was deducted from the employee's pay for the purpose of pensioning him at the end of his period of service. The English pension system is, therefore, not a free and absolute system of gratui- ties at all but a system of theoretical contributions from the employ- ees' salaries, more or less adequate to pay the benefits given. What- ever it may have been in the beginning, that is what it has become through the policy — a policy sure to develop under a system of gratui- ties, human nature being what it is — of taking the pension into con- sideration in fixing salaries. The English superannuation system having become avowedly a contributory system, the question to be investigated then is this: Is it a satisfactory form of contributory plan? It is undoubtedly more satisfactory to the employees, and justly so, since amended by the Act of 1909, than it was formerly under the Act of 1859. The problem of devising a satisfactory superannuation scheme for any service is one in which human nature is an element as well as arith- metic, and the fact should not be ignored that human nature is such that no system can be satisfactory to employees unless provision is made for the return, in some form, on separation from the service of their actual or theoretical contributions. This is abundantly shown by the testimony of Mr. Manly, the actuary, in regard to the experience of industrial schemes as well as by the British Govern- ment's own experience. The Act of 1909 takes cognizance of this fact. While the refund of imaginary contributions is accomplished by means of a reduction in the pension, this disadvantage is offset by the fact that all those in the service will become beneficiaries under the scheme and not merely those who live to reach pensionable age. The amended scheme is undoubtedly more satisfactory, too, than the old contributory scheme of 1834 discarded for the pension system of 1859. It is more satisfactory because the scheme of 1834 required the forfeiture of the contributions — in that case, actual contribu- 184 CIVIL-SEEVICE KETIBEMENT IN GKEAT BRITAIN. tions — on death or resignation, and because, like the pension system, it benefited only those who remained in the service and reached pensionable age. The question whether the present improved system is absolutely equitable as between individuals is difficult of satisfactory answer. It has been shown that it is more equitable than the old systems, but it can not be shown whether the amounts received by the employee in the form of pension, insurance, and cash-surrender values correspond with the amounts contributed by him, since it has not been ascer- tained what percentage of salary is withheld as a contribution. The Courtney Commission maintained that the theoretically contributed sum is no more, in the aggregate, than the amount required for pen- sions, but this does not prove that the sum contributed by any indi- vidual may not be more or less than what he should equitably con- tribute. A deduction of a given percentage of salary may be entirely adequate to furnish given benefits for a young man, while a deduction of the same percentage of salary will be quite inadequate to provide the same benefits for an older man. The failure of the Courtney Com- mission to gratify the request of the employees for a full investiga- tion into the subject so that the amounts actually withheld might be definitely determined makes any redistribution of benefits merely a guess rather than an exact calculation. In the absence of the necessary data, it is therefore impossible to answer the question: Is the present system absolutely equitable as between individuals ? While it is to be assumed that the calculations made by the actu- aries are unimpeachable, it is to be noted that those calculations were limited in scope and undertaken merely to ascertain what benefits could be given by reducing the pension one-quarter. The problem of the actuaries was to distribute equitably a definite sum. They were not asked to go farther back and devise a contributory scheme that would be just as between the State and the individual or equi- table as between different classes of individuals. The amended sys- tem is held to be merely a scheme of redistribution, but it should not be forgotten that only one-quarter of the amount to be distributed has been subject to actuarial calculation. Whether the other three- quarters have been equitably distributed can not be stated. One thing, however, can be definitely stated regarding the present system in comparison with a system where the contributions are actually instead of only theoretically paid, and where they are funded and invested at interest. It is less economical. Under the exist- ing system, the necessary sum is appropriated each year out of the Treasury for the payment of pensions. This sum amounts to from 16 to 20 per cent, in the various departments, of the sums paid for salaries. Under a contributory system, the neces- CIVIL-SEEVICE EETIEEMENT IN GREAT BRITAIN. 185 sary sum would be accumulated gradually from many contribu- tions invested at interest. 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 42 years, and at 3i per cent in 36 years, and at 4 per cent in 31 years, it follows that the total contri- butions 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 question naturally suggests itself then : Why would it not be a wiser distribution of funds, if the British Gov- ernment in appropriating a sum for the maintenance of civil estab- lishments (including an amount for salaries and another amount for pensions) should increase the salaries by the amount of the sum spent for pensions but require employees to pay out of their salaries a contribution sufficient to meet the cost of pensions? The net result of thus preferring a scheme of actual contributions to one of theoretical contributions would be a general increase in salaries without increasing the appropriation for either salaries or pensions, thus effecting a saving of money to the employees that, under present conditions, is lost. The first lesson for other countries seeking light from the history of English superannuation schemes is, therefore, this : The logical plan to adopt is a contributory plan, since a pension system is certain to be treated as a contributory system, and since a pension system is far more costly. It is better, then, to adopt a contributory plan in the beginning, worked out on scientific lines, with a definite relationship between contributions and benefits to make it equitable as between all classes of employees rather than a pension in the beginning and finally a patched-up arrangement, the fairness of which is open to question. Had the Commissioners of 1857 modified the contributory plan then in force in accordance with actuarial principles, the result would have been a more scientific and probably a more equitable arrangement than that which has just been arrived at after a half century of discontent and agitation. Had the Commissioners of 1857 arranged for the Government to assume the cost of all pensions on services rendered up to that time, and also increased the salaries of the employees sufficiently to pro- vide for the deductions necessary in the individual cases to create the pensions called for under a proper scale, together with a refund of accumulations in case of separation from the service and such insiu-ance as was asked for, the scheme to-day would be self-supporting at a cost to the Government through the increase of salaries of about one-half of the amount which is now paid out in pensions. Other valuable lessons may be learned from Great Britain's experience in retiring civil employees. It has been shown that 186 CIVIL-SEEVICE RETIREMENT IN GREAT BRITAIN. not all contributory plans are good. To be satisfactory, a contribu- tory plan must be based on certain fundamental principles : The contributions should be placed in a fund and invested at interest under guarantee of the Government, a separate account being kept with each contributor. Failure to fund the contributions of the employees under the plan of 1834 led to unnecessary misap- prehension and discontent. No account having been kept of the amounts received by the Government in contributions from the employees and the amounts returned to them in pensions, it was not known whether the Government had gained or lost by the transaction. Nursing the belief that they had paid in more than was ever returned to the service, the employees harbored resentment against the Government. Failure to fund the contributions resulted also in the loss to the employees of the interest which they would have received had the contributions been invested. The amount of contributions should be determined by the amotmt of the aimuity to be granted under the pension scale adopted. The annuity should be based on the amount of salary and the length of service which latter, in turn, depends largely on the age at entrance into the service. The percentage of deduction from salaries should vary, then, with the entrance age. This was not the case in the English contributory scheme of 1834, which was based on a fiat-rate assessment for all ages of 2^ per cent on salaries not exceeding £100 ($487) and 5 per cent on salaries exceeding that amount. The result was inequitable as between individuals of different ages and different salaries, the assessment being smaller than necessary for the older ages and in some cases a trifle larger than that required for the younger ages. As Doctor Farr pointed out, there was no direct con- nection between what was given and what was received. There must be sharp differentiation between accrued liabilities and future liabilities. The contributions made by present employees should be held in reserve to pay future pensions, and not consumed in paying pensions for past services. The accrued liabilities must be paid by the State or the contributed fund will become insolvent. To use the current contributions for the payment of pensions on back services is doubly destructive to any scheme because it not only takes the contributions that were paid in to meet future obliga- tions, but it cuts off the accumulation of interest. This disastrous coiu-se was followed under the contributory plan of 1834, as usually happens where there is a commingling of assets. The investigation made by Messrs. Ansell and Morgan, the actuaries, in 1857, showed that had the contributions been funded, the fund would by that time have been insolvent. The five per cent deduction from salaries was inadequate, not only because there were many employees whose age was such as to make a larger deduction than five per cent of CIVIL-SEKVICE EETIKBMENT IN GEEAT BEITAIN. 187 salary necessary, but because the deductions of the young employees were consumed in paying pensions to old employees. Provision should be made for the refund of contributions in case of separation from the service, whatever the cause. The lack of this provision in the Act of 1834 was felt to be a hardship and an injustice. The forfeiture of contributions was especially resented when employees died while in the service. Under either a contributory or a pension system, the experience of Great Britain points to several other fundamental principles: Retirement from the service should be made compulsory at some given age. If it is merely optional, the purpose of the system is likely to be defeated by the continuance of aged people in the service. The need of compulsion was felt for years in England before action was taken in the matter. Although this phase of the subject was clearly brought out in the investigations of the Select Committee of 1873 and in the inquiry of the Ridley Commission in 1886, and both bodies recommended that retirement be made compulsory at the age of 65, it was not until 1898 that the recommendation was carried out by means of an order in council. The importance of the principle is recognized in the most recent legislation on superannuation. The Act of 1909 provides for reduction in the superannuation allowance in the case of every employee who remains in the service, by favor of the Treasury, after reaching the age of 65 years. The amount of the retiring allowance should be calculated on the basis of the average rather than the final salary. The English pension is calculated on the basis of the salary received during the last three years of service, but there has been much discussion of this provision before the various commissions. Recognizing the fact that such a method of calculation is unsatisfactory, since it necessitates the use of a salary scale, which is always more or less unreliable, but evidently loath to make any great change because of the reduction in pension which it would cause, the Ridley Commission recommended an extension of the period used as a basis for calculation from three to ten years. The calculation of pensions on the ultimate rather than the mean salary is also open to special objection on the ground that it gives heads of departments and bureaus an incentive to show favor- itism in the matter of promotions and demotions in the final years of service. A provision for life insurance is a desirable adjunct to a retirement measure and one that is greatly appreciated by the employees. Such a provision has been urged by the British civil employees for over half a century. Life insurance benefits are less necessary, however, under a proper contributory plan than they have been under the contributory and pension plans of England, which made no refund of contributions in case of death. Under a plan which turns 188 CIVIL-SEBVICE RETIREMENT IN GREAT BRITAIN. over the deductions from salary with interest to the representatives of the employee dying in the service, the need of insurance is only acutely felt in the earlier years before the accumulations of the employee amount to a considerable sum. During that period, term insurance, which can be bought at a very low premium, will provide protection. It should be noted that the medical selection exercised in carrying out the insurance provisions of the Superannuation Act of 1909, will necessarily result in improving the already high standard of excellence of the British civil service. Appendix I. SUPERANNUATION ACT OF 1834. ANNO QTJAKTO & QUINTO GULIELMI IV. REGIS. [Cap. xxrv.] AN ACT To alter, amend, and consolidate the laws for regulating the pensions, compensations, and allow- ances to be made to persons in respect of their having held civil omees in His Majesty's service. [25th July 1834.] Whereas by an act passed in the fifty-seventh year of the reign of His late Majesty King George the Third, to enable His Majesty to recompense the services of persons holding or who have held certain high and efficient civil offices, His Majesty is em- powered to grant pensions, as therein provided, to persons who shall have served His Majesty, his heirs or successors, in the offices therein mentioned: And whereas by an act passed in the sixth year of the reign of His late Majesty King George the Fourth, for amending the said recited act, it is enacted, that the several other offices therein particularly described shall be deemed to be comprised' in the several classes of offices in the said recited act respectively specified: And whereas it is expedient that the amount of the pensions by the said two acts authorized to be granted should as to future pensions be reduced, and the conditions under which the same shall be granted be altered and regulated: Be it therefore enacted by the King's Most Excellent Majesty, by and with the advice and consent of the Lords spiritual and temporal, and Commons in this present Parliament assembled, and by the authority of the same, That from and after the passing of this act no pension to be granted to any person in respect of his having served in any one or more of the offices of first lord of the treasury, or of one of His Majesty's principal secretaries of state, or chancellor of the exchequer, or first lord of the Admiralty, or president of the board of commissioners for the affairs of India, or president of the committee of council appointed for the consideration of matters relating to trade and foreign plantations, shall exceed the sum of two thousand pounds per annum; nor shall any such pension be granted to any person unless he shall have held one or more of the said offices for a period of not less than two years in the whole, either uninter- ruptedly or at different times; nor shall any more or greater number than four such pensions hereafter to be granted, be existing or in force at the same time. II. And be it further enacted, That from and after the passing of this act no pension to be granted to any person in respect of his having served in either or both of the offices of chief secretary for Ireland or secretary at war shall exceed the sum of one thousand four hundred pounds per annum, nor shall any such pension be granted to any person unless he shall have held one or both of the said offices for a period of not less than five years in the whole, either uninterruptedly or at different times; nor shall any more or greater number than two such last-mentioned pensions be existing or in force at the same time. III. And be it further enacted. That from, and after the passing of this act no pension to be granted to any person in respect of his having served in any one or more of the offices of one of the joint secretaries of the treasury, or first secretary of the Admiralty, or vice president of the committee of commissioners appointed for the consideration of Blatters relating to trade and foreign plantations, shall exceed the sum of twelve hundred pounds per annum; nor shall any such pension be granted to any person unless he shall have held one or more of the said offices for a period of not less than five CIVIL-SEEVICE EETIKBMENT IN GREAT EKITAIN, 189 years in the whole, either uninterruptedly or at different times; nor shall any more or greater number than four such last-mentioned pensions be existing or in force at the same time. IV. And he it further enacted, That from and after the passing of this act the pension, not exceeding one thousand pounds, authorized by the said recited act to be granted to any person in respect of his having served in any one or more of the offices of one of the under secretaries of state, or clerk of the ordnance, or second secretary of the Adrniralty, or one of the secretaries of the board of commissioners for the affairs of India, shall not be granted to any such person unless he shall have held one or more of the said offices for a period of not leas than ten years in the whole, either uninter- ruptedly or at different times; nor shall any more or greater number than six such last-mentioned pensions be existing or in force at the same time. V. Provided always, and be it enacted. That in case it shall happen that any person shall have served His Majesty, his heirs or successors, in more than one class of offices herein-before specified, in respect whereof any pension less than two thousand pounds may be granted, it shall be lawful to grant, under the regulations aforesaid, to such person any pension annexed to the highest class of office in which such person may have been employed, whenever the whole period of the service of such person in the several offices in which he shall have been employed shall amount to ten years, although the period of the service of such person in such highest class shall not have extended to the period of five years; Provided always, That such person shall have served in such highest class for the period of not less than three years; and in cases in which the service of any such person in any class of those offices shall not be sufficient to entitle him to the pension of that class, it shall be lawful to grant him a pension not exceeding one thousand pounds, provided the period of his aggregate services in that and any inferior class or classes or department of the public service shall amount to ten years: Provided also. That there shall not be more than the aforesaid number of pensions to that amoimt existing at the same time. VI. And whereas the principle of the regulations for granting allowances of this nature is and ought to be founded on a consideration, not only of the services performed by the individual to the state, but of the inadequacy of his private fortune to main- tain his station in life; Be it therefore enacted. That from and after the passing of this act, whenever any person shall seek to obtain any one of the pensions before mentioned, his application for that purpose shall be made in writing to the commissioners of His Majesty's treas- ury, to which he shall subscribe his name, and which shall contain, not only a state- ment of the services performed by him, and the grounds on which such pension is claimed, but a specific declaration that the amount of his income from other sources is so limited as to bring him within the intent and meaning of this act and the prin- ciple herein-above declared, and without such declaration no pension as herein- before provided or authorized shall be granted. VII. Provided always, and be it further enacted, That the several regulations with respect to the granting of any of the before-mentioned pensions, -and to the receipt thereof by the persons to whom such grants may be made, which are contained m the said recited act of the fifty-seventh years of King George the Third and the sixth year of King George the Fourth, shall continue in full force and effect, and be appli- cable to pensions to be granted under the authority of this act, except so far as any such regulations are altered or repealed by the enactments contained in this act. VIII. And be it further enacted. That from and after the passing of this act an act made in the fiftieth year of the reign of His late Majesty King George the Third, to direct that accounts of increase and diminution of public salaries, pensions, and allow- ances shall be annually laid before Parliament, and to regulate and control the grant- ing and payment of such salaries, pensions, and allowances; and two several acts passed in the fifty-first year of the reign of His said late Majesty and in the third year of His late Majesty King George the Fourth, severally to amend the said act of the fiftieth year of the reign of King George the Third; and also an act passed in the fifth year of the reign of His said late Majesty King George the Fourth, to amend the said act of the third year of His said Majesty's reign; and so much of an act passed in the sixth year of the reign of His said late Majesty, to regulate the payment of salaries and allowances to British consuls, as respects the allowance to be made to such consuls in the nature of superannuation or reward for meritorious public services; shall be and the same are hereby repealed, except so far as relates to any matter or thing already done under the said acts or either of them. IX. And be it further enacted. That from and after the passing of this act the super- annuation allowances to be granted to such officers and clerks who shall have entered the public service prior to the fifth day of August, one thousand eight hundred and 190 CIVIL-SEEVICE BETIEEMENX IN GREAT BBITAIN. twenty-nine (except only as herein-after is authorized), shall not exceed the follow- ing proportions with reference to the amount of their salaries and the periods of their services respectively (videlicet): To an officer, clerk, or person who shall have served ten years and upwards, and under fifteen years, any annual allowance not exceeding in amount four-twelfths of the annual salary and emoluments of his office; For fifteen years and upwards, and under twenty years, not exceeding five-twelfths of such salary and emoluments; For twenty years and upwards, and under twenty-five years, not exceeding six- twelfths of such salary and emoluments; For twenty-five years and upwards, and under thirty years, not exceeding seven- twelfths of such salary and emoluments; For thirty years and upwards, and under thirty-five years, not exceeding eight- twelfths of such salary and emoluments; For thirty-five years and upwards, and under forty years, not exceeding nine- twelfths of such salary and emoluments; For forty years and upwards, and under forty-five years, not exceeding ten-twelfths of such salary and emoluments; For forty-five years and upwards, and under fifty years, not exceeding eleven- twelfths of such salary and emoluments; And for fifty years or upwards, any annual allowance not exceeding the net amount of the salary and emoluments of his office. X. And be it further enacted, That from and after the passing of this act it shall not be lawful to grant to any officer or clerk who shall have entered the public service subsequent to the fourth day of August, one thousand eight hundred and twenty- nine, except as hereinafter authorized, any superannuation or allowance exceeding the following proportions, with reference to the amount of their salaries and the periods of their services respectively (videlicet): To an officer, clerk, or person who shall have served ten years and upwards, and under seventeen years, any annual allowance not exceeding in amount three-twelfths of the salary and emoluments of his office; For seventeen years' service and upwards, and under twenty-four years, not exceed- ing foiur-twelfths of such salary and emoluments; For twenty-four years' service and upwards, and under thirty-one years, not exceed- ing five-twelfths of such salary and emoluments; For thirty-one years and upwards, and under thirty-eight years, not exceeding six- twelfths of such salary and emoluments; For thirty-eight years and upwards, and under forty-five years, not exceeding seven-twelfths of such salary and emoluments : And for forty-five years and upwards, not exceeding eight-twelfths of such salary and emoluments: And in no case, except as herein-after is especially provided, shall any superannua- tion or allowance exceeding two-thirds of the salary and emoluments of any such officer, clerk, or person, be granted. XI. And be it further enacted, That from and after the passing of this act it shall not be lawful to grant any superannuation allowance to any officer or clerk who shall be under sixty-five years of age, unless upon certificates from the heads of the depart- ment to which such officer or clerk shall belong, and from two medical practitioners, that he is incapable, from infirmity of mind or body, to discharge the duties of his situation, nor unless he shall have discharged those duties with diligence and fidelity, to the satisfaction of the head officer or officers of his department, which shall be cer- tified by any two of such head officers if there shall be more than one, or by such head officer if there shall be but one; and in case the person claiming such superan- nuation allowance shall himself be the head officer, or one of the head officers, then such superannuation allowance shall not be granted unless he shall have discharged the duties of his situation with diligence and fidelity, to the satisfaction of the com- missioners of the Admiralty, if such head officer shall hold any office or situation under the control of that department, and in all other cases to the satisfaction of the com- missioners of the treasury; and the said commissioners of the Admiralty and treasury respectively shall express such satisfaction in their minute recommending or author- izing the grant of any such superannuation allowance. XII. Provided always, and be it further enacted, That the superannuation allowance to be granted to any officer or person after the passing of this act shall not be computed upon the amount of the salary enjoyed by him at the time of hia retirement, unless he shall have been in the receipt of the same, or in the class from which he retires, for a period of at least three years immediately before the granting of such superannua- tion allowance; and in case he shall not have enjoyed his then existing salary, or CIVIL-SEBVICE EETIEBMENT IN GREAT BRITAIN. 191 have been in such class for that period, such superannuation allowance shall be cal- culated upon the average amount of salary received by such person for three years next preceding the commencement of such allowance. XIII. And be it further enacted. That all compensations and allowances granted, or hereafter under this act to be granted, as pensions or superannuations, shall be paid to the persons entitled to receive the same without any abatement or deduction in respect of any taxes or duties whatever at present existing. Xiy. And be it further enacted, That the superannuation allowances authorized by this act shall extend to all such civil offices and departments as are set forth and enumerated in the schedule to this act, with such exceptions as are specified in the said schedule: Provided always, That it shall be lawful for the commissioners of His Majesty's treasury, by any order on warrant under the hands of any three or more of them, to add to the list of offices and departments enumerated in the said schedule any other offices or departments which now exist or may hereafter be created or estab- lished, and to place the same, and the officers and persons employed therein, under the provisions of this act; in every which order or warrant the reasons for adding any such office or department shall be stated, and a copy of every such order or warrant shall be laid before Parliament within one month after the making thereof, if Parlia- ment shall be then sitting, and if not, then within one month after the then next sitting of Parliament; and all the provisions of this act, and all the powers, authorities, regulations, restrictions, and clauses therein contained, shall in every such case apply and be put in force with respect to every office or department which shall be so added as aforesaid as fully and effectually, to all intents and purposes, as if they had been originally specified and enumerated in the said schedule. XV. Provided always, and be it further enacted, That nothing in this act contained shall extend or be construed to extend to or authorize the adding to such list any offices held under military or naval commissions, entitling the holders of the same to half pay, or any military or naval allowance in lieu of or in addition to half pay, allowed under the regulation of any order of His Majesty in council to any persons for services in His Majesty's army, navy, or ordnance, or any offices in any of His Majesty's courts at Westminster or Dublin, or any other of His Majesty's courts of justice elsewhere, or the comptroller of His Majesty's exchequer, or any offices in relation to which the granting of any allowances for past services has been specially regulated by any act, or any offices held as sinecures, or executed principally by deputy. XVI. And be it further enacted, That no compensation hereafter to be made or superannuation allowatice to be granted in respect of civil services to any person entitled to half pay in the army, ordnance, navy, or marines, who shall have been appointed to the civil service subsequently to the fourth day of August, one thousand eight hundred and twenty-nine, shall in any case, except as in this act is specially provided, exceed in the whole (computing his half pay in such compensation or allowance) the amount of two-thirds of the salary and emoluments of the office relin- quished by him: Provided always, That nothing in this act contained shall extend or be construed to extend to entitle any superintendent of a dock yard or other estab- lishment in the civil department of the navy, who shall have held any civil appointr ment prior to the fifth day of August, one thousand eight hundred and twenty-nine, to any superannuation allowance under this act beyond the amount stipulated by the terms on which he shall have accepted the office of superintendent, or the amount established by any order of His Majesty in council concerning superintendents. XVII. Provided always, and be it further enacted. That in any casein which it shall appear to the commissioners of His Majesty's treasury that any special circumstances afford to any officer or clerk in the several offices or departments mentioned in the schedule to this act, or in the addition authorized to be made thereto, who is not within the exceptions therein contained, a just claim to an amount of superannuation allow- ance not authorized by this act, or exceeding the amount therein specified with reference to the length of his service, it shall be lawful for the commissioners of His Majesty's treasury to grant, or give authority for granting, any special superannuation which such officer or clerk shall appear to them to deserve; but m every such case the grounds on which such special superannuation shall be granted or authorized shall be stated in the grant thereof, or in the authority for granting the same, and also entered in the minutes of the treasury, and shall likewise be laid before Parliament within one month after the fifth day of January in each year, if Parliament be sitting during that period, or if not, then within one month after the ensuing meeting of Parliament. XVIII. And be it further enacted, That no compensation for any office abolished, nor any special allowance or remuneration for good services to any person holding or having held any civil office in any public department, shall be cnarged upon the incidents or any other fund of any such department; and that no such compensation, 192 CIVIL-SERVICE BETIBEMENX IN GREAT BRITAIlir. nor any allowance or compensation in the nature of superannuation or retired allow- ance or reward to any such person in respect of his having held any public office or employment, or having been engaged in any public service, shall be granted, allowed, or paid, other than under the authority of an order of His Majesty in council, or by the commissioners of His Majesty's treasury, or any three or more of them. XIX. And be it further enacted and provided. That every person to whom any com- Eensation or allowance, in consequence of the abolition or reduction of office, shall ereafter be granted shall at all times, when called upon, be liable to fill, in a,ny part of His Majesty's dominions in which he shall have already served, any public office or situation under the Crown for which his previous public services may render him eligible; and that if he shall decline, when called upon so to do, to take upon himself such office or situation, and execute the duties thereof satisfactorily, being in a com- petent state of health, he shall forfeit his right to any compensation or allowance which may have been granted to him in respect of any former services. XX. Provided always, and he it further enacted. That in case any person enjoying any superannuation allowance, in consequence of retiring from office .on account of age, infirmity, or any other cause, or enjoying any compensation for past services upon the abolition or reduction of office, shall be appointed to fill any office in any public department, every such allowance or compensation shall cease to be paid for any period subsequent to such appointment, if the annual amount of the profits of the office to which he shall be appointed shall be equal to those of the office formerly held by him, and in case they shall not be equal to those of his former office, then no more of such superannuation allowance or compensation shall be paid to him than what with the salary of his new appointment shall be equal to that of his former office, XXI. Provided always, and he it further enacted. That nothing_ herein contained with respect to compensation, superannuation, or allowance for civil services, shall extend or be construed to extend to any military or naval half pay, or allowance in lieu of half pay, or to any military or naval allowance or pensions granted or to be granted, under the regulations of any order of His Majesty in council, in any of the respective departments of the commissioners of the Admiralty, the secretary at war, and the master general of the ordnance, except as herein-after is provided with respect to the same. XXII. And he it further enacted, That between the first day of February and the twenty-fifth day of March in every year, or if Parliament shall not be sitting during any part of that period, then within twenty days after the next meeting of Parliament, there shall be laid before both Houses of Parliament an account of every increase and diminution which shall have taken place within the preceding year, ending on the thirty-first day of December, in the number of persons employed in all public offices or departments under the Crown, and in the salaries, emoluments, allowances, and expences which shall have taken place or been paid, granted, received, or incurred for and in respect of all officers and persons belonging to or employed in all such public offices or departments, specifying the amount and nature thereof, and dis- tinguishing every increase and diminution in the amount of all allowances or com- pensations granted as retired allowances or superannuations to any person having held any office, place, or employment in any such public office or department, and also the time and length of service of every such person, and the amount of the salary and emoluments received by such person immediately preceding his superannuation or retirement, and the nature of his services, and the grounds upon which such increase or diminution in the establishment of every such public office or department, or of any such salary, emolument, allowance, compensation, or superannuation, shall have been granted or made; and also specifying the name of every person receiving such allowance or compensation who may have died in the course of the year, together with the amount of the annual allowance payable to such person. XXIII. Provided always, and he it further enacted. That accounts of all compensa- tions for offices abolished, and of all allowances in the nature of superannuation or retired allowances to all other persons in respect of their having held any public office or employment under the Crown, shall annually, at the period lastly provided, be laid before the Commons House of Parliament. XXIV. And whereas the scale of allowance under this act specifies the highest rate which a superannuated officer can receive unless his case be specially laid before Parliament: And whereas it is expedient that the Lords of His Majesty's Treasury and the Lords of the Admiralty for the time being, respectively, should consider the health, age, meritorious conduct, and other circumstances of each party applying for a superan- nuation allowance, in order to exercise their discretion in fixing the amount of such allowance, subject always to the limitation prescribed by this act: And whereas it is expedient that Parliament should be made acquainted with the manner in which such discretion shall be exercised; CrVIL-SEBVICE BETIEBMENT IN GREAT BRITAIN. 193 Be it therefore enacted, That all orders of His Majesty in council, and minutes of the lords of the treasury, which shall at any time be framed or passed laying dowi^ any general rule or regulation respecting the granting of superannuation allowances, shall within one month of the date thereof, if Parliament should be then sitting, or if not, then within one month after the commencement of the next ensuing session of Par- liament, be laid before the two houses of Parliament, respectively. XXV. Provided always, and be it further enacted. That all half pay and allowances in lieu of half pay in the several departments of the army, ordnance, navy, and marines, and all military and naval allowances or pensions granted or which shall be granted in any of such departments under the authority of any order in council, shall be annually laid before the Commons House of Parliament in separate estimates, at the same time with the ordinary estimates of those respective departments, and shall be kept distinct from all pensions, compensations, superannuation and retired allowances in any of the civil offices of those departments, respectively. XXVI. And be it further enacted, That the compensations, superannuations, and allowances authorized as well by this as any former act or acts shall, when not specially provided for by Parliament, be charged upon and paid and payable by the respective departments or offices in which the persons receiving such allowances shall have served. XXVII. And whereas the commissioners of the treasury did, by a minute dated the fourth day of August, one thousand eight hundred and twenty-nine, record their intention to adopt certain regulations with a view to reduce prospectively the charge incurred in providing for superannuation allowances, of which notice was given in the several public departments, for the information of those who should thereafter enter the public service: And whereas, in pursuance of the said minute, an annual abatement hath been made from the salaries and emoluments of the several persons who have entered the public service subsequent to the date thereof; and whereas it is expedient to continue such abatement in those cases, and to extend it to others, as hereinafter provided: Be it therefore further enacted. That from and after the passing of this act there shall be an annual abatement made, in quarterly proportions, by the proper officer in each respective department, from the salaries and emoluments of the several officers and persons employed in the several civil offices and departments specified in the schedule to this act, or to be specified in the addition authorized to be made thereto, and not within the exceptions thereof, who have since the date of the said minute entered or shall hereafter enter the public service, in such manner and under such directions as shall from time to time be given in this respect by the comniisBioners of the treasury or of the Admiralty, as the case may be; the amount of which abate- ment shall be according to the respective rates following, that is to say: From salaries and emoluments not exceeding the annual sum of one hundred pounds, an abatement after the rate of two pounds ten shillings per centum; And from salaries and emoluments exceeding one hundred pounds, five pounds per centum; And in the cases of all persons whomsoever at present holding office and entitled to superannuation allowance under this act, who shall have been appointed to such office subsequently to the issue of the minute of the lords commissioners of His Majesty's treasury, bearing date the fourth day of August, one thousand eight hundred and twenty-nine, for the future regulation of the several civil departments of the public service, and who shall hereafter, upon promotion, obtain any increase of salary or allowances in respect of their offices, an annual abatement, after the like rates, respectively, shall be made from the amount of such increase from time to time, commencing from the period when the same shall take place. XXVIII. And be it further enacted, That it shall be lawful for the person or persons at the head of any department in which any fees or other sources of profit may form part of the emoluments of any office in such department, to fix, with the approbation of the commissioners of His Majesty 's treasury , or for the commissioners of the Admiralty if the office shall be in that department, an average sum upon which the compensation or superannuation allowance shall be granted, as well as the sum to be annually abated, as hereinbefore provided, from such person's salary in respect of such emolu- ments, which sum so to be fixed shall not exceed the average amount of such emolu- ments for the three last preceding years. , ,. „ ^ ,i XXIX. And be it further enacted. That the vice-treasurer of Ireland shall at aU times, when required so to do by the commissioners of His Majesty's treasury, transmit to the said commissioners accounts of the execution of this act, and of all matters and things relating thereto, in his execution of the powers thereof, in such manner and form, and containing such particulars as he shall in that behalf be from time to time directed. 35885— S. Doc. 290, 61—2 13* 194 CIVIL-SBKVICE BETIKEMENT IN GREAT BBITAIN. XXX. Provided always, and be it further enacted, That nothing in this act contained shall extend or be construed to extend to give any person an absolute right to com- pensation for past services, or to any superannuation or retiring allowance under this act, or to deprive the commissioners of His Majesty's treasury, and the heads or prin- cipal officers of the respective departments, or their power and authority to dismiss any person from the public service without compensation. XXXI. An/1 be it further enacted, That this act may be amended, altered, or repealed by any act or acts to be passed in this present session of Parliament. Schedule referred to in ike aforegoing act. Offices or departments. Exceptions. Treasury Office of vice-treasurer in Ireland. Office of privy council, Great Britain and Ireland. Office of committee for trade Offices of secretaries of state Office of secretary for Ireland Alien office. Consuls-general and consuls restricted from being engaged in trade. State paper office. Office of registrar of slaves. Police offices in London and Middle sex and borough of Southwark. Commander of the forces office England and Ireland. Quartermaster-general's office, ditto.. Adjutant-general's office, ditto. . . . War office Army medical board. Board of general officers Chaplain-general's office. Judge-advocate-general's office Army pay office Ordnance office. Chelsea and Kilmainham hospitals.. Royal Military College Royal Military Asylum Admiralty and naval establishments at home and abroad. Navy pay office Tax office and stamp office. Customs. Excise. Post-office Royal mint Audit office. Comptrollers of army accounts. Lords of the treasury and joint secretaries. President of the council. President and vice-president. Secretaries and under secretaries. Chief secretary, the parliamentary counsel for Irish affairs. [Commander in chief and his secretary, and [ officers acting under military commissions. Secretary at war. Officers acting under military commissions. Judge-advocate-general . Paymaster-general . Master-general. Clerk of the ordnance. Surveyor-general. Principal storekeeper. Secretary to master-general, and all persons holding their situations by military commis- sion. Treasurer of the ordnance. Persons who, being military officers, may be entitled to full or half pay as such, subject, however, to the provisions of this act. Lords of the admiralty and secretaries. Superintendents of dock yards and victualling yards, and naval medical establishments or hospitals, not having been employed in the civil service of the navy prior to the fifth day of August, One thousand eight hundred and twenty-nine, and officers acting by virtue of naval or military commissions or warrants, , and entitled to half pay. The treasurer. The postmaster-general. The master of the mint. OIVIL-SEEVICE KETIEBMENT IN GREAT BRITAIN. Schedule referred to in the aforegoing act — Continued. 195 Offices or departmenta. Exceptions. National debt office. Office of comptroller of the exchequer. Exchequer bill office. Stationery offiCe. Office of woods, forests, works, etc . . . King's remembrancer's office in the exchequer of Scotland. Office of auditor of the exchequer of Scotland. Signet and privy seal offices, Scot- land. British and Irish fishery. The comptroller-general. First commissioner. Auditor. IRELAND. Office of teller of the exchequer The teller. Commissariat Persons holding aommissions entitling them to half pay, subject, however, to the provisions of this act. Hibernian school for soldiers' chil- dren. Board of education. Privy seal office. Board of charitable donations and bequests. Registrar of deeds. Appendix II. SUPERANNUATION ACT, 1859. [22 Vict., Chapter 26.] AN ACT To amend the laws concerning superannuations and other allowances to persons having held civil offices in the public service. [19th April, 1859.] Whereas an act was passed in the session holden in the fourth and fifth years of King William the Fourth, chapter twenty-four, "to alter, amend, and consolidate the laws for regulating the pensions, compensations, and allowances to be made to persons in respect of their having held civil offices in His IVIajesty's service; " And whereas by an act of the session holden in the twentieth and twenty-first years of Her Majesty, chapter thirty-seven, section twenty-seven of the first-recited act, by which an abatement was directed to be made from the salaries of civil servants entitled to superannuation allowance, was repealed; , . . ^ ■, And whereas it is desirable further to amend the said act as hereinafter mentioned: Be it therefore enacted by the Queen's Most Excellent Majesty, by and with theadmce and consent of the Lords, spiritual and temporal, and Commons, m this present Parliament assembled, andby the authority of the same, as follows: I. Sections ten, eleven, thirteen, fourteen, fifteen, seventeen, nmeteen^ and twenty-four of the said act of the fourth and fifth years of King William the Fourth are hereby repealed, but such repeal shall not affect any pension compensation, or superannuation allowance granted or act done before the passmg of this act. II Subject to the exceptions and provisions hereinafter contained, the superan- nuation allowance to be granted after the commencement of this act to persons who shall have served in an established capacity in the permanent civil service of the state, whether their remuneration be computed by day pay, weekly wages or annual salary, and for whom provision shall not otherwise have been made by act of Parlia- ment, or who may not be specially excepted by the authority of Paxhament, ehafl be as follows (that is to say) : 196 CIVIL-SERVICE KETIKEMENT IN GKBAT BEITAIN. To any person who shall have sfflved ten years and upwards, and under eleven years, an annual allowance of ten-sixtieths of the annual salary and emoluments of his office; For eleven years, and under twelve years, an annual allowance of eleven-sixtieths of such salary and emoluments; And in like manner a further addition to the annual allowance of one-sixtieth in respect of each additional year of such service, until .the completion of a period of service of forty years, when the annual allowance of forty-sixtieths may be granted; and no addition shall be made in respect of any service beyond forty years: Provided always, That if any question should arise in any department of the public service as to the claim of any person or class of persons for superannuation under this clause, it shall be referred to the commissioners of the treasm-y, whose decision shall be final. III. Nothing herein contained shall interfere with the grant, to the officers and clerks who entered the public service prior to the fifth day of August, one thousand eight hundred and twenty-nine, of such superannuation allowances as might hereafter have been granted to them under section nine of the said act of the fourth and fifth years of King William the Fourth, or shall prevent, restrict, or diminish any other superannuation allowance, pension, gratuity, or compensation which, if this act had not been passed, might hereafter have been granted to any person who shall have entered the public service before the passing of this act, but, except as aforesaid, the provisions hereinafter contained shall apply as well to persons who have already entered the public service, whether before or after the said fifth day of August, one thousand eight hundred and twenty-nine, as to those who may hereafter enter the public service. IV. It shall be lawful for the commissioners of the treasury from time to time, by any order or warrant, to declare that for the due and efficient discharge of the duties of any office or class of offices to be specified in such order or warrant, professional or other peculiar qualifications, not ordinarily to be acquired in the public service, are required, and that it is for the interest of the public that persons should be appointed thereto at an age exceeding that at which public service ordinarily begins; and by the same or any other order or warrant to direct that when any person now holding or who may hereafter be appointed to such office or any of such class of offices shall retire from the public service, a number of years not exceeding twenty, to be specified in the said order or warrant, shall, in computing the amount of superannuation allow- ance which may be granted to him under the foregoing section of this act, be added to the number of years during which he may have actually served, and also to direct that in respect of such office or class of offices the period of service required to entitle the holders to superannuation may be a period less than ten years, to be specified in the order or warrant; and also to direct that, in respect of such office or class of offices, the holder may be entitled to superannuation, though he may not hold his appoint- ment directljr from the Crown, and may not have entered the service with a certificate from the civil service commissioners: Provided always, That every order or warrant made under this enactment shall be laid before Parliament. V. It shall be lawful for the commissioners of the treasury to grant to any person who, being the holder of an office in respect of which a superannuation allowance may be granted, but not having completed the period which would have entitled him to a superannuation allowance, is compelled to quit the public service by reason of severe bodily injury, occasioned, without his own default, in the discharge of his public duty, a gra,tuity not exceeding three months' pay for every two years of service, or a superannuation allowance not exceeding ten-sixtieths of the annual salary and emoluments of his office. VI. It shall be lawful for the commissioners of the treasury to grant to any person who, being the holder of an office in respect of which a superannuation allowance may be granted, is constrained, from infirmity of mind or body, to leave the public service before the completion of the period which would entitle him to a superannuation allowance, such sum of money by way of gratuity as the said commissioners may think proper, but so as that no such gratuity shall exceed the amount of one month's pay for each year of service. yll. It shall be lawful for the commissioners of the treasury to grant to any person retiring or removed from the public service in consequence of the abolition of his office, or forthe purpose of facihtating improvements in the organization of the depart- ment to which he belongs, by which greater efficiency and economy can be effected, such special annual allowance by way of compensation as on a full consideration of the circumstances of the case may seem to the said commissioners to be a reasonable and just compensation for the loss of office; and if the compensation shall exceed the amount to which such person would have been entitled under the scale of superannu- CIVIL-SEEVICE EETIEBMENr IN GREAT BRITAIN. 197 ation provided by this act if ten years were added to the number of years which he may have actually served, such allowance shall be granted by special minute, stating the special grounds for granting such allowance, which minute shall be laid before parliament, and no such allowance shall exceed two-thirda of the salary and emolu- ments of the office. VIII. It shall not be lawful for the commissioners of the treasury to grant the full amount of superannuation allowance which can be granted under this act to any person not bemg the head officer or one of the head officers of a department, unless upon production of a certificate (signed by the head officer of the department, or by two head officers, it there be more than one) that he has served with diligence and fidelity to the satisfaction of such head officer or officers; and in every case in which any superannuation allowance is granted, after the refusal of such certificate, the minute granting it shall state such refusal and the grounds on which the allowance is granted. IX. Provided, That it shall be lawful for the commissioners of the treasury to grant to any person any superannuation, compensation, gratuity, or other allowance of greater amount than the amount which might be awarded to him under the foregoing provisions, w^hen special services rendered by such person, and requiring special reward, shall appear to them to justify such increase, but so that such allowance shall in no case exceed the salary and emoluments enjoyed by the grantee at the time of retirement, and the grounds of every such increase shall be stated in a minute of the treasury, which shall be laid before parliament; and it shall be lawful for the said com- missioners to grant to any person any such allowance of less amount than otherwise would have been awarded to him where his defaults or demerit in relation to the public service appear to them to justify such diminution. X. It shall not be lawful to grant any superannuation allowance under the provisions of this act to any person who shall be under sixty years, unless upon medical certifi- cate to the satisfaction of the commissioners of the treasury that he is incapable, from infirmity of mind or body, to discharge the duties of his situation, and that such infirmity is likely to be permanent. XI. Every person to whom a superannuation or compensation allowance shall have been granted before he shall have attained the age of sixty years shall, until he has attained that age, be liable to be called upon to fill, in any part of Her Majesty's do- minions in which he shall before have served, any public office or situation under the Crown for which his previous public services may render him eligible; and if he shall decline, when called upon to do so, to take upon him such office or situation, or shall decline or neglect to execute the duties thereof satisfactorily, being in a competent state of health, he shall forfeit his right to the compensation or superannuation allow- ance which had been granted to him. XII. And whereas it will be for the advantage of the public service that officers holding employments entitling them to superannuation allowances under this or other acts shall be eligible for other public employments at home and abroad, without for- feiting their claims to such allowances. Every officer already or hereafter to be transferred from employment entitling him to superannuation allowance to public employment under the Crown not so entitling him shall be entitled, on his ultimate retirement from the public service, to the same allowance as if he had continued to hold the vacated appointment and at the same rate of salary as when the same was vacated, subject nevertheless to the conditions which would in that case have been applicable with respect to the grant of such allow- ance; provided that it shall be lawful for the commissioners of the treasury, in the case or officers transferred to governorships and lieutenant-governorships of colonies, and other high offices abroad, conferred for a limited period, to grant such super- annuation allowance to such officers on the expiration of such term of service without a renewal of public employment; but any officer to whom such grant is made while under the age of sixty years shall be subject to the same liability to be called upon to fill office under the Crown, as herein provided concerning other persons under that age to whom like allowances are granted. XIII. All orders, warrants, and minutes by this act directed to be laid before Parliament shall be laid before both Houses of Parliament within fourteen days after the making thereof if Parliament be sitting, and if Parliament be not sitting, then within fourteen days after the next meeting thereof. XIV. No pension shall be granted under the provisions of section six of the act of the fifty-seventh year of King George the Third, chapter sixty-five, to any person who shall not have had a seat in one of the Houses of Parliament during the period or one-half of the period for which he has held office, as in the said section is men- tioned. 198 CIVIL-SERVICE EETIEEMENT IN GREAT BRITAIN. XV. The several sections mentioned in the schedule hereto of the several acts of Parliament, also therein mentioned, shall be'construed as if this act, instead of the said act of the iouith and fifth years of the reign- of King William the Foiu-th, had been referred to in the said sections; and such other enactments as refer to the scale of superannuation allowance established by the provisions hereby repealed of the said act of King William the Fourth shall be construed as if the scale established by this act had been referred to. XVI. All superannuations, compensations, gratuities, and other allowances granted or hereafter under this act to be granted shall be paid to the persons entitled to receive the same without any abatement or deduction in respect of any taxes or duties what- ever at present existing, except the tax upon property or income. XVII. For the purposes of this act, no person hereafter to be appointed shall be deemed to have served in the permanent civil service of the State unless such person holds his appointment directly from the Crown, or has been admitted into the civil service with a certificate from the civil service commissioners; nor shall any person, already appointed to any ofiice, be held to have served in the permanent civil service as aforesaid, unless such person belong to a class which is already entitled to super- annuation allowance, or to a class in which, if he had been appointed thereto subse- quently to the passing of this act, he would, as holding his appointment directly from the Crown, or as having been admitted into the civil service with such certificate as aforesaid, have become entitled to such allowance; and no person shall be entitled to any superannuation allowance under this act, unless his salary or remuneration has been provided out of the consolidated fund of the United Kingdom of Great Britain and Ireland, or out of monies voted by Parliament. XVIII. So much of the said act of the fourth and fifth years of King William the Fourth, chapter twenty-four, as is now in force and not hereby repealed, and this act, shall be construed together as one act. XIX. It shall be sufficient, in citing this act, to use the expression "The super- annuation act, 1859." Schedule A. 5 & 6 W. 4. c. 42. s. 1. 15 & 16 Vict. c. 73. s. 15. 7 W. 4. & 1 Vict. c. 30. s. 21. 15 & 16 Vict. c. 87. s. 46. 8 & 9 Vict. c. 100. ss. 5. 10. 17 & 18 Vict. c. 78. s. 22. 13 & 14 Vict. c. 89. s. 39. 19 & 20 Vict. c. 110. s. 9. Appendix III. SUPERANNUATION ACT, 1887. [50 & 51 Vict., Chapter 67.] AN ACT To amend the superannuation acts, 1834 and 1869, and tor otherpurposes. [16th September 1887 .J Be it enacted by the Queen's Most Excellent Majesty, by and with the advice and consent of the Lords spiritual and temporal, and Commons, in this present Parliament assembled, and by the authority of the same, as follows: 1. (1) Where a person employed in the civil service of the state is injured— (a) in the actual discharge of his duty; and (6) without his own default; and (c) by some injury specifically attributable to the nature of his duty the treasury may grant to him, or, if he dies from the injury, to his widow, his mother, If wholly dependent on him at the time of his death, and to his children, or to any of them, such gratuity or annual allowance as the treasury may consider reasonable, and as may be permitted by the terms of a warrant under this section (2) The treasury shall forthwith after the passing of this act frame a warrant regu- latmg the grant of gratuities and annual allowances under this section, and the war- rant so framed shall be laid before Parliament (3) Provided, That a gratuity under this section shall not exceed one year's salary of the person mjured, and an allowance under this section shall not, together with any superannuation allowance to which he is otherwise entitled, exceed tie salary of the person mjured, or three hundred pounds a year, whichever is less. Z (1) Where a civil servant is removed from his office on the ground of his inability ^J^t^Y efficiently the duties of his office, and a superannuation allowance can not lawtuUy be granted to him under the superannuation acts, 1834 and 1859, and the CIVIL-SEBVICE EETIKEMENT IN GREAT BRITAIN. 199 treasury think that the special circumstances of the case justify the grant to him of a retiring allowance, they may grant to him such retiring allowance as they think just and proper, but in no case exceeding the amount for which his length of service would qualify him under sections two and four of the superannuation act, 1859, without any addition under section seven of that act. (2) A minute of the treasury granting an allowance under this section to any civil servant shall set forth the amount of the allowance granted to him, and the reasons for such allowance, and shall be laid before Parliament: Provided, That the treasury before making the grant shall consider any representation which the civil servant removed may have submitted to them. 3. Where a person at the time he becomes a civil servant within the meaning of this act is serving the state in a temporary capacity, the treasury may, if in their opinion any special circumstances of the case warrant such a course, direct that his service in that capacity may be reckoned for the purposes of the superannuation acts, 1834 and 1859, and this act, as service in the capacity of a civil servant, and it shall be so reck- oned accordingly. 4. If a person employed in any public department in a capacity in respect of which a superannuation allowance can not be granted under the superannuation act, 1859, retires, or is removed from his employment, and (a) the employment is one to which he was required to devote his whole time, and (6) the remuneration for the employment was paid entirely out of moneys provided by Parliament, and (c) he has served in the employment for not less than seven years, if he is removed in consequence of the abolition of his employment, or for the purpose of facilitating improvements in the organisation of the department by which economy can be effected, or for not less than fifteen years if his retirement is caused from infirmity of mind or body, permanently incapacitating him from the duties of his employment, the treasury may, if they think fit, grant to him a compassionate gratuity not exceed- ing one pound or one week's pay, whichever is the greater, for each year of his service in his employment. 5. A person shall not be entitled to reckon the same period of time both for the pur- pose of a superannuation allowance under the superannuation acts, 1834 and 1859, and this act, and also for the purpose of naval or military noneffective pay. 6. (I) The treasury may, within one month after the passing of this act, frame rules as to the conditions on which any civil employment of profit under any public depart- ment as defined by this act, or any employment of profit under the government of any British possession, or any employment under the government of any foreign state may be accepted or held by any persons who is in receipt of or has received any sum granted by Parliament for the pay, half -pay, or retired pay of oflacers of Her Majesty's naval or land forces, or otherwise for payment for past service in either of such forces, or who has commuted the right to receive the same, and as to the effect of such acceptance or holding on the said pay or sum, and the treasury may in such rules provide for the enforcement thereof by the forfeiture, suspension, or reduction of any such pay or sum as aforesaid, or of any commutation money or remuneration for such employment. (2) Such rules shall also provide for the returns to be laid before Parliament of such officers accepting employment as are affected by the rules, and shall come into opera- tion at the date of the passing of this act. (3) The rules shall be laid before both houses of Parliament forthwith. (4) For the purposes of this section " British possession " means any part of Her Majesty's dominions out of the United Kingdom, and this section shall apply to Cyprus as if it were a British possession. 7. (1) Where any sum in respect of pay, pension, superannuation, or other allow- ance or annuity is due in respect either of service as a civil servant, or of military or naval service, to a person who is a lunatic, whether so found by inquisition or not, such sum may be from time to time applied for his benefit by the prescribed public department in such manner as the department think expedient. (2) Where any annuity, whether pension, superannuation, or other allowance, is payable out of moneys provided by Parliament to a person in respect either of service as a civil servant or of military or naval service, and such person is or becomes a lunatic toward whose maintenance a contribution is made out of money provided by Parliament, then as long as the contribution is made his annuity shall be reduced by an amount equal to that contribution, and if the amount of the contribution exceeds the amount of the annuity, the annuity shall cease to be payable. 8 On the death of a person to whom any sum not exceeding one hundred pounds is due from a public department in respect of any civil pay, superannuation, or other allowance, annuity or gratuity, then, if the prescribed public department so direct, but subject to the regulations (if any) made by the treasury, probate or other proof 200 CIVIL-SEEVICE RETIREMENT IN GREAT BRITAIN. of the title of the personal representative of the deceased person may be dispensed with and the said sum may be paid or distributed to or among the peraons appearing to the public department to be beneficially entitled to the personal estate of the deceased person, or to or among any one or more of those persons, or in case of the illegitimacy of tke deceased person or his children to or among such persons as the department may think fit, and the department shall be discharged from all liability in respect of any such payment or distribution. _ . 9 The decision of the treasury on any question which arises as to the application of any section of this act to any person, or as to the amount of any allowance or gratuity under this act, or as to the reckoning of any service for such allowance or gratuity, shall be final. , . ^ • j. ^ -^r. j.i. 10 Nothing in this act shall be construed so as m any way to interfere with the rights existing at the passing of this act of any civil servant then holding ottice. 11 Every warrant and minute under this act which is required to be laid before Parliament shall be laid before both houses of Parliament m manner provided by section thirteen of the superannuation act, 1859. 12. In this act, unless the context otherwise requires — ,,. i, i The expression "civil servant" means a person who has served in an established capacity m the permanent civil service of the state within the meaning of section seventeen of the superannuation act, 1859; The expression "treasury" means the commissioners of Her Majesty s treasury; The expression "public department" means the treasury, the commissioners for executing the office of Lord High Admiral, and any of Her Majesty's prmcipal secre- taries of state, and any other public department of the government; and the expression "prescribed public department" means, as respects any matter, the department pre- scribed for the purpose of that matter by the treasury. _ 13. The act of the session of the fourth and fifth years of the reign of Kjng William the Fourth, chapter twenty-four, intituled "An act to alter, amend, and consolidate the laws for regulating the pensions, compensations, and allowances to be made to persons in respect of their having held civil offices in His Majesty's service," is in this act referred to and may be cited as the superannuation act, 1834, and that act and the superannuation act, 1859, are together in this act referred to as the super- annuation acts, 1834 and 1859. The said acts and this act may be cited together as the superannuation acts, 1834 to 1887, and this act may be cited separately as the superannuation act, 1887. 14. The acts set forth in the schedule to this act are hereby repealed to the extent in the third column of that schedule mentioned as from the passing of this act, without prejudice to anything previously done or suffered in pursuance of the enactments hereby repealed. Schedule. ACTS REPEALED. Session and chapter. Title or sliort title. Extent of repeal. 4 & 5 Will. 4 c. 24. 6 & 7 Will. 4 c. 13. . . 7 Will. 4 & 1 Vict, c. 25. 2&3 Vict. c. 47.... 2&3 Vict. c. 93.... 22Vict. c. 26 22 & 23 Vict. c. 32.. An act to alter, amend, and consolidate the laws for regulating pensions, com- pensations, and allowances to be made to persons in respect of their having held civil offices in His Maj- esty's service. An act to consolidate the laws relating to the constabulary force in Ireland. An act to make more effectual provi- sions relating to the police in the dis- trict of Dublin metropolis. An act for further improving the police in and near the metropolis. An act for the establishment of county and district constables by the author- ity of justices of the peace. The superannuation act, 1859 An act to amend the law concerning the police in counties and boroughs in England and Wales. Section sixteen. Section thirty. Section nineteen. Section nineteen. Section eleven. Section five. Section twenty- seven. CIVILi-SEEVICE RETIREMENT IN GREAT BRITAIN. Schedule — Continued . ACTS REPEALED— Continued. 201 Session and chapter. 31 & 32 Vict. c. 90... 33&34 Vict. c. 96.. 35 & 36 Vict. c. 12.. Title or sliort title. An act to empower certain public de- partments to pay otherwise than to executors or administrators small sums due on account of pay or allow- ances to persons deceased. An act to apply a sum out of the con- solidated fund to the service of the year ending the thirty-first day of March one thousand eight hundred and seventy-one, and to appropriate the supplies granted in this session of Parliament. The superannuation act, 1872 Extent of repeal. The whole act. Subsections four, five, and six of section six. The whole act. Appendix IV. WARRANT REGULATING THE GRANT OF GRATUITIES AND ALLOW- ANCES UNDER SECTION 1 OF THE SUPERANNUATION ACT, 1887. In conformity with the provisions of the 1st section of the superannuation act, 1887, we, being two of the lords commissioners of Her Majesty's treasury, do hereby direct that any award of a gratuity or annual allowance made under the said section shall'be subject to the following conditions, viz: The award shall be calculated upon one or other of the following scales, which shall respectively apply to — I. Established officers of prisons or criminal lunatic asylums injured by the violence of a prisoner or lunatic; or established officers of a manufacturing department of the war office or Admiralty, in which the duties are exceptionally dangerous. II. All civil servants not falling under the above description, and also all hired person employed in a manufacturing department of the war office or Admiralty in which the duties are exceptionally dangerous. III. All other hired persons employed in a public department. Scales I and II. To the retired allowance for which the injured man would be qualified by length of service, shall be added an allowance not exceeding the under-mentioned portion of his salary and emoluments at the date of the injury, viz: When his capacity to contribute to his support is — Scale I. Scale II. Slightly impaired . . Impaired Materially impaired Totally destroyed . . Six-sixtieths Twelve-sixtieths Eighteen-sixtieths. . . Twenty-four-sixtieths Five-sixtieths. Ten-sixtieths. Fifteen-sixtieths. Twenty-sixtieths . Provided that no award on Scale I shall, together with any retired allowance for which the injured man would be qualified by length of service, exceed the amount of his salary and emoluments at the date of the injury, or £300 a year, whichever is less; and that no award on Scale II shall, together with any retired allowance for which he would be qualified by length of service, exceed fifty-sixtieths of his salary and emolu- ments at the date of the injury, or £300 a year, whichever is less. 202 CIVIL-SERVICE RETIREMENT IN GREAT BRITAIN. Scale III. (a) A gratiiity not exceeding the under-mentioned portion of the salary and emolu- ments of the injured man at the date of the injury, or £100, whichever is less, viz: When his capacity to contribute to his support is — Slightly impaired, one-third. Impaired, two-thirds. _ Materially impaired, the whole. (6) When his capacity to contribute to his support is totally destroyed, he shall receive an annual allowance exceediing by fifteen-sixtieths of his salary and emoluments the rate of retired allowance for which he would have been qualified by length of service if he had been a civil servant, provided that the total award shall not exceed forty-five- sixtieths of his salary and emoluments at the date of the injury, or £300 a year, which- ever is less. An award under any of the above scales shall be so much less than the usual amount as the treasury shall think reasonable, in case — (a) The usual amount exceeds by not less than £100 a year the rate of retired allow- ance for which the length of the injured man's service would entitle him; or (6) The injured man has continued to serve for not less than one year after the injury in respect of which he retires; or (c) The injured man is 55 years of age or upwards at the date of the injury; or {d) The injury is not the sole cause of retirement, i. e., the retirement is caused partly by age or infirmity. WIDOWS AND CHILDKEN OF MEN KILLED WHILE IN THE DISCHAKGE OF DUTY. An award shall be on one or other of the following scales, according as the deceased had been — I. An established oflScer of a prison or of a criminal lunatic asylum killed by a prisoner or lunatic; or an established officer of a manufacturing department of the war office or Admiralty, of which the duties are exceptionally dangerous. II. A civil servant not falling under the above description, or a hired Derson em- ployed in a manufacturing department as above. III. Any other hired person employed in a public department. Scale I. _ Pension to widow, while unmarried and of good character, not exceeding ten- sixtieths of the husband's salary and emoluments at the date of the injury, or £15 a year, whichever is greater; and Pension to each child until he or she attains the age of 15, not exceeding one-sixth of the rate which might be granted to the widow, but the aggregate of the children's pensions not to exceed the amount which might be granted to the widow. Scale II. Pension to widow not to exceed ten-sixtieths of the husband's salary and emolu- ments, or £10 a year, whichever is greater; and Gratuity to children, not exceeding £1 multiplied by the total number of their years, starting from their ages at the time of their father's death, and ending with 15 years; the total gratuity not to be less than £10 or more than £50. Scale III. Pension to the widow not exceeding eight-sixtieths of the husband's salary and emoluments, or £10, whichever is greater. Gratuity to children not exceeding 16 shillings multiplied by the total number of their years, starting from their ages at the date of their father's death and ending with 15 years; the total gratuity not to be less than £8 or more than £40 In the case of motherless children the award under any scale may be of twice the If the service of the deceased at the date of the injury was less than five years the award under any scale shall be — ^j^To the widow a gratuity not exceeding one-half of the salary and emoluments of "To each child a gratuity not exceeding one-twelfth of the salary and emoluments ot the deceased; but the total gratuity to widow and children shall not exceed one year s salary and emoluments of the deceased OIVIL-SEEVICE EETIEEMEN-T IN GREAT BRITAIN. 203 MOTHERS OF MEN KILLED IN THE DISOHAHGB OF DUTY. If the deceased does not leave a widow, and if his mother was wholly dependent upon him for her support, the award which might have been made to a widow may be made to the mother. (Signed) Herbert Eustace Maxwell. Treasury Chambers, September, 1887. W. H. Walrond. Appendix V. SCHEME OF COMPENSATION (NO. 116) IN CASE OF INJURY TO WORK- MEN IN GOVERNMENT ESTABLISHMENTS. [D. 780— Established May, 1903; revised December, 1907.] Certified by the chief registrar of friendly societies, under date of 16th December, 1907, as providing scales of compensation not less favourable to the workmen and their dependants than the corresponding scales in the workmen's compensation act, 1906. The new or altered provisions are italicized. A. Death from injury. 1. When it is established to the satisfaction of the treasury that the death of a workman has resulted from an injury to which the provisions of the workmen's com- pensation act, 1906, apply, and that the workman has left any dependants wholly or partially dependent upon his earnings at the time of his death, a sum equal to the earnings of the deceased in the employment of the Government during the three years next preceding the injury, or the sum of £150, whichever is the larger, but not exceed- ing in any case £300, shall be payable in the case of dependants wholly dependent, and half the same sum in the case of dependants partially dependent (where there are no dependants wholly dependent); provided that the amount of any weekly pay- ments made under this scheme in respect of the injury causing the death of the work- man and any lump sum paid in commutation thereof shall be deducted from the sum payable. If the period of the workman's employment by the Government has been less than the said three years, the amount of the earnings of the deceased during the said three years shall be deemed to be 156 times his average weekly earnings during the period of his actual employment by the Government. The sum awarded will be paid to the dependants or to a trustee or trustees on their behalf as the case may be. 2. The treasury may, in any case in which the authorities of a department consider that the interests of a workman's dependants would be better served by a pension to the widow or mother (where there is no widow) than by a lump sum, deal with the case as follows, namely: There shall be deducted from the lump sum payable to the dependants under the scheme a portion for the dependent child or children, if any. Such portion shall not exceed one-half of the entire amount if there is only one child, or two-thirds if there are more than one, and there shall be granted to the widow or mother (where there is no widow) a pension equal to the annuity which the remainder of the aforesaid lump sum woum purchase according to the post-ofiice tables for the purchase of imme- diate annuities. Such pension shall not be liable to forfeiture in the event of the re-marriage of the recipient. 3. If the authorities of the department consider it desirable in the interests of a workman's dependants that a trustee or trustees should be appointed to administer for their benefit the money awarded as compensation to them, they may appoint a trustee or trustees, and pay the said money to him or them to be administered for the benefit of the dependants accordingly. 4. On the death of a workman leaving no dependants a payment of not more than £10 shall be made, to cover the reasovMble expenses of his medical attendance and burial, as under the workmen's compensation act. 204 CrVIL-SEEVICE RETIEEMENT IN GREAT BElTAlN. B. Incapacity from injury. 5. When incapacity for work results from the injury, the injured workman shall receive for the period, not exceeding six months, during which he is on the hurt list on account of the injury, half his average weekly earnings during the previous 12 months, if he has been so long employed, and if not, half his average weekly earnings for any less period during which he has been in the employment of the Government. Should, however, the average weekly earnings of a workman, who is under 21 years of age at the date of the injury, he less than 20 shillings, such earnings shall he paid in full, hut the weekly payments shall in no case exceed 10 shillings. 6. Should the rate of pay of his class be increased while he is on the hurt list he shall participate in the increase. 7. In addition he shall receive free treatment in hospital, when the use of a hospital is available to his department for the purpose. When it is not so available, he shall receive free medical attendance. 8. Any workmen now serving who are entitled under the regulations of their depart- ment to more favourable treatment while on the hurt list than is provided for above shall continue to be so entitled. 9. When total or partial incapacity for work continues beyond the period for which the workman receives hurt pay, as provided by clause 5, an allowance shall be paid to him at the following rates, during the continuance of the incapacity, viz: When his capacity to contribute towards his own support has been shown to the satisfaction of the treasury to have been — (1) Totally destroyed, then twenty-four sixtieths; (2) Materially impaired, eighteen sixtieths; (3) Impaired, twelve sixtieths; (4) Slightly impaired, six sixtieths; of his average weekly earnings during the previous 12 months, if he has been so long employed; but if not then during any less period for which he has been in the employ- ment of the Government. Provided that in any case where it appears on sufficient evi- dence that a doubt exists as to the incapacity of the workman under this clause the treasury may obtain the opinion of a second medical practitioner. In the case of a workman who was under 21 years of age at the date of the injury, and whose average weekly earnings were less than 20 shillings, double the above rates of com- pensation shall be awarded, proinded that the weekly payment shall in no case exceed 10 shillings. 10. If the workman continues in or returns to the employment of the Government after the injury, the allowance awarded to him by way of compensation shall be paid to him in addition to his earnings in the employment of the Government so long as the degree of incapacity continues on account of which it was awarded, provided mat the said allowance, when added to his weekly earnings shall not exceed his average weekly earnings during the 12 months preceding the injury, or during any shorter period for which he has been in the employment of the Government, as the case may be. Until such limit is reached no deduction shall be made from the said allowance. In the case of a workman who was under 21 years of age at the date of the injury, and whose average weekly earnings were less than 20 shillings, the' allowance awarded hy way of compensation, when added to his weekly earnings, may be allowed to exceed the average weekly earnings before the injury, as above determined, by such an amount as the treasury may think that the circumstances justify. Periodical adjustments of the award in accordance with these provisions may be made at such intervals as may be sanctioned by the treasury. 11. If, after the injury, the workman leaves the employment of the Government, the allowance shall be in addition to the pension, if any, for which he is qualified by length of service, provided that the compensation for injury and the pension in respect of length of service shall not together exceed his pay at the date of the injury, or £300 a year, whichever is the less. 12. A permanent allowance awarded by way of compensation may be commuted for a single payment, the amount of which shall be settled between the workman and the authorities of the department, with the sanction of the treasury. 13. A claim for compensation for an injury which occurred more than three years before the claim is preferred, and which is not the cause of the applicant's discharge from the service, can not be entertained unless it can be clearly shown that the pros- pect of obtaining further employment has been diminished in consequence of the injury. . - -- . - — effect as regards any I mg after the receipt of the notice hy the duly authorised officer. A i CIVIL-SERVICE RETIREMENT IN GREAT BRITAIN. 205 15. Workmen who do not contract that the provisions of the scheme shall be sub- Btituted for the provisions of the act, or who at any time withdraw from the scheme, must thenceforward be dealt with, in cases of injury, solely in the manner provided by the act; and any benefits, in cases of injury, which such workmen now receive can no longer be accorded. Appendix VI. AN ACT To amend the superannuation acts, 1834 to 1892 (20th September, 1909). Be it enacted by the King's Most Excellent Majesty, by and with the advice and consent of the- Lords, spiritual and temporal, and Commons, in this present Parliament assembled and by the authority of the same, as follows: I. (1) The proportion of the annual salary and emoluments on which the scale of the superannuation allowances to be granted to male civil servants is to be calculated shall, in the case of civil servants who enter the service after the passing of this act, be one-eightieth instead of one-sixtieth, and accordingly section two of the superan- nuation act, 1859, shall, as respects such civil servants, have effect as if for the words "sixtieth" and "sixtieths," wherever they occur, there were substituted the words "eightieth" and "eightieths." (2) The treasury may grant by way of additional allowance to any such civil servant who retires after having served for not less than two years, in addition to the superan- nuation allowance (if any) to which he may become entitled or the gratuity (if any) which may be granted to him under section six of the superannuation act, 1859, a lump sum equal to one-thirtieth of the annual salary and emoluments of his office multiplied by the number of complete years he has served, so, however, that the additional allowance shall in no case exceed one and a half times the amount of such salary and emoluments: Provided, That if a civil servant retires from the service after attaining the age of sixty-five years, there shall be deducted from the amount of the additional allow- ance which would otherwise be payable to him one-twentieth of that amount for every complete year he has served after attaining that age. II. (1) Where a male civil servant who enters the service after the passing of this act dies, after he has served five years or upwards, whilst still employed m the service, the treasury may grant to his legal personal representatives a gratuity equal to the annual salary and emoluments of his office: Provided, That if he dies after attaining the age of sixty-five years, the amount of the gratuity which may be so granted shall be reduced by one-twentieth of that amount for every complete year he has served after attaining that age. (2) Where any such civil servant having become entitled to a superannuation allowance dies after he has retired from the service, and the sums actually received by him at the time of his death on account of such superannuation allowance, together with the sum received by him by way of additional allowance, are less than the amount of the annual salary and. emoluments of his office, the treasury may grant to his legal personal representatives a gratuity equal to the deficiency. III. (1) Subject to regulations made by the treasury, the treasury may allow any male civil servant who has entered the service before the date of the passing of this act, and who at that date is under sixty years of age, to adopt the provisions of this act, and in such case there may be granted to him or his legal personal representatives such superannuation and other allowances and gratuity as might have been granted had he entered the service after the passing of this act, except that the amount of the additional allowance payable on retirement shall be increased by one-half per cent in respect of each complete year he had served at the passing of this act. (2) Nothing in this act shall affect the right to superannuation allowance or gratuity of a civil servant who has entered the service before the passing of this act, and who either is at that time over sixty years of age, or is under sixty years of age and does not adopt the provisions of this act. IV. Subject to the provisions of this act the provisions of the superannuation acts, 1834 to 1892, with respect to the qualifications for obtaining superannuation allowances and gratuities, and to the manner of reckoning years of service and amount of annual salary and emoluments, and to the diminution of superannuation allowances, and to the determination of questions by the treasury shall apply in respect of additional allowances and gratuities under this act in like manner as they apply in respect of superannuation allowances under those acts. 206 CIVIL-SERVICE EETmEMENT IN GREAT BRITAIN. V. A warrant framed by the treasury under section one of the superannuation act, 1887, with respect to the grant of gratuities and allowances to civil servants injured in the discharge of their duty may be revoked or from time to time varied by a fresh warrant, and every such warrant shall be laid before Parliament. VI. (1) It shall be lawful for the treasury to grant to any person retiring or removed from the public service in consequence of the abolition of his office, or for the purpose of facilitating improvements in the organisation of the department to which he belonged, by which greater efficiency and economy can be effected, such special allow- ance or allowances by way of compensation as on a full consideration of the circum- stances of the case seem to the treasury to be a reasonable and just compensation for the loss of office, but not exceeding in any case the amount which a civil servant would be entitled to or which might be granted to a civil servant if he retired on the ground of ill healdi. (2) The foregoing provision shall apply only to persons entering the service after the date of the passing of this act, and shall apply to those persons m substitution for section seven of the superanbuation act, 1859. Nothing herein contained shall affect the application of the said section seven of the superannuation act, 1859, to persons who have entered the service before that date or the practice of the treasury thereunder. VII. (1) The treasury may from time to time make rules for the purpose of carrying this act into effect and for making such adaptations and modifications of the provisions of the superannuation acts, 1834 to 1892, and other enactments relating to superannua- tion allowances and pensions of persons who have served partly in the civil service and partly in some other service entitling them to a pension as may be necessary for adapting those provisions to the provisions of this act, and for altering the rules made by the treasury under the superannuation act, 1892. (2) Before any rules made under this section come into force a draft thereof shall be laid before each House of Parliament for a period of not less than thirty days during the session of Parliament, and if either of those houses of Parliament, before the expi- ration of those thirty days, presents an address to His Majesty against the draft or any part thereof, no further proceedings shall be taken thereon, without prejudice to the making of any new draft rules. VIII. This act may be cited as the superannuation act, 1909, and shall be read as one with the superannuation acts, 1834 to 1892, and those acts and this act may be cited together as the superannuation acts, 1834 to 1909. CIVIL-SERVICE RETIREMENT IN NEW ZEALAND. 207 CONTENTS Civil-eervice retirement in New Zealand, by Herbert D. Brown: Page. Summary 211 Pension system, 1858 to 1871 .■ 212 Pension act of 1856 213 Pension act of 1858 (the first general pension) 215 Reorganization of civil service and pension act of 1866 ' 215 Abolition of civil pensions in 1871 215 Compulsory savings scheme, 1886 to 1893 217 Reasons for adoption of the scheme 217 Need of a proper superannuation system recognized 220 Civil-service insurance act, 1893 222 Main features of the act 222 Purpose of the act 223 Debate on the bill in Parliament 224 Criticism of the act 226 Public service superannuation act, 1907 228 Superannuation bill first introduced, 1906 228 Collection of statistics of civil service made by actuary 229 Cost of proposed bill based on statistics collected 233 Consideration of how cost might be met 234 Recommendation of actuary of how cost should be met 238 Amendments to the proposed bill recommended by actuary 239 Advantages of a superannuation system cited by actuary 240 Superannuation bill of 1907 introduced 240 Actuary made only estimate of cost, instead of calculation 242 Main features of the law enacted 244 Operation of law, first six months 246 Public attitude in regard to law 247 Teachers', police, and government railways superannuation acts consoli- dated 249 Comparison of benefits under various government schemes 250 Report on the teachers' fund 251 Report on the police fund 252 Report on the government railways fund 253 Conclusions 254 Appendix: Public service superannuation act, 1907 257 35885— S. Doc. 290, 61-2 14* 209 CIVIL SERVICE RETIREMENT IN NEW ZEALAND. BY HERBERT D. BROWN." SUMMARY. The GoTermnent of New Zealand has proceeded with great delib- eration and conservatism in working out the problem of retiring its civU employees. It has profited to a marked degree by the experience of others, and has sought to avoid mistakes that have wrecked the schemes of other countries. A system of granting straight pensions and gratuities out of the Treasury was begun in 1858 and continued until 1871, when it was abolished, chiefly on the ground of expense. Then for thirteen years the Government did nothing for its aged employees except pay "compensation" (they called it "compensa/- sation for loss of office") to the extent of one month's salary for every year that an employee had been in the service. In 1886, with a view to the reduction of public expenditures, an act was passed which required all civil employees to save 5 per cent of their salaries. This amount was deducted from their salaries and handed over to the public trustee, an official of the New Zealand Govern- ment, whose functions and office may be called peculiar to that colony, who invested it and returned it with interest to the employee, when the latter left the public service. This savings arrangement proving inadequate as a superannuation measure in the case of employees who lived a long time after retire- ment, it was abolished in 1893, and New Zealand adopted for civil employees a system of compulsory insurance through the Government Life Insurance Office. The premiums were deducted from salaries, according to a sliding scale. The employees insured themselves for each of two alternative benefits — for a death benefit in case of death before reaching -the age of 60 years, or for an annuity if living at that age.. Compulsory insurance, owing to the heavy premiums necessary to provide both benefits, proved as unsatisfactory a provision for retirement as compulsory savings had been. All classes of govern- ment employees were discontented, but after 1893 no retirement leg- islation affecting employees of the "Public Service" proper was passed until 1907. Measures affecting special classes of government employ- ees such as the police force, the railway officers, and teachers were a Mr. Brown desires to give credit to Harriet Connor Brown for valuable assistance in the collection of historical data. 2U 212 CIVIL-SEKVICE EETIKEMENT IN NEW ZEALAND. passed, however, in the intervening years. The superannuation laws enacted were as follows: In 1899, the Police Provident Fund Act, subsequently consolidated into "The Police Force Act, 1908." In 1902, the Government Kail- ways Superannuation Fund Act, subsequently consolidated into "The Government Eailways Act, 1908." In 1905 the Teachers' Superannuation Fund Act subsequently consolidated into "The Public Service Classification and Superannuation Amendment Act, 1908." In 1907 the Public Service Superannuation Act subsequently consolidated into "The Public Service Classification and Superan- nuation Act, 1908.' It is reported (by the American consul-general at Auckland, New Zealand) that these separate schemes will no doubt soon be amal- gamated in one uniform system. They are all established on a contributory basis, the employees paying into the fund a percentage of salary which varies according to age at entrance into the service, and the Government paying £20,000 ($97,330) yearly to the public- service fund, besides whatever more may be necessary, £7,000 ($34,066) to the teachers' fund, and guaranteeing to make up any deficiency in all other schemes. The pensions granted are based on length jof service and average salary during the last three years. Payment of pensions on services rendered prior to the adoption of this plan is made entirely by the State. The State contributes some- thing also to the pensions of those whose service begins after the adoption of the plan, since the benefits promised under the plan are more generous than could be provided by any feasible deduction from salary. (") THE PENSION SYSTEM, 1858 TO 1871. The changes made by New Zealand from time to time in its method of providing for superannuated employees refiect the material and economic progress of the colony. The history of New Zealand as a British colony dates from the year 1840. From 1840 to 1853 New Zealand was governed as a Crown colony, all the real authority of government resting with officials in the Colonial Office in England. A governor, an executive council, and a legislative council held office in New Zealand, but all were appointed directly by the Crown. In 1852 the imperial Parliament passed an act which conferred on the colony a constitu- tion. Popular elections were held in 1853 and the first colonial par- liament met on May 24, 1854. Those who had drawn up the consti- tution had failed to provide for what is called "responsible govern- ment," by which is meant a government in which "Ministers, the responsible officers of the Crown, assume and resign office practically " See page 254, CrVlL-SEEVICE EETIEEMENT IN NEW ZEALAND. 213 at the "will of a majority of the representatives of the people." The constitution of 1852 contained no provision for bringing the ministry to an end by vote of the House, and the Colonial Office in England had sent no directions on this point. All the newly elected members of the House of Representatives could do, therefore, was to make speeches, the real power being still vested in the old executive council. The acting governor was influenced by members of that same execu- tive council, who were not disposed to give up their authority and privileges. The House presented an address to him, urging him to take measures to establish responsible government, but he replied that the act conferring the constitution contained nothing to, sanction such a course and that he was unable to do anything without the permission of England. He agreed, however, to add three members of the House to the executive council, the three patent members of that body expressing themselves as willing to retire, on condition that suitable pensions were provided them. Three members of the House were accordingly sworn in as members of the executive council and therefore as responsible advisers to the governor, but after a few weeks' trial resigned. They assigned as reason for their resignation the fact that the acting governor had not called upon the patent members of the executive council to resign. He, in his turn, defended his action by saying that no pensions bill had been passed and it was impossible for him to turn his old advisers adrift. A conflict ensued between the administration and the assembly which resulted in a victory for the assembly. A bill was passed for the establishment of a ministry responsible to the House, and it was approved by the Home Government in a dispatch written by the secretary of state on December 8, 1854, but on condition, as will be seen from the following, that the retiring officials be pensioned at the expense of the colony : I have taken the earliest opportunity of informing you that Her Majesty's Government have no objection whatever to offer to the establishment of the system known as "responsible government" in New Zealand. They have no reason to doubt that it will prove the best adapted for developing the interests as well as satisfying the wishes of the community. Nor have they any desire to propose terms or to lay down restrictions on your assent to the measures which may be necessary for that object, except that of which the necessity appears to be fully recognized by the General Assembly — naraely, the making provision for certain officers who have accepted their ofiices on the equitable understanding of their permanence, and who now may be liable to removal. C^) Pension Act of 1856. At the first session of the second Parhament, which met on April 15, 1856, the first business taken up in both the House and legislative council was, accordingly, the formation of a responsible ministry. o New Zealand Parliamentary Debates, Second Parliament, 1856-1858, p. 13. 214 CIVIL-SEKVICE KETIKEMENT IN NEW ZEALAND. It was stated in Parliament that the great boon of responsible govern- ment could be secured only at some expense to the colony; that is, by payment of pensions to existing holders of office in order to allow of the new executive taking the practical administration of affairs. It was explained that the governor, in imposing that condition, was the mere agent of imperial authority and acting according to in- structions from which he could not depart. (") The first business before Parhament, therefore, was consideration of the proposed pensions bill, a measure which provided for buying off the old officials who had been appointed to their positions by the ruling powers in England. These were only three in number, the colonial secretary, the colonial treasurer, and the attorney-general, but pensions were not granted to them without debate, as it was con- tended by certain members of the House that these officials had not administered their offices so as to conduce to the welfare of the colony but the contrary, and that "retiring officers should be treated ac- cording to their deserts." Doctor Featherston, member from the city of Wellington, declared : If, too, these pensions were granted, where was the House to stop ? Ought not every individual who had been or was liable to be dis- missed to be provided for in the same way? If these officials had any claim it was against the Colonial Office, whose servants and tools they had been; and, if there was one doctrine against which more than another the House was called upon to protest it was that of vested interests. If not guarded against, it would creep in at every point, till it imposed a burden that would be absolutely ruinous. (') In reply to this Mr. Sewell said that. His honorable friend, the member for Wellington city, had exag- gerated the question before them by treating it as if it were, or as if it comprehended, some important general principle whether pensions should be granted to all officials on their having to retire on the introduction of responsible government. In voting for these pen- sions he should not vote for any such principle, and he had never placed it before the House in that light. Instead of placing the question on stilts in this way — instead of making it a grand question of constitutional principle — he had brought that subject before the House as a motion of practical business, on the ground that his excellency was under the impression — ^it might be an erroneous one — that he was bound, as the representative of the Home Government, to protect the interests of the gentlemen holding these offices, and to insist that, before removing them to make way for responsible officers, some provision should be made for them.C") After considerable debate the bill pensioning the three officials was passed, although nearly all who took part in the discussion dis- claimed the notion that ' ' because a man had for many years received a large amount of pubMc money, therefore he sliould receive a pen- o New Zealand Parliamentary Debates, Second Parliament, 1856-1858, p. 13. 6 Idem, p. 25. CIVIL-SEKVICE RETIREMENT IN NEW ZEALAND. 215 sion on retiring or being displaced," and agreed to the measure merely as a means to an end. Pension Act of. 1858 (the First General Pension Law). Despite Mr. Sewell's assertion that the general principle of grant- ing pensions to retiring officials was in no way involved in the passage of the Pension Bill of 1856, we find that only two years later a gen- eral* pension system for the benefit of "any one in the civil service except extra clerks" was inaugurated. The Act of 1858 provided for retirement on annuity ' ' in case of incapacity by age, ill-health, or other infirmity after ten years of faithful and dihgent service. If the term of service had been ten to seventeen years, the annual allowance was one-fourth of the employee's average salary for the last three years. From seventeen to forty-five years the pension was one-third of such salary plus one-eighty-fourth of such salary for each year of service above seventeen. For forty-five years or more of service the allowance was two-thirds of the said salary. In the dis- cretion of the governor in council, rehef up to one year's salary could be granted the widow or family of one dying in the employ of the general Government." Eeorganization of Civil Service and Pension Act op 1866. Under the terms of a civil service act passed in 1866, changes were made in the provisions for grant of pensions to civil employees. This act was designed to provide for the organization, classification, and regulation of the civil service. Government employees were divided into five classes, appointments being made to the lowest class on probation. Examinations were provided, but they were not competitive. Promotion was made to depend on seniority in ofiice, so far as that principle could be followed without detriment to the service, but the governor was authorized to appoint any one to a vacancy if he stated his reasons to the general assembly. Dismissal depended on the will of the executive. The allowance on retirement granted under this bill reflects the influence of the British Superan- nuation Act of 1859. It was fixed at one-sixtieth of the average salary (of the three preceding years) for each year of service, eleven- sixtieths for eleven years' service, twelve-sixtieths after twelve years' service, etc., up to forty-sixtieths, or two-thirds pay, after forty years or more of service. Abolition of Civil Pensions in 1871. Those sections of the Civil Service Act of 1866 which provided for pensions were repealed in 1871 a,s applied to persons coming into the the service after that date; in other words, the pension system as a system was abolished, though pensions continued to be paid to those whom the colony had contracted to pension under the acts of 1858 216 CIVIL-SEKVICE EETIKEMENT IN NEW ZEALAND. or 1866. The report of the actuary on the prospective superannua- tion bill in November, 1907, shows that there were still 132 retired civil employees on the pension fund at that late day, and 86 pros- pective ones. (") The pensions paid in 1906 amounted to over £25,988 ($126,471), the gratuities to £8,377 ($40,767), the compensations to £7,792 ($37,920). {") The system was abandoned in 1871 because Parhament saw that the amount paid in pensions, though extremely small, was rapidly increasing proportionately. In eleven years it went up from about £160 ($779) to about £7,400 ($36,012), and there was fear that it might double itself in a'very few years. ( '^) This opposition to the pen- sion systembecause of its growing expense had undoubtedly unusual co- gency in the year 1871, a memorable year in the annals of New Zealand. There was no money in the treasury for expenditure on future devel- opment, much less on pensions for past services. _ The total European population of the colony was then only 266,986 in number and the total value of exports only a little over £5,000,000 ($24,332,500), more than half of which was gold. The colony was staggering under the effects of a fierce and devastating war with native tribes. One historian of New Zealand writes: "The characteristic feature in 1871 of colonization in New Zealand, as a whole, was stagnation. Industry languished; capital was withheld; property was depressed; employ- ment, except in the gold fields and in their vicinity, was difficult to be obtained; and the scanty population attached to the soil was altogether inadequate to the development of the resources of the country." It is not surprising that the legislature should have regarded with disfavor a system of retiring public officials that promised to make increasing claims on a treasury already bare. Another objection urged against the pension system was the fact that it made retrenchment in government work very difficult, a con- sideration that reflects a very interesting phase in the development of New Zealand. The decade of 1870-1880 is especially noteworthy in the history of the islands because of the development during that period of the public works policy, which resulted in the unification of the colony and the doubling of the population. The public debt amounted at that time to about £7,000,000 ($34,065,500) and a large part of it had been spent in public works, but it had been raised on the credit of the provincial legislatures only. This experience had been sufficient to teach legislators that flexibility in the civil service was very advantageous when the Government was carrying on a vigorous system of public works. Frequently the exigencies of the task required that the service be temporarily increased or decreased. o Report on Public Service Superannuation Bill, 1906. Minutes of evidence, p. 6. 6 Idem, Appendix, p. 24. « Second Report of Royal Commission on Superannuation in the Civil Service, 1903. Minutes of evidence, p. 116. CrVIL-SEEVICE BETIBEMENT IN NEW ZEALAND. 217 Any system which seemed to interfere, either legally or morally, with a rather rapid reduction in the number of civil employees, when necessary, was unpopular with members of the legislature. It was natural, therefore, when entering on an enlarged policy of public works that they should be inclined to express their disapproval of a system which might hamper the effective execution of that poHcy. It was contended also by some members that it was the business of the Government to pay adequate salaries, but not to support its em- ployees iu old age. This theory of independent contractual relations prevaUing in debate, the pension system was abandoned, saving the rights of existing employees. Lump sums were to be bestowed on retirement either as gratuities in recognition of long service or com- pensation for loss of office, but no more yearly pensions were prom- ised to those entering the service. COMPULSORY SAVINGS SCHEME, 1886 TO 1893. Reasons for Adoption of the Scheme. Great industrial changes took place in New Zealand between 1871, the date of the abolition of the civil pension system, and 1886, the year of the next legislation affecting civil employees. At the close of the decade of road, railway, and bridge making. New Zealand found itself with a great public debt, four thousand miles of telegraphs, eleven hundred rmles of railways, and innumerable new roads and bridges. A period of profound business depression followed, in which the government service suffered with the rest of the colony. Even the gratuities and compensations granted civil employees were felt to be too great a charge for the overburdened public to bear. When, therefore, the civil-service reform bUl was drawn up in 1886, a clause was inserted providing that civil employees should be required to set aside 5 per cent of their salaries, which should be returned to thena with interest on their retirement from office. The compulsory sav- ings scheme was purely a move in the interests of the taxpayer. It was to be supposed, of course, that the employee who received his savings in a lump sum, on leaving the service, would be less disposed to ask for a gratuity or compensation than the one who found himself entirely without funds on retirement from office. This rrform bill was intended to supersede the Civil Service Act of 1866, which was supposed to give the Government control of the civil service, but which had remained a dead letter on the statute books. The reform measure made explicit provision for the appointment, classification, dismissal, and retirement of civil employees. The clause providing for compulsory savings read as follows : Out of the salary of every civil servant hereafter appointed there shall be deducted the sum of five per centum per annum, which said sum shall be paid into a separate fund to the public trustee, to be 218 CIVIL-SERVICE BETIKEMENT IN NEW ZEALAND. invested at interest on such security as the Pulahc Trust Office shall approve. It may invest the same along with other sum or sums, but a separate account shall be kept for the amount paid to the credit of each such officer. (") It should perhaps be explained that the pubhc trustee in New Zealand is an officer who administers all trusts placed in his hands under the PubUc Trust Act of 1872. The functions of the pubhc trustee are very extensive, and include the care of estates of intes- tates, of lunatics, and of the natives of the colony, as well as of ordinary people. The object of the act was to reheve persons from being obhged to burden their friends with the responsibihty of acting as trustees. Many owners of property avail themselves of the act. The Pubhc Trust Officer never dies, never leaves the colony, never becomes insolvent. The office enjoys great popularity, and no fault could be found with the provision for placing the savings of the civil employees in the hands of the pubhc trustee to be administered in the same way that he administered other trust funds. He invested it in ways he thought best, subject to the provisions of the act, lend- ing it to the Government, to municipahties, and harbor boards, and investing it in mortgages. When the employee left the civil service the amount of his accumulations was returned to him with interest. This new method of providing for retiring officials met with the general approval of the legislature. The object of the bill was plainly declared to be retrenchment in the civil service. Mr. Cowan, a mem- ber of the House, said : This biU is the carrying-out of a pledge made by the premier some time ago, that he would endeavor to reduce the cost of the civil service by from £30,000 to £40,000 ($145,995 to $194,660). I com- mend him for his endeavors, and I beheve that, after this biU is amended in committee, it will have an effect, and a considerable effect, in that direction. (') Very httle opposition was expressed, and that was mild. Mr. ConoUy, of the House, complained that the clause seemed to mean a general reduction of salaries. Said he: It must be remembered that it amounts to a reduction on all salaries of 5 per cent. I do not say that there is anything wrong in this provision, making a reduction in salaries by way of securing a pension or retiring allowance, and I believe, as the premier says, it is adopted in many large concerns. I think it exists in some of the English railway companies, and I do not think it is a bad plan at all. But I say the immediate effect is to reduce every man's salary by 5 per cent, and that, to those who have had no increase for a number of years is a species of injustice. (■=) oNew Zealand Parliamentary Debates, vol. 55, p. 372. i Idem, p. 381. cidem, p. 376. CIVIL-SERVICE BETIEEMENT IN NEW ZEALAND. 219 In the legislative council Mr. Bonar contended that the provision should be amended so as to enable officers who had made arrange- ments with a life insurance office to be exempt from the payment of the 5 per cent, as they would still have to keep up their premiums. Mr. Hatch of the House wished to limit the deduction to salaries above a certain amount, but held that the civil service was too well treated as it was, and that the principle of deductions was, therefore, quite proper in the interest of the colony. Said he : I do not see how it [the deductions] can be taken off salaries of £40 to £50 ($195 to $243) a year; but when the salary rises to, say, £150 ($730) a year there is no reason why the recipient of that salary should not pay to a fund to provide something for himself when he retires from tne service. In fact, I do not see why we should not bring the civil service down to the position of the merchant service. If an employee who has been a long time in the latter service gets a E resent of £100 or more on retiring, his employer considers that he has een very liberal; but we see parties leaving the former service who have been in the receipt of £500 or £600 ($2,433 or $2,920) for years, and who get their thousand pounds or more when they retire. The sooner we bring the civil service to the position of the merchant service the better will it be for the colony, and the better we shall be served. (") In answer to this, another member of the House, Mr. Gore, said : I think the principle of clause 1 1 is very good. A previous speaker has said that the civil servants are very well able to look after them- selves — and no doubt any man of fair education and good common- sense is able to take care of himself. But we have a duty to our- selves, and, although there may be -many of the civil servants able to take care of themselves, there may be naany others who are not provi- dent enough to do so. I am not one of those who wish to see salaries reduced beyond what is a fair remuneration for a fair day's work. I think there are many of them who are paid too little, and possibly there may be some who are paid too much. (') With this limited discussion the compulsory-savings clause in the civil service reform bill was passed and became a law. While it appears to have been satisfactory to a certain extent, it was apparent that, for the good of the service, other or additional legislation was necessary. It afforded no adequate provision for employees who might live many years after retiring from the civil service. The obvious complement of the scheme, a system of deferred annuities bought with the savings of the employees, is said to have been re- garded with distrust, owing to the fact that New South Wales had inaugurated a scheme with some such provisions in 1884, and while the faults of that plan were not generally understood, nor the reasons for its failure, it was believed in New Zealand, a few years after its inception, that the fund was hopelessly insolvent. (") oNew Zealand Parliamentary Debates, vol. 55, p. 376. b Idem, p. 378. - Report of Royal Commission on Superannuation in the Civil Service. 1903. Minutes of evidence, p. 116. 220 civil-sekvice eetieement in new zealand. Need of a Proper Superannuation System Recognized. The way in which thoughtful students of political institutions in New Zealand took note of the civil service's need of a proper super- annuation scheme and the inadequacy of the existing law is well shown in the last chapter of Mr. William Gisborne's work entitled The Colony of New Zealand, pubhshed first in 1888, only two years after the passage of the civil service reform bill. As Mr. Gisborne had been previously a member of the House of Representatives and a Responsible Minister, his words may be taken as those of one who spoke with authority. Said he: The civil service is an important factor in the work of representa- tive institutions. Under the system of responsible government, which, in the case of British colonies is the outcome of those institu- tions, the civil service should, of course, be adapted to that system. It is very questionable whether under any system a civil service should, in the pubMc interests, be in its personal composition change- able according to the changes of political parties in power. But under responsible government such periodical changes of persons employed in the civil service would be absurd, and most mischievous. Respon- sible government means that Ministers, the responsible officers of the Crown, assume and resign office practically at the will of a majority of the representatives of the people. Necessarily, therefore, at cer- tain times, often at no distant intervals, ministers undertake the charge of executive departments, with the administrative work of which they are more or less unacquainted, and when, as during session, their time is absorbed by parliamentary work. It is indis- pensable then that there should be in each department permanent public servants, who are fully acquainted with their official work, and from whom the new ministers can at once obtain information neces- sary both for political and administrative purposes. Moreover, these permanent officers continue to carry on uninterruptedly the routine of pubhc business. It is also necessary for the public good that these officers should be disconnected from pohtical partisanship, and be loyal in respect of public business to each successive ministry. They should not be disquahfied from voting at elections, but they certainly should not be allowed to take up active political positions in other respects. It is only in these ways that, under a system of responsible government, the civil service can become adapted to that system, and the public interests in aU administrative work be best promoted. These indispensable conditions of a civil service under a system of responsible government give a specialty to that service, and render its treatment one altogether distinct from that appUcable to the private staff of a mercantile or financial estabhshment. Those who argue that Ministers of the Crown should be able to deal with the appointment, removal, and promotion of pubhc servants just in the same way that the head of a firm would deal in those respects with his clerks, forget that those Ministers are only ephemeral representatives of pohtical parties, and that they are dealing with matters not per- sonally their own, while heads of firms are in both respects on a totally distinct footing. The adoption in the civil service of the practice in these respects by private firms would be disastrous to CIVIL-SEE.VICE KETIBKMENT IN NEW ZEALAND. 221 public interests. Civil servants are not the personal servants of the Ministers of the day, but are the servants of the pubhc, independently of political parties. It is in the public interests that these servants, while they are subject to rules which insure discipUne and abstinence from active participation, beyond voting, in political struggles, should have held out to them some reasonable prospect of continuity of office, except in cases of misconduct, and thus secure to the public the growing advantage of their cumulative knowledge and experience. In this- view it is not the Ministry, and it is not the civil service itself, which should be specially consulted, but the sole consideration should be what is most to the permanent advantage of the public as a whole. Accordingly, the problem is how, under the circumstances, pubUc adroinistration can be best conducted, and at the lowest cost com- patible with that condition. Responsible government makes this provision in the case of high political office; the question now is what to do in the case of the rank and file of the official army. The limitation of the number employed, the appointment of qualified persons, and the appropriation of salaries would rest with Ministers of the Crown and with the legislature, respectively. The proper organization of the civil service would indirectly, to some extent, affect these subjects, and would directly make provision on other subjects which essentially involve the economy and efficiency of public administration. Shortly, what is required, and what may be reasonably anticipated from proper organization, is to attract good men to the service, and to keep them there. For this purpose a system based on definite conditions which would answer that two- fold object should be devised and adopted under legislative sanction. Vague, fluctuating, capricious treatment of public servants is repug- nant to proper organization. Promiscuous . patronage, arbitrary removal, and spasmodic rushes into indiscriminate retrenchment tend only to discouragement of good service, to the infliction of injustice, and, in the end, to the increase of expenditure and to the serious injury of public interests. The following principles governing the constitution and conduct of the civil service in New Zealand appear to me to be vital: First, the persons first appointed should have successfully passed either a competitive or a standard educational examination. Secondly, there should be in the service classification which would allow of gradual promotion in rank and in pay taking place. Thirdly, provision should be made for reasonable allowance in cases of removal from office on public grounds other than those of misconduct. Fourthly, pensions on a graduated scale should be provided, either by general contribution from civil servants or by the State, for cases of retirement from illness, infirmity, or old age. Fifthly, proper regulations should be made for the conduct and discipline or the civil service, and for the prohibition of civil servants fcakiQg an active part in politics beyond voting at elections. It is, of course, impossible to hope that rules can altogether provide for aU possible contingencies. The object of the rules is to assert general principles which would lessen as much as possible capricious or fluctuating exercise of authority over civil servants, would subject them to equitable treatment, and thus tend to the 222 OIVIL-SEEVICE EETIEEMENT IN NEW ZEALAND. greatest public advantage. At the same time it must be antici- pated that from time to time exceptional cases will occur, which must be dealt with exceptionally on their own merits. Looking at the present state of the New Zealand civil service, I regret that, owing to the absence of practical recognition of the foregoing principles, this state has been, and still is, lamentable, not only on account of the individuals directly concerned, but also on account of the public interests. It is in the latter view that this subject should be considered, though it is impossible to refrain from sorrow that a service containing a great number of able, faithful, and old public servants should be unjustly treated and undeservedly abused. The civil service seems to be kept as the scapegoat of the sins and misfortunes of the colony; and its home is the wilderness. So lately as September 10, 1890, Sir Frederick Whitaker, who has been in the colony since its foundation, and has continuously since 1852 held high political position, stated, in his place in the legis- lative council, that he had for many years past carefuUy watched the civil service here and in other countries, and had come to the conclusion that clearly the civil service of New Zealand was the worst paid and the worst treated in the British dominions. This corroboration of my view is the more strong because Sir Frederick Whitaker has had unrivaled opportunity of forming a judgment on the subject and his impartiality can not be questioned. I am glad to observe that recently a civil-service association has been formed. So long as this body acts, as it declares its intention to do, in the furtherance of its public interests, in due subjection to the law and the regulations of the service, it may be reasonably hoped that this association may do much legitimately to improve the status of the service and to strengthen its claims to just consideration. This step, and the fact that many leading public men in New Zealand are in favor of the general principles which I have mentioned in relation to the civil service, and that in the latest session the House of Representatives sanctioned classification in the post and telegraph department of the service, hold out a prospect that a better time is coming, and that, in the interests of the public at large as well as in its own, the New Zealand civil service may be placed on a proper footing of organization and efficiency. (") CIVIL SERVICE INSURANCE ACT, 1893. Main Feattjres of the Act. The compulsory savings arrangement having been found inadequate as a retirement measure for the civil service, the Civil Service Insur- ance Act, a combined assurance and annuity scheme for the benefit of civil servants, was passed in 1893 and made compulsory on all new entrants into the service under forty years of age. This provided that in return for monthly deductions, amounting to about £5 ($24.33) annually for every £100 ($486.65) of salary, the Government Life Insurance Department should contract to give a uniform initial insur- » The Colony of New Zealand, by William Gisbome, 1891, pp. 340-344, CIVIL-SERVICE RETIREMENT IN NEW ZEALAND. 223 ance of £100 ($486.65), increasing with the salary until the age of 60 was attained, and after that age an annuity varying with the age at entry. Those who elected to pay a small extra premium could have the assurance continued beyond age 60 until death. Employees who had been appointed under the act of 1886 and had funds accumulated to their credit in the hands of the public trustee, or men of a certain age whom it would have been hard to force to insure in this way, were allowed to elect whether they would go on under the old system of 1886 or begin the new system of compulsory insurance under the act of 1893. Purpose of the Act. The general purpose of the act was set forth by Mr. Ward, a member of the House, on moving the second reading of the bill. Said he: Under "The Civil Service Keform Act, 1886," all persons appointed to the civil service were required to deposit with the public trustee 5 per cent of their salaries. Such amount Was allowed to accumulate at interest, and remain in the Public Trust Office till the officer affected left the service. He thought it would be conceded that such an ar- rangement as that was a wise one, and had the effect of causing thrift to be practiced by those who joined the service. But, in the opinion of the Government, the existing measure did not go far enough. It contained nothing in the nature of an insurance or a pension in old age, and the Government were of opinion that a scheme of more importance should be adopted, so that there might not only be pro- vision for a civil servant's widow in the event of his death, but that civil servants themselves should have an assured income to look for- ward to after retiring from the service. The Government attach great importance to the fact that this scheme would be self-support- iag. The am.ount necessary would be paid by the civil servants, except in one particular. In the event or incapacity, arising from no fault of the officer, then a retiring compensation of one month's salary for each year is provided for; and there could be very little likelihood of anything in the shape of a large sum of money being required in this way. He might say that those who were being provided for under the measure would be treated in all respects the same as out- siders who found it desirable to patronize the Government Insurance Office. In fact the ordinary procedure of the office would be carried out by that department in dealing with insurances under this act. The act would only deal with those appointed under the Civil Service Reform Act of 1886. Those appointed prior to that act were entitled either to a pension or to compensation for loss of office. Those ap- pointed since the act referred to were to retire at sixty years of age; and he might say that provision was made in the bill to enable those who might receive a pension in the event of their retiring at sixty years of age to receive also the full amount of insurance payable to them even if death took place after sixty. There was no amount stated in the bill as actually payable in the event of death, but the intention was to insure one year's salary. * * * (°) <» New Zealand Parliamentary Debates, vol. 79, p. 191. 224 civil-sekvice eetikement in new zealand. Debate on the Bill in Parliament. In the debate which followed several objections to the bill were brought forward. It was asked whether those of the civil employees who had already insured their lives would have, under this bill, to effect another insurance, and it was explained by Mr. Ward that they would not be exempted if already insured in the government office or elsewhere, as the new insurance with that office was to be merely a variation of the compulsory savings arrangement under the Public Trust Office, and intended to take its place. Several members expressed alarm at the idea of civil employees being brought under the government insurance scheme, fearing that the standard of health among them might be lower than among other policy holders. Although civil employees were required to pass a medical examination before joining the service, it was feared that the health of many might have deteriorated since such examination and the interests of other policyholders would therefore be jeopardized, if such persons were accepted by the Life Insurance Department on terms other than those on which ordinary insurers were admitted. An interesting section in the act gave the government power to bring in certain classes of people under the terms granted to civil servants, provided two-thirds of their number asked for it. The classes of Government employees thus privileged were — • (1) All members of the police force. (2) AH school-teachers under the "Education Act, 1877." (3) All women and girls employed in the telegraph or telephone service of the Government. (4) All persons permanently employed in the Government printing oflB.ce. (5) All housekeepers, messengers, and gardeners in the permanent employment of the Government. (6) All wardens of prisons, lunatic asylums, or sanitarium attend- ants, criers of court, bailiffs, post-office distributers and telegraph messenger boys, light-house keepers, boatmen, laborers, and other persons in the permanent employment of the Government. (7) All clerks, artisans, workmen, and other persons in the tem- porary employment of the Government. (8) Officers, noncommissioned oflficers, and men of the defense force. It was feared by some that to admit such bodies of public em- ployees en masse into the privileges of the Government Life Insurance Department was an unwise procedure. The reply to these objections made by Mr. Ward in support of the bill, which voiced the view that eventually prevailed, is recorded as follows: He might say at once that, in the event of an officer who was desirous of -coming under this measure being in a very bad state of CIVIL-SEKVICE RETIREMENT IN NEW ZEALAND. 225 health, and shortly expected to die, he would not be allowed to trans- fer, because the Government Insurance Department could not be expected to have its benefits shared by persons who were really known to be in such a state of health that no office would accept them; and that was only fair and proper. Upon the whole, the Government Insurance Department would accept without fresh medical certifi- cates the whole staff of any department that appUed to come under the bill, for the simple reason that every officer who now entered the civil service had to obtain a medical certificate before he was allowed to come in, and it was within the knowledge of officers that there were candidates refused entirely on the score of weak health. That being so, he thought it might be accepted pretty generally that the bulk of the civil servants of New Zealand were in very excellent health. He could only say, speaking from a short experience of the present system, that there had not been many cases or^death. How- ever, this scheme had received the very close attention of the Gov- ernment Insurance Department, and they found that, provided the scheme were made to embrace a whole department, the basis would be so broad that they would be quite justified in taking the bulk of these people in. * * * It was not desirable, if a few officers alone applied, to admit them, as the honorable gentleman had indicated. The very thing which other honorable members were so anxious to prevent might then possibly take place. Neither ought they to admit cases that would be refused by other offices on the score of health. The safety of the thing consisted in the officers of any department coming in in a body. This was a very important point, and he might say at once that the Government would not alter the bill in this respect. He felt sure the officers of the departments would be very glad to take advantage of these provisions, and, by obtaining the two-thirds majority, they could, as a body, come under the act. * * * /a\ It should be explained that the New Zealand Government Life Insurance Department had been established in 1869, at a time when the failures of two well-known British offices had drawn public atten- tion to the need of greater security in life assurance. The manage- ment of the department is vested in an officer called "The Govern- ment Insurance Commissioner," who is appointed by the governor on the recommendation of the Minister of the day. The department is conducted almost exactly on the same principles as those generally adopted by private mutual life insurance offices. All the usual classes of policies are issued to those who can pass the customary physical examination, and the colony is vigorously canvassed by traveling agents in search of new business. The people of New Zealand took great interest in the department from the start. It has easily distanced all competitors. Its life- insurance business is almost as much as that of all of its ten com- petitors together. The people are said to prefer the government insurance because it has the guaranty of the Government behind it, ^ New Zealand Parliamentary Debates, vol. 79, pp. 194, 195. 35885— S. Doc. 290, 61-2 15* 226 CrVIL-SEEVICE EETIEEMENT in new ZEALAND. because the rates are lower than in ordinary private companies, be- cause its poUcies are incontestible and nonforfeitable, and because the profits of the business go to the insured. This state life insurance was not compulsory in the beginning for any class of citizens, but the act of 1893 made it compulsory for civil employees under forty years of age in lieu of a civil pension scheme. In case of leaving the public service an employee could surrender his policy and get a surrender value. Under no condition had he to forfeit the surrender value of his pohcy, even if dismissed for misconduct. The insurance depart- ment has from the first made the best possible terms to members of the civil service, so that they have enjoyed an advantage, in that respect, over the outside public. The money for the premiums is collected in the cheapest and easiest manner possible. It is simply- deducted from the salaries by the proper government officials in the course of keeping their routine accounts and it is then handed over in a lump sum to the Government Life Insurance Department, which can thus easily afford to make especially favorable rates to the civil employees, since it has no commissions to pay for securing the business. Criticism of the Act. The Insurance Act of 1893 does not seem to have been sufficient, however, as a substitute for a retirement plan. It can easily be seen that the price of endowment assurance is so high as to make it of little use to the civil employee of small salary as a means of furnish- ing him with an adequate retirement allowance. The inadequacy of the endowment assurance as an old-age allow- ance made it necessary for the Government to supplement this pro- vision, in a great many cases, with gratuities and compensations. The custom obtained of granting a gratuity to men who had been a long time in the service, especially prominent and useful employees, when they went out, six months' and sometimes a year's salary. This was done by special act of legislature, but the law of 1893 pro- . vided distinctly for granting an employee who became permanently incapacitated through no fault of his own a sum equal to one month's salary for each year of service. This allowance on account of in- validity was entirely separate from the annuity which came to him on reaching the age of 60. Under these terms a civil employee who became incapacitated from further work at the age of 57, 58, or 59 was in a much better financial position than one who kept his health, as he received a large lump sum, and at the age of 60 a regular an- nuity also. The law was considered faulty, as it made no provision for widows and orphans except in the case of people who were killed in the serv- ice. If an employee under 60 years of age were killed at his work, his family received not merely his insurance but a gratuity also based on CIVIL-SERVICE RETIREMENT IN NEW ZEALAND. 227 his length of service. In many cases also of natural death special cir- cumstances made it seem necessary to vote the widow a "compas- sionate" allowance. A complete summary of the compensation, gratuities, and pensions paid yearly from 1858, the date of the inauguration of the first pen- sion system in the colony, until 1907, the year when the Public Service Superannuation Act was passed, was made by Mr. Morris Fox, the actuary of the Government Life Insurance Department, who ex- tracted this information from the journals of the House of Repre- sentatives. It will be seen that all the payments for pensions, gra- tuities, and compensation totaled for the year 1906-7 the large sum of £42,157 ($205,157). The summary is as follows : SUMMARY OF COMPENSATION, GRATUITIES, AND PENSIONS, 1859 TO 1907. [From Report on Public Service Superannuation Bill, 1906, Appendix 6, p. 24.] Financial year. Compensa- tion. Gratuities. Total com- pensation and Rratu- ities. Pensions under Civil Service Acts. 1869-60 $907. 76 1860-61 $2,189.93 1,946.60 2,877.32 2,141.22 82,189.93 1,946.60 2,877.32 2,141.22 1, 168. 14 1861-62 1, 630. 78 1862-63 1,791.58 1863-64. 1,791.89 1,963.53 10,666.89 12, 328. 43 1864-65 1866-66 5,775.60 4,331.19 3,437.63 601. 42 4,743.21 4,014.86 12,394.06 4,118.80 13,173.36 7,202.42 14,721.16 8,597.48 5,718.14 3, 284. 89 13,293.65 9, 762. 99 14,250.73 7,786.40 13,633.82 14,069.25 21,697 67 17,173.47 6,602.82 9,903.33 7,562.54 18,918.52 16, 492. 63 26,777.92 9, 871. 70 17,969.65 9,100.36 17,425.11 6,279.25 7, 105. 09 13,528.87 24,741.29 9,168.75 19,052.35 11,241.62 •16,789.43 14,830.66 40,769.10 5,775.60 4,331.19 10,191.32 36,268.92 9,777.16 11,172.66 26,311.27 11,746.19 14,696.11 8,044.32 14,786.05 14,238.38 9,397.21 20,742.95 16,447.91 102,529.61 52,196.27 14,322.68 30,904.04 46,292.29 . 61,279.90 36,140.47 90,347.83 82,46714 42,185.80 49,609.97 101,968.48 76,320.41 38,978.36 36,380.37 32, 102. 56 44,325.38 23,444.61 25,532.27 25, 672. 27 49, 798. 78 43,456.79 67,736.63 109,669.26 106,389.42 45,211.35 78,688.91 1866-67 1867-68 86,753.69 35,657.60 5,033.95 7,167.79 12,917.21 7,627.39 1,422.76 841. 90 64.89 5,640.90 3,679.07 17,468.06 3,154.26 92,776.52 37,945.54 6,536.18 17,270.22 31,223.04 39,682.33 18,967.00 83,846.01 72,563.81 34,623.26 30,691.45 85, 476. 85 , 49,642.49 29,106.66 17,410.82 23,002.20 26,900.27 17,166.26 18,427.18 12,143.40 25,057.49 34,298.04 48,684.28 98,427.64 89,599.99 30,380.69 37,919.81 13,790.67 1868-69 25, 486. 95 1869-70 28,624.87 1870-71 31, 210. 69 1871-72 34, 164. 51 1872-73 35, 968. 24 1873-74. 41,672.69 1874-76 40,152.07 1875-76. 39,191.53 1876-77. 51,387.14 1877-78. 57,374.37 1878-79 67,418.08 1879-80 62, 134. 86 1880-81. 82,700.49 1881-82 95,512.69 1882-83. 94,595.31 1883-84 94,791.05 1884-85. 99,597.57 1885-86 93,157.06 1886-87 96,230.17 1887-88 105,997.32 1888-89 110,579.21 1889-90. 112,997.74 1890-91 ' 113,805.76 1891-92. 107,911.70 1892-93 113, 152. 94 1893-94. 121,612.90 1894^95 122, 944. 66 1896-96 124,986.16 1896-97. 125, 154. 03 1897-98 127,232.55 1898-99 116,318.31 1899-1900 109,374.61 1900-1901 104,022.59 1901-2 101,201.96 1902-3 116,279.94 1903-4 111,670.94 1904-5 1905-6 115, 629. 48 116,672.67 1906-7 126, 471. 96 Total 1,217,075.80 516, 848. 05 1,733,923.86 3,519,106.43 228 CIVIL-SERVICE EETIKEMENT IN NEW ZEALAND. THE PUBLIC SERVICE SUPERANNUATION ACT, 1907. The Civil Service Insurance Act proving thus inadequate from the first as a superannuation measure, different classes of public servants made successful efforts from time to time to secure more satisfactory- legislation. In 1899 — only six years after the passage of the insur- ance act — the members of the police force secured the passage of a provident fund act which made provision for retirement on more sat- isfactory basis than that offered them under the terms of the insur- ance act. In 1902 the employees of the government railways and in 1905 the teachers did likewise. In 1906 a "Civil-Service Superannu- ation Bill" was prepared and referred to the public accounts com- mittee. The provisions of this measure are said to have been drawn up under the direction of Sir Joseph Ward, the premier, who took the liveliest interest in the bill. On October 24, 1906, the com- mittee recommended, in a report to the House of Representatives, "that the civil service superannuation bill, as submitted, or any other suggested scheme that will meet the position, be referred to the actuary for examination and investigation and that he be requested to furnish a full report on such scheme in time to enable it to be dealt with next session." Mr. Fox, the actuary, accordingly took up the work and submitted, on July 3, a very full report on the bill, together with data and statistics relating to the civil service. As an outcome of his investigation he recommended the adoption of the bill on con- dition of certain modifications. The majority of the amendments recommended by Mr. Fox were accepted, and "Public Superannuation Bill, 1907," was drafted. The actuary made a favorable report on this bill, and on November 25, 1907, it became a law. It was con- solidated the following year with the Public Service Classification Act of 1907, and the whole is now known as "The Public Service Classi- fication and Superannuation Act, 1908." Superannuation Bill First Proposed, 1906. The special features of the present law can best be brought out by a review of the investigations and reports which led to its enactment. The benefits provided in the first bill proposed, the Civil Service Superannuation BUI, 1906, were as follows :(") I. On attainment of pension: Males, at age60, or after 40 years' serv- ice; females, at age 50, or after 30 years' service:. (a) A pension of one-sixtieth of yearly salary for each year's serv- ice, with a limit of forty-sixtieths (two-thirds) of salary. (b) Or the option, in lieu thereof, of a return of total contributions. II. On retirement before pension^ age (on the ground of being medically unfit for further duty) : (a) At any time, a pension of one-sixtieth of yearly salary for each year's service, limited to forty-sixtieths. - Report on Public Service Superannuation Bill, 1906. Appendix 1, p. 17. CIVIL-SBBVICE RETIREMENT IN NEW ZEALAND. 229 TTT ^31.*^® option, in lieu thereof, of a return of total contributions. III. On retirement before pension age (on other grounds than medical unfitness) : (o) On ordinary dismissal or retirement, a return of total contri- butions. (b) On dismissal for the commission of a crime, a return of the balance of total contributions after any defalcations have been made good. IV. At death: (a) At death before pension entered upon, leaving no widov,' (widower) or children, a return of total contributions. (6) At death before pension entered upon, leaving a widow (wid- ower) or children, £18 ($88) yearly during widowhood (widower- hood), and 5s. (.|1.22) weekly for each child till fourteen years of age; with the option of a return of such portion of the total contri- butions as the board thinks fit. (c) At death after pension entered upon, a return of the difference between pension received and contributions paid to the fijind. V. Benefits already accrued: (a) In addition to benefits I to IV, the bill provides that (1) moneys already deducted from salaries, under "The Civil Service Reform Act, 1886," or "The Post and Telegraph Classification and Eegu- lation Act, 1890," shall be invested with the Public Trustee and become the property of the contributors on retirement ; (2) life-assur- ance pohcies and annuities effected under "The Civil Service Insur- ance Act, 1893," may be kept alive or the surrender value invested with the public trustee for the benefit of the holders. (&) The absolute or contingent rights to compensation for loss of office when the act comes into operation (if any) are also preserved until a corresponding amount of pension has been drawn. Note . — The pensions are payable monthly, and are computed on the salary at retirement, unless there has been promotion within five years, when the average salary for the last seven years is taken as the basis. To pay for these benefits the bill provided for the establishment of a superannuation fund made up of contributions from the employees, the Government guaranteeing the future adequacy of the fund. Collection of Statistics of Civil Service Made by Actuary. The first step taken by Mr. Fox in examining into the soundness of the proposed scheme was the collection of statistics regarding the personnel of the public service. Receiving instructions to include in his estimates all departments except railways and police and such officers of the education department as were included in the teachers' scheme, he addressed a circular to all other depart- ments of the colonial government asking for information concerning the number, age, sex, salary, and class of employment of all persons in each department to whom the provisions of the bill would apply. This was done in order that he might make a valuation of the accrued liabilities, which would have to be assumed by the superannuation fund on the inauguration of the proposed plan. The unfortunate 230 CIVIL-SEEVICE BETIREMENT IN NEW ZEALiAND. experience of the neighboring colony of New South Wales served as a warning in this respect, and the actuary of New Zealand felt the necessity of pointing out the importance of differentiating care- fully between liabilities that have to be assumed to cover past serv- ices — that is, provision for old employees — and those that may be incurred to cover future services; that is, provision for entrants into the service. The iriformation desired was furnished respecting 5,593 persons among the various departments, as follows : TABLE SHOWING 5,593 PERSONS TO WHOM IT WAS THOUGHT THE PROVISIONS OF THE BILL WOULD APPLY, DISTRIBUTED AMONGST THE VARIOUS DEPARTMENTS. [From Report on Public Service Superannuation Bill, 1906, p. 10.] Department. Post and telegraph Lands and survey Justice Agriculture Mental hospitals Customs Public works Printing and stationery Government hie insurance. Prisons Roads. Males. Marine Valuation l Defense Colonial secretary Public trust Land transfer and deeds registry. Tourist and health resorts Native Mines Labor Audit. Land and income tax House of Representatives Treasury Public health Inspection of machinery , Education (excluding those coming under "The teachers' superarmuation act, 1905 " Stamps Crown law State fire insurance Registrar-general Advances to settlers Old-ase pensions Legislative council Hospitals I. _ Electoral Friendly societies Land for settlements Industries and commerce , ,[ Colonial museum ]_ Native land purchase Deduct 86 civil servants entitled to pensions under civil serv- ice acts and not eligible under the present bill Total. 2,275 324 190 182 268 188 170 173 123 120 96 107 77 73 60 65 50 43 32 39 43 40 42 30 37 22 24 25 22 7 25 16 19 18 6 2 6 4 2 2 3 1 Females. 5,049 4,963 Total number. 297 19 1 165 4 5 40 12 18 2 1 4 1 4 13 1 630 2,672 343 191 182 433 192 175 213 135 133 98 108 81 74 64 78 51 48 32 39 47 42 44 36 44 22 25 38 26 7 27 16 19 18 5 3 5 5 2 2 3 1 Total sala- ries. 5,593 $1,622,588 371,995 228,419 203, 210 192, 884 173,758 169,807 161, 733 121,390 97,403 96,259 79, 952 76,209 72,287 59,512 57, 176 57, 142 48,772 47,838 46,811 45,326 44,991 44,378 41,604 39,784 31,910 30,086 26,"698 23, 116 18,298 17,300 16,926 16, 159 14,994 8,322 7,106 5,801 5,791 4,916 4,268 4,020 2,555 4,428,481 164,819 4,263,662 Assuming that the 5,593 persons referred to would all have been eligible as members of the fund if it had come into operation at the time the statistics were collected, it was necessary to value the liabil- ities resulting from the appUcation of the proposed contribution rates CIVIL-SEHVICE RETIREMENT IK NEW ZEALAND. 231 and retiring benefits to those 5,593 persons. With great care Mr. Fox explained the assumptions made and the statistical foundations of the calculations on which this valuation rested. Here again he seems to have been mindful of the experience of the actuaries of New South Wales whose explanations and warnings in connection with the super- annuation account of that colony were so disregarded, for he wrote : "I feel this to be all the more necessary because, unfortunately, I am aware that the use of recognized actuarial methods, though admitted in smaller matters, is viewed with disapprobation and absolute sus- picion by many people when applied to the investigation of certain complicated statistical and financial matters, although these matters peculiarly depend for their ultimate success on a proper treatment of problems involving a reasonable estimate of many probabilities — of life and death, widowhood, orphanhood, bachelorhood, increases in salary, and retirement from service — all these being spread over a long series of years and combined with the interest-earning power of money. While it is impossible in individual cases to make an accu- rate estimate of such matters, it is found that in a large body of per- sons the numbers living, dying, or doing acts within their own control, such as resigning or marrying, are singularly constant from year to year." The rate of interest assumed by Mr. Fox in his calculations was 4 per cent, and he stated it as his opinion that the Government should guarantee that rate of interest on the fund, as is done by many of the British railway companies in their pension schemes. He thought that the fund would probably be able to earn more than 4 per cent for some years, but held that without a guarantee it would not be justifiable to assume so high a rate as 4 per cent over a long period of time. The mortality table used by Mr. Fox as a basis for calculating the longevity of the civil servants, and considered by him particularly appropriate to a New Zealand fund of this description, was Dr. Farr's table relating to certain healthy districts in England. For chil- dren's annuities he used the mortality experience of the children of a large body of Scottish Presbyterian ministers, which was inves- tigated by Mr. Archibald Hewat in 1902. The probabilities of leav- ing children, with their ages, were taken from the New Zealand popu- lation returns from 1895 to 1899. The probabilities of leaving a widow or dying unmarried were derived from English census statis- tics utilized by Mr. George King in his investigation relating to family annuities. The ages of widows at death of husbands were taken from the scale adopted by Mr. H. W. Manly in his "Hypothetical Expe- rience (1903)." The average retirement age was assumed to be 61 for men, 51 for women. The optional age provided in the bill was 6(5 for men, but Mr. Fox assumed that many would not retire until after that age, 232 CIVIL-SERVICE RETIREMENT IN NEW ZEALAND. thus making the average age later than 60. At the same time, since they would be allowed to retire as a matter of right before reaching the age of 60 when they had served 40 years, or, with the consent of the board, after 35 years, it would follow that all who joined the service before reaching the age of 20 would be able to retire on a pension between the ages of 55 and 60, and some of them between the ages of 50 and 55. The bill made 50 the optional age of retirement for women, or earlier if they had had 30 years' service. Considering all these circumstances the assumption that men woxild retire at the average age of 61, women at the average age of 51, seemed to Mr. Fox to be reasonable. Having no data to work on, the actuary found himself unable to estimate the probable strain on the fund due to premature retire- ments on pension through physical disability. For the same reason he was unable to compute the relief that would probably ensue from those voluntarily retiring and leaving the interest on their accumula- tions in the fund. He assumed, however, that these two uncertainties would counteract each other, and though he said he could not speak confidently on that matter, he gave it as his opinion that the balance on either side would be immaterial. The uncertainty on these points convinced him, however, of the necessity for periodical inves- tigations of the progress of the fund. The final assumption made by Mr. Fox was in regard to the rate of salary increases from age to age. It is plain that the contributions and benefits (except those payable to widows and children) and the valuation of them depend on the amount of salary received, taking into account prospective increases in salary. The average salary received at each age at the present time was deduced by Mr. Fox from the data furnished him by the departments, and these average salaries were then graduated to remove irregularities. The present salary of each person was then assumed to increase from age to age in the same ratio as that of the graduated scale. The average and graduated salaries for men and women were shown to be as follows : CrVIL-SERVICE RETIREMENT IN NEW ZEALAND. 233 AVERAGE SALARY RECEIVED AT EACH AGE AT THE PRESENT TIME, AND THESE AVERAGE SALARIES GRADUATED TO REMOVE IRREGULARITIES. [From Report on Public Service Superannuation Bill, 1906, p. 12.] Age. Aver- age salary. Gradu- ated salary. Age. Aver- age salary. Gradu- ated salary. Age. Aver- age salary. Gradu- ated salary. MALES. 15 J157 240 242 266 300 379 432 485 530 564 603 660 670 726 799 791 821 794 844 862 866 970 912 952 1,025 1,063 1,028 1,136 $170 204 243 285 328 375 423 467 516 565 611 659 696 728 759 784 804 830 854 876 900 922 947 976 1,005 1,034 1,068 1,097 MALES— con- cluded. 43 $1,152 1,134 1,192 1,263 1,141 1,225 1,458 1,134 1,216 1,133 1,207 1,307 1,276 1,396 1,185 1,105 1,244 1,129 $1,131 1,158 1,180 1,200 1,212 1,221 1,229 1,231 1,231 1,231 1,231 1,231 1,231 1,231 1,231 1,231 1,231 1,231 FEMALES— con- cluded. 23 $303 344 327 348 334 321 436 393 375 393 518 382 401 398 474 456 481 452 $292 16 44 24 310 17 45 . 25 327 18 46 26 341 19 47 27 355 20 48 28 369 21 49 29 381 22 50 30 393 23 61 31 404 24 52 32 414 25 63 33 423 26 54 34 432 27 55 35 439 28 56 36 448 29 57 37 454 3D 58 38 459 31 69... 39 466 32 60 40 473 33 FEMALES. 15 41 481 34 42 349 427 811 575 681 414 341 473 487 491 35 43 . 497 36 16 195 195 207 219 222 273 298 196 199 209 224 239 258 276 44 502 37 17 45 506 38 18 46 606 39 19 47 606 40 20 48 606 41. . 21 49 606 42 22 50 506 Cost of Proposed Bill Based on Statistics Collected. The result of Mr. Fox's valuation of the scheme proposed in the bill, under the conditions assumed, showed that the capital value of the full actuarial Uability involved was £1,816,719 ($8,841,063), of which £1,709,582 ($8,319,681) was incurred for men, and £107,137 ($521,382) for women. Mr. Fox also computed the value of the lia- bility involved under various suggested modifications of the scheme, such as with the addition of annuities to widows and children of pensioners, with modified contributions, with half pensions only for back service, and with the widows' annuities increased from £18 ($88) to £26 ($127) under all of the above conditions. He found that the capital value of the full liability involved ranged from £2,041,898 ($9,936,897) to £1,338,120 ($6,511,961), according to the nature of the scheme, as will be seen from the following table : 234 CIVIL-SERVICE EETIEEMENT IN NEW ZEALAND. SUMMARY OF VALUATIONS OF THE FUND OUTLINED IN THE BILL AND OF MODIFICATIONS THEREOF. [From Report on Public Service Superannuation Bill, 1906. Appendix 5, p. 23.] Present value of— Pensions. Annuities. II 1:1 ill lii lis o 1 s Scheme. 1 1 SI ■ o •a o 1 1 I. With addition of annuities to widows and children." IM. If. {f. {f. fM. {f. Dollars. 5,647,622 603,736 Dollars. 4,980,011 181,185 Dollars. 1,297,978 Dolls. 419,376 Dolls. 55,405 18,191 Dolls. 62,783 1,946 Dollars. 12,463,175 705,058 Dollars. 3,624,540 183,676 Dollars. 8,838,635 621,382 6,161,358 5,161,196 1,297,978 419,376 73,596 64,729 13,168,233 3,808,216 9,360,017 II. Contributions 5, 6, 7, and 10 per cent." 5,647,622 603,736 4,980,011 181, 185 8:0,472 387,928 55,405 18,191 62,783 1,946 11,944,221 706,058 3,624,540 183,676 8,319,681 621,382 6,151,358 5,161,196 810,472 387,928 73,696 64,729 12,649,279 3,808,216 8,841,063 III. Contributions 6, 6, 7, 8, 9, and 10 per cent.u 5,647,622 503,736 4,980,011 181,185 810,472 387,928 61,099 18,916 62,783 1,946 11,949,915 705,783 4,099,233 193,677 7,860,682 512,106 6,151,368 5,161,196 810,472 387,928 80,015 64,729 12,666,698 4,292,910 8,362,788 IV. W i t h one-halt back service only." 5,647,622 603,736 2,741,499 90,595 810,472 387,928 55,406 18,191 62,783 1,946 9,705,709 614,468 3,624,540 6,081,169 183,676j 430,792 6,151,358 2,832,094 810,472 387,928 73,596 64,729 10,320,177 3,808,216 6,511,961 V. Asinl* 5,647,622 603,736 4,980,011 181,185 1,874,858 419,376 55,406 18,191 62,783 1,946 13,040,055 706,058 3,624,540 9,416,515 183,676 621,382 6,161,358 5,161,196 1,874,858]419,376 73,596 64,729 13,745,113 3,808,2169,936,897 VL As inns 5,647,62^ 503,736 4,980,011 181,185 1,170,680 387,928 55,405 18, 191 62,783 1,946 12,304,429 705,058 3,624,640 8,679,889 183 676 !i^)l^ nia ' 6,161,358 5,161,196 1,170,680 387,928 73,596 64,729 13,009,487 3,808,216 9,201,271 VIL As in III 6 5,647,622 503,736 4,980,011 181,185 1,170,680 387,928 61,099 18,916 62,783 1,946 12,310,123 705,783 4,099,233 193,677 8,210,890 512,106 6,161,358 5,161,196 1,170,680 387,928 80,015 64,729 13,016,906 4,292,910 8,722,996 Vin. AsinlVt 6,647,622 603,736 2,741,499 90,695 1,170,680 387,928 55, 406 18,191 62,783 1,946 10,065,917 614,468 3,624,540 183,676 6,441,377 430,792 6,151,358 2,832,094]l,170,680 387,928 73,596 64,729 10,680,386 3,808,216 6,872,169 a Widows' annuities, £10 ($49). S Widows' annuities, £26 (1127). It will be noted that these sums ranging from £2,041,898 (19,936,- 897) to £1,338,120 ($6,511,961) include the accrued liability for back services and the prospective liability for future services. Consideration of How Cost Might be Met. The question to be decided was : How shall these liabilities be met ? There seems to have been no thought in the mind of Mr. Fox but that the whole of the Hability for back services should be borne by the Gov- ernment, a point which does not seem to have been questioned by the Government. He stated it to be clearly a matter of opinion, how- CIVIL-SEEVICE EETIEEMENT IN NEW ZEALAND. 235 eTer, as to how much (if any) of the deferred liability should be met by present contributions from the Government and the deferred pensioners, and how much should be left to be met by the Government of 45 years hence ; on the one hand, how much it is considered practi- cable or desirable to take in yearly contributions from the prospective pensioners to meet a portion of the hability when it accrues, and, on the other hand, what proportion (if any) of the balance of future liability should be met by the present, and what proportion should be left to the future Government. There was no suggestion on Mr. Fox's part of the other alternative that the entire liability for future services might be borne by the pensioners themselves, a suggestion that would indeed have been impracticable in view of the generous benefits provided under the scheme. In the opinion of Mr. Fox, then, there were only two ways of placing a government scheme of deferred pensions to its employees on a sound footing. The one course was to exact no contribution from the pros- pective pensioners and to leave the whole of the future liability to be met by future generations as it accrued. This would be simply a straight pension such as that maintained by the British Government for its civil servants. Stating, however, that a contributory plan is generally considered inore desirable than a pure pension, Mr. Fox insisted on the importance in such a plan of reserving and accumu- lating the contributions to meet the contributors' portion of liability and not using them, in earlier years, to pay other claims which have not been provided for by contributions, namely, pensions to persons already in the service at the time of the establishment of the plan. He maintained that such claims should certainly be met from other sources as they fall in, and not discharged by using accumulations formed for the purpose of meeting altogether different liabilities. If this were done he held that the fund, assuming that it were other- wise conducted properly, would be found, at successive investigations, to be sufficient to meet that portion of the liability which it was intended to meet, and it would therefore be sound from any point of view. As for the liability on account of back services, which should be borne by the Government, Mr. Fox showed by the use of the following table of prospective pensions to men arising from the scheme con- tained in the bill how that should be kept entirely separate from the liabiHty for future services to be met in part by contributions from the younger members. 236 CIVIL-SERVICE EETIEEMENT IN NEW ZEALAND. PEOPEB TREATMENT OF LIABILITIES ARISING FROM PROSPECTIVE PENSIONS OF MALES. [From Report on Public Service Superannuation Bill, 1906, p. 13.] Age. Num- ber. Back service. Future service. Total. Age. Num- ber. Back service. Future service. Total. 81 1 1 1 2 2 4 4 3 7 4 7 9 10 26 21 26 32 39 29 33 31 $224 273 2,273 161 399 1,226 4,171 949 4,618 1,572 2,618 2,073 3,499 13,183 9,387 15,787 19,354 15,558 14,171 13,777 13,792 $224 273 • 2,273 161 399 1,226 4,171 949 4,618 1,572 2,618 2,073 3,499 13,183 9,387 15,787 ■ 19,364 15,668 14,171 13,777 13,792 49 93 85 78 84 92 86 85 92 88 92 109 181 97 107 105 102 106 107 139 152 143 107 119 136 129 132 117 171 217 226 247 166 140 74 9 $44,650 36,039 30,630 32,601 33,501 26,406 27,097 27,554 23,291 26,766 29,958 27,131 22,439 26,011 22,766 20,191 18,877 17,544 24,683 24,143 20,751 12,711 11,865 12,536 9,446 7,674 4,706 3,577 $27ff79 22,751 21,106 27; 233 30;523 29,024 31,895 37,117 34,742 » 46,514 46,047 57,760 53,269 56,634 60,179 60,938 87,242 97,676 98,761 72,248 79,903 97,778 94,084 100,002 93,792 141,986 181,720 186,652 185,156 119,473 114,538 71,608 6,823 $71,829 57,790 51,736 59,834 64,024 55,430 58,992 64,671 80 48 79. 47 78 46 77 45 76. . 44 75 43 74 42 73 41 58,033 72 40 67,523 80, 132 71. 39. 70 38 73,645 69 37 68,486 83,771 76,015 68 36. . 67 36 66 34. 75,825 79,056 78,482 111,925 127,819 119,512 84,959 91,768 110,314 103,530 107 676 65 33 64 32. 63 31... 62 30 61 29. 28 292 31 60 44 33 40 37 47 68 62 73 75 139,065 139,066 27. 26 60 12,670 23,023 16,665 14,200 19,748 19,777 21,223 24,686 26,036 32,382 27,491 $584 2,073 2,433 2,609 4,662 4,725 7,168 9,334 10,641 14,789 15,587 13,164 25,096 18,998 16,809 24,400 24,602 28,391 33,920 36,577 47,171 43,078 25 59 24 68 23 57 22 145,562 181,720 186,652 185 166 56 21 55 20... 64 19 63 18.. 119,473 114,538 71 508 62 17 61 16. 60 15 It will be seen that if the 292 men over 60 years of age all retired on pension immediatelj'- the sum of £28,576 (1139,065) would be payable during the first year on their account. "If it be deliberately resolved to offer these pensions," said Mr. Fox, "it should also be recognized that they constitute a present liability, and they should be met out of the present resources of the State." He then showed how, in each succeeding year, it would also be necessary to similarly provide the pensions which would become due on account of back service to the survivors of the present members shown in the table as living at each age under 60 down to age 22 when the liability for back service would vanish. The outgo for pensions on back service would, of course, diminish as the pensioners died off. Mr. Fox showed also, from the above table, how members of the service who had served some time before the adoption of the proposed' scheme would ultimately retire on pensions provided partly by the Government and partly by their own contributions. The seventy- five men shown as now aged 50 would, if they survived and remained ten years, be entitled to £3,203 ($15,587) a year for their future ten years' service, in addition to the £5,649 ($27,491) for back service. These men would be contributing 10 per cent of their salaries during the next ten years, whereas the full rate necessary would be approxi- CrVIL-SERVICE EETIKEMENT IN NEW ZEALAND. 237 mately 15 per cent. Thus, two-thirds of their future-service pensions would have been purchased by their own contributions, if those con- tributions had been safeguarded as advocated above, leaving the remaining one-third of the survivors' pensions to be defrayed by the Government, in the same way as the whole of the back-service pensions. The full rates of contribution necessary at various ages having been ascertained, it would be for the Government to say what pro- portion of these rates should be required from the contributors to the fund. The sum so contributed should be used only for the purpose of meeting the portions of the current and future habili- ties for which they were intended. That part of the contributions intended to meet a portion of the future liability should be accumu- lated at interest and not used for any other purpose. The remainder of the current and future habilities not so provided for by the contri- butions should be discharged year by year, as they accrue, by the Government of the day, and no portion whatever of the contributed fund should be used for that purpose. An actuarial investigation of the fund should be made trienniaUy (or quinquenniaUy) in order to test the sufficiency of the contributed fund and to ascertain the probable extent of the present accruing liabihty which will have to be met by the Government during the succeeding three (or five) years. The full contributions required at different ages to furnish the bene- fits given in the bill were computed to be as follows : ('^) At age 18 8.6 per cent of salary. At age 23 9.3 per cent of salary. At age 28 9.8 per cent of salary. At age 33 10.4 per cent of salary. At age 38 11.1 per cent of salary. At age 43 12.1 per cent of salary. At age 48 13.6 per cent of salary. At age 53 15.6 per cent of salary. At age 58 17.9 per cent of salary. The contributions in the bill were — At age 40 and under 5.0 per cent of salary. At age 41 6.0 per cent of salary. At age 46 7.0 per cent of salary. At age 51 and over 10.0 per cent of salary. The difference between the amounts contributed under the bill and the amounts required to furnish the proposed benefits would have to be contributed by the Government. The rates of contribution determined on show that New Zealand profited in that respect from the disastrous experience of New South Wales, where the flat-rate contribution of 4 per cent of salary had been "Report on Public Service Superannuation Bill, 1906, p. 14. 238 CIVIL-SEEVICE BETIEEMENT IN NEW ZEALAND. found inadequate for the payment of benefits. All of the actuaries who examined into the state and sufficiency of the New South Wales fund had commented on the inadequacy of the contributions and one of them had pointed out, with great emphasis, the fact that the rate of contribution must depend necessarily on the age of entrance into the service, a fundamental principle carefully observed in New Zealand's bill. Recommendation of Actuary of How Cost Should be Met. Mr. Fox showed that there are several ways in which the Hability incurred in starting the proposed scheme might be met. The capital sum of £1,816,719 ($8,841,063) might be paid in immediately, but this course would not be practicable. A yearly payment of £72,669 ($353,643), which is the interest on the capital sum at 4 per cent, might be made, but this course would require much larger initial payments than are necessary. What Mr. Fox proposed therefore was this: The liability for back services to be met by the Govern- ment year by year, as it accrues ; liability for future services to be met by demanding from the members such proportion as might be thought proper of the full contributions necessary to provide the benefits, and by accumulating these to pay a corresponding propor- tion of the future liabilities as they fall due, and the Government of the day to pay, year by year, as they accrue, the remaining future liabilities not provided for by members' contributions. In order to give effect to this arrangement he repeated that it would be necessary to have a periodical investigation of the fund to ascertain the amounts which will be required from time to time to meet the balance of current outgo without trenching on the fund contributed by the civil employees. Taking everything into consideration, Mr. Fox stated that, in his opinion, a yearly subsidy of £30,000 ($145,995) would be sufficient for the first three years, but that ultimately £50,000 or £60,000 ($243,325 or $291,990) would probably be required. It was his desire to ascertain in what way the fund could be most conveniently made actuarially' sound with a minimum strain on the public purse by way of financial assistance. He con- sidered that that would be done most effectively by making the subsidy as small as possible at first, and subject to a comparatively small and practically regular increase so long as it should be neces- sary. At each successive triennial investigation the amount re- quired, during the following period, to meet the balance of current outgo could be determined with greater accuracy. Mr. Fox said : In advising as to the probable outgo of the first three years of the scheme I am in a very different position from that I shall occupy at CIVIL-SERVICE EETIKEMENT IN NEW ZEALAND. 239 the first triennial investigation in regard to the second three years, because there is at present no euiperience whatever of members respectmg retirements and withdrawals. The bulk of the outgo will result from the payment of pensions to those entitled to retire immediately. It they all went on the fund at the outset the claims on their account wpuld amount to approximately £27 800 ($135 289) in the first year, £26,600 ($129,449) in the second, and £25,300 ($123,122) m the third year— this outgo decreasing yearly. On the other hand, the pensions which will become due to those now aged 57, 58, and 59 (or 47, 48, and 49 in the case of women), who may become pensioners during the triennium, though small at first, will be of an increasing nature, and the contributions of these members will not have had time to accumulate to an appreciable amount. Taking everything into consideration, I think that a yearlv subsidv of £30,000 ($145,995) will be sufficient for the first three years. J^ I have said, however, I am quite unable to estimate the relief to the fund which will be eiperienced through members abstaining from retiring immediately they have the right to' do so, nor am I able to estimate the strain upon the fund which will result from members under the pension-ages being retired on pension owing to ill health. This disadvantage will apply with less force at each successive triennial investigation in consequence of the accumulation of sta- tistics of the actual experience of members in these respects. But, as I have said, I think a yearly grant of £30,000 ($145,995) will supply all that will be required during the first three, years. (°) Amendments to the Pkoposed Bill Recommended by Actuary. As the outcome of his investigation Mr. Fox recommended there- fore that the bill be adopted with the following amendments: (1) That the interest credited to "the contributed fund" shah not be at a lower rate than 4 per cent. (2) That the widows' annuities shall be increased from £18 ($88) to £26 ($127). (3) That the annuities shall be payable to the widows and chil- dren of pensioners as well as to the widows and children of members who die while in the service. (4) That a yearly grant of £30,000 ($145,995) shall be made during the first three years. (5) That this yearly grant shall be increased (or decreased) from time to time in the manner explained heretofore, in order to meet the yearly accruing liability unprovided for by members' contribu- tions. (6) That, in order to ascertain the necessary periodical grants a triennial actuarial investigation of the fund shall be made, the tri- ennial report to state what will be the probable sum required for the ensuing three years. (7) There will be no necessity to retain the present provision for the guarantee of any deficiency in the fund.^") o Report on Public Service Superannuation Bill, 1906, p. 15. 6 Idem, p. 16. 240 civil-seevice eetikement in new zealand. Advantages of a Superannuation System. In closing his report Mr. Fox submitted his reasons for recom- mending superannuation measures generally and this scheme in par- ticular. Said he: The advantages arising from well-considered superannuation schemes are so evident that many large employers or clerical and other labor have recognized their importance by adopting schemes of the kind in practice, and the tendency of the present day appears to be in the direction of extending the system. It has been pointed out by others that a sentimental consideration for the employee is not the sole motive for expenditure of this kind by corporations and bodies of men engaged in the profitable investment of capital. They are certainly guided by business principles and realize that well- considered expenditure in this direction is justified by the ultimate results. All employees are compelled to partially provide for their future, thus relieving their employer of the assistance he would be practically forced to extend in necessitous cases. But perhaps the chief advantages to the employer are that the employees as a body are more firmly attached to his service and he is enabled to exercise a freer hand in retiring aged employees at high salaries and promoting younger men at lower salaries. All interests are best served in the end by placing on the pension list old servants who are past their work and replacing them by younger ones who are in their prime. I respectfully submit that the following are sound reasons why the scheme I am advocating should be accepted in its entirety : (1) On the one hand, it will give full effect to the wishes of the civil service. (2) On the other hand, it will impose the minimum q/" liability upon the Government to begin with, which liability will not be erratically subject to sudden large increases in the future. The increase in the cost of superannuation itself will be very gradual, being for many years probably between £1,000 and £2,000 ($4,867 and $9,733) per annum, and when the present outlay for compensation, gratuities, and pen- sions is taken into account I believe the yearly increase in the total Government assistance to civil servants will be still further reduced. Such a gradual increase will cause no undue strain to fall on the future increasing resources of the country. (3) The fund will be always sound if otherwise properly conducted. When the unsatisfactory condition of some large government funds of this kind in other parts of the world is considered, it wUl be recog- nized that this is a matter of the first importance; and I say, without any reservation, that the fund may be subjected at any time to the most exacting actuarial investigation, and, if no departure has been made from the principles I have laid down, it will always pass the test satisfactorily, thereby adding one more to the many large con- cerns of which the Dominion of New Zealand has cause to be proud. (") Superannuation Bill of 1907 Proposed. FoUowmg this actuarial investigation, the bill vas redrafted as the "PubHc Service Superannuation Bill, 1907." On November " Report on Public Service Superannuation Bill, 1906, p. 17. CIVIL-SERVICE EETIEEMENT IN NEW ZEALAND. 241 12, 1907, Mr. Fox submitted a brief report on this second bill, which he found very much stronger from an actuarial viewpoint than the one of the previous year. The chief improvements were ones recom- mended by Mr. Fox in his previous report, namely, a provision for a yearly subsidy of £20,000 ($97,330) (though he had'asked for £30,000) ($145,995) ; a provision for a triennal investigation and suitable form of actuarial report thereon; and a provision making widows' and orphans' annuities payable in the case of contributors dying after (as well as before) becoming superannuated, the balance of compensa- tion not received by way of pension being included in the optional capital payment. Two other important changes were made in the bill. The scale of contributions between ages 30 and 50 was increased from 5, 5, 6, and 7 per cent to 6, 7, 8, and 9 per cent. The pensions were based on the average salary of the last three years instead of on the final salary. In one respect this second bill, as first drafted, was a disappoint- ment to the actuary, and he accordingly made a protest in his report, which proved effectual, for the undesirable clause in the bill was changed to correspond with his recommendation. He had strongly advocated, from the first, that the section guaranteeing any future deficiency in the fund be omitted altogether and a section inserted making provision for the annual appropriation of £30,000 ($145,995), and such further sums as the triennial investigation showed were necessary. He stated that he did not insist on the sum of £30,000 ($145,995) as absolutely necessary, that £20,000 ($97,330) would do as well if provision were made for triennial adjustment of the amount, should it prove to be insufficient. ' "I inserted £30,000 ($145,995)," he said, "because, after strict inquiry, I considered that sum would be sufficient, while I am not sure that a smaller sum would." In conclusion, he emphasized the fact that the scheme would have two opposite effects. While it would require an initial annual subsidy of £20,000 to £30,000 ($97,330 to $145,995), subject to an annual increase for some years, it would also have the effect of dimin- ishing expenditures in other directions. There had been paid out of the Consohdated Fund, the year before, over £8,000 ($38,932) as gratuities, an outlay that, under the terms of the bill, would cease immediately. There was also paid out over £8,000 ($38,932) as compensation, an expense that would cease to accrue when the act came into operation, and in twenty years or so would practically cease. Finally, there was also paid during the previous year over £26,000 ($126,529) as pensions, and in about twenty years this outgo would also cease. There was thus £42,157 ($205,157)" paid from the Consohdated Fund the year before as assistance to civil servants by way of gratuities, compensation, and pensions, and as a See page 227. 35885— S. Doc. 290, 61-2 16* 242 CIVIL-SEEVICE BETIEEMENT IN NEW ZEALAND. this outgo would, diminish, under the terms of the bill, until it prac- tically ceased altogether in about twenty years, while the expendi- ture under the bill was increasing at the same time, Mr. Fox thought it it evident that the practical consideration of importance was the total annual amount required from the consolidated fund for all these pur- poses taken together. He stated that he thought it highly probable that the annual decrease in the present outgo would practically balance the annual increase in the subsidy for the next twenty years. Actuary Made Only Estimate of Cost, Instead of Calculation. It is of interest in considering the probable cost to the New Zealand Government of establishing and maintaining the proposed superan- nuation fund to note that after the first year the amounts mentioned by the actuary are all estimates and not calculations. The sum of money required the first year to retire all those in the service who had reached the age of retirement was calculated to be £28,576 ($139,065). It would have been perfectly possible, having all the necessary data as to the age, length of service, and amount of salary of all the 5,593 members of the civil service, to have carried out the calculation to the end of the period when all present members of the service would be dead, and thus have shown with precision the total maximum cost of the annuities for back services to all present members of the service. It is to be regretted that the calculations were not car- ried out to the end, so that the possible maximum cost might be known with definiteness. The actual cost would, of course, be less than, such a maximum cost, since no allowance could have been made for resignations in the absence of data on the subject. The calculation of a possible maximum cost would, however, be much more satisfactory than the most conservative estimate, acknowledged to be merely an estimate. At the hearings of the Public Accounts Committee on November 13, 1907, Mr. Fox was examined on the matter of cost as follows : What is the maximum amount which a scheme like this will in- volve the colony in? — I have explained on previous occasions when I have been here that I have an objection to saying that I can give correct estimates for a long distance ahead; but I can form some idea, and I will give you that idea. Whatever is the initial subsidy required, that will have to go on increasing for a large number of years. I have been looking lately at the composite effect of all the payments for pensions, gratuities, and compensation, totahng £42,000 ($204,393) at present; and the £30,000 ($145,995) added on to that for the first year would make £72,000 ($350,388) to come out of the government purse. It will never, I consider, be more than that. In the course of twenty years' time the £42,000 ($204,393) will have vanished altogether, roughly speaking. At that time the total yearly outgo will be very much less than the first year's £72,000 ($350,388)— very much less; but the £30,000 ($145,995)" will have mcreased. It may have increased to £55,000 or £60,000 ($267,658 or $291,990). That will take the place of everything included in the CIVIL-SEEVICE BETIEEMENT IN NEW ZEALAND. 243 present £72,000 (1350,388). After the first year £7,000 or £8,000 ($34,066 or $38,932) paid in gratuities will vanish altogether from the total, and so the £72,000 ($350,388) will not all be wanted by that much. Taking the £42,000 ($204,393) that is being paid at the present time per year, I consider that possibly not more than £10,000 ($48,665) per annum over that sum will be wanted for the whole thmg eventually. That is about £50,000 ($243,325). I am speaking of fifty years' ahead or more. The amount will have mcreased to more than £50,000 ($243,325). previous to that, but will be likely to come down to, say, £50,000 ($243,325) as a perma^ nency. That will take the place of everything — there will be no other outgo. For how long will the amount to be paid under the bill keep on increasing? — For a good many years. Can you give us any idea how long? What I want to get at is what the colony is being committed to?^I will still take the whole lot together— the £42,000 ($204,393) that is being paid now and the £30,000 ($145,995) proposed to be paid out, making £72,000 ($350,388) altogether. I estimate that in about thirty-five years' time the total amount will be about the same as that. It will be all on account of the pension fund then — there will be no other outlay. It will certainly have come down in eighty years' time to its final level — say £50,000 ($243,325). (<») It can not be stated whether this uncertainty as to the ultimate cost of the enterprise in which the Government was embarked by the passage of the superannuation act left any feeling of uneasiness in the minds of those who voted for it. At a meeting held to com- memorate the passing of the act. Sir Joseph Ward, the Premier, is reported by the New Zealand Times of December 19, 1907, to have reminded the people of "this potent fact, that in addition to the £20,000 ($97,330) a year which the country was now contributing, at any time, if that amount was found to be insufl[icient, the country was bound by act of Parliament to provide the increase, whatever that might be. They knew from the actuary that the amount in time must be increased to £50,000 or £60,000 ($243,325 or $291,990) a year. He believed that without a contented service the country did not get the full value in return. It was proper that the country should pay its servants well so as to secure attachment to the serv- ice, and thus retain its employees. He believed they would get that attachment as a result of this act." Another speaker at this same meeting, Mr. G. Allport, chairman of the superannuation com- mittee, denied that the civil servants were paying for much of what they got, and said that "they were not going to pay a sufficient amount, by a long way, to provide the pensions they would receive, and they ought to be grateful to the Government and the country for having agreed to contribute in the manner which was done, enabling a sub- stantial pension to be paid to each member of the service upon his retirement." a Keport on Public Service Superannuation Bill. 1906. Minutes of evidence, p. 4. 244 CIVIL-SERVICE EETIREMENT IN NEW ZEALAND. The bill was passed November 25 and became a law with the fol- lowing provision in reference to a subsidy: "In the month of January in every year the minister of finance shall pay into the fund and out of the Consohdated Fund, without further appropriation than this act, the sum of twenty thousand pounds ($97,330) , together with such further' amount (if any) as is deemed by the governor in council, in accordance with the aforesaid report of the actuary to be required to meet the charges on the fund during the ensuing year." Main Features of the Law Enacted. The main features of the law are then as follows: All permanent civil servants and all temporary clerks who had served the Gov- ernment for more than five years continuously are included in the pubhc service superannuation scheme, if not provided for by the poUce, railway, or teachers' funds. They were given the oppor- tunity for six months of joining the fund. Anyone who did not elect to become a contributor within the prescribed six months is not allowed to do so at a future time, except on payment of a sum equal to the total contributions he would have paid had he elected to be- come a contributor in the beginning, plus five per cent compound interest. Anyone who joins the fund has the option of continuing the life insurance policy he had been required to take out under pre- vious legislation, or of surrendering it. In case he electsnot to join the superannuation fund, he is required to continue the policy. AH new entrants to the public service are compelled to join the fund. The amount of their contributions is determined by their age on entering the service, ranging from 5 to 10 per cent of their salaries. Pensions are claimable by men at the age of 65 (60 was the age origi- nally chosen, but the change to 65 was made in committee at the last moment) or after forty years of service, and by women at the age of 55 or after thirty years of service. There is no compulsory age of retirement. The, amount of each pension is as many sixtieths of the average salary during the last three years before retirement as the pensioner has been years in the service, but it will, in no case, exceed two-thirds of this terminal salary. The contributor may elect on retirement to take the amount of his contributions, without interest instead of this retiring allowance. In case of medical unfitness, retirement is allowed on the usual pension of ^V^h for each year of service. The medical certificate of two approved practitioners is re- quired to satisfy the board that the employee has become permanently unable to perform his duties by reason of mental or bodily infirmity not caused by irregular or intemperate habits. An ordinary medical examination is required on entrance into the service. In case of the death of a male contributor^ whether before or after becoming entitled CIVIL-SERVICE BETmEMENT m NEW ZEALAND. 245 to a retiring allowance, an annuity of £18 ($88) a year is granted to his widow, or she may choose instead the return of the deceased's contributions. Five shillings ($1.22) a week is granted to each child under 14 years of age, whether the deceased contributor is a male or a female parent. Where there is neither widow nor child the differ- ence between the contributions paid by the deceased and the pension received by him or her is paid to his or her legal representatives. In case of voluntary withdrawal or in case of dismissal for any cause, the contributor is entitled to a refund of the whole amount actually contributed by him to the fund, but without interest. The fund established under this act consists of the contributions of the em- ployees, the subsidy from the Government, and the interest accruing from the investment of the fund. All moneys belonging to the fund are paid to the public trustee, who invests them in freehold securities at current rates of interest. The average rate of interest yielded by such investments is reported (by a member of the board) to be about 5 per cent. The fund is administered by a board called the Public Service Superannuation Board consisting, of ten members, of whom five are appointed by the governor and five elected by the contribu- tors. This board has the services of one secretary and two clerks. The cost of administration is reported to be nil except for the sum of £400 ($1,947) per annum paid to the secretary of the board as salary. "The Public Service Superannuation Act, 1907," accordingly came into operation January 1, 1908. Immediately applications to become contributors to the fund commenced to come in, and to an extent that showed at once that the act was a popular measure and would prove most successful in its operation. Up to the end of June, 1908, that is, six months after the act became effective, no fewer than 7,028 members of the public service voluntarily became contributors. This included the majority of the 5,593 persons enumerated in the census of the departments made by the actuary and also officials who, prior to the passing of the Classification Act of 1907, were only temporarily employed but who became permanent officers by the passage of that act. The act provides that, until an official becomes a contributor to the fund, he is subject to the provisions of the previous civil service acts relating to insurance and deductions from salary. On becoming a contributor, the official is entitled at his option — (1) To keep his insurance policy alive independently of the superannuation act; (2) To surrender the policy and have its surrender value paid to the public trustee to be invested independently of the fund, and to be paid to him, together with all interests on it, when he retires or to his personal representatives on his death; or, (3) To surrender the policy and receive, the equivalent of its surrender value in the form of a paid-up policy. 246 CIVIL-SEKVICE KETIKEMENT IN NEW ZEALAND. Since the provision for widows and dependents under the new super- annuation scheme is not on such a high scale as to make insurance no longer necessary, it is the expectation of the government insurance commissioner that large numbers of civil servants whose own old age is well provided for by the superannuation fund will see the wisdom of maldng provision for their famiUes by assurance on their hves, for which the department offers special facihties. Even though compul- sory insurance was imposed, under the Act of 1893, only on new entrants under forty years of age, a large proportion of the support given to the Insurance Department came from voluntary action on the part of government employees in all branches and grades of the service, including teachers, pohcemen, railway men, and civil serv- ants. The following statement, taken from a "Brief Survey of New Zealand's State Life Insurance," prepared for distribution at the Franco-British Exposition in London, 1908, shows that government employees contributed in premiums upwards of £44,000 ($214,126) a year out of a total premium income of over £320,000 ($1,557,280). Of this less than 13 per cent was of the nature of compulsory insur- ance, as shown by the following statement : Yearly premiums. Railways $74,457 Posts and Telegraphs , 37, 959 Education 27, 252 Police Force. 9, 733 Other Departments (per Treasury) 40, 392 Voluntary assurance premiums .-, 189,793 Compulsory assurance premiums (under Civil Service Insurance Act) 28, 226 218, 019 Operation or Law, First Six Months. The Public Service Superannuation Board's report for the first six months of the law's operation shows, however, that considerable diffi- culty was experienced at first, owing to the fact that the temporary officers who had become permanent were under the impression that they were exempt from the necessity enjoined on all officers joining the service since 1893 of having to insure their fives, and they con- sidered that the option given by the act to all those newly made per- manent of having the privilege of electing within six months to become contributors, exempted them in the meantime from having to insure under the provisions of "The Civil Service Insurance Act, 1893," should they decide not to become contributors until the six months' option had expired. This was, however, overcome, and with a few exceptions they undertook the responsibifities of other pubfic officers and joined the fund. This report states that "the popularity of the act has been dis- tinctly proved by the very large number of officials who have volun- tarily joined as contributors. There are cases where some who have CIVIL-SEEVICE RETIREMENT IN NEW ZEALAND. 247 become permanent officers under the Classification Act, and who had to join as contributors or insure, demurred at having to accept the responsibilities of the position, and considered it somewhat of a hard- ship that, being already insured in the Government Insurance Office or other private companies, they should have their small salaries further taxed by having to contribute to the fund or take out a policy under "The Civil Service Insurance Act, 1893;" but, as against the few who felt this hardship, a large majority of the public service felt that a very great privilege had been accorded them under the liberal provisions of the act. Many of these had given years of their life to the service of the Dominion as temporary officials, and had no hope or prospect of any retiring allowance when their time came to leave the service, and they were gratified to find that under this act their past service would be taken into account when they retired, and that they would be accorded the same privileges as regards a retiring allow- ance' as those permanent officers with whom they had worked for many years." The following statement for the six months ending June 30, 1908, was madeiC") Number of contributors 7, 028 Annual contributions $267, 658 Contribution from the Consolidated Fund $97, 330 Retiring allowances granted 63 Representing an annual payment of $26, 547. 43 Number of officials retired as medically unfit 9 Representing an annual payment of $3, 931. 69 Number of contributors who have died during the six months 9 Annual pension to five widows and seven children $881 The total allowances granted, it will be seen, amount to £6,444 lid. ($31,359.95). The largest pension paid is £339 3s. 4d. ($1,650.55) and the smallest £12 9s. 9d. ($60.77). Public Attitude in Eegard to Law. The superannuation scheme seems to be satisfactory to the New Zealand public as well as to the civil employees. Press comments at the time of its adoption took the form of congratulation rather than of any criticism of the extra charge laid on the country. Sym- pathetic interest was also shown by Australian and English papers. "While the superannuation scheme undoubtedly imposes a heavy tax on the Consolidated Revenue, it at the same time relieves it from another heavy outlay, and the additional cost of superannuation is not so great as might at first be supposed," was the comment of a Melbourne paper. (*) This cost was denominated by another journal as a "very moderate pull on the Dominion's exchequer." ('^) "The annual cost of the scheme, although not yet ascertained, will, to some o Report of Public Service Superannuation Board, June 30, 1908. 6 Australasian Insurance and Banking Record, Melbourne, February 20, 1908. c New Zealand Times, November 21, 1907. 248 CIVIL-SERVICE EETIEEMENT IN NEW ZEALAND. extent, be offset by a direct saving in other directions, while the indirect saving through securing a more efficient public service shoiJd be very material," was the view expressed by a Sydney paper. C') The comment of a London insurance paper was "We believe there is here outlined an admirable scheme of supera,nnu- ation, the administration of which will be watched with interest in many quarters of the world. We content ourselves in the mean- time with observing that the indications are that it will work out to the benefit of deserving State servants, whose habits of thrift and self-help it will stimulate, without imposing an undue burden upon the people of the Dominion." C") The principle involved in the sharp line of demarcation drawn by the actuary between the payment of allowances on services rendered prior to the adoption of the plan and the payment of allowances on services rendered after the adoption of the plan was clearly under- stood and discussed in some of the editorial comments. Speaking of the difficulties which presented themselves in the way of an appli- cation of the pension idea which would be at once financially sound and fair in its operation, the London Insurance Eecord said : As the premier pointed out in the course of a debate on the bill, the civil service in New Zealand is old compared with the age of the country, and it was because of that fact that there was a supreme difi&culty on the part of the Government in putting on the statute book a superannuation act forty years after some of the men had joined the service, the incidence of which was light in its burden upon members of the service. If the scheme had been commenced forty years ago a universal contribution rate of 3 or 4 per cent of salary for every one in the service would have sufficed. But the country has grown up, the old men in the service are leaving, and those who remain must ffil the void. More clearly still the Sydney "Review" states the problem and its solution in the separation of accrued from future liabihties: The pensions are liberal, and a scheme of this description, applying to present officers, many of whom can retire immediately on very fair pensions, must of necessity entail a heavy liability on the part of any government. The favorite method, however (vide New South Wales and Cape Colony civil service schemes), has been to ignore this liabiHty and to go on paying the pensions of the old men who retire, out of the contributions of the young men who join the scheme, until the funds are exhausted, and the outlay for pensions exceeds the income from contributions. The actuary, Mr. Morris Fox, has made the recklessness of this method quite apparent in his comprehensive reports, and the Government has agreed to start the scheme with an annual payment oi £20,000 ($97,330), the subsidy to be increased by such further amounts as will be sufficient to pay the difference between the pensions falling due and the amount of o Sydney Review, February 29, 1908. b London Insurance Record, February 21, 1908. CIVIL-SEKVICE EETIREMENT IN NEW ZEALAND. 249 pension the contributions would have actually purchased. (For example, if an old servant retires on £400 ($1,947) a year while his contributions would only have purchased £10 ($49), the fund pays the £10 ($49), and the Government finds the balance, £390 ($1,898) per annum. The contributions of the younger members will therefor be accumulated at compound interest to help provide their pensions when they become payable, and will not be absorbed by meeting more immediate liabilities; the cost of providing current pensions being borne by the present taxpayers, and not by posterity. If the scheme were commenced without contributions, the pensions falling due would be the measure of the Government's annual liability, and by meeting this liability (or rather the portion not paid for by the contributor) at once. Sir Joseph Ward has made a fair division of the annual outlay between present and future taxpayers. It is this simple, but ingenious financial arrangement which differentiates the scheme from all others with which we are familiar, and the result is three-fold; the solvency of the fund is secured, the present strain on the exchequer is the minimum compatible with soundness, and only a fair share of the liability is transferred to posterity. TEACHERS', POLICE, AND GOVEENMENT RAILWAYS SUPERANNUATION ACTS CONSOLIDATED. It is generally felt that it would be desirable to harmonize the details of all the plans so that the provisions for civil servants, teachers, policemen, and railway men might all be included in one comprehensive law. A long step toward that end was taken last- year when the four acts of consolidation were passed: (1) "The Public Service' Classification and Superannuation Act, 1908," which is a consohdation of the "Public Service Classification Act, 1907," and the "Public Service Superannuation Act, 1907," with the exception of certain omitted sections. (2) "The Pubhc Service Classification and Superannuation Amend- ment, 1908," which is to be read with and deemed part of the above act, being merely an amendment to include the teachers under the general terms of classification and superaimuation provided for members of the "pubHc service." (3) "The Police Force Act, 1908," which is a consohdation of "The Police Force Act, 1886," "The Police Provident Fund Act, 1899," and those sections of the "Public Service Superannuation Act, 1907," which relate to the rate of contribution paid by con- tributors to the Fund. (4) "The Government Railways Act, 1908," which is a consolida- tion of various improvement acts including "The Government Railways Superannuation Fund Act, 1902," "The Government Rail- ways Superannuation Fund Contributions Act, 1903," and the sections in the "Public Service Superannuation Act, 1907," relating to the rate of contributions to be paid to the Fund by contributors entering the service at various ages. 250 CIVIL-SEKVICE RETIREMENT IN NEW ZEALAND. The result of these various consolidation acts is that contribu- tion to the superannuation fund is compulsory now for new entrants in every branch of the government service, and contributions are fixed at uniform rates for all branches. The rates of contribution are those adopted for the public service and the teachers, which were notably higher than those formerly imposed on the railways members, being 5, 6, 7, 8, 9, and 10 per cent for various ages as against 3, 4, 5, 6, 7, and 10 per cent for the same ages. The four laws now read uniformly as regards the rates of contri- bution to be paid by a contributor, as follows: (a) Five per cent if his age does not exceed 30 years at the time when the first contribution becomes payable; (6) Six per cent if his age then exceeds 30 years but does not exceed 35 years; (c) Seven per cent if his age then exceeds 35 years but does not. exceed 40 years; id) Eight per cent if his age then exceeds 40 years but does not exceed 45 years; (e) Nine per cent if his age then exceeds 45 years but does not exceed 50 years; and (/") Ten per cent if his age then exceeds 50 years. The consohdation of the various acts resulted also in the harmo- nization of some shght variations in the benefits offered. The most striking discrepancy was in the case of the teachers' plan, in which back service counted for only one-half jn determining the amount of the pension, a provision that seems to have caused considerable discontent. "The Public Service Classification and Superannuation Amendment, 1908," corrected this discrimination, giving teachers full credit for back service and giving them pensions on the same basis as the public servants. A comparison of the benefits under the various New Zealand government superannuation schemes now in force is as follows: COMPARISON OF BENEFITS UNDER THE VARIOUS GOVERNMENT SUPERANNUATION SCHEMES IN FORCE IN NEW ZEALAND. Benefit. Public Service Fund and Teachers' Fund. Railway Fund. Police Fund. I. Pensions on ordinary retirement, at or over pension age: (1) Retiring age (2) Amount of pen- sion. (3) Pension limit. Age 65 or after 40 years' service, or age 60 with approval of minister. ^th of average salary for last 3 years, for each year of service. ,i or 5 of average salary (as above). Age 60 or after 40 years' service, or 35 years' service with permis- sion of board. ^th of final salary (or average of last 7 years, if increased in last 6 years) for each year of service. JS or § of final salary (as above). Age 60 and not less than 26 years' service. Same as in railway fund. gS or f of final salary. CIVIL-SEEVICE EETIEEMENT IN NEW ZEALAND. 251 COMPARISON OF BENEFITS UNDER THE VARIOUS GOVERNMENT SUPERANNUATION SCHEMES IN FORCE IN NEW ZEALAND— Continued. Benefit. Public Service Fund and Teachers' Fund. Railway Fund. Police Fund. II. Benefits on retire- ment before pension age: Medically unfit II. Benefits on death of pensioner. IV. Benefit on death of contributor while in service: CI) If no widow or children. (2) If widow or chil- dren. VI. Benefits on voluntary withdrawal or dis- missal (not for mis- conduct) beforp pen- sion age. , Benefits on dismissal for misconduct. ^„th of average salary for last 3 years, for each year of service. (In teachers' fund only after 15 years' service.) (a) If no widow or chil- dren: Difference be- tween contributions paid and pensions re- ceived. (h) If a widow: An an- nuity of £18 (S88) dur- ing widowhood, or option of difference between contributions paid and pensions re- ceived. (c) If children: A weekly payment of 5s. ($1.22) for each child until 14 years of age. Same as above . do ^th of final salary (or average of last 7 years, if increased in last 5 years) for each year of service. Difference between con- tributions paid and pension received, to- gether with compen- sation (1887, Act). Under 5 years: Return of contributions. 5 to 15 years: 1 month's pay for each year's service up to 12. Over 15 years: The usual pension. If mjured'on duty, Board may grant pension up to limit. Difference between con- tributions paid and pension received (at discretion of Board). Same as aEove. Return of contributions without interest. Same as above.. An annuity of £18 (!88) during widowh o o d , and 58. (31.22) per week for each child until 14 years of age . or option of return of such portion of contri- butions as the Board thinks proper. Return of contributions without interest, to- gether with compen- sation (1887, Act). Return of contributions without interest. No benefit. If from injuries on duty: An annuity of £18 ($88) during wdowhood, and 5s. ($1.22) per week for each child until 14 years of age. If not from injuries on duty: Such sum as the Board thiniis proper up to amount of contri- butions. Under 10 years: Nothing. After 10 years, and not over 26: Return of three-fourths of contri- butions. Return of not more than one-half of contribu- tions. Compared with 4,963 men and 630 women in the public service in 1907, there were that same year 815 men and 6 women in the police scheme, and 8,265 men in the railway scheme, and in 1908 there were 1,436 men and 1,446 women in the teachers' plan. Report on the Teachers' Fund. The second report of the board constituted by "The Teachers' Superannuation Act, 1905," shows that the number of contributors to the Teachers' Superannuation Fund on March 31, 1908, was 2,882. The aggregate annual salaries of the contributors to the fund was £446,607 ($2,173,413) and the actual amount of contributions received during the year was £32,676 ($159,018). Thirty-eight new retiring allowances were granted during the year to contributors, 6 allowances 252 CIVIL-SEKVICE KETIKEMENT IN NEW ZEALAND. to widows and orphans, which added to 94 already existing made a total of 138 allowances granted, but as 8 of them were discontinued during the year only 130 existed at the end of the year. These amounted to £6,062 10s. lid. ($29,503). Of the number of contributors who retired during the year 24 (in- cluding 4 "medically unfit" cases) were granted annual allowances aggregating £1,389 10s. ($6,762). Six widows and eight children, the representatives of six contributors who died, were granted annual allowances amounting to £212 ($1,032) and a refund of contributions of £132 9s. 9d. ($644.76). The total number of retired contributors on account of whom annual allowances were granted during the year was therefore 30. Four contributors whose length of service was not over fifteen years retired as being "medically unfit for further duty." In each of these cases, a sum equal to one-twelfth part of the total salary received by them during all the years of their service prior to January 1, 1906, was granted, together with a refund of their contributions to the fund. The total amounts were £212 10s. Id. ($1,034.15) and £21 9s. 9d. ($104.57), respectively: total £233 19s. lOd. ($1,138.72). Seven contributors died before entering upon pension, and their contributions to the fund, amounting to £87 4s. 3d. ($424.42) were paid to their legal representatives. To one hundred contributors who voluntarily retired from the education service before becoming entitled to participate in the benefits of the fund contributions amounting to £1,014 10s. Id. ($4,937.08) were re- turned. The total number of contributors who retired from the education service during the year was 141. Five pensioners died during the year, of whom 4 left widows, and 2 children under the age of fourteen years, to whom annual allowances were granted. Three children attained the age of fourteen years, and their allowances consequently ceased. The balance to the credit of the fund at the close of March, 1908, was £62,222 lis. ($302,806), and of this sum £48,100 ($234,079) was invested on mortgage — £37,100 ($180,547) at 4^ per cent, and £11,000 ($53,532) at 5 per cent. The balance of £14,122 lis. ($68,727), bearing interest at 4 per cent was awaiting investment by the public trustee. Report on the Police Fund. The last annual report of the Board of Administration of the Police Provident Fund shows that 1 sergeant and 7 constables were retired with annual allowances during the year which ended on March 31j 1908. There were at that date 3 exinspectors, 22 exser- geants, 40 exconstables, 3 exdetectives, 2 widows, and 2 children on the fimd, their aggregate annual allowance being £6,574 2s. 6d. ($31,992.98). The balance sheet shows that the contributions dur- CrVIL-SEEVICE EETIEEMENT IN NEW ZEALAND. 253 ing the year amounted to £7,232 3s. 4d. ($35,195.34), fines to £46 12s. 6d. ($226.90), and interest to £1,609 16s. 9d. ($7,347.62), whereas, on the other hand, life allowances amounted to £6,327 19s. 3d. ($30,795.03), and numerous other grants were paid, leaving to the credit of the fund of £30,537 5s. 7d. ($148,609.67), an increase over the amount on hand at the corresponding date of the preceding year of £1,411 4s. 4d. ($6,867.69). Report on the Government Eailways Fund. The report of the Board on the Government Railways Super- annuation Fund for the year ending March 31, 1908, shows that members contributed £45,669 Os. 9d. ($223,248.37) to the fund dur- ing the year; fines amounted to £239 5s. ($1,164.31), and interest to £5,352 3s. ($26,046.24), while on the other hand, superannuation allowances to the amount of £26,758 16s. 7d. ($13,279.85) were paid during the year to 484 members of the railway service who had either voluntarily resigned or been retired as medically unfit, allowances amounting to £3,799 12s. 9d. ($18,490.94) were paid to 105 widows and 173 children, the dependents of deceased members of the service who had not retired on superannuation at the time of their death, refunds amounting to £342 9s. Id. ($1,666.55) were paid to the legal representatives of deceased members, a sum of £3,610 19s. 7d. ($17,572.83), representing contributions of members of the service who voluntarily retired or whose services were otherwise dispensed with during the year was refunded to members concerned and other small disbursements were made, leaving a balance to the credit of the fund of £126,642 18s. lid. ($616,307.90). The total amount of annual allowances granted by the Board from the beginning of the fund until the end of March, 1908, was distributed as follows :(") Life allowances on account of voluntary retirements (449 persons) $140, 766. 74 Life allowances on account of retirements as "medically unfit," (87 persons) 24, 193. 13 Allowances to 109 widows and 211 children 22,935.39 Total annual allowances granted 187, 895. 26 Seventy beneficiaries have died since the inauguration of the fund, including nineteen during the year under review, and seven members who had been placed on the fund as "medically unfit" resumed duty. The fund was relieved of an annual liability of £4,621 18s. ($22,492.48) in respect to these seventy-seven members. Forty-four children have reached the age of fourteen years (eight during the past year), two children have died, six widows remarried, and three widows died, lessening the liability of the fund by an additional £761 13s. ($3,706.57) per annum. "Report of Board on Government Railways Superannuation Fund, 1908, p. 2. 254 CIVIL-SEKVICE EETIEEMENT IN NEW ZEALAND. The number of persons actually on the fund at March 31st, 1908, was 724, involving an annual Hability of £33,226 7s. 9d. ($161,696.21) as shown by the following statement of annual balances and annual allowances actually granted by the board :(") Balance. Allowances. 834,340.88 196,401.64 334,184.42 442,776.52 638,899.72 616,307.90 1904 $68,450.23 1905 41,469.68 1906 30,895.85 1907 21,406.60 1908 35,683.10 187,896.26 26,199.05 161,696.21 CONCLUSIONS. The experience of New Zealand in retiring its civil employees is particularly instructive to the student of superannuation schemes. Hampered by few theories or precedents, but mindful of the Experi- ence of the mother country and of other British colonies, the citizens of New Zealand have proceeded to try several schemes, discarding a scheme as soon as its inadequacy or unsuitability was demonstrated and substituting another which was free from the features found objectionable in previous ones. The result has been a gradual devel- opment of ideas along rational lines, until it would seem that there has been evolved a plan that is actuarially sound, one that meets the requirements of the service, and one that fits in with the ideas of the people generally as to what is fair and suitable. After thirteen years of experience in granting straight pensions that plan was abandoned because of the fear that it meant eventually a too heavy charge on the public treasury. Abandoning the pension system, therefore, New Zealand contented itself for a period of thirteen years with making gifts of lump sums to each employee retiring from the service, basing the amount of the gift on the length of service. This was, however, merely a makeshift in recognition of the fact that old people could not be dismissed from office without great hardship unless some kind of provision was made for them. Even this was felt to be too heavy a burden on the Treasury, however, and there followed the Act of 1886, which authorized deductions from salaries, and was simply a scheme of compulsory savings established with the idea that the superannuated employee must be taken care of, but at his own and not at the public expense. It should be noted that the change made in 1886 was practically the withdrawal of a privilege which existed before, the compensation of a month's salary for every year's service, and was in harmony with the spirit of o Report of Board on Government Railways Superannuation Fund, 1908, p. 1. CIVIL-SEEVICE KETIEBMENT IN NEW ZEALAND. 255 retrenchment which flourished in New Zealand in the last half of the eighties, when there was a considerable cutting down of salaries and dispensing with employees. While this arrangement promised relief to the Treasury, it was not satisfactory to the employees of the Govern- ment as a retirement measure, because they saw that the sum to the credit of the individual on retirement would be inadequate in case the officer lived many years after retirement. The actions taken in 1871 of abolishing the pension system, and in 1886 of abolishing the compensation plan and requiring deductions from salaries were taken purely in the interest of the treasury. In 189.3, for the first time since the pension system was established in 1858, action was taken which was designed purely and simply in the interest of the service. Good as far as it went, the provision for compulsory insurance proved, however, like the provision for compulsory savings, inadequate as a substitute for a retirement measure. Finally, in 1907, a contributory retirement plan with a subsidy from the Government was adopted. This plan, by permitting continuance of insurance in the Government Life Insurance Department if the employee so desires, affords ade- quate provision for every possible contingency in the life of the civil employee. The situation in New Zealand, therefore, at present is this: The Government has come to realize, on the one side, and the civil service, on the other, that it is impossible to get something for nothing. The Government has ceased to attempt the abolition of pensions and compensations and the compulsion of deductions from salary without making a corresponding contribution, and has become willing not merely to retire those who are already superannuated, but to con- tribute a certain permanent annual subsidy toward the support of a superannuation measure for the benefit of the civil service. At the same time, the members of the civil service have come to see that a system of free gifts from the Government, whether it be in the nature of pensions, compensations, or gratuities, is not the most desirable plan that could be devised, and they are almost unanimously willing to contribute from their salaries to the support of a retirement plan which meets their approval. The plan is based on two fundamental principles not observed in the contributory plans whose funds have become insolvent: (1 ) The rates of contribution are fixed by the age of entrance into the service and not by any arbitrary percentage of assessment. This means that the amount of the annuity is determined in each case by the length of service and amount of salary, and that each employee contributes only to his own retirement, so that the plan is equitable as between different classes of employees. (2) A sharp line of demarcation is drawn in this plan between accrued and future liabilities. The Government agrees to pay all annuities on services rendered up to the time of the adoption of the 256 CIVIL-SEEVICE EETIEEMENT IN NEW ZEALAND. plan. Since the contributions of the civil servants are not sufficient to provide all the generous benefits — ^including those to invalids and widows and orphans — the Government agrees to make up whatever deficit there is on this score also. There is no expectation of making the plan self-supporting. The calculations as to the cost to the Govermnent of establishing and carrying on this plan were carried only through the first year, but since the law makes provision for triennial valuations of the fund, this is of little practical importance if the people of New Zealand are willing to accept the plan on a mere estimate as to its cost. Even if the possible maximum cost had been computed out to the last year of life of the last member of the present service, the necessity for frequent valuations of the fund would be imperative on other grounds. The benefits provided under the plan are very liberal, including as they do allowances for the disabled and for the widows and orphans as well as for the superannuated. The sufficiency of the fund to meet these benefits can be ascertained only by periodical valuations, in vie\^ of the uncertainty, owing to the lack of statistics, as to the strain on the fund from invalidity allowances on the one hand, and the relief on the other from the forfeiture of interest by those resigning from the service before reaching thfe retirement age. It is apparent, however, that the fundamental principles underlying this plan might have been appUed to a plan designed to be entirely self-supporting, but the people of New Zealand have been willing to increase the benefits under the plan beyond what the contributions of the employees could support and to make the contributions necessary for that purpose. With the liberal benefits provided under the Superaimuation Act of 1907, requiring permanent help from the Government, it is plain that the actuary was right in insisting that a provision for frequent valuations of the fund is necessary to insure its actuarial soundness. Certain details of the plan are worthy of note by the student. There is no compulsory age of retirement, notwithstanding England's experience that the absence of such provision is inadvisable. Pro- vision is made for the cash refund of contributions on separation from the service, but interest on them is forfeited — an offset to the liber- ality of the benefits provided for those who remain in the service. The retiring allowance is based on the salary during the last three years of service rather than on the average salary. These are features the wisdom of which can be determined only by experience. New Zealand's experience in retiring its civil employees is especially instructive for two reasons, first, because of the variety of experiments made, and, second, because the final conclusion rests on theoretical principles generally acknowledged to be sound and yet in actual practice "more honored in the breach than in the observance." Appendix. PUBLIC SERVICE SUPERANNUATION ACT. [1907, No. 63.] AN ACT to provide a Superannuation Fund for the Public Service (November 25, 1907). Be it enacted by the General Assembly of New Zealand in Parliament assembled, and by the authority of the same, as follows: 1. This Act may be cited as the Pubhc Service Superannuation Act, 1907, and shall come into operation on the first day of January, nineteen hundred and eight. 2. In this Act, if not inconsistent with the context, "Board" means the Public Service Superannuation Board established under this Act. "Public Service" includes the High Commissioner's Office, the Legislative Branch, and every Depart- ment of the Government service except the Government Railways Department, so much of the Police Department as is included in the Police Provident Fund Act, 1899, and so much of the Education Department as is included in the Teachers' Superannuation Act, 1905. "Contributor" means a contributor to the fund. "De- partment" means every branch of the Public Service which is administered sepa- rately. "Fund" means the Public Service Superannuation Fund. "Regulations" means regulations made by the Governor by Order in Council gazetted. "Salary" of a contributor means the rate of salary or wages paid in respect of his service, but d()es not include allowances or payment for overtime. PUBLIC SERVICE SUPBKANNUATION FUND. 3. There is hereby established in connection with the Public Service a fund to be called the Public Service Superannuation Fund, which shall be administered by the Board. > 4. The fund shall consist of (a) the contributions from contributors as hereinafter, provided; (6) moneys at any time paid into the fund under sections thirty-two and thirty-three hereof; and (c) interest from time to time accruing from investment of the fund as hereinafter provided. 5. All moneys belonging to the fund shall be paid to the Public Trustee, who shall from time to time invest the same in such manner as is prescribed by regulations. 6. The fund shall be administered by a Board called the Public Service Super- annuation Board, consisting of ten members, namely: A Minister of the .Crown; four persons to be appointed and removable by the Governor in Council; two persons to be elected by and from the contributors who belong to the Post and Telegraph Depart- ment; and three persons to be elected by and from the contributors who belong to other Departments of the Public Service. 7. (1) With respect to the elective members of the Board the following provisions shall apply: (a) A ballot of the members of the Post and Telegraph Department, and a separate ballot of the members of the other Departments, shall be taken on the first Monday in July, nineteen hundred and eight, and on the first Monday in March in every third year thereafter. (6) Every ballot shall be taken in manner prescribed by regulations; and if any question arises as to the regularity or validity of any ballot, or the voting thereat, such question shall be determined by the Minister of Internal Affairs, whose decision shall be final. (c) If any such member of the Board dies, or by notice in writing addressed to the permanent head of the Department of Internal Affairs resigns his office, or ceases to be a member of the Public Service, then and in any such case his seat shall become vacant. (d) Such vacancy shall be filled by election by a ballot of the members of the De- partment or Departments represented by the vacating member; but the person so 35885— S. Doc. 290, 61-2 17* 257 258 CIVIL-SEKVICE KETIEEMENT IN NEW ZEALAND. elected shall hold oflSce only for the residue of the period during which his predecessor would have held the same if he had remained a member of the Board: Provided that where such vacancy arises within three months before the ordinary election, a ballot shall not be taken, but in lieu thereof the Governor may appoint to such vacancy any member of the Department or Departments represented by the va- cating member. . . n (2) Notice of the election or appointment of every member of the Board shall be gazetted, and such gazetting shall be conclusive evidence of the validity of every such election or appointment. (3) The members to be appointed by the Governor in Council may be appointed at any time after the coming into operation of this Act and they, together with the Min- ister, may, until the first election of the elective members, exercise all the powers and functions of the Board. 8. With respect to the procedure of the Board the following provisions shall apply: (a) The Minister shall be chairman at all meetings at which he is present, and in his absence the Board shall elect some other member to be chairman. (b) Five members of the Board shall form a quorum. (c) Subject to the provisions of this Act and the regulations made thereunder, the Board may regulate its own proceedings. 9. The Governor may from time to time appoint some person to be Secretary of the Board, and such person may hold the office of Secretary in conjunction with any other office which the Governor deems to be not incompatible therewith, and shall receive, out of moneys to be appropriated by Parliament, such salary as the Governor from time to time determines. CONTRIBUTORS. 10. (1) Every person who on the coming into operation of this Act is permanently employed in any capacity in the Public Service, and every person who on the coming into operation of this Act is employed in any Department, and has been continuously employed in any one or more Departments for a period of five years or more, may at any time within six months after the coming into operation of this Act, by notice in writing to the Secretary of the Board, elect to become a contributor to the fund. (2) If he BO elects, he shall as from the date of his election be a contributor, and en- titled to all the benefits of the fund, subject to the provisions of this Act. (3) If he does not so elect, he shall not at any future time become a contributor to the fund or participate in its benefits, except on payment of a sum computed in the manner prescribed by regulations, and on such conditions as the Board, having due regard to the interests of the fund, determines; but he shall continue to be entitled to any rights to which but for the passing of this Act he would have been entitled. (4) Every person who does not elect to become a contributor, and who has hitherto had a deduction made from his salary under the Civil Service Reform Act, 1886, the Post and Telegraph Classification and Regulation Act, 1890, or the Civil Service Insur- ance Act, 1893, shall continue to pay such deduction as heretofore. 11. (1) All persons who are first permanently employed in any capacity in the Public Service after the coming into operation of this Act shall be contributors to the fund, and the provisions of the Post and Telegraph Classification and Regulation Act, 1890, relating to deductions from salaries, and the Civil Service Insurance Act, 1893, shall not apply to such contributors. (2) Every person who on the coming into operation of this Act is temporarily employed in any capacity in the Public Service may, at any time within six months after having completed five years' continuous service in any one or more Departments, elect, by notice m writing to the Secretary of the Board, to become a contributor to the fund. If he so elects he shall, as from.the date of his election, be a contributor entitled to all the benefits of the fund, subject to the provisions of this Act. 12. (1) The contribution from contributors shall in each case be the following per- centage of the salary of each contributor respectively, and shall be deducted from the contributor's salary as it becomes payable from time to time, that is to say — (a) Five per centum if his age does not exceed thirty years at the time when the first contribution becomes payable; (6) Six per centum if his age then exceeds thirty years but does not exceed thirty- five years; ^ (c) Seven per centum if his age then exceeds thirty-five years but does not exceed forty years; (a) Eight per centum if his age then exceeds forty years but does not exceed forty- five years; (c) Nine per centum if his age then exceeds forty-five years but does not exceed fifty years; and CIVIL-SEEVICE EETIREMENT IN NEW ZEALAND. 259 (/) Ten per centum if his age then exceeds fifty years. ^J^l^V\^ amount so deducted shall forthwith be paid by the Minister of Finance to the Public Trustee to the credit of the fund. (3) For the purposes of this section a contributor's age shall be deemed to exceed thirt); years on and after the thirtieth anniversary of his birth, and the other ages mentioned in this section shall be calculated respectively in the same manner. * M^i' u 11? ^^^^^ °* ^ contributor is for any period temporarily stopped on the ground of ill health, or if for any period a contributor is on leave of absence without salary, he shall during such period continue to contribute to the fund in such manner and to such extent as may be prescribed by regulations. 14. (1) When any person who has had or is liable to have any part of his salary deducted under the Civil Service Reform Act, 1886, or the Post and Telegraph Classi- fication and Regulation Act, 1890, becomes a contributor, such deduction shall there- upon cease, and the amount in the hands of the Public Trustee to his credit by vu-tue of either of such Acts shall be vested independently of the fund for the benefit of the contributor and shall, on his retirement or death, be paid as provided by such Act, in addition to the benefits to which he is entitled under this Act. (2) When any person who has effected a policy on his life under the Civil Service Insurance Act, 1893, becomes a contributor, he shall be entitled at his option- fa) To keep the policy alive independently of this Act; or (b) To surrender the policy and have the surrender value thereof paid to the Public Trustee to be invested independently of the fund, and to be paid, together with all interest accrued thereon, to the contributor on his retirement, or to his personal representatives on his death; or (c) To surrender the policy and to receive the equivalent of its surrender value in the form of a paid-up policy, following the terms and conditions of the surrendered policy, or such other terms and conditions as may be mutually agreed upon between the policy-holder and the Government Insurance Commissioner. (3) The option conferred by the last preceding subsection may be exercised by the policy-holder at any time after he becomes a contributor. (4) The Governor in Council may at any time direct that the whole or any part of the money standing to the credit of any contributor under subsections one and two of this section shall be paid to such contributor. 15. When any person who is entitled under the Civil Service Act, 1866, to receive compensation for loss of oflBce becomes a contributor, the following provisions shall apply: _ (a) Save in the manner and to the extent hereinafter in this section stated, his right to such compensation shall not be taken away or affected, but shall be cumulative with his right to payment from the fund. (6) Such compensation shall be calculated only in respect of the period of his employment up to the time when he became a contributor and in respect of his salary at the time when he became a contributor. (c) If on his retirement from the Public Service he receives and accepts a retiring allowance from the fund, he shall thereby forfeit his right to such compensation. He shall be deemed to have received and accepted a retiring-allowance when he has received and accepted his first installment thereof. (d) If on his retirement from the Public Service he receives and accepts such com- pensation, he shall forfeit his right to a retiring-allowance from the fund, and no annuity or periodical payment shall be payable out of the fund on his death; but the acceptance of such compensation shall not affect his right to a return of the contribu- tions made by him to the fund, or, in case of his death, the right of any other person to a return of such contributions. (e) If after he has retired from the Public Service he dies before he has received and accepted either a retiring-allowance from the fund or compensation under the said A.ct, such compensation (if any) shall be payable to his personal representatives, and no moneys shall be payable out of the fund except the amount of his contributions. (/) Notwithstanding anything hereinbefore contained, if a contributor who has received and accepted a retiring-allowance dies before the amount paid to him in respect to such allowance is equal to the aggregate amount of the compensation to which he was so entitled and his contributions to the fund, the difference between the said amounts shall be payable out of the fund to and on behalf of the persons entitled, under the provisions of sections twenty-five and twenty-six of this Act, to the balance (if any) of his contributions to the fund. 16. If any dispute arises as to whether any person is a member of the Public Service within the meaning of this Act, or as to whether any person is, or is entitled or bound to become, a contributor to the fund, or as to the length of service of any contributor, such dispute shall be determined by the Board, and the determination of the Board shall be final and conclusive. 260 CIVIL-SEEVICE EETIKEMENT IN NEW ZEALAND. BENEFITS OP THE FUND. 17. The fund shall be held and applied for the benefit of the contributors in the manner and subject to the conditions hereinafter set forth. 18. (1) Every male contributor whose length of service is not less than forty years or whose age is not less than sixty-five years, and every female contributor whose length of service is not less than thirty years or whose age is not less than fifty-five years, may at any time retire from the Public Service at the expiration of three months'" notice of his or her intention so to do, and shall thereupon be entitled to receive from the fund an annual retiring-allowance for the rest of his or her life, computed as follows: For every year of service such contributor shall receive one-sixtieth part of his or her annual salary, but in no case shall the retiring-allowance exceed two-thirds of such salary: Provided that the Minister in charge of the Department in which a contributor is employed may extend the provisions of this section to any case in which the age of a male contributor is not less than sixty years or the age of a female contributor is not less than fifty years. (2) In the last preceding subsection the term "service" means — (a) In the case of an original contributor, continuous employment in the service of the Government up to the date of the contributor's retirement, whether permanent or temporary, and whether before or after the date at which he becomes a contributor, and whether in the Public Service or in any one or more of the other branches of the Government service; and (6) In the case of a contributor who is not an original contributor continuous em- ployment in the Public Service from the date at which he becomes a contributor up to the date of his retirement. (3) For the purposes of this section the Government service shall be deemed to include the service of any Provincial Government and the service of the New Zealand Railway Commissioners. (4) The term " original contributor" means a person who becomes a contributor under the provisions of section ten hereof. 19. (1) Every contributor who, with the consent or by the direction of the Minister, retires from the Public Service on the ground of being medically unfit for further duty shall on his retirement be entitled to receive from the fund a retiring-allowance for the rest of his life, computed as mentioned in the last preceding section. (2) In the case of a retiring-allowance being granted on the ground of the contribu- tor being medically unfit for further duty, such retiring-allowance, or any one or more installments thereof, may be forfeited by the Board if the contributor fails at any time to submit himself for further medical examination when required by the Board, or if, being reported on such examination to be medically fit to return to duty, the contributor fails to do so when required by the Minister in charge of the Department from which he retired; but this subsection shall not apply to any male contributor after he has attained the age of sixty-five years, or to any female contributor after she has attained the age of fifty-five years. (3) For the purposes of this Act a contributor shall be deemed to be medically unfit for further duty if on the certificate of at least two medical practitioners approved by the Board it is established to the satisfaction of the Board that by reason of mental or bodily infirmity, not caused by irregular or intemperate habits, such contributor has become permanently unable to perform his duties. 20. (1) If any contributor who has retired from the Public Service on a retiring- allowance is permanently reappointed to the Public Service, his retiring-allowance shall thereupon cease to be payable, and he shall again become a contributor to the fund; and if he subsequently retires from the said service his retiring-allowance shall be calculated separatelj? in respect of his two successive periods of service and of the salary received by him in each of such periods. (2) When in any other case than that provided for by the last preceding subsection a contributor returns to duty while in receipt of a retiring-allowance, or receives pay- ment for services rendered by him to or for any branch of the Government service while in receipt of a_ retiring-allowance, then no more of such retiring-allowance shall be paid than is equivalent, when added to the remuneration so received by him in any one year, to his annual salary at the date of his retirement. 21. A contributor may on his retirement, or at any time before accepting the first installment of his retiring-allowance, elect to accept a sum equal to the total amount of his contributions to the fund in lieu of his retiring-allowance, in which case he shall be entitled to receive such sum accordingly without interest, but no further sum shall be payable out of the fund in the event of his death. 22. For the purpose of computing the retiring-allowance to be granted to a con- tributor, his salary shall be deemed to be the average rate of salary received by him CIVIL-SBEVICB EETIEEMENT IN NEW ZEALAND. 261 during the three years next preceding his retirement, or if his service has not con- tinued for three years, then during the period of his service: Provided that where by reason of the age or infirmity of a contributor his salary has been reduced, or he has been transferred to a position inferior to that which he pre- viously occupied, his retiring-allowance shall be computed on the average rate of salary received by him during the three years next preceding such reduction or transfer . 23. A retiring allowance shall be paid by equal monthly installments, the first installment being payable one month after the date of the contributor's retirement. 24. If any contributor voluntarily retires from the Public Service before becoming entitled to a retiring allowance under this Act, or if his services are dispensed with from any cause, he shall be entitled to a refund of the whole amount actually con- tributed by him to the fund, but without interest. 25. If any male contributor dies, whether before or after becoming entitled to a retiring allowance, the following provisions shall apply: (o) If he leaves a wife surviving him, there shall be paid out of the fund to the widow, at her election, either (i) an annuity of eighteen pounds during her widowhood; or (ii) the amount of the deceased contributor's contributions to the fund, less any sums received by him from the fund in his lifetime. (6) Any such election by the widow shall be final, and shall be deemed to be made when the first payment from the fund is received and accepted by her. (c) If the said contributor leaves a child or children under the age of fourteen years, there shall be paid out of the fund to or on behalf of each such child the sum of five shillings a week until such child attains the age of fourteen years. (d) It the said contributor leaves no widow, the amount of his contributions to the fund, less any sums which he has received out of the fund in his lifetime, and less any sums which have been paid or may become payable in the future to or on behalf of any child or children under the age of fourteen years under the foregoing provisions, shall be paid to the personal representatives of the deceased contributor in trust for the persons entitled thereto under his will, or, in case of intestacy, for the next of kin or other persons entitled to his estate under the Statutes of Distribution. 26. When any female contributor dies, whether before or after becoming entitled to a retiring allowance, the following provisions shall apply: (a) If she leaves a child or children under the age of fourteen years, there shall be paid out of the fund to or on behalf of each such child the sum of five shillings a week until such child attains the age of fourteen years. (6) The amount of the contributions of such deceased contributor, less any sums which she has received out of the fund in her lifetime, and less any sums which have been paid or may become payable in the future to or on behalf of any child under the age of fourteen years under the foregoing provisions of this section, shall be paid to her personal representative in trust for the persons entitled thereto under her will, or, in case of her intestacy, for the next of kin or other persons entitled to her estate under the Statutes of Distribution. 27. (1) Any moneys payable out of the fund under either of the two last preceding sections to or on behalf of a child under the age of fourteen may,- at the discretion of the Board, be either paid to the child himself or expended by the Board for the benefit of the child, or paid to the Public Trustee or any other person, to be expended on behalf of the child in such manner as the Public Trustee or such other person thinks fit. (2) Any moneys payable out of the fund under either of the two last preceding sections to the personal representatives of a deceased contributor may, if no grant of probate or letters of administration is obtained within three months after the death of the contributor, be paid to the Public Trustee in trust for the persons beneficially entitled thereto under this Act. 28. When compensation is paid by the Crown or any Government Department under the provisions of the Workers' Compensation for Accidents Act, 1900, or any Act amending or substituted for that Act, in respect of an accident to a contributor, the following provisions shall apply: (a) When such compensation is paid to the contributor in respect of an accident by which he has become medically unfit for further duty, all moneys so received by him, whether by way of a weekly payment or otherwise, shall to the extent thereof be deemed to be received in satisfaction of his retiring allowance under this Act, and such allowance shall be reduced or postponed accordingly in such manner as the Board directs. (6) When any such compensation has been received in respect of the death of a contributor by any person entitled under this Act to receive any annuity or peri- odical payment in consequence of such death, the compensation so received by that person shall to the extent thereof be deemed to be received in satisfaction of such annuity or periodical payment, and the same shall be reduced or postponed accord- ingly in such manner as the Board directs. 262 CIVIL-SEKVICE EETIEEMENT IN NEW ZEALAND. (c) No such compensation shall take away or affect the right of a contributor or any other person to receive from the fund under the provisions of this Act the amount of the contributions made to the fund by a contributor. 29. In no case shall any retiring allowance or other moneys granted or payable out of the fund to any person be in any way assigned or charged or pass to any other person by operation of law; nor shall any moneys payable out of the fund on the death of a contributor be assets for the payment of his debts or liabilities. MISCELLANEOUS. 30. (1) Before the first day of April in each year there shall be prepared by the Board, in such form as may be prescribed by regulations, a statement of its revenue account for the year ended on the thirty-first day of December preceding, and of its balance sheet at the close of such year, and a statement of membership and of retiring and other allowances at the close of such year. (2) Such accounts and statements, accompanied by a report from the Board, after being audited by the Audit Office, shall, within ten days after the completion of the audit, be forwarded by the Board to the Minister of Internal Affairs, who shall within ten days after the receipt thereof lay the same before Parliament if then sitting, or if not, then within ten days after the commencement of the next ensuing session. 31 . (1) For the period ending on the thirty-first day of December, nineteen hundred and ten, and for each triennial period thereafter, an examination of the fund shall be made by an actuary appointed by the Governor. (2) The actuary shall set forth the result of such examination in a report which shall be so prepared as to show the state of the fund at the close of the period, having regard to the prospective liabilities and assets and the probable annual sums required by the fund to provide the retiring and other allowances falling due within the ensu- ing three years without affecting or having recourse to the actuarial reserve apper- taining to the contributors' contributions. (8) The Board shall cause such report to be printed and a copy thereof to be sup- plied to each contributor. (4) A copy of such report shall, within ten days after it is received, be laid before Parliament if then sitting, or if not, then within ten days after the commencement of the next ensuing session. 32. (1) Forthwith after the coming into operation of this Act, and in the month of January in every year thereafter, the Minister of Finance shall pay into the fund and out of the Consolidated Fund, without further appropriation than this Act, the sum of twenty thousand pounds, together with such further amount (if any) as is deemed by the Governor in Council, in accordance with the aforesaid report of the actuary, to be required to meet the charges on the fund during the ensuing year. (2) A statement of all additional amounts so paid into the fund shall be laid before Parliament within ten days after the payment thereof if Parliament is then sitting, or, if not, then within ten days after the commencement of the next ensuing session. 33. (1) Fines which, pursuant to any Act or regulations relating to the Public Service, would but for the passing of this Act be payable to any other fund shall here- after be paid into the Public Service Superannuation Fund and shall form part thereof. (2) Nothing in this section shall apply to any fines payable into the Police Provident Fund or the Government Railways Superannuation Fund. 34. The Governor may from time to time, by Order in Council gazetted, make such regulations as he thinks necessary for any of the following purposes: (a) Prescribing the manner in which elections shall be conducted, and the facilities to be given to members of the Public Service for voting thereat, and to the members of the Board for attending meetings thereof; (6) Prescribing the powers, functions, and procedure of the Board with respect to the fund; (c) Prescribing the mode of investment of moneys belonging to the fund- and (d) Generally prescribing whatever else he thinks necessary in order to give full effect to this Act. ■ 35. The provisions of this Act shall not apply to the following persons: (a) Members of the General Assembly or Ministers of the Crown- (6) Any Judge of the Supreme Court or of the Court of Arbitration: (c) The High Commissioner: .J'^l ^y W^°? entitled under any Act to receive a pension on his retirement from the Public Service: («) Any person who is remunerated by fees or commission and not by wat'es or (/) Members of the Defence Forces, except the Permanent Militia and other persons permanently employed m the said forces: CIVIL-SERVICE RETIREMENT IN NEW ZEALAND. 263 (g) Any person who is appointed to any place or office which the Governor has by Order in Oouncil at or before the time of such appointment declared not to be subject to the provisions of this Act. OTHER SUPERANNUATION FUNDS. 36. When prior to the coming into operation of this Act any person has been trans- ferred from the Pubhc Service to the service of the New Zealand Railway Commis- sioners or to the Government Railways Department, and has served continuously in the Public Service and that service or Department, then, for the purpose of computing his retiring-allowance under the Government Railways Superannuation Fund Act 1902, such service shall be deemed to be service in that Department within the meanin? of that Act. ^ 37. Any contributor to the Police Provident Fund, the Government Railways Superannuation Fund, the Teachers' Superannuation Fund, or the Public Service Superannuation Fund who is after the passing of this Act transferred from one branch of the Government service to another shall continue as a contributor to the fund which he originally joined, and shall be entitled to the benefits accruing thereunder in the same manner as if no such transfer had taken place. 38. Ever^ person who after the passing of this Act becomes a contributor to the Police Provident Fund or the Government Railways Superannuation Fund shall con- tribute to such fund at the same rate as that provided for by section twelve of this Act. 39. Section elev«n of the Appropriation Act, 1887, is hereby repealed as from the first day of April, nineteen hundred and eight; and, in the case of any person who retires from the Civil Service after that date, any superannuation allowance to which he is entitled under the Civil Service Act, 1866, shall be calculated in the same manner as it the said section had not been passed. SPECIAL PROVISION AS TO THE POLICE FORCE. 40. (1) On a day to be fixed by the Minister of Justice (being not later than six months from the coming into operation of this Act) a ballot shall be taken of the con- tributors to the Police Provident Fund on the proposal that such contributors shall become contributors to the fund established under this Act in lieu of the first-men- tioned fund. (2) The ballot shall be taken in such manner as the said Minister directs. (3) If the result of the ballot is that a majority of the votes recorded thereat are in favor of the proposal, then, as from a date to be fixed by the Governor by notice in the Gazette, the following provisions shall apply: (a) The Police Provident Fund shall be abolished, and the amount then standing to its credit shall be paid by the Public Trustee into the fund established under this Act. (6) All contributors to the Police Provident Fund shall be deemed to be contribu- tors to the fund established under this Act, and shall thereafter contribute thereto at the rate prescribed by this Act for the age of each such contributor at the date when his first contribution became payable under the Police Provident Fund Act, 1899. (c) All retiring and other. allowances then payable under the last-mentioned Act shall from time to time be payable out of the Public Service Superannuation Fund. {d) The Police Force shall become part of the Public Service within the meaning of this Act, and the provisions of this Act shall apply thereto accordingly. (e) One person to be elected by the members of the Police force from among their number shall be added to the Public Service Superannuation Board, which shall there- after consist of eleven persons, and the provisions of section seven of this Act shall apply, mutatis mutandis, to any such election, save that the first election shall take place on a day to be determined by the Minister of Justice. SPECIAL PROVISION FOR EMPLOYEES OP THE WELLINGTON AND MANAWATU RAILWAY COMPANY. 41. (1) The Minister for Railways may at any time, by notice in the Gazette, declare that the provisions of the Government Railways Superannuation Fund Act, 1902 (hereinafter referred to as the said Act), shall extend and apply to persons employed by the Wellington and Manawatu Railway Company (Limited); and, subject to the provisions of this section, such provisions shall be extended and apply accordingly as from a date to be fixed by the Ministier in such notice. (2) Every person who at the date so fixed is permanently employed in any capacity by the said company may at any time within six months after that date elect to become a contributor to the Government Railways Superannuation Fund, and if he so elects 264 CIVIL-SEKVICE KETIEEMENT IN NEW ZEALAND. he shall, subject to the provisions of the said Act and of this section, be entitled to all the benefits of the said fund in the same manner as if he had first entered the service of the Government Railways Department at the time when he so elects: Provided that any such person may, if he so desires, pay into the said fund, either in one sum or in such payments as may be prescribed by regulations, the amount of contributions that would have been payable by him had he become a contributor on the first day of January, nineteen hundred and three (the date when the said Act came into operation), and in such case the benefits to which he is entitled shall be computed as from such last-mentioned date, and the rate of his contributions shall be the same as it he had become a contributor to the said fund on that date: Provided also that, in consideration of the company paying into the fund by way of subsidy either a sum of five thousand pounds or the sum of one thousand pounds per annum for a period of five years (which payments the company is hereby authorized to make), the benefits accruing to any person in the employ of the company on the coming into operation of this Act, and who pays contributions as from the said first . day of January, nineteen hundred and three, shall be computed on his full period of continuous service with the company. (3) With respect to persons who after the date fixed by the Minister as aforesaid are first permanently employed in any capacity by the said company, it shall be a condi- tion of their employment that they shall be contributors to the said fund and be entitled to its benefits: Provided that before entering the company service every such person shall be required to pass the medical examination prescribed by the Government Railways Department in respect to persons who are entering the Government Railway service, and such examination shall be made by the Government Railway Medical OflBcer at the expense of the company. (4) The said company shall from time to time, when requested by the Minister for Railways, furnish him with such information respecting the names of persons in its employ, their age, length of service, and otherwise, a's he may require. (5) The Governor may from time to time, by Order in Council gazetted, make such regulations as may be necessary for the carrying out of this section. APPENDIX C. (Senate Document No. 420, 61st Congress, 2d Session.) , CIVIL-SERVICE RETIREMENT— NEW SOUTH WALES, AUSTRALIA. BY HERBERT D. BROWN. Prepared under the direction of Chas. P. Neill, Commissioner of Labor. LETTER OF TRANSMITTAL. Department of Commerce and Labor, Office of the Secretary, Washington, March 8; 1910. Sir : In compliance with your resolution 119, of January 11, 1910, directing this department to furnish, as soon as practicable, " such in- formation as may now be in the possession of the Bureau of Labor on the subject of foreign and domestic retirement plans for em- ployees of government civil service and in the service of industrial and transportation corporations," I have the honor to transmit here- with a report relating to civil service retirement in New South Wales. The Bureau of Labor now has in course of preparation reports covering civil service retirement systems in several other foreign countries, and also a report covering existing provisions for retire- ment for public-school teachers and other municipal employees, and for employees of railroads in the United States. These reports will be transmitted at as early a date as practicable. Respectfully, - Benj. S. Cable, Acting Secretary. Hon. James S. Sherman, President of the Senate, Washington, D. G. 8 COIifTE^TS. Page. Lettei of transmittal 3 Summary 7 Constitution Act of 1854 8 Civil service act of 1884. 8 First triennial investigation of superannuation fund, 1887 10 Popularity of civil service act 10 Insolvency of superannuation fund indicated 11 Want of proper data for exact valuation of fund 12 Causes of deficiency of fund given by Actuary Teece 14 Inadequacy of contributions 14 Lack of provision for accrued liabilities 14 Retirements for purposes of retrenchment 15 Computation of pensions on basis of fractional years 17 Payment of gratuities to widows and orphans 17 Remedial measures suggested 17 Skepticism of civil service board as to condition of fund 17 Second triennial investigation of superannuation fund, 1 890 18 Insolvent condition of fund found intensified 18 Causes of deficiency of fund given by Actuary Trivett £0 Retirements before legal age for purpose of retrenchment 20 Insufficiency of contributions 22 Unduly large benefits 22 Practice of ignoring interest on back contributions 22 Remedial measures recommended 22 Need of adequate data for valuation of fund 23 Advantages of maintaining fund and keeping it solvent 24 Continued reluctance of civil service board to accept actuary's findings. 24 Third triennial investigation of superannuation fund, 1893 26 Insolvent condition of fund extremely pronounced 26 This valuation of fund based on most extensive and accurate data.... 27 Causes of deficiency of fund given by Actuary Coghlan 28 Fund saddled with initial liability 28 Benefits disproportionate to contributions 28 Fund employed to carry out government's retrenchment policy. . 29 Remedial measures recommended 29 Reduction of 65 per cent in allowances necessary 29 Five changes in plan suggested as alternative 29 Final recognition by civil service board of inadequacy of plan.... 30 Hesitation of government to attempt reconstruction of fund 32 6 6 CONTENTS. Page. Public service act of 1895 (consolidated with other acta in 1902) 32 Option of discontinuing payments allowed contributors 32 Endowment assurance required of new entrants 32 Fourth actuarial valuation of superannuation fund, 1897 34 Deficiency in superannuation fund found reduced 34 Option of discontinuing contributions not exercised by older employees 35 Exhaustion of superannuation fund inevitable without outside help. . 36 Possible methods of resuscitating fund suggested 37 Civil service board opposed to resuscitation of existing fund 37 Fifth actuarial valuation of superannuation fund, 1901 38 Deficiency in superannuation fund still large 39 Exhaustive discussion of causes responsible for failure of fund 41 Fund established with dormant liability 41 Fund used for improper purposes 42 For purposes of retrenchment in salary expenditures 42 For payment of gratuities to dependents of deceased em- ' ployees 42 Need of retirement measure still felt 42 Endowment assurance inadequate as retirement measure 43 Outline presented by Actuary Trivett of requirements for safe pension scheme 43 Indorsement of actuary's views by civil service board 44 Public service (superannuation) act of 1903 44 Obligations toward contributors assumed by government 44 Conclusions 46 CIVIL-SERVICE RETIREMEITT IN NEW SOUTH WAIES, AUSTRALIA. By Herbert D. Brown." SUMMAKY. The Government of New South Wales, Australia, has not had a great variety of experience in retiring its civil employees, but that little is typical of certain mathematical errors easily made in formu- lating and carrying out a retirement policy, and it is therefore valu-. able as a warning. A system of granting straight pensions out of a yearly subsidy of £3,500 ($17,033) was launched in 1854 and continued for thirty years. The Civil Service Act of 1884 abolished the pension system and established instead a contributory plan of retirement. This was based on a 4 per cent deduction from salaries aided by a Government subsidy of £20,000 ($97,330) for five years in addition to the £3,500 ($17,033) already granted. Owing to the actuarial unsoundness of the plan, the superannuation fund established under it soon became insolvent, and the plan was accordingly abandoned after eleven years' trial. The Public Service Act of 1895, subsequently consolidated into the Public Service Act of 1902, provided for the withdrawal from the superannuation fund of all who so desired and the bestowal on them of a gratuity based on length of service and average salary instead of a pension. This act also forbade future entrants into the service to contribute to the fund and required them to take out endowment assurance. The Public Service (Superannuation) Act of 1903 was passed on the actual exhaustion of the superannuation fund long known to be insolvent. It provided for the Government's assumption of the obligations of the fund. The present state of affairs, then, is that the Government is engaged in paying retirement allowances and gratuities to those whom it re- quired for years to contribute to an insolvent fund. It will have to continue to do so until all those who entered the service before 1895 are dead— an obligation that will not be fulfilled short of forty years hence. Those who have entered the service since 1895 have only their endowment assurance to look to on retirement from the service. "Mr. Brown desires to give credit to Harriet Connor Brown for valuable assistance in the preparation of tliis report 8 CIVIL-SEBVICE RETIEEMENT IN NEW SOUTH WALES. This provision for compulsory insurance is not considered a com- plete and satisfactory solution of the problem of superannuation in the civil service. The following statement was made by the Govern- ment Statistician of New South Wales in April, 1909, in answer to an inquiry ^by the United States Bureau of Labor: " When contribution to the superannuation fund was compulsory it was not popular among a large number of public servants, par- ticularly the younger members, but the general feeling now is in favor 01 a superannuation fund." CONSTITUTION ACT OF 1854. Provision was made by imperial act in 1854 for setting aside the annual sum of £3,500 ($17,033) from the Consolidated Revenue Fund for pensions to superannuated officers of the civil service. CIVIL SERVICE ACT OF 1884. A study of the one contributory retirement plan tried by New South Wales and the reasons for its failure throws much light on the fundamental principles which must underlie any sound and equitable superannuation measure. Under the superannuation clauses of the Civil Service Act of 1884, a fund called the " Civil Service Superannuation Account " was cre- ated on January 1, 1885. To this fund all civil servants, with the excep- tion of certain minor employees, were required to pay an annual con- tribution of 4 per cent of their salaries! To it the Government agreed to contribute an annual subsidy of £20,000 ($97,330) for five years, in addition to the £3,500 ($17,033) already provided. Provision was made in the law for an actuarial investigation into the state and sufficiency of the fund every three years. Compulsory contributions were required from all clerical, professional, and educational officers, and also from officers in the higher branches of the railway, the postal, and the telegraph services. The only exceptions made were the cases of minor employees of the railway service, and messengers, housekeepers, letter carriers, stampers or sorters, bailiffs, wardens, matrons, nurses, attendants, boatmen, storemen, and persons employed in the printing and telegraph offices, dredge and marine services, and other persons occupying positions of similar class, character, or im- portance. While not required to contribute to the fund, these persons were allowed to do so if they so elected, and they thus became entitled to the benefits of the fund. The minimum age for entry of officers to the clerical division was seventeen years, but no maximum age was prescribed. No age was specified in regard to officers of the professional division. Pupil teachers, from whom the main body of teachers was recruited, were CIVIL-SEBVICE RETIREMENT IN NEW SOUTH WALES. 9 required to be not less than fourteen nor more than seventeen years of age at entry. No physical examination was required in connection with entry to the public service. Ketirement was pi6rmitted to any civil employee who had served for fifteen years or upward and who had reached the age of sixty years, or who had become permanently incapacitated owing to in- firmity of mind or body, whether by reason of illness, accident, or merely the gradual passage of time. Retirement was not made compulsory at age of sixty. If retirement on account of physical incapacity was voluntary, the report of the government medical officer only was required prior to the authorization of retirement. If the retirement was compulsory, a medical board consisting of three medical officers was required to furnish a report. No restriction of any kind was placed upon the employment of a pensioner outside of the government service. The act contained a provision which empowered the Government to recall to the service officers retired on the ground of ill-health, who subsequently recov- ered, but such provision was not acted upon in any case. If an officer refused to return to the service when so called his pension was to be forfeited, and of course if he resumed duty it was discontinued, but in the event of a recurrence of his infirmity he was entitled to his pension with any prescribed increase for additional service. The rates of superannuation allowance were: For fifteen years of service fifteen-sixtieths of the average annual salary for the three years preceding date of retirement, for sixteen years of service sixteen- sixtieths of the same, and so on, increasing one-sixtieth for every year of service up to 40, at which the maximum allowance of forty-sixtieths, or two-thirds, of such average salary is reached. The maximum salary in respect of which contributions could be levied or superan- nuation allowances computed was £1,000 ($4,867), in the general division, and £1,200 ($5,840) in the professional division. In addition to the pension benefits provision was made for the payment of gratuities in the cases of such as had not served for fifteen years, as follows: (1) Those whose services were dispensed with (except for mis- conduct) or who, owing to mental or bodily infirmity, might be com- pelled to retire, one month's pay for each year of service. (2) Those who, in the discharge of their duties, received such bodily injury as might incapacitate them for further service, two months' pay for each year of service, with a minimum allowance of six months' salary. (3) The widow or children under 16 years of age who might be left by the death of an officer " in necessitous circumstances," a maximum allowance of six months' salary. 10 CIVILrSEEVICE KETIREMENT IN NEW SOUTH WALES. The whole amount to credit of the fund was in the keeping of the Government, and was credited with interest at the rate of 4 per cent per annum, payable half-yearly. Pensions have been payable monthly or occasionally, at the option of the pensioner, quarterly. The deductions of contributions and the payment of pensions have been attended to by officials of the Treasury in connection with their general duties relating to the receipt of revenue and the disburse- ment of public funds. The duties of administration, including consid- eration of claims upon the superannuation account, have been per- formed by the Public Service Board, which also has general super- vision of the service, regulating matters of appointment, rates of pay, and general discipline of the service. The only direct expense in connection with the administration of the account has been an allow- ance of £75 ($365) a year paid to the Government Actuary, in addition to his regular salary. PIRST TRIENNIAL INVESTIGATION OP SUPERANNUATION FUND, 1887. While the Civil Service Act of 1884 continued in force for eleven years, it was known long before it was repealed by the Public Service Act of 1895 that the superannuation fund which it established was in an unsatisfactory condition. The weakness of the plan and the unsafety of the fund were revealed as early as 1889 by the first of the triennial actuarial investigations undertaken in accordance with the provisions of the law. The actuary intrusted with the duty of inquiring into the state and sufficiency of the superannuation account at this time was Mr. Richard Teece, secretary of the Australian Mu- tual Provident Society. He submitted to the Civil Service Board a clear, careful, and elaborate report upon the subject, in which he seriously impugned the solvency of the fund. His report was re- ceived, however, with skepticism by the Civil Service Board and in- difference by the public, and his recommendations were not acted upon. POPULARITY OF CIVIL SERVICE ACT. The general provisions of the act had met with popular approval. There was a lively appreciation of its benefits and no serious disposi- tion to count the ultimate cost. In its report of 1889 to the Colonial Governor the Civil Service Board recommended amendment of that section of the act which dealt with the claims of widows to gratui- ties, saying that that provision — Should be made general and not limited to those in " necessitous circumstances," a provision which imposes on the board the invidious CIVIL-SERVICE EETIKEMENT IN NEW SOUTH WALES. 11 duty of deciding, in each case submitted, whether the applicant is or IS not in such circumstances as to warrant a recommendation in her favor. This alteration was suggested by the Board in spite of the actuary's warning as to the perilous condition of the fund. The practical question of ways and means did not appear to excite any great atten- tion from the members of the Board, who were principally struck with the improvement wrought in the service by a measure which provided retirement for the inefficient and promotion for the efficient. Further saying: "We are of opinion, although the act requires amendment, as above stated, its provisions have tended in a marked degree toward an improved administration of the public departments, to good disci- pline, and to a more efficient performance of duty on the part of the officerSj as the enforcement of a higher standard of educational attain- ments in regard to candidates for employment has checked the admis- sion to the service of unqualified persons. In the reorganization of the departments, which has been carried on during the five years the act has been in force, special attention has also been given to this matter, and it is evident that very satisfactory results have been secured under an admittedly defective act. By the retirement, under the superannuation clauses of the act, of the old and infirm, vacancies have occurred which have enabled the junior officers to obtain merited promotion, and the certainty that their claims would have fair consideration by the Board has, to a large extent, removed the discontent which previously existed in some departments." INSOLVENCY OF SUPERANNUATION FUND INDICATED. Mr. Teece took his task seriously and attempted conscientiously to rouse the Board to an appreciation of the dangerous condition of the fund and to suggest means of averting the danger. Said he : My duty to the Board would have been fully discharged had I con- tented myself with a mere valuation of the liabilities and the presen- tation of a balance sheet exhibiting the surplus or deficiency in the fund. During the progress of my investigation, however, several letters from correspondents interested in the matter have appeared in the press urging a reduction in the rate of contributions deducted from the salaries of civil servants, while the editorial remarks of the city journals on the reports of the Board indicate that there is a pre- vailing opinion that the fund is in a highly satisfactory condition. In view of these circumstances I feel that this report will cause a somewhat rude awakening, and I therefore deem it advisable to sub- mit to the Board explanations on various points which will, I hope, enable its true meaning to be intelligently appreciated.* <• Report of the CivU Service Board of New South Wales, 1889, p. 3. »Ibld., p. 7. 12 Cinii-SERVICE EETIEEMENT IN NEW SOUTH WAX.ES. WANT or PROPER DATA FOR EXACT VALUATION OE FUND. In presenting his valuation of the liabilities of the fund, Mr. Teece called attention to the difficulty of the task on account of the want of proper data on which to base the calculations, and the uncertainty of a number of the factors involved. Tables of the rates of retire- ment in various services are exceedingly scarce, but such as are avail- able disclose the fact that the experience among one body of men can not safely be assumed as that which will obtain among another body differently circumstanced. The only safe experience for the determi- nation of this element would have been that of the civil service itself and there had not been time, as Mr. Teece pointed out, to collect and tabulate this information, even if it had been accessible. Among the elements of uncertainty involved in the calculation was that of the rate of annual increases of salary which it would be possible to use as a basis for calculating the average retiring allowance after various periods of service. Mr. Teece also pointed out the danger to the fund in the option which permitted certain classes of employees to join or not join it, as they felt disposed, by showing that only those who expected shortly to derive some tangible benefit would be likely to join. Another element of uncertainty and danger in the plan, which he condemned, was the provision of gratuities for widows and orphans. " Such a provision," said he, " is out of place in a super- annuation fund." While all these uncertain factors made the results of his calculation less rigidly accurate than they otherwise would have been, Mr. Teece's figures were still sufficiently exact to give startling indication of the rapidity with which the claims on the fund were accumulating. The receipts and disbursements between Janu- ary 1, 1885, when the act went into effect, and December 31, 1887, showed a balance of only £235,436 lis. 8d. ($1,145,752.13), while the valuation balance sheet showed an estimated deficiency of £1,325,706, 10s. 4d. ($6,451,550.76). CONSOLIDATED REVENUE ACCOUNT, JANUARY 1, 1885, TO DECEMBER 31, 1887. [From report of tlie Civil Service Board of New South Wales lor the year 1889.] Receipts. Disbursements. $949,607.81 291,990.00 51,098.25 72,074.63 957.12 Pensions under Civil Service Act Pensions under Civil Service Act (schedules) $59,286.79 Transferred from schedule B 40,788.41 118,441.28 1 459 20 Gratuities Fines Refunds - Balance, being fund at December 31," 1,145,752.13 1,365,727.81 1,365, 727. gl By the following valuation balance sheet Mr. Teece showed very clearly the unfortunate actuarial condition of the fund only three OIVIL-SEBVICE EETIEEMENT IN NEW SOUTH WALES. 13 years after its establishment, the estimated deficiency being some shil- lings more than £1,325,706 ($6,451,550) : VALUATION BALANCE SHEET, CIVIL SEEVICE SUPERANNUATION FUND, AS AT " DECEMBER 31, 1887. Dr. [From Report of the Civil Service Board of New South Wales, for the year 1889.) Cb. To present value of £3,398 lis. Id. ($16,539.06), being pensions payable to claimants under schedule B of the Constitution Act To present, value of £21,020 17s. 7d. ($102,298.11) per annum, being pen- sions entered on by 174 officers who have retired in terms of the Civil Service Act To present value of prospective pen- sions to officers in the service and contributing to the fund at Decem- ber 31, 1887: 6,834 in general body (£2,287,029 12s. Od.) 911, 129, 829. 55 1,631 female teach- ers (£59,832 163. Od.) 291,176.32 To present value of gratuities to offi- cers who may become incapaci- tated before having served lor fif- teen years «110,653.74 1,050,065.14 11,421,005.87 24,332.60 12,605,957.25 By amount of civil service fund at December 31, 1887 By present value of contributions of 4 per cent per annum on salaries of all contributors on the fund at December 31, 1887: 6,834 in general body (£621,070 10s. Od.) $3,022,439.59 1,631 female teach- ers (£14,659 10s. Od.) 71,340.46 By present value of annual contribu- tion of $17,033, provided under the Constitution Act By present value of back contribu- tions of 4 per cent per annum from date of entry up to December 31, 1884, to become available when pensions are entered on By present value of government contributions By estimated deficiency $1,145,752.13 3,093,780.04 425,818.75 1,298,138.88 190,916.69 6,461,660.76 12,606,967.25 Mr. Teece then showed how the estimated deficiency must have increased still further. He did this by comparing the liabilities in respect to pensions actually entered on at December 31, 1887, and December 31, 1888, with the amounts to credit of the fund on those dates: December 31, 1887, the balance at credit of the fund was $1, 145, 752. 13 The liability under pensions actually entered on was *1, 050, 065. 14 Difference 95, 686. 99 December 31, 1888, the balance had increased to 1, 457, 989. 34 The liability under pensions entered on was "1, 412, 819. 89 Difference 45, 169. 45 Mr. Teece said: These figures show that, notwithstanding the receipt of the £20,000 [$97,330] subsidy from the Government, the fund has gone to the bad to the extent of £10,380 13s. 5d. [$50,517.53] in respect of pen- sions entered on in one year. The figures further show that the funds in hand at 31st December, 1888, were practically only suffi- cient to meet the payment for pensions already granted up to that date, while the enormous mass of dormant liabilities remained to be provided for by the future contributions of the officers and the residue of the annual grant of £3,500 [$17,033] under the Constitution Act. When it is borne in mind that the contributions of the officers up to 31st of December, 1888, had been supplemented by the payment of £80,000 [$389,320] out of the Consolidated Revenues, and that only •Excluding pensions under Schedule B. 14 CIVIL-SERVICE EETIREMENT IN NEW SOUTH WALES. one further payment of £20,000 [$97,330] from that source then remained to be paid, it will be at once evident to any actuary, if not to any business man, that the fund must be in an insolvent condition, although opinions may differ regarding the amount of the defi- ciency. Whatever uncertainty may exist regarding the proper method of valuing the liabilities attaching to pensions not yet entered on, there can be no doubt regarding the liability in respect of those already enjoyed, and the figures I have quoted conclusively establish the fact that the fund is in an insolvent condition." CAUSES or DEFICIENCY OF FUND GIVEN BT ACTUARY TEECE. Especially illuminating to the student of retirement plans is Mr. Teece's analysis of the causes of the deficiency of the fund. The first cause noted was the inadequacy of the contribution of 4 per cent per annum to provide the promised benefits. He showed that this would be sufficient only in the case of an employee entering the service at the age of 25 or under, and that for an entrant aged 30 a minimum contribution of 5 per cent, would be necessary, for an entrant aged 35 a minimum contribution of 6 per cent, for an entrant aged 40 a minimum contribution of 7^ per cent, and so on. Finding that the average age at entry of all the officers in the service (exclud- ing female teachers) was just under 24 years, he concluded that the minimum rate of contribution necessary to provide the promised benefits (on the assumption of very moderate increases of salary) was from 6 to 7 per cent. He added the caution that this rate would be sufficient only when it was paid and accumulated at interest from the commencement of service. A second cause contributing to the insolvent state of the fund pointed out by Mr. Teece was the absence of sufficient provision for the accrued liabilities assumed by the fund at the inception of the scheme. Even if the contributions of 4 per cent of salary had been sufficient to pay the promised benefits, they would not have been suf- ficient to pay pensions on services rendered prior to the adoption of the plan. While the officer had been entitled to rank for a pension in respect of his full period of serviqe, the fund had only been in receipt of his contributions since the beginning of 1885, and the claimants had come on the fund with such frequency that practically the entire fund had been absorbed in three years. " The enormous dormant liability with which the fund was burdened owing to this circum- stance," says Mr. Teece, " was in some measure provided for by the annual grant of £20,000 ($97,330) for five years, but the remedy was utterly inadequate to the malady, which, of course, became further intensified by the insufficiency under any circumstances of the 4 per cent reduction." * « Report of the ClvU Service Board of New South Wales, 1889, p. 8. » Ibid., p. 10. OIVIL-SERVICB RETIREMENT IN NEW SOUTH WALES. 15 The most important cause for the deficiency of the fund mentioned by. Mr. Teece revealed a very astonishing political situation. It was the unexpected liability in respect of pensions to officers who were neither incapacitated nor had attained the age of 60 years. The num- ber of retirements in 1885, during the first year of the operation of the plan, was 19, the second year 43, the third year 120, which, allow- ing 8 deaths, made a total of 174 pensioners drawing from the fund £21,020 17s. 7d. ($102,298.10) per annum. The remarkable increase for the year 1887 is explained by the fact that for political purposes section 46 of the Act of 1884 was taken advantage of. This section provided that when the services of any ofiicer were dispensed with in consequence of the abolition of his office he might be retired upon a superannuation allowance. In order to facilitate a scheme of retrenchment the Government dismissed in 1887 a number of ofiicers from the public service. Some of these were rewarded with gratuities which were paid by the Gov- ernment, but 25 were allotted retiring allowances aggregating a sum of £4,282 Is. ($20,838.60) per annum, which were made a charge upon the superannuation account. The Government appeared to imagine that by paying to the fund the amount representing the back contributions of 4 per cent on behalf of those whom it had forced out of the service that it had fully provided for the extra liability which was thus imposed on the fund. I^o account was taken, how- ever, of the accumulations of interest, and the proceeding operated prejudicially to the fund in another direction. By making pen- sioners of these employees in an unnatural and irregular manner the Government constituted them claimants on the fund at an earlier period than they would otherwise have become so, and deprived the fund of further contributions which would have been made to it had they remained in active service. As many of those thus forced into retirement were in the prime of life, some even under 31 years of age, it is apparent that the cost of pensioning them was very great. The essential unfairness of this action did not seem to have im- pressed the Board very greatly, for in their report they made the following statement of the case: "By the rearrangement and re- duction of the staff great annual savings have been made in the de- partments concerned, but the result has been to transfer from the Consolidated Kevenue to the superannuation fund so heavy a charge as, in the opinion of the actuary, to seriously jeopardize its solvency." It did not seem to occur to the Board that justice to the civil em- ployees was as well a proper subject for consideration in connection with the matter as the solvency of the fund. Without expression of apology or regret, the chairman of the Board stated to the Colonial Secretary, in transmitting Mr. Teece's report, that, " at present, the 16 OIVIL-SEBVICB RETIREMENT IN NEW SOUTH WALES. pensions created by the forced retirement of officers amounted to £21,934 6s. lid. ($106,743.49) per annum, and future retirements of a similar character for 1890 may be set down at £10,000 ($48,665) more, or £30,000 ($145,995) in all, irrespective of the amounts paid to those officers who are entitled to gratuities," * * *)4' The loss to the employees who were still contributing to the fund seemed to the chairman, somehow, to be counterbalanced, by the Government's sav- ing through abolition of the pensioner's office. This confusion of ideas would seem at least to be suggested by the following paragraph : * Tested by the experience of the years 1885 to 1889, but eliminating the pensions which have arisen under the retrenchment chiefly in the Department of Public Lands, Public Instruction, and Eailways, the actual results are so nearly in accord with the estimates arrived at that they seem to prove that if the forced retirements had not been carried out the fund could have borne all usual and legitimate claims upon it. The disturbing element is the £21,934 6s.-^lld. ($106,743.49) per annum, now paid to officers whose services have been dispensed with, and by the abolition of whose offices the Government's saving is estimated at £47,179 ($229,596.60) per annum. The havoc wrought in the superannuation fund by the retirement on pensions for purposes of retrenchment of officers of the civil service can best be understood by reference to the list of such officers appended to Mr. Teece's report. It is not necessary to give the whole list of officers pensioned under such conditions, but the first twelve on the list will suffice to show how young they were in many cases, and how heavy in consequence the charge on the fund must have been : Officers retired on pensions for purposes of retrenchment under section 46 of the " civil service act," ISSi." [From Report of the Civil Service Board of New Soutii Wales for the year 1889.] Pensioner and year pen- sioned. Occupation. Age (years) . Pension. 1885. Superintendent Temporary Hospital for Insane, Cooma. Matron E. C. Orphanage, Parramatta 38 47 64 63 41 48 36 42 60 68 42 38 8341.39 610 26 1886. Bymne, M. M. G 1887. Wilson, John School attendance oflce, public instruction do 313.65 531.91 666.95 887.16 605.64 Goldsmith, Henry..... Brown, Edward Clerk, lands Canty, Michael Chiaholm, Daniel H Chief draftsman, Albury survey office ! 1,075.74 1,870.68 821.95 780.83 Ellis, JohnW Gerard, Prancis .......... Chief draftsman, occupation branch, lands! '...'..'.. • Report of the Civil Service Board of New South Wales, 1889, p. 13. » Same report, p. 14. • The full list comprises 130 names, of which only the first 12 are here given. CIVIL.-SEBVICB KETIEEMENT IN NEW SOUTH WALES. 17 Fourth and fifth causes of the deficiency, in the opinion of Mr. Teece, might be found in the method of computing pensions on the basis of fractional instead of only integral years, and in the payment of gratuities to widows and relatives of deceased officers, a provision he regarded as repugnant to the principles of a superannuation schieme, and which he considered should not have found a place in the act, REMEDIAL MEASURES SUGGESTED. In considering how the fund might be placed in satisfactory con- dition, Mr. Teece enumerated three courses, one or all of which might be followed : (1) The rate of contribution might be increased. (2) The rates of pension might be reduced. (3) The Government might rescue the fund from its unsatisfactory condition and provide for its future stability. He considered the first course inadvisable, believing that the con- tribution of 4 per cent could scarcely be increased without inflicting hardship on the contributors. He thought a reduction in the rate of pensions not unfair, and suggested that the most equitable way to accomplish this would be to base the amount of the pensions on the average salaries over the whole period of service, instead of those of the last three years. It was his opinion, however, that the chief remedy must come from the Government. His recommendation was that the Government be urged to grant an additional income of at least £50,000 ($243,325) per annum in order that the fund might be able to discharge the liabilities which it had incurred. He laid great stress on the " positive cruelty " to the younger members of the service of a condition which compelled them to go on contributing to a fund after it was definitely known that when their time to retire arrived there would be no funds wherewith to liquidate their claims. SKEPTICISM OF CIVIL SERVICE BOARD AS TO CONDITION OF FUND. Mr. Teece's warning and recommendations were not heeded. The members of the Civil Service Board appear even to have doubted the correctness of his conclusions. In transmitting his report to the Colonial Secretary, in a letter dated December 30, 1889, the chairman of the Board called attention to the unsatisfactory condition of the fund as disclosed by Mr. Teece, and suggested the desirability of con- tinuing to subsidize the fund, but added, "We find it difficult to believe that the fund is in the deplorable condition reported by Mr. Teece." The latter had stated, after careful valuation of the fund, that " an additional income of at least £50,000 ($243,325) per annum " would be required to place it in a solvent position, but the chairman 8 D— 61-2— Vol 59 23 18 CIVIL-SERVICE RETIREMENT IN NEW SOUTH WALES. of the Board set this conclusion aside with the following off-hand statement : The sum will, no doubt, at first si^ht be considered to be a large one, but from a rough calculation it appears to us that £26,000 ($121,662.50) per annum will be suiRcient in lieu of the suni suggested by the actuary; and when it is considered that the necessity for the payment is caused by a saving effected in the general expenditure of about £85,679 ($416,957) per annum, the amount now suggested does not appear to be excessive." The result of the Board's refusal to be enlightened was that nothing at all was done and the superannuation fund sank deeper and deeper into insolvency. SECOND TMENITIAL INVESTIGATION OF SUPERANNUATION rUND, 1890. When the second triennial investigation of the superannuation fund was made at the end of 1890, the " state and sufficiency " of that fund was found to be in a very bad way. The actuary on this occa- sion was Mr. John B. Trivett, actuary to the Civil Service Board, who reported that the insolvent state indicated three years before by Mr. Teece was " most distinct and intensified." The condition was much worse at this time, because all payments by the Government had ceased with the exception of the perpetuity of £3,500 ($17,033). INSOLVENT CONDITION OF FUND. Mr. Teece, as on December 31, 1887, had estimated the deficiency on his valuation of the fund at close to £1>325,706 ($6,451,550). Mr. Trivett,. on December 31, 1890, estimated it at £1,692,568 ($7,750,234), thus showing that the fund was tending in an unsatisfactory condi- tion. He reported 419 pensioners drawing from the fund £56,783 ($276,334) per annum, a notable increase over the 174 pensioners costing £21,021 ($102,299) reported by Mr. Teece. He brought out the intensification of the insolvency in the following comparative statement : COMPARATIVE STATISTICS RELATING TO THE FUND FOB THE YEARS 1887 AND 1890. Date. Pen- sioners. Annui- ties. Total 11a- bUlty. Credit ol fund. Balance. December 31, 1887 174 419 $102,299 276,334 $1,050,064 2,460,425 $1,145,754 1,978,651 $95,690 credit. 481,774 debit. December 31, 1890 Tnorf !«p 24S 174,035 1,410,361 832,897 577,464 debit. • Report of the Civil Service Board of New South Wales, 1889, p. 13. CIVIL-SERVICE BETIEEMENT IN NEW SOUTH WALES. 19 And regarding the prospective pensions, the balance sheet indi- cates a deficit of immense proportions. The receipts and disbursements during the second triennial period, January 1, 1888, to December 31, 1890, showing a balance on hand of £406,585 19s; Id. , ($1,978,650.64) were given in the following state- ment : " Eecelpts. Disbursements. Balance, being fund at December 31, 1887 Government endowment Transferred from scbedule B, Consti- tution Act Contributions from officers, current... Payment by Government to meet abatements which should have been deducted from retrenchment pen- sions Payments by Government of gratui- ties to officers compulsorily retired, not entitled to pensions Fines Refunds Interest 11,145, 194, 61, 944, 752. 13 660.00 098.25 215.85 131,235.09 91, 1, 193, 060. 12 069. 51 239. 57 645. 86 2,762,976.38 Pensions under Civil Service Act Pensions under schedule B , Gratuities Refunds Balance, being fund at December 31, 1890 S512,761.28 49, 910. 32 198,626.53 13,127.71 1,978,650.64 2,762,976.38 The valuation balance sheet showing an estimated deficiency of £1,592,568 10s. lid. ($7,750,234.83) was as follows: Db. VALUATION BALANCE SHEET, CIVIL-SBRVICE SUPERANNUATION FUND, AS AT DECEMBER 31, 1890. Cb. Topresentvalueof£3,500($17,033)per annum, being pensions payable to 18 officers under schedule B of the Constitution Act To present value of £56,783 6s. 6d. ($276,336) per annum, being pen- sions payable to 419 officers who have retired under the provisions of the Civil Service Act To present value of prospective pen- sions to 8,208 officers in the service and contributing to the fund at De- cember 31, 1890 To present value of gratuities to offi- cers who may retire before having served fifteen years, in terms of the act J121,317.95 2,460,424.29 11,810,338.28 34,065.50 14,426,146.02 By amount of civil service fund, De- cember 31, 1890 By present value of future contribu- tions of 4 per cent per annum on salaries of 8,208 contributors to fund at December 31, 1890 By present value of annual contribu- tion of £3,500 ($17,033), as pro- vided under schedule B of the Con- stitution Act By present value of back contribu- tions of 4 per cent, on salaries for period of service prior to December 31,1884 By estimated deficiency $1,978,650.54 3,041,701.68 425,818.76 1,229,740.22 7,750,234.83 14,426,146.02 • Supplementary Report of the Civil Service Board of New South Wales, 1891, p. 8. 20 CrVIL-SEBVICE RBTniEMENT IN NEW SOUTH WALES. The amounts granted for retiring allowances during the seven years since the inception of the Act of 1884 were shown by the accountant of the Civil Service Board to be as follows : AMOUNT GRANTED FOR PENSIONS FROM 1886 TO 1891, INCLUSIVE, UNDER PROVISIONS OF THE SEVERAL SECTIONS OF THE CIVIL SERVICE ACT OP 1884. [From Supplementary Report of the Civil Service Board of New South Wales, 1891.] Year. Section 43. Section 44. Section 46. Section 46. Total. 1886 $1,811.07 5,431.62 21,866.28 24,213.76 21,326.00 20,932.89 12; 278. 60 $4,560.74 10,619.12 9,493.69 13,244.91 6,398.90 7,867.21 6, 482. 18 $819. 2S $341.39 610.26 33,061.30 9,687.00 76,043.18 ,29,628.87 22,748.70 $7,532.47 16,661.00 65,170.44 47,045.67 104,107.01 58,418.97 42,671.26 1886 1887 759.17 1888 1889 339.92 1890 1891 1,161.88 Total 107,849.12 18,783.47 58,656.75 7,219.94 3,080.25 1,520.54 172,020.70 10,194.10 341,506.82 37,718.05 Pensions current . .-. 89,066.65 51,336.81 1,659.71 161,826.60 303,788.77 CAUSES OF DEFICIENCY OF FUND GIVEN BY ACTUARY TRIVETT. The chief reason for the increase of pensioners and the correspond- ing growth in the deficit was found by Mr. Trivett to be the same reason assigned three years before by Mr. Teece — abolition of offices due to a general policy of retrenchment on the part of the Govern- ment. Pensions paid to officers thus dismissed had become a charge upon the superannuation account to the extent of £32,620 Is. 7d. ($158,745.59) per annum. Said Mr. Trivett: An extraordinary influx of entered-on pensioners has taken place during the last four years. Many of these pensioners are in the prime of life; 89 of them, or 21 per cent of the entire pension list, being under the statutory age of 60 years, and having various terms, ranging up to 27 years, to run before they would be legitimately due for retirement. No annuity fund, however well-devised theoretically, can be expected to sustain such drastic inroads into its resources as are indicated in the above statement. Appended to the report of the Civil Service Board was a statement " showing the approximate loss to the superannuation account in con- sequence of the services of officers in the civil service having been dis- pensed with for purposes of retrenchment and reorganization before they reached the age of 60 years, when, under section 43 of the civil- service act, officers have the option of retirement." The first dozen cases shown in the table and the totals for the entire table are as follows: CmL-SEEVICE EETIREMENT IN NEW SOUTH WALES. 21 STATEMENT SHOWING THE APPEOXIMATB LOSS TO THE SUPERANNUATION ACCOUNT IN CONSEQUENCE OP THE SERVICES OP OFFICERS IN THE CIVIL SERVICE HAVING BEEN DISPENSED WITH FOR PURPOSES OF RETRENCH- MENT AND REORGANIZATION BEFORE THEY REACHED THE AGE OF 60 YEARS, WHEN, UNDER SECTION 43 OF THE CIVIL-SERVICE ACT, OFFICERS HAVE THE OPTION OF EBTIREMENT. [From Supplementary Report of the Civil Service Board of New South Wales, 1891.] Officer's name. i 2 1 P li ■a 1 >. ■o ia ft § (U a s 1 i a § g 1 a a § m g§ . 111 h Is Is Ad H r 3 03 gs ss |a II III Total loss to the account through the discon- tinuance of the 4 per cent deduction from the salaries of these officers and payment of their pensions before reaching the pre- scribed age for optional retirement. Allan, H. A Brown.Edward. Canty.M Chisholm, D. H . Evans, Thomas. Gerard, Francis. Goggin,J.P .... Greaves, W.A.B. Landers, J. F ... Lewis,T.H Neate,C.E Newman,T.E.L. Lands. Lands. Lands. Lands. Lands. Lands. Lands. Lands. Lands. Lands. Lands. Lands. 41 48 86 42 42 38 46 58 57 58 68 39 $887.55 1,527.01 742.20 1,095.33 1,209.39 840.75 1,275.96 2,583.60 2,041.62 2,761.48 1,328.51 630.35 $566.95 887. 16 605. 64 975.78 821.95 780.83 921.47 1,405.69 1,398.63 1,913.61 963.08 472.54 $1,532.95 1,800.61 2,141.26 2,676.58 2,14L26 2,384.59 2,384.59 2, 79*. 24 2,676.58 3,163.23 2,043.93 1,654.61 $1,165.04 864.29 2,055.62 1,927.13 1,641.71 2,098.43 1,335.37 223.86 321. 19 263.06 163.51 1,389.87 $10,772.00 10, 645. 96 14,535.26 17,563.20 14,795.13 14,603.88 12,900.60 2,811.88 4,1911.90 3,827.01 1,926.16 9,923.28 $29,126.00 21,607.26 51,390.24 48,178.35 38,542.68 52,490.87 33, 384. 19 5,596.48 8, 029. 73 6,326.45 4,087.86 34,746.81 $11,937.04 11,510.25 16,590.87 19,490.33 16,336.84 19,276.69 14,235.97 3,035.24 4, 617. 09 4,080.07 • 2,089.68 11,313.16 Total entire listo 93,011.29 78,194.25 182,756.54 81,071.17 763,460.84 2,027,753.73 844, 532. OO " The above are the first 12 names of the complete list of 96 names. 84 are omitted. The remaining The statement closes with the following- summary : It will thus be seen that, by the Government dispensing with these cflScers, the civil-service superannuation account will sustain a loss of £173,539 18s. 4d. ($844,532) by the payment of pensions before the prescribed age of 60 years, when officers have the option of retirement, and by the discontinuance of the 4 per cent contribution from their salaries consequent on retirement, and this amount is exclusive of interest which would accrue from year to year. Moreover, this sum does not represent the total loss to the account, as many officers over 60 years of age have been compulsorily retired for purposes of retrenchment who would have preferred to continue in the service if they had been allowed to exercise the option granted them by sec- tion 43. Wliile the superannuation account suffers by this retrenchment, the Government effects a saving during the same period of £416,676 ($2,027,763.75) in salaries. 22 CIVIL-SEBVICE RETIREMENT IN NEW SOUTH WALES. Three other causes given by Mr. Trivett leading to the existing condition of the fund were the insufficiency of the contributions, the unduly bountiful prospective benefits prescribed under the act, and the practice observed when determining the net retiring allow- ances of not charging interest on the unpaid back contributions for the years prior to 1885 (the year of inception of the act) in reckoning the abatement to be deducted from the gross pension, in respect of such contributions. KEMEDIAL MEASURES RECOMMENDED. The remedial measures to deal with these four faulty conditions recommended by Mr. Trivett were for the most part the same as those suggested by Mr. Teece in 1887. He recommended first, however, and with special emphasis, the rigid restriction of the retirement of civil officers to cases of superannuation or invalidity only, leaving retirement resulting from extraordinary causes, such as wholesale retrenchment, to be dealt with by special measures. In his opinion, the 4 per cent rate of contribution, though insuffi- cient, should not be raised, as a higher rate would press very severely on small-salaried men. He believed, however, that there was con- siderable scope for amendment in the matter of benefits proposed under the act and suggested that computation of the retiring allow- ance on the basis of the average instead of the ultimate salary would not only be more equitable, but also more economical. Said he: Since the receipts from each officer are proportionate to the amount of salary year by year throughout his official life, it is but just that the basis upon which the retiring allowance is computed should have a relation to his total emoluments, and not depend upon the advan- tages nor the vicissitudes which might befall him during the last three years of his service. For this reason an average salary, deduced from his aggregate salary, should be adopted from which to derive the amount payable as pension." His recommendation to amend the fourth cause of disaster was that interest should be charged on the unpaid back contributions of 4 per cent on salaries for the years antecedent to 1885. Said he : The prevailing system of not adding interest on account of these unpaid contributions is so opposed to financial usage as to require no further argument to insure its condemnation." Mr. Trivett called especial attention to the drain on the fund caused through that section of the act which permitted persons in certain minor positions to join the fund at any time they saw fit. "Supplementary Report of the Civil Service Boara of New Soutli Wales. 1891, p. 7. ClVlL-SEEVTCfi KETlfiEMSlN* IN NfiW SOXJtH WALfiS. 23 The practical result of this provision was, as Mr. Teece had predicted, that they only did so a short time before their intended retirement, sometimes within a week of leaving the service, a proceeding that worked out clearly to the material detriment of the fund, even when they paid their arrears, minus interest. The chief relief to the fund, Mr. Trivett pointed out, must come from the Government. Said he: Taking the present circumstances of the fund into account, a sum of £60,000 ($291,990) per annum will be necessary to maintain an ec[uilibrium. But, if the recommendations I have enunciated be car- ried into effect, the conditions will be so greatly improved as to require a very small annual grant. The amount then required I can not quote with certainty until the results of the proposed treatment shall have been ascertained by means of a subsequent investigation, conducted, as I should desire, with the aid of the tables referred to in the concluding paragraph of this report." NEED OF ADEQUATE DATA FOR VALUATION OF FUND. The paragraph to which he alluded contained a recommendation " that steps be taken immediately to procure comprehensive abstracts from the records " concerning " data respecting the careers of oflBicials prior to the inception of the act." This recommendation is interest- ing to all students of retirement plans, for it brings into prominence a fact that is soon appreciated by any one who tries to devise an equitable contributory plan for a given service. That is the need of accurate statistics concerning those already in the service, in order that the accrued liabilities may be correctly estimated and kept dis- tinct from all future liabilities. Mr. Trivett's valuation balance sheet shows the item " present value of back contributions of 4 per cent on salaries for periods of service prior to December 31, 1884," which is what might be more simply termed the amount payable for annuities for back services, or for annuities on services rendered prior to the adoption of the plan. Owing to lack of information concern- ing the personnel of the service, Mr. Trivett could only determine approximately the value of this asset, whereas it should be ascertained with all possible precision. The possession of a systematized history of the members of the service for which a plan is devised is neces- sary if accuracy is desired. " Such information," said Mr. Trivett, " would enable us to formulate a local civil service experience, from which tables could be derived suitable for our requirements." " Supplementary Keport of the Civil Service Board of Nev? South Wales, 1891, p. 7. 24 CIVIL-SEBVICE EETIEEMENT IN NEW SOUTH WALES. ADVANTAGES OF MAINTAINING FUND AND KEEPING IT SOLVENT. Mr. Trivett's view of the situation, despite the face that he felt an annual grant of £60,000 ($291,990) immediately necessary to the maintenance of the solvency of the fund, was far from being pessi- mistic. Said he: I feel assured, however, that the vote necessary under the amended conditions will be insignificant in comparison with the benefits to be derived from the operation of a financially-healthy retiring fund. A superannuation fund, if soundly constituted and administered, by securing the retirement of officers at an age when their capabilities are waning, supplies an admirable aid by which the management of the State's concerns can be maintained with a maximum of efficiency. A man is most likely to evince zealous application to his duty when promotion is assured through the gradual retirement of his seniors, caused by the workings of a pension scheme, and when prompted by the prospect of obtaining, in due rotation, some provision for his closing years. But when the higher officials retain their positions beyond the period of usefulness, on account of the absence of a retir- ing allowance, the subordinates regard their occupation as temporary, pending the opening up of avenues of advancement elsewhere, and have very little incentive to qualify for higher responsibilities. Hence it is clearly to the advantage of the Government to cooperate in maintaining the fund on a solid foundation by contributing a yearly subsidy." CONTINUED RELUCTANCE OF CIVIL SERVICE BOARD TO ACCEPT ACTUARY'S FINDINGS. On this occasion the Civil Service Board seems to have been more willing to take the actuarial view point. In commenting on Mr. Trivett's report, in a letter sent on April 28, 1892, to the Colonial Secretary the Board suggested " that, as by the retirement of officers for purposes of retrenchment a very large saving has been secured, it is but fair that from such yearly saving an adequate amount should be set aside to meet the pensions so created." The Board also made the following suggestions for the reconstruction of the Act of 1884, in its supplementary report for the year 1891, sent to the Governor of the colony on November 15, 1892 : * (1) That there be a limitation as to the age of persons allowed to enter as contributors to the superannuation account (except in special cases) . (2) That no retirements or pensions be allowed under 60 years of age, except under very rigid regulations. (3) That a sufficient annual subsidy be granted to assist the fund. "Supplementary Report of the Civil Service Board of New South Wales 1891, p. 7. ' Same report, p. 5. CIVIL-SERVICE EETIEEMENT IN NEW SOUTH WALES. 25 (4) That reorganizations and retrenchment retiring allowances should not be a charge on the civil service superannuation account. (5) That section 57 shall be so altered that the persons therein re- ferred to [minor officials] must become contributors to the fund withm a limited period or lose their right of option. (6) That, in the case of future entrants, service for pension pur- poses should count only from the date of contribution to the fund. On this occasion, as at the time of the previous investigation, the Board complained of the " invidious duty " forced upon it in dispens- ing gratuities to widows and children by inclusion of the words " in necessitous circumstances " in the law. But this time, instead of ask- ing that the bars be let down and the clause be made " general " and not limited to those in necessity, they advocated a more rational and economical amendment, as follows: "A more equitable arrangement than that provided would be that in the case of the death of every officer a certain proportion of his contributions should be returned to his widow and children." They objected, also, to that section of the act which made provision for persons accidentally injured in the discharge of their duty, saying that " compensation to an officer injured should be a charge on the department concerned in his injury " and not on the fund. While forced to admit the insolvency of the fund, the Civil Service Board was still reluctant to concede any serious unsoundness in the retirement plan. In commenting on Mr. Trivett's report, in their own report of 1891, they showed their doubt of his conclusions, even though those conclusions confirmed those reached by his predecessor, Mr. Teece. Said they: That the fund is insolvent from an actuarial point of view there can be no doubt, and the condition of insolvency is, in our opinion, attributable to a departure from the original intentions of the framers of the bill * * *. With all respect for the strong and perhaps well-established reasons advanced by the actuaries by whom the triennial investiga- tions of the fund have been conducted, we are of opinion that a return to the principles upon which the bill was first introduced and a reconstruction of the act will bring the fund, in the course of a few years, into a solvent condition." This triennial investigation, like the previous one, resulted in no amendments in the law and no practical legislation of any kind. There arose a more general and definite feeling of apprehension in regard to the state of the superannuation fund, but the recommenda- tions of the actuary were not followed. -" Supplementary Report of the Civil Service Board of New South Wales, 1891, p. 3. 26 CIVIL-SEBVlCE RETIREMENT IN NEW SOtfTH WALES. THIKD TRIENNIAL INVESTIGATION OF THE SUPERANNTJATIOU EUND, 1893. INSOLVENT CONDITION OF FUND EXTEEMELT PRONOUNCED. As the time for making the third triennial investigation ap- proached, the Board began seriously to consider the necessity for a very strict examination of, the fund. The two previous investiga- tions had afforded strong and conclusive evidence that the principles upon which the fund was based were totally unsound, and the con- demnation of those principles by Mr. Teece, confirmed subsequently by Mr. Trivett, together with the accumulated and increasing deficiency disclosed by the valuations made, showed that each suc- ceeding triennial investigation must add to the difficulties of the Board in dealing with the future of the fund. The statement of account for the year 1893 showed that the 4 per cent deduction from salaries for that year amounted to £67,308 ($327,554) and the pensions and gratuities paid under the Civil Service Act amounted to £75,262 ($366,263). These figures proved that the fund was not in a healthy condition, and the Board thought it desirable to obtain the opinion of a third competent actuary to conduct the third triennial investiga- tion, " in order to compare the opinions of gentlemen whose mathe- matical training enables them to arrive at conclusions which the practical experience of the principles of life assurance has proved to be generally correct and unassailable." They accordingly secured the services of Mr. T. A. Coghlan, the Government Statistician. Mr. Coghlan found that the deficiency on December 31, 1893, had grown since the last valuation from £1,592,568 ($7,750,232) to £2,905,199 ($14,138,151). In language more forcible even than that employed by liis predecessors, he strove to show the deplorable state of affairs and to make suggestions for reconstruction on a sound scientific basis. Said he: The reports of the actuaries received far less attention at the hands of those interested than they deserved, as apart from any question of state policy it must have been apparent to contributors that it would be a serious thing if they were compelled to continue paying into a fund which had on the best authority been declared to be fast lapsing into insolvency, and from which the younger of their number could not reasonably hope for benefit, while pensioners could hardly have looked with composure on the more serious and immediate loss which would befall them in the event of the fund collapsing or their pen- sions being largely reduced. The apparent apathy in regard to the condition of the fund was due to a lurking belief in the minds of many otherwise well-informed persons that actuarial methods, though very well m theory, do not usually stand the test of everyday experience. It would be idle on my part to argue in support of CIVIL-SEKVICE RETtREMEN'T IN NEW SOUTH WALES. 27 actuarial methods which are nothing if not the embodiment and ap- plication of everyday experience, and I mention the matter of the distrust exhibited in some quarters as to the correctness, from a busi- ness point of view, of the actuarial conclusions, only in order to point out that not only is there no cause for such distrust, but that if the actuaries erred at all it was by presenting the condition of the fund in a too favorable light." THIS VALUATION OF FUND BASED ON MOST EXTENSIVE AND ACCURATE DATA. Mr. Coghlan's valuation was of necessity, in many respects, the most effectual test as yet applied to the fund. Not only had he a longer period of experience under observation, but he went to the trouble to collect from civil service records and to tabulate all the information available concerning the ages, years of service, and present and past salaries of all contributors to the fund. This great labor was undertaken with a view to defining the average salary at each age and the normal rate of increment. The soundness of the policy which prompted this arduous preliminary undertak- ing — ^the need of which had been noted three years before by Mr. Trivett — is seen when comparison is made of the previous valuation balance sheets with that presented by Mr. Coghlan in respect to the items " prospective pensions " and " future contributions." The striking difference in the values is due almost entirely to the ab- sence from previous valuations of any allowance for increase of salary. Mr. Coghlan's report of receipts and disbursements during the period of his investigation, January 1, 1891, to December 31, 1893, showed a balance on hand on December 31, 1893, of £488,653 2s. lid. ($2,378,030.53) as follows :» Receipts. Disbursements. $1,978,650.55 993, 613. 93 51,098.25 800. 26 345.85 127,065.59 42, 942. 48 263,194.96 ■PensIonSj schedule B $46,189.47 Pensions, Civil Service Act 910,113.69 Gratuities 113,167.37 Refund ot 4 per cent deductions, Gratuity refunded(officer reappointed) Back contributions paid by Govem- 8, 157. 29 Fines refunded 51.46 Error credit transferred to Consoli- dated Revenue . . Gratuities paid by Government ....... 2,002.06 2,378,030.53 3,457,711.87 3,457,711.87 » 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. 9. » Ibid., p. 13. 28 CIVIL-SERVICE RETIEEMEITT IN NEW SOUTH WALES. The valuation balance-sheet taken at the close of 1893 showed a deficiency of £2,905,199 14s. 8d. ($14,138,154.50) as given below : SUPERANNUATION ACCOUNT— VALUATION BALANCE SHEET, DECEMBER 31, Db. CR.; To value of existing pensions under schedule B To value of existing pensions under Civil-Servioe Act, 1884: Males 53,208,783.47 Females 137,710.74 To value of existing pensions vested but not yet entered on, being due to contributors of 60 years and over on tlieir retirements: Males $1,794,046.32 Females 35,919.05 To value of prospective pensions not yet vested: Males $16,181,137.28 Females 1,015,912.15 To value of retirement allowances of one month's salary for each year of service, wliich will become payable at age 60 to contributors who entered tile service at 46 and over: Males $42,811.96 Females 2,771.02 To amount of retirement allowances as above, now payable if claimed (lives over 60): Males $61,705.15 Females 2,150.18 $123, 962. 77 3,346,494.21 1,829,964.37 17,197,049.43 45,682.98 63,856.33 22,606,909.09 By balance pel Civil Service Report for 1893 By value of £3,500 per annum from Consolidated Revenue By value of bacic contributions, to be made good before pensions are entered on: Males $989,905.94 Females 26,497.10 By value of future contributions: Males $4,324,381.63 Females 324,120.64 By deficiency. $2,378,030.53 425,818.76 1,016,403.04 4,648,602.27 14,138,154.60 22,606,909.09 CAUSES OF DEFICIENCY OF FUND GIVEN BY ACTTJAEY COGHLAN. Mr. Coghlan's report proved conclusively that the Civil Service Act of 1884 was a failure. The object of that act was to secure pensions to officers on their retirement under certain conditions, and for this purpose to establish a fund which would eventually become self-sup- porting. This was to be achieved by the payment from the- Consoli- dated Revenue of a specified grant for a limited number of years and the contribution by the civil servants of a fixed percentage of their salaries. Mr. Coghlan pointed out that this plan would have been perfectly feasible had the fund been established on a solvent basis, with a clear knowledge of the original liabilities incurred, had the promised benefits been on a scale proportionate to the price paid for them, and had no charge been made upon the fund otherwise than in accordance with the original plan. He showed how all three of these conditions had been violated; how through disregarding the operation of compound interest and the life contingencies in calculat- ing the liabilities assumed, the fund was saddled with an initial liability of little less than £1,000,000 ($4,866,500) ; how benefits and contributions were never properly related to one another, the former being either too large or the latter too small; and finally how the ClVlL-SEEVICE RETIREMENT IN NEW SOUTH WALES. 29 fund had become "the sport of political necessities," and wholesale additions to the pension list been made in furtherance of a retrench- ment policy. His conclusion was that " in the main points that make fpr safety the fund is essentially unsound. It came into being oyer- sha^wed 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 at- tained the pension age or who, through infirmity, are forced to an earlier retirement. (2) That all payments to persons whose retirement is due to re- trenchment or public policy be a charge on the Consolidated Eevenue 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 pre- mium rates; premiums to cease at the pension age, and the reserve "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. 30 CIVIL-SEEVICE RETIREMENT IN NEW SOTTTH WALES. 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 EECOGNITION BY CIVIL SERVICE BOARD OF INADEQUACY OF PLAN. After digesting this last actuarial report, which so strongly con- firmed 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 unexpect- edly 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 com- plete 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. Triv- ett 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 Examina- tion of the State and Sufficiency of the Civil Service Superannuation Account), March 1, 1895, p. 3. CIVIL-SEEVICE RETIREMENT IN NEW SOUTH WALES. 31 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,- G65] per annum, and an unlimited claim upon the Consolidated Eeve- nue of the colony, should the amount of the endowment prove in- sufficient. 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 after- wards shorn of its equitable provisions in reference to its endow- ment 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 Govern- ment, immediately after the passing of this act, commenced a sys- tem 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 of- ficers, 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 em- phasized 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 de- sirable to remove from the service, and the fund has afforded a con- venient 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, draw- ing annual salaries from the Treasury. _ Taking into consideration the large interests created by the estab- lishment of the fund, the number of persons drawing pensions there- from, 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. Nevr South Wales (Report on an Actuarial Exam- ination of the State and SuflBciency of the Civil Service Superannuation Account), March 1, 1895, p. 7. 32 CIVIIi-SERVICB BETIBEMENT IN NEW SOUTH WALES. HESITATION OF GOVEKNMENT TO ATTEMPT RECONSTRUCTION OF FUND. The Governinent 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 con- tributory 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 legis- lation took the form of the Public Service Act of 1895. PUBLIC SEEVICE ACT OF 1895. OPTION OF DISCONTINUIITG PAYMENTS ALLOWED CONTRIBUTOES. Part V of the Public Service Act of 1895, having to do with pen- sions and gratuities, made a complete change in the system of grant- ing retiring allowances. The option was given contributors of dis- continuing 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 contribu- tions with interest, a gratuity of one month's pay for each year of service, based on the average salary during the whole term of employ- ment. 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 continu- ing 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 OE NEW ENTRANTS. It seems not unreasonable to suppose that this provision sprang from Mr. Coghlan's recommendation, previously cited, that " no gra- tuities be paid to the relatives of deceased officers, but that the fund grant insurance for limited amounts at pure premium rates; pre- CIVIL-SERVICE RETIREMENT IN NEW SOUTH WALES. 33 miums to cease at the pension age, and the reserve thereon to be re- turned should the insurer retire from the service before being pen- sioned." 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 con- sideration. 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 sec- tion 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, which- ever event shall first happen. Such insurance shall be continued and the amount thereof fixed and increased from time to time in accord- ance 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 Jaw or in equity, and the property and interest under such policy of the person in- sured 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 pre- scribed deduction shall be made at prescribed times from such per- son'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 accumu- lated thereon, to such person on his leaving the public service, or to his representatives on his death, whichever shall first happen. "Civil Service Board, New South Wales (Report on an Actuarial Examina- tion of the State and Sufficiency of the Civil Service Superannuation Account), March 1, 1895, p. 6. S D— 61-2— Vol 59 24 S4 CrVIL-SERVICE RETIREMENT IN NEW SOUTH WALES. This provision is so like the compulsory insurance requirement imposed on members of the civil service in New Zealand by passage of the Civil Service Insurance Act of 1893, that it seems likely that the one was fashioned in imitation of the other. The New Zealand- measure was soon found inadequate as a retirement provision for the civil service, and was superseded by a more satisfactory scheme of retirement, though many members of the service continue, voluntarily, to keep up their insurance also. New South Wales has not yet fol- lowed the example of its neighbor in making the insurance voluntary and purely supplementary to an adequate scheme of retirement. In one important respect the provision for compulsory insurance would seem to have a tendency to raise the- standard of efficiency among members of a service. No physical examination was required for entrance into the public service under the Civil Service Act of 1884, but the Public Service Act of 1895 provided for " a preliminary medical examination as to the health of the candidates." The fol- lowing medical certificate must be satisfactorily filled out before the candidate is allowed to submit himself to tests as to acquirements and efficiency. PUBLIC SERVICE BOARD, NEW SOUTH WALES. (59 Vic, No. 25, sec. 22.) (Address) . (Date) I HEREBY DECLARE that On this day of In the year I care- fully examined ■ — , aged , a candidate for the position of . I find that the said (a) ["Is" or "Is not"] In sound general health; (b) ["Is" or "Is not"] below the standards of height, weight, chest measurement, respiratory capacity, and general develops ment proper to persons of apparent age ; (c) [" Is " or " Is not "] free from deformities; (d) ["Is" or "is not"] in possession of nor- mal vision; (e) ["Is" or "is not"] in possession of correct color vision. Special or explanatory remarks : . I am of opinion that the said Is free from any defect which would render unfit for admission to the public service, or prevent the satisfactory discharge of the duties of the f)osItion for which applies. Legally qualified medical practitioner. The Chief Medical Officer of the Government, Sydney, rOURTH ACTUARIAL VALUATION OF THE SUPERANNUATION FUND, 1897. DEFICIENCY IN SUPERANNUATION FUND FOUND REDUCED. The effect of the Act of 1895 was, as expected, to reduce the de- ficiency of the fund. A valuation as on December 31, 1897, was made by Mr. Trivett under the altered conditions, and showed that the deficiency had been reduced from £2,905,200 ($14,138,156), ac- CIVIL-SEBVICE BETIEEMENT IN NEW SOUTH WALES, 35 cording to Mr. Coghlan's valuation on December 31, 1893, to £1,344,541 ($6,543,209), or by the large sum of £1,560,659 ($7,594,947). The following statement of receipts and disbursements between January 1, 1894, and December 31, 1897, showed a balance of £420,648 15s. lOd. ($2,047,087.35) : • Receipts. Disbursements. Balance, January 1, 1894 Deductions from salaries Schedule B, appropriations Interest Refunds Back contributions paid by Govern- ment Gratuities paid by Government Fines Total $2,331, 1,010, 76, 115, 43, 2, 008. 65 185.90 647. 38 576. 09 683.69 476.06 437.12 600. 58 3,968,614.47 Pensions under Civil Service Act Pensions under schedule B Gratuities Refunds Balance, December 31, 1897 Total $1,596,688.73 65,714 54 105, 469. 42 153,654.43 2,047,087.35 3,968,614.47 The valuation balance sheet showing the estimated deficiency of £1,344,541 6s. lid. ($6,543,210.46) was as follows: CIVIL-SERVICE SUPERANUATION FUND, VALUATION BALANCE SHEET DECEMBER 31, 1897. DB. Ce. Present value of £93,454 15s. ($454,- 797.64) per annum, being pensions entered on by 735 officers who have retired under the provisions of the Civil Service Act of 1884 Present value of £3,499 15s. 7d. ($17,- 031.68) per annum, being pensions entered on by 15 officers who have retired under Schedule B, Constitu- tion Act Present value of prospective pensions to 2,630 persons who were contribut- ing to the fund December 31, 1897. . . Present value of amount to be refund- ed at retirement to 5.829 persons who have cpased contributing, in accord- ance with the provisions of section 02, Public Service Act $3,605,962.03 104,230.68 5,767,730.26 933,848.85 10,411,771.82 Amoimt of civil service fund Decem- ber 31, 1897 Present value of £3,600 ($17,033) per annum, authorized by the Consti- tution Act , Present value of future contribu- tions of 4 per cent pet annum from salaries of contributors to the fund December 31, 1897 Present value of unpaid contribu- tions of 4 per cent per annum from salaries, for period from date of entry to date of inception of civil service fund, available only at offi- cers' retirement Estimated deficiency $2,047,087.35 425,818.75 1,186,087.10 209,568.16 6,643,210.46 10,411,771.82 This reduction in the deficiency was undoubtedly due to the opera- tion of the new act, under which 5,829 past contributors to the fund out of 9,593 gave up their prospective benefits to secure exemption from further contributions and a refund of the contributions already made bv them with interest. OPTION or DISCONTINUING CONTRIBUTIONS NOT EXERCISED BY OLDER EMPLOYEES. It was a matter of surprise to many that the deficiency in the fund was still so large. The withdrawal of 5,829 persons from par- ticipation in the benefits of the fund removed a great load of liability, "The Civil Service Superannuation Account, New South Wales. Report on the Condition of, on Dec. 31, 1897, p. 8.) (Actuarial 36 CIVILrSERVICB EETIBEMENT IN NEW SOUTH WALES. but on the other hand few of the older officials ceased contributing and there was no considerable number of withdrawals by officers holding responsible positions and in receipt of large salaries. It is interesting to note that the right of ceasing to contribute was exer- cised by officers in the manner that would naturally have been ex- pected. Young men with a long period to run before arrival at the pension age, and with an admittedly insolvent fund as their pros- pective means of support, together with those of all ages whose physical condition gave slender expectation of participating to any great extent, if at all, in the benefits of a retiring allowance, at once seized the opportunity of securing something tangible in the promised return of their contributions, and the women, as was fully expected, retired from the fund in gr6at numbers, only 12 per cent remaining. On the other hand, the older officers, having long service behind them, and thereby heavier claims in respect to pension rights, together with those of middle age and sound constitution, having fair propects of advancement, adhered to the fund. The average age of those who adhered was 44 years and their average length of service eighteen years. The extent to which the privilege of withdrawal was accepted as regards persons still in the service on December 31, 1897, was shown by Mr. Trivett in the following statement : Contributors. Noncontributors. Whole service. Aver- age age (years). Num- ber. Per cent. Aver- age age (years). Num- ber. Per cent. .Aver- age age years) Num- ber. Per cent. General: 44 42 42 1,825 241 564 32 12 71 33 28 35 3,887 1,716 226 68 88 29 36 30 40 5,712 1,957 790 100 100 Railway 100 435 2,630 31 311 5,829 69 35 8,469 100 EXHAUSTION OF SUPERANNUATION FUND INEVITABUE WITHOUT OUTSIDE HELP. Although the legislation of 1895 had resulted in a reduction of the deficiency of the fund, it offered no hope of making it solvent. The fund was bound to become exhausted in time unless some new source of supply was opened up. While the law of 1895 was helpful in stopping the constant growth of obligations toward new entrants, the withdrawal of officers under it had reduced the annual income from £67,000 ($326,055) to £21,000 ($102,197). At the same time, the pension rate per annum had not decreased and would not do so for many years, since the older officers had maintained their con- CaviL-SEBVICE BETIEEMENT IN NEW SOUTH WALES. 37 nection with the fund in large proportions and would consequently supply a steady stream of annual entrants to the pension list almost equal in volume to what would be experienced if no right of with- drawal had been offered to their particular age classes. Until, therefore, the influx of claimants on the fund proceeding from this body of contributors of almost normal strength had ceased, very little diminution in the annual payments could be expected. It was ap- parent that unless help came the time was sure to arrive when there would be no more money in the treasury of the fund, and a large body of pensioners waiting vainly to be paid as usual. < POSSIBLE METHODS OF EESUSCITATING FUND SUGGESTED. Mr. Trivett considered the question of what could be done. Said he : In the case of a pension fund, where the valuation reveals a de- ficiency of moderate proportions, the leeway may be overtaken by increasing the contributions, by diminishing the benefits, or by a combination of both methods. In the present case, however, the deficiency amounts to nearly 63 per cent of the total obligations; or, in other words, the assets are equal to little more than one-third of the liabilities, and in such an extremity it would be unreasonable to expect more than a slight degree of improvement by applying the methods available for the adjustment of slight deficits. The conclusion is, therefore, most plain that extraneous support must be supplied, otherwise liquidation with its attendant privation to at least 743 helpless beings already retired is our only option. The only possible extraneous source of aid is the Consolidated Kevenue. * * * But the fund being in so parlous a condition, the beneficiaries must be expected to assist in the buoying-up process by submitting to a re- duction in their benefits."^ Mr. Trivett then made the following statement of possible read- justments through a combination of subsidy and reduction : " No reduclion, a subsidy of f377.154 per annum necessary. 10 per cenl, a subsidy of $323,622 per annum neces.«ary. 15 per cent, a subsidy of $296,856 per annum necessary. 20 per cent, a subsidy of $270,091 per annum necessary. 25 per cent, a subsidy of $243,325 per annum necessary. The possibilities thus outlined for the continuance of the fund did not seem to appeal to the Civil Service Board. In transmitting Mr. Trivett's report to the Governor of the colony on June 21, 1898, they stated that they were definitely of opinion that no scheme worthy of the attention of the Government could be devised which included an increase in contribution rates or reduction in the pension scale. "The Civil Service Superannuation Account, New South Wales (Actuarial Report on the Condition of, December 31, 1897). 38 CIVIL-SEBVIOE BETIKEMENT IN NEW SOUTH WALES. They recommended, therefore, that the sum to the credit of the superamiuation account should be divided into three portions. The sum of £191,893 ($933,847), representing the interests of persons who have ceased to contribute, should be set aside to meet the payments to be made to such persons and the balance of the fund be divided be- tween the general service and the railway service, the deficiencies to be met by annual endowments until the whole obligation was dis- charged. They thought it inadvisable to make any attempt to set the existing scheme on its feet. Said they : We have given a great deal of thought to the question of the possi- bility of resuscitating the superannuation fund, because it is plain to us that some sort of a superannuation system must always exist. If old and invalid officers are not given a retiring allowance by the direct provision of Parliament the custom which formerly existed of retaining officers long after their period of usefulness is past will again come into vogue, to the detriment of the service and the dis- satisfaction of the younger officers. But we do not see any hope of saving the existing system, and a careful investigation has convinced us that the best course was adopted when the legislature closed the fund to new entrants and allowed all who wished to cease contribut- ing. The question of what must take the place of the superannuation fund for persons who are now joining the service under the competi- tive system is, fortunately, not pressing, and as a new service is practically being created [through reorganization and retrenchment], we do not anticipate that there will be any formidable difficulties to be overcome in arranging a scheme of retiring allowance, just to the State and acceptable to the public servants." The above paragraph was written on June 21, 1898, but down to the present time no such "just and acceptable scheme" has been adopted. It seems strange that they did not realize that the very time to create a superannuation scheme, economically and advan- tageously, was while a practically new service was being created, since it could come into being then unhampered by a load of accrued liabilities. Their general point of view as to treatment of the old fund prevailed with the Government, which made no attempt to revive the old fund or to create a new one, but simply assumed all obligations toward pensioners when the fund became exhausted in 1903. FIFTH ACTUARIAL VALUATION OF THE SUPERANNUATION FUND 1901. The fifth and last actuarial valuation of New South Wales's superannuation fund was made by Mr. Trivett three and a half years after the previous one. The statement covering receipts and expendi- "The Civil Service Superannuation Account, New South Wales (Actuarial Report on the Condition of, December 31, 1897), p. 5. CIVIIi-SEEVICE RETIBEMENT IN NEW SOUTH WALES. 39 tures for the period January 1, 1885, to June 30, 1901, showed a bal- ance on June 30, 1901, of £180,127 18s. 9d. ($876,592.61) as follows:" Receipts. Disbursements. 1486,650.00 281,040.38 4,253,577.63 1,103,655.23 5,513.72 654,592.69 2,530.03 $261,815.94 4,771,268.19 559,805.40 Transfers, schedule B j.. Pfinsinns, Civil RPTViO* Art- , Contributions by officers, jielng 4 per cent on salaries Gratuities. Refunds to ex-contributors, under Public Service Act 284,173.79 33,903.75 Fines Sundries ,, Transfers from Consolidated Revenue Balance, Jime 30, 1901 876,592.61 fund 6, 787, 559. 68 6,787,559.68 DEriCIENCY IN SUPERANNUATION FUND STILL LARGE. ^ The valuation balance sheet showing the present value of the deficiency on the same date to be £1,761,075 7s. lOd. ($8,570,273.39) was as follows: CIVIL SERVICE SUPERANNUATION FUND— VALUATION BALANCE SHEET AS AT JUNE 30, 1901. De. Ce. To pensions entered on by 807 males for £99,049 10s. ($482,024.39) per an- num •■•■ To pensions entered on by 61 females for £3,713 6s. ($18,070.53) per annum. To pensions entered on by 14 persons for £3,255 2s. ($16,840.94) per annum under schedule B, Constitution Act. To pensions assigned to 14 persons for £2,232 6s. ($10,863.49) per annum, but not yet entered on. To Drospective pensions to 2,048 males still in service for a probable amount of £396,879 12s. ($1,931,414.67) per annum - • - • ■ To prospective pensions to 197 fe- males still in service for a probable amount of £16,027 10s. ($73,129.10) per annum To prospective gratuities to persons of less service than would entitle to pension rights, nil To refund of contributions to 5 ,144 per- sons who have ceased contributing to the fund, in the amount of £261,762 OS. 2d. ($1,273,864.81), due at various periods on death or at re- tirement $3, 638, 799. 33 168,880.70 84,755.31 71,512.59 6,169,741.44 244,328.31 941, 850. 65 11,309,868.33 By fund as at June 30, 1901 By value of future contributions of 4 per cent on salaries of 2,048 males still in service By value of future contributions of 4 per cent on salaries of 197 females still in service ^ . . ■ By value of annual rate of £3,600 ($17,033),as provided under sched- B of Constitution Act By value of abatement on prospec- tive pensions in resjject of unpaid 4 per cent on salaries for period prior to passing of Civil Service Act of 1884, being £99,209 16s, due at various dates of retirement By balance, being present ralue of deflciency as at June 30, 1901 S876, 692. 61 1,109,223.82 48, 173. 48 426,818.75 279,786.28 8,570,273.39 11,309,868.33 "Public Service Boanl, New South Wales (Supplement to Sixth Annual Report, with an ippendix relating to the Superannuation Account), November 1, 1902, p. 15. 40 CIVIIi-SEEVICE BETIKEMENT IN NEW SOUTH WALES. Mr. Trivett's report, on this final occasion, was a very exhaustive document. His summary of all pensions granted since the inception of the act was as follows : SUMMARY OF ALL PENSIONS GRANTED FROM JANUARY 1, 1885, TO JUNE 30, 1891. [From Supplement to Sixth Ammal Report, relating to the Superamiuation Account, Public. Service Board, New South Wales.] Pensions granted per annum under provisions of Civil Service Act, 1884— Year of re- tirement. Section 43. Section 44. Section 45. Section 46. Number. Amount. Number. Amount. Number. Amount. Number. Amount. 1885 8 22 44 39 33 29 22 20 48 31 36 113 27 40 20 36 35 tl,846.11 6,181.43 22,384.fc8 25,4t0.56 19,341.42 19,"068.65 12,971.90 9,868.3) 24,g78.75 15,778.41 21,078.03 78,517.57 17,096.26 18, 855. 26 11,011.67 21,358.34 20,820.10 8 32 7 19 18 13 20 13 17 4 14 13 6 8 11 7 5 $4,560.40 19,344.34 2, 602. 12 11,930.22 5, .598. 18 7,301.94 9, (,07. 93 6,7i 4.t8 7, 02o. 25 4,0li9. 12 4, 845. 82 5, TH. 38 3,388.30 5,081.85 3, 800. 98 2,295.-53 3,305.67 2 $814. 41 1 1 38 7 79 43 41 28 39 21 16 15 5 3 1 i 2 1341.38 610.26 1887 1 759. 17 31,781.41 8, 403. 96 1889 1 339.92 71,680 38 29, 768. 16 1891 2 4 5 3 5 3 6 8 4 3 2 1,161.88 1,977.99 2,697.99 1,129.61 3,353.99 893. 98 1,930.05 2,379.23 1,777.73 1,310.79 1,321.26 25,714.68 18D2 15,680.10 1893 24,489.20 1894 22,967.45 1895 11,312.18 1896 11,401.72 1897 4,334.35 1898 .. . . 2,692.87 1899 348.20 1900 7,622.39 1901 2,027.38 Total. . 602 346, 307. 45 215 107,314.61 49 21,847.90 344 270,966.97 The following detailed revenue account for the entire life of the superannuation fund down to the last valuation was among the returns offered by Mr. Trivett: DETAILED STATEMENT OF REVENUE AND EXPENDITURE, JANUARY 1, 1885, TO JUNE 30, 1901, OF THE NEW SOUTH WALES SUPERANNUATION FUND. (From Supplement to Sixth Annual Report relating to the Superannuation Account, Public Service Board, New South Wales.] Year. Revenue. Balance Drought forward. En- dow- ment from Gov- ern- ment. Transfer from sec- tion B. Contribu- tions, lieiiig 4 per cent of salarie.s. Interest. Fines. Transfers from Con- solidated Revenue Fund. Sun- dries. Total. 1885. 1886. 1887. 1888. 1891. 1892. 1893. 1895 (half year)... 1895-96... 1896-97... 1897-98. . . 1898-99... 1899-1900 . 1900-1901 . S342, 871. 86 728,828.37 1, 124, 094. 08 1, 429, 8li4. 73 1,762,263.16 1,940,025.91 2, 108, 455. 82 2, 259, 889. 53 2,331,008.65 2,406,864.48 2,483,727.16 2,621,191.98 2, 190, 891. 30 1,882,905.89 1,600,675.09 1,230,586.65 $97,330 97,3.30 97,330 97, .330 97,330 Total 486,660 281,040. $17,032.75 17, 032. 75 17, 032. 75 17,032.751 17, 032. 75; 17, 032. 75I 17, 032. 75 17, 032. 75 17,032.75! 17, 032. 75I I 8, 516.381 17,032.75: 17, 032. 75 17, 032. 75 17,032.75 17,032.75 17,032.75 $248, 309, 313, 313, 313, 318, 328, 337, 327, 319, 3,50. 24 6t;0. 14i 666. 12i 003. 22! 027. 7H! 124. 04 2,.7. s.;' 785. 37; 657. 08! 294. 84I 157,872.99 325,866.11 165,879.73 123, 147. 09 127, 707. 79 122, 650. 15 113,817.14 $2,937.22 16,975.77 31,603.59 47, 723. 64 59, 481. 87 69, 504. 18 82,629.26 86, 045. 13 90,905.65 94,076.18 48, 404. 42 99, 347. 63 99, 515. 18 87, 859. 00 75,690.33 64,000.03 49, 156. 25 $295. 363. 319. 378. 381. 370. 392. 305. 105. 768. 962. 482. 77 ... . 73 $79, 761 16, 19 136, 4, 263, 577. 64 1, 103, 665. 23 5, 513. 72 654, 692. 67 2, 530. ( $34. 07 164 9: 1, 706. 1,'977.' 04 $363, 94.'). 60 783,21.8.36 1, 2fc8, 715. 81 167. 82 1, 615, 4rj4. 69 39. 09 2, 062, 773. 28 75. 92 2, 239, 433. 85 376.26 2,447,614.29 ;2, 616,115. 97 !2, 716, 378. 22 150.15 2,823,911.84 84.35 2,690,416.36 2,957,991.88 2, 794, 498. 66 2,418,9.57.47 2,107,942.18 1,804,724.27 1,430,532.70 27.33 466. 25 963. 87 CIVI]>SEBVICB RETrBEMENT IN NEW SOUTH WALES. 41 DETAILED STATEMENT OF REVENUE, ETC. — Continued. Expenditure. Year. Pensions, Schedules. Pensions, Civil Service Act. Gratuities. Refund of contribu- tions under section 62, Public Service Act of 1895. Sundries. Balance. Total. 1885 $12,341.06 13,749.47 14,607.88 16,942.19 16,628.48 16,339.64 16,905.31 15,765.03 13,284.06 16, 750. 39 7,755.05 15,844.47 17, 031. 90 16,848.31 17, 031. 84 17,031.84 16,869.01 $1,188.14 13,591.73 44,506.92 107,086.12 169,321.05 236,384.54 275,445.91 306,650.23 328,325.78 363,384.57 183,055.91 375,221,28 446,266.47 455,320.46 452,802.44 520,280.41 492,376.25 $6,889.34 26,407.80 85,144,14 50,851.09 104,023.99 43,051.45 44,506.92 30,589.48 38,010.95 36, 248. 73 15,852.02 40,373.98 11,065.83 2, 953. 42 7,153.06 6,437.61 9,585.56 $655.21 690. 98 272. 79 10,710.46 646. 61 3,032,31 2, 240, 33 2, 221, 70 5,748,78 681. 67 26.22 5, 3(;0, 17 1,403,11 98,79 64,99 145.49 4.14 $342,871.85 728,828.37 01,124,093.69 1,429,864.73 1,762,253.15 1,940,025.91 2,108,455.82 2,289,889,53 2,331,008,65 2,406,846.48 2,483,727.16 2, 521, 191. 98 2, 190, 891. 30 1,882,905,89 1, 600, 675, 09 1,230, 685. 65 876,592.61 $363,945.60 783,268 35 1886 1887 SI, 268, 715. 81 1,615,454.59 2,052,773.28 2,239,433.85 2,447,614.29 2,615,116.97 2,716,378.22 2,823,911.84 2,690,416.36 2, 957, 991. 88 1888 1889 1890 1891... 1892 1893 1894 1896 (halt year) 1895-96 1896-97 1897-98 1898-99 1899-1900... 1900-1901... $127, 840. 04 00,830,60 30, U>i. 76 30, 243. 27 35,106.13 2,794,498.65 2,418.957.47 2,107,942.18 1,804,724.27 1,430,532.70 Total 261,815.93 4,771,208.21 559,805.37 284,173.80 33,903.76 o See under revenue, balance brought forward for the year 1888. i This total is 2 shillings (49 cents) more than the sum of the equivalent items as they appear in the printed olhcia! report. EXI-IATJSTIVE DISCUSSION OE CAUSES RESPONSIBU! FOR FAILURE OF FUND. Mr. Trivett's discussion of the causes which operated to bring about the failure of the fund and the principles which should underlie a perfectly safe scheme of superannuation makes very instructive and interesting reading. Said he : The present report relates to what will probably be the last investi- gation which will be made into the affairs of this fund, since the assets have dwindled to so low an amount as to bring the effective resources of the fund within easily measurable distance of extinc- tion in point of time, and, therefore, to demand immediate sustenta- tion measures to enable the claims of pensioners to be met. In view of this crisis it seems befitting that a review of the opera- tions of the fund from its inception to the date of valuation should be made and presented, so that a complete knowledge of the system of superannuation now so disastrously disappearing may be readily obtained, and possibly some valuable information presented in a suc- cinct form for use in any future measure respecting retiring allow- ances." He then went on to show how the fund was started on a basis which carried failure from its very inception. It was established with a liability on account of the civil service as it then existed, which the "Public Service Board, New South Wales (Supplement to Sixth Annual Report 'relating to the superannuation account), November 1, 1002, p. 4. i2 CIVILr-SERVICB RETIREMENT IN NEW SOUTH WALES. government endowment of £100,000 ($486,650) was utterly unable to meet. In the second place, the fund was used for purposes such as that of retrenchment and gratuities to relatives, which have no proper place in a superannuation scheme, and which should never be per- mitted in any scheme in which solvency is seriously regarded. He denounced the provision for the retirement of an officer in case of the abolition of his office as " entirely beyond the scope of any pension system where solvency is in the remotest degree entertained, unless extraordinary subventions are granted concurrently with the imposi- tion of the burden arising from each pension thus prematurely cre- ated." He computed the amount paid away to pensioners of this class, to valuation date, as at least £430,000 ($2,092,59.5), or nearly half the total pension payments, which had been £980,431 ($4,771,- 267). The premature payment of these pensions, added to the lost contributions of such retired officers, discounted the revenues of the fund in a large measure. Finally, Mr. Trivett found that the payment of gratuities to persons who had not served sufficiently long to acquire pension rights had been a severe drain on the fund. This system of gratuities he declared " a fatal flaw in any scheme of super- annuation, since the receipts by way of. contribution can never be equal by accumulation to the payment to the gratuitant, unless under the very exceptional condition of a large reduction in salary from that receivable in the early years of service." The Act of 1884, according to Mr. Trivett, had fulfilled in an admi- rable manner the chief and true requirement of any pension system; that is, retirement for the aged. In that respect it was satisfactory. It had conferred untold benefits on many worn-out officers, had de- livered the State, by the saving in money and by increased efficiency of the service from the undesirable condition which had previously existed, when retiring allowances were voted in the estimates every year, and when men, incapable through advanced age, adhered to their positions long after their periods of usefulness had vanished. The allowances were to be criticised, however, because they were based on the average salary of the last three years rather than the average salary of the whole term of service. Mr. Trivett found that the provision of invalid pensions had been highly beneficial, and deserves a place in any well-devised retirement system, but he also found that the contributions in this case had been insufficient for the benefits con- ferred and that the benefits, being based not on the average salary, as they should have been, but on the annual salary for the last three years, were too high. NEED OF RETIREMENT BOARD STILL FELT. Having reviewed the mistakes of the past, Mr. Trivett laid stress on the " serious fact " that " the same necessity of state,, which prompted the legislature of 1884 to pass a measure instituting a CIVI1,-SEEVICE RETIEEMENT IN NEW SOUTH W AT.T. S. 43 system of retiring allowances, still existed and would continually present for solution the problem of maintaining a public service in a high state of efficiency and of ambitious hope, which is a necessary accompaniment, by providing for the due retirement of the aged and debilitated members of that service on some plan in accordance with the humanity and enlightenment of the times." This problem, he declared, " can only be solved by a strict observance of business prin- ciples in the construction of whatever scheme may be adopted." ENDOWMENT ASStTKANOE INADEQUATE AS RETIREMENT MEASURE. In Mr. Trivett's opinion, that paragraph of the Act of 1895 which required officers to effect endowment assurance on entering the civil service, did not promise much help. Said he, " The amount of such assurance in the case of an average officer, according to the regula- tions, will probably not exceed £200 ($973), which, whether regarded as the purchase money for an annuity or as the capital for any other form of investment, will not be of much value to the recipient. A pension system would be the safest measure of insuring satisfactory provision for retiring allowances ; and, if the pensioner himself pays for the benefit, it would seem that the reasonableness of the proposi- tion must be admitted." OUTLINE OF REQUIREMENTS FOR SAFE PENSION SCHEME. In conclusion, Mr. Trivett presented an outline of requirements for a pension scheme founded on safe principles and " lessons derivable from the history of the civil service superannuation fund.' They are as follows: ^1) Pension should be payable only after age 60, or for ill health. (2) Pension granted on the ground of ill health should be subject to abatement, actuarially determined, in respect of the period by which age 60 is anticipated. (3) No gratuities should be allowed. (4) The pension rate should be on a moderate scale (a) either hav- ing some relation to the average salary, or (i) a fixed rate per annum for all pensioners, e. g., the amount which might be fairly regarded as a " living " rate. (5) The contributions should be on a scale certified as sufficient to meet the pension liability. (6) Means should be provided, under one control, for keeping the pension system under strict and comprehensive supervision, as to granting pensions, as to periodic payment, and as to collecting data relating to the public service." He also made the following significant statement of the contribution rates necessary to insure the sufficiency of a superannuation fund which aims merely to provide revenues for pensions accruing accord- 44 CIVIL-SERVICE RETIREMENT IN NEW SOUTH WALES. ing to the normal plan at age 60. A service was assumed with salaries in progress as at present in the New South Wales civil service- Entry age: Under 20, years 5 per cent per annum. 20 and. under 25 years 5i per cent per annum. 25 and under 30 years 5} per cent per annum. 30 and under 35 years 6 per cent per annum. 85 and under 40 years 64 per cent per annum. Mr. Trivett's conclusion, at the close of New South Wales's experi- ment, was that the details of a practicable system could be readily worked out if the principles laid down by him were adhered to. " It would be in every way regrettable," said he, " if the failure of a sys- tem, which had been devised on an unsafe plan, should provide so great a prejudice as to permanently prevent the adoption of some well-founded retirement fund, a most essential attachment to any efficient public service." " ENDORSEMENT OF ACTUARY TRIVETt's VIEWS BY CIVIL-SERVICE BOARD. In submitting Mr. Trivett's report to the Governor of the colony, on November 1, 1902, the Public Service Board indorsed his views in the following words: Mr. Trivett discusses in his report the terms on which a perfectly safe scheme of superannuation could be maintained. With his re- marks thereon the Board agree ; but as a question of policy is involved, they do not feel called upon to make any recommendation. They contented themselves, therefore, with pointing out that the fund would become exhausted about the end of the current financial year and should then be replenished from the Consolidated Revenue in order that faith might be kept with the public servants. They urged the passage of a short legislative act to give effect to that proposal. PUBLIC SERVICE (SUPERANNUATION) ACT, 1903. OBLIGATIONS TOWAED CONTRIBUTORS ASSUMED BY GOVERN- MENT. In 1903 the disaster, foreseen eight years before when the Act of 1895 became a law, came to pass. The superannuation account be- came exhausted. By that time the civil service employees had -con- tributed, including the interest earned, no less a sum than £1,100,839 ($5,357,233). Those who had been paying into the fund the longest and who had paid the most, found themselves in the position of "Public Service Board, New South Wales (Supplement to Sixth Annual Re- port relating to the superannuation account), November 1, 1902, p. 9. CIVIL.-SBBVICE EETIEBMENT IN NEW SOUTH WALES. 45 having had their money all absorbed by those who had contributed the least. The obligation of the Government being generally admitted in the face of these facts, the Public Service (Superannuation) Act, 1903, was accordingly passed in line with the recomriiendations of the Public Service Board. It provided that henceforth all amounts payable to and out of the superannuation account should be paid to and out of the Consolidated Revenue Fund. The deficiency had been estimated by Mr. Trivett the previous year to be £1,761,075 ($8,570,271) ; in other words, that that amount, from an actuarial point of view, would be required to place the fund in a position to meet all its claims. The state of the fund at the time of the last valuation, as at June 30, 1901, was as follows : Assets. Liabilities. $S7fi,593 1,157,400 425,819 279,796 8,570,271 $3, 953, 949 Future contributions For prospective pensions 6, 414, 171 Vote of £3,500 ($17,033) per aimum. . . Abatement on pensions For refunds to ex-contributors Total 941, 848 Total 11,309,868 11, 309, 868 The Board did not propose that a loan be floated for the purpose of paying off this deficiency, but indorsed instead the proposal made by the Colonial Treasurer in his budget speech on September 24, 1902, that the necessary amounts be paid, from year to year, as necessity arose, out of the Consolidated Revenue. " The amount to be pro- vided will decrease every year," said he, " and at the end of forty- four years it is computed that all claims will cease." The act providing for the payment of superannuation allowances out of the Consolidated Revenue on the exhaustion of the superannua- tion account was accordingly passed on October 19, 1903. The second section reads as follows : ■* 2. Notwithstanding anything in section 70 of the Public Service , Act, 1902 [consolidated from Public Service Act, 1895], when the Governor is advised that the superannuation account has become ex- hausted, he shall so certify, and on such certificate being given — (a) All deductions under section 53 of the Civil Service Act of 1884, as amended by the act 59 Victoria, No. 25, from the salaries of persons shall be paid into the Consolidated Revenue Fund; (6) All superannuation allowances payable under the Civil Service Act of 1884 and the Public Service Act, 1902, to any persons shall continue to be paid to such persons in accordance with the provisions of the said acts, but shall be paid from the Consolidated Revenue Fund; (c) All persons being contributors to the superannuation account at or after the commencement of thi s act and becoming entitled to "Public Service (Superannuation) Act, 1903. New South Wales. 46 CIVIL-SERVICB RETIREMENT IN NEW SOUTH WALES. superannuation allowances shall be paid and shall receive out of the Consolidated Revenue Fund allowances to be calculated at the same rates and for the same periods as superannuation allowances payable and receivable from the said account before the commencement of this act; (d) Every person who, having been in the civil service, had a superannuation allowance computed or assigned at any time before the commencement of this act consequent on his acceptance of another oiRce under the Crown which he now holds, but who is not receiving such allowance, shall, upon retirement froin such office, be paid from the Consolidated Revenue Fund such allowance in accordance with the provisions of the Civil Service Act of 1884 and the Public Service Act, 1902; (e) All amounts of refunds and interest theretofore payable out of the superannuation account, under section 62 of the act 59 Victoria, No. 25, or section 73 of the Public Service Act, 1902, and all gratuities payable out of such account under section 51 of the Civil Service Act of 1884, shall be paid out of the Consolidated Revenue Fund : Provided, That the annual sum of £3,500, payable out of the Con- solidated Revenue Fund, under setion 43 of the Constitution Act, 1902, shall be payable each year in satisfaction of the claims of such officers as are or may become entitled to be paid thereunder. So the matter stands to-day — the obligation of the Government decreasing as the number of pensioners grows smaller every year with the death of those who were in the service prior to the passage of the Act of 1895. In the meantime, those who have come into the service since that date have only their endowment insurance to look to for support after they reach the age of retirement. CONCLUSIONS. The contributory plan devised for the retirement of superannuated members of the civil service in New South Wales failed because it was unsound and inequitable. The experience of this colony shows that, in order to be satisfactory, a contributory plan must be based on the following fundamental principles : The contributions should be placed in a fund and invested at inter- est under guarantee of the Government, a separate account being kept with each contributor. Under the Act of 1884 the contributions were funded and invested at interest. Careful attention was not given, however, to the matter of interest in all cases. As pointed out by the actuary in the first triennial report, the Government ignored the interest factor in retiring officers because of abolition of office, paying to the superannuation fund the back contributions of 4 per cent with- out the interest that would have accumulated on these contributions, a practice severely condemned also by the actuary in the second investi- gation. "While the contributions were put into a fund and invested separately from other government funds, no account was kept with CIVIL-SERVICB RETIREMENT IN NEW SOUTH WALES. 47 each contributor. The assets were commingled, those received from contributors of all ages and all salaries being indistinguishably merged with each other. Even had the fund been found at each actuarial investigation to be entirely sound, that would merely have shown that the contributions in the aggregate were sufficient to pay the pensions ; it would not have proved that the plan was equitable as between individual members and that the amount contributed was in each case commensurate with the amount received. The amount of contributions should be determined by the amount of the annuity to be granted under the pension scale adopted. There was no relation or ratio at all under the New South Wales plan, between the amount contributed and the annuities received. The flat-rate deduction of 4 per cent of salary for all ages and on all salaries was inequitable as between individuals of different ages and different salaries. The inadequacy of the contributions to pro- vide for the benefits was pointed out by each of the three actuaries who reported on the fund. The principle that the percentage of de- duction from salaries should vary with the age of entrance into the service, though he tried to strike an average, was pointed out by Mr. Teece, in the first actuarial examination. It was brought out with emphasis by Mr. Trivett also, in the second examination. The anal- ysis made by these two actuaries of New South Wales' scheme shows conclusively that flat-rate assessments are unscientific and disastrous. I'he annuity should be based on the amount of salary and the length of service. As the length of service depends naturally on the age of entrance into the service, the percentage of deduction from salary necessary to provide the required annuity must vary with the entrance age- There must be a sharp differentiation between accrued liabilities and future liabilities. In each actuarial investigation made by the three different actuaries employed to value the New South Wales fund great emphasis was laid on the fact that a failure to differentiate between ac- crued liabilities and future liabilities was one of the chief causes for the insolvency of the fund. The " enormous dormant liability " with which the fund was burdened was counted among the causes of fail- ure by Mr. Teece ; " the accrued, albeit unperceived, debt " which overshadowed the fund from the beginning was held partly account- able for its state of insolvency by Mr. Coghlan. The inability of the government endowment of £100,000 ($486,650) to meet the initial liability which the fund carried on account of the civil service was held by Mr. Trivett to have condemned the plan from the beginning. Here was an absolute agreement of experts amply sustained by the facts. No more striking illustration could be asked of the principle that contributions made by present employees should be held in re- 48 CIVIL-SERVICE EETIEEMENT IN NEW SOUTH WALES. serve to pay their future pensions, and that accrued liabilities — pen- sions for past services — should be paid by the State. Provision should be made for the refund of contributions in case of separation from the service. A slight consciousness of the wisdom and justice of such a provision was showii by the Civil Service Board in its report to the Governor of the colony after the second triennial investigation. Cases of contributors to the fund dying in harness and leaving widows in necessitous circumstances had been frequently brought to their attention. It seems to have occurred to them, about this time, that instead of dis- pensing gratuities to the widows and children of such employees it would have been more rational and satisfactory to have given them a right to the sums contributed by those employees. The New South Wales experience shows that the amount of the retiring allowance should be calculated on the basis of the average rather than the final salary. Besides being a more scientific method of calculation, this method reconimended itself on the score of econ- omy to the various actuaries consulted. Mr. Teece suggested that the most equitable way to accomplish a reduction in the rate of pensions was to base the amount of pensions on the average salaries instead of on those of the last three years. Mr. Trivett recommended as more equitable and more economical an average salary deduced from the aggregate salary as the basis for calculating the amount of the pension. Mr. Coghlan acknowledged this method as the scien- tific one but contented himself with recommending as a basis for calculating the pension the average salary for the last seven years of service instead of that for the last three years. A provision for life insurance is a desirable adjunct to a retirement measure, but will not do as a substitute. The desirability of it was doubtless impressed on the Civil Service Board of New South Wales by virtue of its difficulties with the widows and orphans of employees who died in the service. It is to be commended as having a tendency, through the operation of medical selection in the choice of candidates, to raise the standard of general efficiency in the service. As a substi- tute for a proper retirement measure it is, however, inadequate, as pointed out by Mr. Trivett in his last report. Nor is the necessity' for it so apparent, under a proper contributory plan, where provision is made for the refund of contributions in case of withdrawal from the service, save in the younger ages before the employees' contributions are adequate as a protection for his family in case of death. No gratuities should be allowed under a model retirement plan. They lead to abuses of all kinds. They are not needed for the de- pendents of such employees in case contributions are returned or in- surance is provided. Mr. Teece regarded the payment of gratuities CIVIL-SEEVICE BETIEBMENT IN NEW SOUTH WALES. 49 to relatives of deceased officers as " repugnant to the principles of a Buperannuation scheme." Mr. Coghlan advised the discontinuance of gratuities to relatives of deceased officers and the substitution of in- surance benefits instead. Condemnation was also expressed of the payment of gratuities under any circumstance, and especially to em- ployees who leave before attaining pension age, showing that the practice complicates and renders more or less uncertain the mathe- matical calculations on the accuracy of which the solvency of the fund must depend. Provision for retirement in case of disability is a valuable and necessary part of a retirement plan, but care should be taken that the provision is calculated on a sound mathematical basis of facts. Mr. Trivett pointed out, in his last report, that the contributions had been insufficient to provide the invalid pensions. As stated in review- ing that report, he showed that pensions granted before the regular age of retirement, on the ground of ill health, should " be subject to abatement, actuarially determined in respect of the period by which age 60 [the legal retirement age under the New South Wales law] is anticipated." Granting allowances to officers leaving the service before the age of retirement by reason of the abolition of their offices leads to grave abuses and was the most striking, though not the most essential, cause of the failure of the New South Wales plan. Such a practice would enable the best of pension systems to " become the sport of political necessities," to use the phrase of Mr. Coghlan, and it is, as Mr. Trivett said, " entirely beyond the scope of any pension system where solvency is in the remotest degree entertained." It is not fair that a departmental change working to the advantage of the Government, and it alone, should be charged to the account of the body of employees. Nor would it seem to be at all necessary, in most cases, that such a change should be, on the other hand, a loss in any way to the Government, since places could usually be found for the incumbents of abolished offices in other departments until such time as they reach pensionable age and can legitimately, with- out prejudice to the fund, leave the service. 8 D— 61-2— Vol 59 25 APPENDIX D. THE HAMILL, MAHER, AND CUMMINS BILLS. THE HAMILL BILL. [H. R. 9242, Sixty-second Congress, first session.) A BILL To provide for the retirement of employees in the civil service. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That beginning with the first day of July next following the passage of this act all employees in the classified civil service shall be eligible for retirement as hereinafter provided. Sec. 2. That any employee who has served the United States for thirty years or more and who shall have attained the age of sixty years or over shall receive fifty per centum of the average annual salary, pay, or compensation he may have received for the five years next preceding his retirement. Any employee who has served the United States for a period of from twenty-five to thirty years and who shall have attained the age of sixty-two years or over shall receive forty-five per centum of the average annual salary, pay, or compensation he may have received for the five years next preceding his retirement. Any employee who has served the United States for a period of from twenty to twenty-five years and who shall have attained the age of sixty-five years or over shall receive forty per centum of the average annual salary, pay, or compensation he may have received for the five years next preceding his retirement. Sec. 3. That no employee provided for in this act shall be retained in the service after arriving at the age of seventy years. Sec. 4. That the payments provided for in this act shall be paid quarterly throughout the life of the employee. Sec. 5. That any employee to whom this act applies who has served the United States for not less than five years and who, by reason of accident or illness not due to vicious habits and without fault or delinquency on his part, has become disabled, shall be retired from the service on certificate from the head of the department or independent office in which he is employed to the Secretary of the Treasury, setting forth such disabilities, and on the approval of the Secretary of the Treasury he shall receive thirty per centum of his average annual salary, pay, or compensation for the five years next preceding his retirement for from five to ten years of service; forty per centum for from ten to twenty years of service; fifty per centum for twenty-one years and over. Sec. 6. That for the purposes of this act the period of service shall be computed from original employment, whether as a classified or unclassified employee, and shall include periods of service at different times and service in one or more departments, branches, or independent offices of the Government, the Signal Corps prior to July first, eighteen hundred and ninety-one, and the general service in or under the War Department prior to May sixth, eighteen hundred and ninety-six. Sec. 7. That the Secretary of the Treasury is hereby authorized and directed to pay, out of any moneys in the Treasury not otherwise appropriated, a sum sufficient to carry out the purposes of this act. ' Sec. 8. That the Secretary of the Treasury is hereby authorized to perform, or cause to be performed, any and all acts and to make such rules and regulations as may be necessary and proper for the purpose of carrying the provisions of this act into full force and effect. 4 THE HAMILLj MAHER, AND CUMMINS BILLS. THE MAHEB BILL. [H. E. 19399, Sixty-second Congress, second session.] BILL To provide tor the retirement of employees in the classified civil service in post offices of the first and second class. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That beginning with the first day of July next following the passage of this act all employees in the classified civil service in post oflBces of the first and second class shall be eligible for retirement as hereinafter provided. Sec. 2. That any employee in the classified civil service in post oflSces of the first and second class who has served the United States for thirty years or more and who shall have attained the age of sixty years or over may retire and shall receive fifty per centum of the average annual salary, pay, or compensation he may have received for the five years next preceding his retirement. An employee in the classified civil service in post offices of the first and second class who has served the United States for the period of from twenty-five years to thirty years and who shall have attained the age of sixty-two years or over may retire and shall receive forty-five per centum of the average annual salary, pay, or compensation he may have received for the five years next preceding his retirement. Any employee in the classified civil service in post offices of the first and second class who has served the United States for the period of from twenty to twenty-five years and who shall have attained the age of sixty-flve years or over may retire and shall receive forty per centum of the average annual salary, pay, or compensation he may have received for the five years next preceding his retirement . Sec. 3. That no employee provided for in this act shall be retained in the service after arriving at the age of seventy years. Sec. 4. That the payments provided for in this act shall be paid quarterly through- out the life of the employee. Sec 5. That for the purpose of this act the period of service shall be computed from original employment, whether as a classified or unclassified employee, and shall include periods of service at different times and service in one or more departments, branches, or independent offices of the Government. Sec 6. That the Postmaster General is hereby authorized and directed to pay, out of any moneys accruing from the lapsed salary of employees in the classified civil service in post offices of the first and second class, absent without pay where no axib- stitute is employed, and moneys accruing from the failure to fill vacancies imme- diately, and moneys accruing when the force is reduced temporarily when vacancies occur, and moneys accruing from post-office money orders issued and not presented for payment, a sum sufficient to carry out the purpose of this act. Sec 7. That the Postmaster General is hereby authorized to perform or cause to be performed any and all acts and to make such rules and regulations as may be neces- sary and proper for the purpose of carrying the provisions of this act into full force and effect. THE CTOOIINS BILL. [S. 5863, Sixty-second Congress, second session.] A BILL For the retirement of employees in the civil service, and for other purposes. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That from and after the date at which this act takee effect the employees of the permanent classified civil service of the United States, except postmasters, shall, for the purposes of this section, be divided into two groups as followis, to wit: Group one shall consist of the following-described employees, to wit- Railway mail clerks, city letter carriers, rural letter carriers, and mechanics. THE HAMILL,, MAKER, ANI> CUMMIIirS BILLS. 5 Group two shall consist of the following-described employees, to wit: All employees not in group one. That each employee falling within group one shall retire from the classified civil service of the United States upon arriving at the age of sixty-five years, and each employee falling within group two shall retire from such service upon arriving at the age of seventy years: Provided, however, That if within thirty days before any such employee reaches the retiring age the head of the department or independent office in which he is employed certifies to the Secretary of the Treasury that by reason of his special efficiency and his willingness to remain in the service a continuance of such employee therein would be advantageous to the public service, such employee may be retained for a term not exceeding two years, and at the end of the two years he may, by similar certification, be continued for an additional two years, and so on : Provided, however, That after the first day of July, nineteen hundred and sixteen, no person belonging to any of the classes of employees enumerated in group one or group two of this section shall be continued in the service beyond the ages of retirement as herein provided. Sec. 2. That beginning with the first month after this act takes effect, and monthly thereafter, there shall be deducted and withheld from the salary, pay, or compensa- tion of every employee in the classified civil service of the United States, except postmasters, who shall enter the service after such date, an amount, computed to the nearest tenth of a dollar that will be sufficient, with interest thereon at four per centum per annum, compounded annually, to accumulate for each such employee on arriving at the age of retirement, as hereinbefore provided, the sum of five thousand dollars: Provided, That no deduction shall be made from any such employee while receiving less than six hundred dollars per year: And provided further, That no deduction shall be more than ten per centum. Sec. 3. That the amounts so deducted and withheld from the salary, pay, or com- pensation of each such employee shall be deposited in the Treasury pf the United States, and shall be credited, together with the interest at four per centum per annum compounded annually, to an individual account of the employee from whose salary, pay, or compensation the deduction is made. The money so deducted and the income derived therefrom may from time to time be deposited in savings banks designated by the Secretary of the Treasury for that purpose: Provided, however. That the savings banks receiving such deposits shall pay interest thereon at a rate of not less than four per centum per annum, conipounded annually. For the safe-keeping and prompt payment of the money deposited with them the Secretary of the Treasury shall require the savings banks to give satisfactory security, by the deposit of bonds of the United States, bonds or other interest-bearing obligations of any State of the United States, or any legally authorized bonds issued for municipal purposes by any city or town in the United States which has been in existence as a city or town for a period of twenty>- five years, and which for a period of ten years previous to such deposit has not defaulted in the payment of any part of either principal or interest of any funded debt authorized to be contracted by it, and which has at such date more than twenty-five thousand inhabitants, as established by the last national census, and whose net indebtedness does not exceed five per centum .of the valuation of taxable property therein, to be ascertained by the last preceding valuation of property for the assessment of taxes; or any legally authorized bonds issued for municipal purposes by any city or town in the United States which has been in existence as a city or town for a period of twenty-five years, and which for a period of ten years previous to such deposit has not defaulted in the payment of any part of either principal or interest of any funded debt authorized to be contracted by it, and which has at any such date more than two hundred thousand inhabitants, as established by the last national census, and whose net indebtedness does not exceed seven per centum of the valuation of taxable property therein, to be ascertained by the last preceding valuation of property for the assessment of taxes. 6 THE HAMILL, MAHBE, AND CUMMINS BILLS. In this clause the words "net indebtedness" mean the indebtedness of any city or town, omitting debts created for supplying the inhabitants with water, and debts created in anticipation of taxes to be paid within one year, and deducting the amount of sinking funds available for the payment of the indebtedness included. The Secre- tary of the Treasury shall accept, for the purpose of this act, securities herein enumer- ated in such proportions as he may from time to time determine, and he may at any time require the deposit of additional securities, or require any bank to change the character of the securities already on deposit. It shall be the duty of the Secretary of the Treasury to obtain information with reference to the value and character of the securities authorized to be accepted under the provisions of this section, and he shall from time to time furnish information to savings banks as to such bonds as would be accepted as security. When consistent with the best interest of the fund created by this act, the Secretary of the Treasury shall distribute the deposits herein provided for,' as far as practicable, equitably between the different States and sections. If for any reason the Secretary of the Treasury shall not be able to make satisfac- tory arrangements with savings banks for all the fund, then he may invest the balance in any of the aforementioned securities. The moneys deducted from salaries and the income derived therefrom shall be held and deposited, or invested as above described, by the Secretary of the Treas- ury until paid out as hereinafter provided. Any deficiency in the fund hereby created to carry out the provisions of this act shall be paid out of any money in the Treasury not otherwise appropriated. For the purpose of aiding the Secretary of the Treasury in depositing and investing the funds created by the act, a board of investment is hereby created, composed of the Treasurer of the United States, the Comptroller of the Currency, and two persons to be designated by the President from among the employees of the classified civil serv- ice. The members of the board of investment shall be sworn and shall hold office until others are appointed and qualified in their stead. Sec. 4. That when any such employee reaches the retiring age, as aforesaid, and retires from the service, the United States shall pay him the said sum of five thou- sand dollars, or such lesser sum^s may be the result of his contributions, and any such additional sum, if any, as has been accumulated from his contributions by any excess of interest over four per centum per annum, compounded annually, actually received by the United States thereon; and If any such employee is retained in the service after reaching the retiring age, a deduction of ten per centum of his monthly salary, pay, or compensation shall thereafter be made While he remains in the service, and the same shall be treated as other deductions under section two of this act. Sec. 5. That upon absolute separation from the civil service by resignation or dis- missal prior to the retiring age and only upon such separation, there shall be paid to any such employee a sum made up of the sums so deducted from his salary, pay, or compensation, with simple interest only: Provided, however, That upon separation from the service by resignation or dismissal within less than five years after his admis- sion thereto such employee shall be paid his contributions without interest. Sec. 6. That in the case of the death of any such employee while in the service, there shall be paid to the person or persons entitled to. collect and receive his personal estate a sum made up of the amounts so deducted from his salary, pay, or compensa- tion, together with interest thereon at the rate of four per centum per annum, com- pounded annually. Sec. 7. That no employee who has received payment under section four of this act shall be reinstated in the classified civil service until he deposits with the United States the sum so paid, together with interest at four per centum per annum, com. pounded annually, in which case the sum shall be replaced to the credit of his account, and the former period of his service shall be reckoned as a part of his entire service THE HAMILL, MAHEE, AND OTJMMIKS BILLS. 7 Sec. 8. That every employee in the classified civil service of the United States at the time this act takes effect, except postmasters, who entered the employ of the Government whether as a classified or unclassified employee, shall within ninety days, after that date notify the head of the department in which he is employed, in writing, whether he desires to make the payments and be accorded the privileges hereinafter, specified. If no such notice is given, it will he held as the equivalent of a notice that he does not desire to make the payments or be accorded such privileges, and the notice once given shall be final. If the notice aforesaid is in favor of making the payments and receiving the privileges, then, beginning with the first month after the giving of such notice, there shall be deducted and withheld from the salary, pay, or compensation of every such employee a stun (computed to the nearest tenth of a dollar) equal to six per centum of his monthly salary, pay, or compensation: Provided, however, Thai the sums so deducted and with- held monthly, together with the interest thereon at four per centum per annum, com- pounded annually, shall not be more than sufficient to provide five thousand dollars in one cash sum when the employee from whose salary, pay, or compensation the de- ductions are made shall reach the age of retirement as hereinbefore provided. So long as such employee remains in the service such deductions from his salary, pay, or compensation shall be made each month, and shall be dealt with as provided in the foregoing sections for employees entering the service after the date this act takes effect. In any such case there shall be paid to the employee when he retires from the service, whether on account of age, resignation, or dismissal, a sum made up of the amounts so deducted, together with interest at four per centum per annum, compounded annually, with such additions, if any, as are the result of the Goverrunent having collected and received more than the said rate of interest . There shall be paid to each such employee who reaches the retiring age in the service a further sum determined as follows: To each such employee who retires on account of age within one year after this act takes effect, three thousand dollars; and to each such employee retiring thereafter at the age of retirement three thousand dollars, less one hundred and fifty dollars for each full year which shall have elapsed between the date this act takep effect and the date such employee so retires. Sec. 9. That every person to whom section two of this act applies, or who gives the notice required in section eight, shall be deemed to consent and agree to the deductions made and provided for in sections two and eight, and shall receipt in full for the salary, pay, or compensation which he may be paid monthly or at any other time, and which payment shall be a full and complete discharge and acquittance of all claims or demands whatsoever for services rendered by such person during the period covered by such deductions or payments, except the sum to be paid upon separation from the service, notwithstanding the provisions of sections one hundred and sixty- seven, one hundred and sixty-eight, and one hundred and sixty-nine of the Kevised Statutes of the United States, or of any other law, rule, or regulation affecting the salary, pay, or compensation of any such person or persons employed in the classified civil service. Sec. 10. That the Secretary of the Treasury shall prepare and keep all needful tables, records, and accounts required for carrying out the provisions of this act. He shall make a detailed comparative report annually to Congress showing all receipts and disbursements under the provisions of this act, together with the total number of persons who received payments hereunder and the amounts paid to each of them. Sec. 11. That whenever any person becomes separated from the classified service by reason of appointment in the unclassified service, such separation shall not operate to take him out of the provisions of this act. The President shall have power, in his discretion, to exclude from the operation of this act any employee whose tenure of office is intermittent or of uncertain duration. i THE HAMILL, MAHER, AND CUMMINS BILLS. Sec. 12. That the contributions with their accumulations provided for in this act hall not be assignable either in law or equity or be subject to execution or levy by ttachment, garnishment, or other legal process while in the possession of the United States. Sec. 13. That for the clerical and other service and all other exgenses and dis- lursements necessary in carrying out the provisions of this act during the fiscal year ineteen hundred and thirteen, including salaries and rent in the city of Washington, here is hereby appropriated the sum of dollars, out of any money in the Treas- iry not otherwise appropriated, to be available until expended. Sec. 14. That the Secretary of the Treasury is hereby authorized to perform or cause be performed any and all acts and to make such rules and regulations as may be lecessary and proper for the purpose of carrying the provisions of this act into full orce and effect. APPENDIX E. SCHEDULE CALLING FOR INFORMATION WITH REGARD TO EMPLOYEES. SCHEDULE CALLING FOR INFORMATION WITH REGARD TO EMPLOYEES. No (This stub to be detached before returning schedule to commission.) Name, [Perforation.) No The President's Commission on Economy and Efficiency. Department, Bureau, 1. Sex, , 2. Description of work, 3. Class of work: (a) Subclerical work, requiring some special skill or involving personal responsibility, but not clerical or mechanical in its nature □ Examples of such work are duties ordinarily required of messengers, watchmen, classified laborers, sorters, counters, etc. (5) Clerical work of a simple or routine character, requiring care, accu- racy, and skill □ Examplesof such work are mere copying and typewriting; simple index- ing; filing cards and papers; briefing contents of letters or documents on back; preparing letters by filling blank forms for official signature; mailing or dispatching; easy stenography; simple bookkeeping, requiring but little knowledge of the theory of accounts. (c) Clerical work of a routine character, requiring but little original thought or consideration, but requiring judgment, responsibility, and special skill □ Examples of such work are preparing briefs of papers in a case for record- ing; expert filing; examining property returns; proof reading; issuance and distribution of supplies; examining vouchers and disbursing accounts, under the application of simple standards or requirements; recording cases and transactions where considerable judgment is required to determine the relative importance of factors, and preparing an adequate index thereof; the ascertaining of facts independently and drafting action on average cases; composing and preparing letters for official signature; stenography requiring skill and practice; bookkeeping involving a knowledge of the theory of accounts and departmental records and precedents. (d) Work more or less routine, involving responsibility, special ability, and original thought, consideration, and investigation □ Examples of such work are directing and instructing clerks of lower grades; expert stenography; editing; the ascertaining of facts independently in complicated cases, and drafting action thereon; serving as confidential clerk to head of department or bureau; bookkeeping involving an extended knowledge of department records and precedents and the handling of intri- cate accounts; recording complex and difficult cases and properly indexing the same; service in purchasing and issuing supplies; service as paying teller; examining money accounts requiring familiarity with the laws and with regulations and requirements of the Treasury Department. 3 [ INFOEMATION WITH BEGAED TO EMPLOYEES. 3. Class of work — Continued. (e) Work largely supervisory, or requiring the highest order of clerical ability, iavolving much origiaal thought, consideration, and in- vestigation D Examples of such work are the investigation of large and intricate cases, . requiring familiarity with the laws and decisions of courts and with de- partment practice and policy, and the drafting of action thereon; the conduct of such investigations with the aid of assistants, whose work must be directed and correlated; service as paying teller with large responsi- bility; acting as chiefs of sections or divisions, and preparing or laying out work for others. (/) Work of a supervisory, executive, and administrative character n Examples: Duties ordinarily required of chiefs of divisions and chief clerks. (g) Professional, scientific, and technical Q (h) Skilled trades. D 4. War veteran (Answer "Yes" or "No") 5. Age at last birthday 6. Compensation: Annual, | Per diem, $ (Answer here if on annual basis.) (Answer here if on per diem basis.) 7. Aggregate years of service (include all periods except military and naval) 8. State the usual salary now paid in your bureau or office to the efficient employees engaged on the class of work assigned to the employee here rated, $ 9. Rating in tenths on quantity of work performed by employee rated: (Note. — Ten-tenths represents the quantity of the same class of work performed by an efficient employee receiving the salary stated in answer to Question No. 8.) 0/10 1/10 2/10 3/10 4/10 5/10 6/10 7/10 8/10 9/10 10/10 10. Rating on quality of work: "Excellent.'' — An employee should be rated "Excellent" when he is performing the highest quality of service in the grade to which he is regu- larly assigned — that is, when he has reached the maximum of efficiency. This implies that on occasions when there is need of ingenuity and initiative the employee is resourceful and equal to assuming responsibility. "Very good."— An employee should be rated "Very good" when he per- forms exceptionally satisfactory service, which, however, falls slightly below the standard of "Excellent" in that the employee lacks ingenuity or power of initiative. "Good."— An employee should be rated "Good" when his work is acceptable and worthy of commendation but not exceptionally so. "Fair."— An employee should be rated "Pair" when his work is some- what inferior, compared with ordinary, acceptable service, being charac- terized by a defective performance of duties. "Poor."— An employee should be rated "Poor" when his work is dis- tinctly inferior to ordinary, acceptable service. "Very poor."— An employee should be rated "Very poor" when his work is extremely unsatisfactory in quantity or quality, or both, but not so unsatisfactory as to be wholly worthless. INFORMATION WITH REGAEO TO EMPLOYEES. 5 10. Rating on quality of work — Continued. "Nonproductive." — An employee should be rated "Nonproductive" when his work is either wholly worthless or so faulty as to consume a large amount of a second person's tim6 in revising it. Nonproductive. Very poor. Poor. Fair. Good. Very good. Excel- lent. • 11. Value of services (not necessarily actual compensation) of employee rated: Annual, f Per diem, | (Answer here ii on annual basis.) (Answer here it on per diem basis.) Chief of Bureau or Office. > * Cornell University Library JK 791.A56 1912 Retirement from the classified civil ser 3 1924 002 403 867