The Washington herald., 1912-01-14
YOUNG NATIONS
SET THE PACE
Civil Service Retirement Finds an
Example in New South Wales
and Eew Zealand.
NJ CHARLES DICK,
pirsotor q ouunittss q oas Hundrsl

Ry CHARLES DICK,
pirsutu< a oumnlttss q o. HUNDRED.
Civil service retirsment legislation Il
comparatively old in some OF the young.
est countries OF the world, New South
Wales and New Zealand have an expert.
ence in this line running back more than
nifty years. which serves both as q guide
and a warning to other countries. In
both countries the law now In effect has
been in force but very few years, illus
trating the difficulties In the way OF q
proper solution OF the problem.
New South Wales established q pension
system pure and simple for Its civil en-
ployss in 1854 and maintained It for thirty
years on an annual appropriation OF
81. 900. In 1854 contributory plan was
inaugurated and employees were COM
PEELED TO pay 4 per cent per annum OF
cluded except certain minor onss. mes
sengers, letter carriers, laborers, and
others IN similar employment who could
contribute or not, as they elected. The
government assisted the fund 30 formed
by appropriating $500 annually for I'VE
years in addition TO the $1,000 q year
that had been paid. Even with this In
crease OF revenue the approximation
fund soon became insolvent. Retirement
permissible after fifteen years services
and arrival at the age OF sixty, or for
permanent incapacity.
The pension paid was as many sixtieths
OF the average salary for the last three
years service as there had been years
OF service, ranging from fifteen to forty.
Benefits were paid those retired for in
capacity after less than tifteen years
service equal 10 one months pay for
each year Of service, and 10 those injured
In line Of duty so as 20 be unable to
work again two months pay for each
year Of service and not less than six
months salary. Dependents of govern
ment employees left by their death IN
necessitous circumstances were given an
allowance the maximum Of which was
six months salary.
System Found Faulty.
Within three years after its adoption
this system was reported by an expert
to be actuarily unsound and the fund
itself insolvent. Among the reasons
given for this condition was the follow
ing:
The age of retirement. sixty years. was
entirely too low.
The deduction Of per cent of the SAL
ary from each employe, irrespective Of
age and length OF service, while SUM-
Client for an empIoye entering the serv-
ice at the age OF twenty-five, was insuf-
hcient TO buy a pension for those who
were older when they began to con-
tribute. The rate should increase about
per cent for every additional i've years
of age.
No separate account was kept Of each
contributor, all the deductions were IN
termingled. and the amount contributed
by the younger employees was paid out
for pensions to older employees who con-
tributed little or nothing to their own
pensions.
The payment Of gratuities to widows
and orphans-a provision entirely out OF
place In a superannuation scheme.
The pensions paid were based on the
average salary for the last three years
Of service. The actuaries believed It
should be based on the average salary
for the entire length Of service.
A contributory pension scheme can be
devised which will be actuarily sound,
and will work successfully. but IL must
be founded on tried and well settled life
insurance methods; the rate must vary
with the age, and the younger employees
must not be compelled to pay the pen
sions OF those who are ready TO retire
or soon will be. In other words, ac-
crued liabilities must be kept distinct
from future liabilities.
Pension Worked Improvement.
Even after the fund was shown to be
insolvent and the expense prohibitive. the
government chung TO the plan because OF
the great Improvement worked in the
public service by a provision which Sc
cured retirement for the ineficient and
promotion for the efficient
The third triennlal investigation OF the
Fsg. Nt.s-A H..
and the deficiency in the fund was shown
at that time 10 be more than Sl4.ooo.ooo.
This report convinced the government OF
the total inadequacy OF the plan and OF
the hopeless insolvency Of the fund. and
II passed a law in 1895 which prohibited
admission to the pension system OF any
employe entering the civil service after
that date.
Those who had contributed IN the past
were permitted TO discontinue their pay
ments. and on death or retirement their
were refunded with 8 per
cent interest, and a gratuity OF one
months pay for each year of service.
Those who preferred to continue their
could do so, and maintain
their original pension privileges and
rights. Out OF 1883 contributors to the
fund. 5.S29. composing the younger en-
ployes. stopped their payments. Those
the service after that date were
required to take out endowment insur-
ince with some Efe insurance company
ioing business in New South Wales either
'or the payment OF a lump sum at death
lr for an annuity after reaching the age
II sixty years. In 1909 the pension fund
vas exhausted, and notwithstanding the
immense number OF Withdrawals there
vas a deficit of IS, 5Oo, 900, which the gov
,rnment was compelled to assume. The
f,aN fa attn L.,
orce, but is reported to be an unsatis-
actory substitute for a pension.
The experience of New South Wales
hows that a contributory pension plan
s not always satisfactory, and unless
,ased on sound actuarial principles is