Superannuation

Superannuation Pensions Schemes.

The superannuation schemes which definitely provide for pensions are, however, gen erally considered to be more appropriate to the requirements of both the employer and the staff than the simple system described above. The pension may be of fixed amount, or may vary with length of service; in the latter case the amount of pension may be uniform for each year of service, or be related to the salary earned by the official during the whole or last few years of service. Systems under which the pension depends both on the duration of service and also on salary have become increasingly popular owing to their elasticity in application to the differing circum stances of a salaried staff consisting of many grades. There are, however, many schemes in which fixed pensions or pensions which grow by uniform increments for each year of service have been adopted as peculiarly appropriate to the needs of the case, e.g., where a scheme is limited to workmen.

In systems based on salary it is common practice to express the pension as a specified proportion (e.g., of pensionable salary for each year of service, subject to a maximum (e.g., forty sixtieths). There are numerous methods of defining pensionable salary, the most popular being probably the terminal salary, i.e., that earned in the last year before retirement or, in order to avoid fortuitous inequalities of treatment, the average of the last few years of service. Another plan often adopted is to take the average salary throughout service. Where the employee contributes a fixed percentage of his salary throughout his service, and the employer makes annual payments equal to the aggregate contributions made by his staff, it has been argued that from the standpoint of equity the resulting pension should be related to the contributions which have been paid by, or on behalf of, the beneficiary and that accordingly the average salary method should be adopted. But a practical objection to this is that the pension based on average salary is likely to be insufficient to enable a senior officer to maintain a reasonable standard of comfort after retirement unless the scale is fixed so high as to be over-generous to the lower-paid ranks. In this connection it has to be remem bered that while all new entrants, with trifling exceptions, start in junior grades entitled to low salaries, their progress varies widely. Judged on the principle that an official, retiring after long service, ought to be able to maintain approximately the style of living to which he has been accustomed, anomalies appear inevit able under the average salary system, and for this reason the terminal salary system has become increasingly popular. With regard to the contention that the average salary system is fairer to the lower paid grades, it may be said that as one of the main objects of an employer is to secure efficiency his contributions may fairly be allocated in the best way to achieve this purpose; and it is generally agreed that since even under the terminal salary method the employee, whatever his rank, receives at least full value for his own contributions and some part of the employer's subvention, the unequal distribution of the latter is not a valid criticism of the fairness of the scheme viewed as a whole.

The average salary system approximates more nearly to giving each employee the equivalent of his own contributions increased proportionately out of the employer's grant, but if exact equiva lence is desired the scheme has to be framed on other lines. In such a case each contribution secures a definite amount of de ferred pension, varying with the amount of the contribution, the age of the employee and the age at which the pension is to com mence. On retirement instalments of pension purchased through out service are aggregated. The system, generally known as the "money purchase" plan, is easy to work and is often adopted, especially in America and where it is found convenient to re-insure the liabilities for pension with an assurance company in lieu of instituting a private superannuation fund.

Subsidiary Benefits.

Apart from normal superannuation the claims of persons who become incapable of work owing to ill health before reaching the normal pension age have also to be con sidered. The hardship of loss of income is obvious, and generally the rules provide for some compensation to be given. In contrib utory schemes the return (with interest) of the official's own contributions is commonly allowed, but many schemes go further and permit pensions (proportionate to duration of service) to be granted if permanent breakdown occurs after a prescribed mini mum period of service. Difficulties may arise in administering a subsidiary benefit of this kind since the test of permanent in capacity is not easy to fix; if it is too rigid, cases of hardship arise, but the financial implications on the stability of the scheme caused by a lax interpretation are very serious. For this reason it is generally considered undesirable to provide for breakdown pensions unless the authority in whom administration is to be vested is prepared to assume responsibility for financial soundness. If an official dies in harness or resigns, voluntary return of at least his own contributions is customarily made; sometimes a minimum payment on death of a year's salary is guaranteed. Sub sidiary benefits of the types described above are relatively costly, the effect of giving such concessions being to diminish the re sources available for the main benefit, viz., ordinary pensions; to secure a fair balance between these opposing claims is often not easy when a scheme is being framed.