NATIONAL PROVIDENT FUND. ACTUARIAL EXAMINATION FOR THE TRIENNIUM ENDED 31st DECEMBER, 1916.

Appendix to the Journals of the House of Representatives, 1919 Session I, H-17a

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1919. NEW ZEALAND.

NATIONAL PROVIDENT FUND. ACTUARIAL EXAMINATION FOR THE TRIENNIUM ENDED 31st DECEMBER, 1916.

Laid before. Parliament in pursuance of Section 24 (8) of the National Provident Fund Act, 1910.

REPORT By the Actuary appointed by His Excellency the Governor-General to make the Actuarial Examination of the National Provident Fund for the Triennial Period ended 81st December, 1016. I have the honour to submit the following- report on tire National Provident Fund as at the 31st December, 1916, as required by section 24 of the National Provident Fund Act, 1910. This statute, which is described as an Act to encourage the making of provision against destitution arising from old age, sickness, widowhood, and orphanage, came into operation on the Ist January, 1911, and its .scope has been considerably widened by subsequent legislation. The principal Act established the National Provident Fund, administered by the National Provident Fund Board, tinder the amending Act, 1914, No. 1, the powers of tire Board have been largely extended with a view lo (he establishment of superannuation schemes for the employees of local authorities, and many such corporate bodies have been accepted as contributors by the Board in exercise of the powers conferred by this Act. These contracts, however, do not enter into the accounts of the fund until 1917, and hence do not come within lire scope of the present valuation. The provisions of the Finance Act, 191G, relating to social insurance admit members of friendly societies to the Irenelits of the National Provident Fund on special terms, but as this part of the Act did not comer into operation until the Ist January, 1917, it does not affect this valuation. The benefits and contributions provided by the principal Apt, together with statements showing the progress of membership, and the prospective liabilities incurred in respect to contributions orr lire one hand, and the number of 10s. pensions contingenl on (he attainment of age sixty on ihe other, will be found in the appendix, Tables I, 11, and Til. It may be briefly stated that a member entering the fund is entitled lo maternity benefit on lire birth of a child, ami after five years' membership to allowances, in the event of incapacity or death, dependent on the number- of children under fourteen years of age. On attaining age sixty he receives a pension. In the even! of withdrawal, or death without children, the contributions are refunded. 'The benefits are set out more explicitly in Table I. In Table I will also Ire found the schedule of weekly contributions, ceasing at age sixty, which are charged to members. From this schedule it is apparent, when the high cost of providing deferred annuities commencing at age sixty, in conjunction with the other benefits is considered, that members are charged very moderate rates. The scheme is subsidized by the State, which bears all expenses of management, provides the maternity benefits by an annual parliamentary grant, and pays into the fund each year a sum equal to one-quarter of the total contributions received from members in the previous year. Four-fifths of the total annual contributions to the fund are thus paid in weekly instalments by the contributors. The remaining fifth part, or 20 per cent, of the total annual' contribution, is received on the average about twelve months later, and is provided by the State. It may be mentioned that the contributions for a £1, £] 10s., and £2 pension are proportionately more adequate than those for a 10s. pension, owing to the other benefits not beingincreased; the State subsidy is nevertheless upon the same scale, and hence the subsidies for these higher pensions, being a little more than required, virtually form an indirect addition to (Ire subsidies on the 10s. pensions. The statistics in respect to the numerical progress of membership, given in Table 11, show thai 9,847 persons, comprising 9,102 males and 745 females, were contributing at the 31st December, 1910. These figures represent net increases of about 69 per cent, and 81 per cent, respectively in the number of male and female contributors on the books at the beginning of the triennium. No pensions had been claimed prior to the valuation date. The ages of members then contributing both at that date and at their date of entry into the fund, together with their weekly contributions, and the number of lOs.-per-week pensions contracted for, are shown in Table lII.' The income and outgo of the fund during the three years are shown in the Consolidated Bevenue Account, which is as follows : —

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Consolidated Revenue Account of the National Provident Fund prom the Ist January, 1914, to the 31st Dhokmuhr, 191.6. Income. £ s. d. Funds at Ist January, .191.4 ... ... ... 29,327 7 6 Contributions ... ... ... ... ... ••• 76,211 11 4 Interest ... ... ... ... ... ... 7,360 11 1 Fines 749 12 9 Benefits refunded by deduction ... ... ... ... 676 7 1 Government contribution under section 25 ... ... ... 18,654 5 7 Refund of maternity claims by State ... ... ... 8,398 9 8 Refunds unclaimed ... ... ... •■ ■•■ 574 4 6 Miscellaneous receipts ... ... ... ... ■■• 0 010 £141,952 10 4 Outgo. £ s. d. Maternity claims (section 18) ... ... ... ... 8,398 9 8 Refund of contributions on lapse, reduction and withdrawal (sections 10, 11, 12, and 1.3) ... ... ... ... 9,720 13 8 Death: Refund of contributions (section 15) ... ... 1,471 8 6 liefund of contributions overpaid ... ... ... ... 0 9 11 Funds at 31st December, 1916 ... ... ... ... 122,361 8 7 £141,952 10 4 The scheme having been only a comparatively short time in existence, it will be seen that the outgo is still small compared with tire income, and that there was therefore a considerable increase in funds during the trienniunr. A rapid increase in funds, the sufficiency of which can, of course, be tested only by actuarial valuation, is in fact indispensable in a recently established scheme of this kind, as the heavy liabilities incurred in guaranteeing pensions to contributors, the great majority of whom are enrolled at the younger ages, are from the nature of the benefit largely deferred to the future. The extent to which the contribution income and funds in hand will be supplemented by future interest earnings is therefore important, as without substantial aid from this source the State would have to bear a much larger share of the prospective liabilities than is contemplated in the scheme. The Valuation. The valuation is conditional upon the funds being improved at interest at not less than 4 per cent, per annum. This rate had not been earned in the early stage in the financial operations prior to the valuation date; bul much improved interest returns, which now approximate to tire 4-per-cent. standard, have been received since then, and as further improvement in the rate credited may be anticipated, the valuation has been made at 4 per cent. Although, as a general principle, the valuation of a benefit fund should as far as possible be based on factors derived from the statistics furnished by the fund's own actual working experience, it is not altogether practicable to adopt this course, in view of the fund having been in existence only six years, two of which were war years and therefore abnormal. The valuation factors must therefore be obtained from extraneous sources, such as the actual, experience of longer-established schemes of a similar nature. The statistics which it has been possible to deduce from the working of the fund itself have, for the reasons stated, only been used for purposes of comparison with, and as a check on, the bases adopted in making the previous valuation. These bases were, when that investigation took place, fixed after- careful consideration, and are on sound lines, but require testing from time to time as the actual experience of the fund itself accumulates. The practical importance, moreover, of valuation, if applicable, on substantially the same assumptions, at the beginning and end of an intervaluation period, is apparent when it is considered that any progress or retrogression which may have taken place during the period is accurately gauged by results obtained in this way. Beyond slightly increasing the probabilities of being married, the present valuation has been made on the same bases as before. The bases adopted are as follows : — (1.) Mortality rates of contributors between those of the New Zealand population, * 1906-1.0, and those of the New Zealand Civil Service Superannuation Fund. These rates show a low mortality below age seventy-three. After that age, as local statistics are scanty, they agree with the healthy English rates. (2.) Bates of discontinuance approximating to those of the Second Division of the New Zealand Railways. (3.) Rates of invalidity as exhibited by New Zealand friendly societies. (4.) Probabilities of being married, approximately 19 per cent, above those of the New Zealand population, 1911. (5.) Probabilities regarding children, as per New Zealand population statistics, 1908-12. (6.) Mortality rates of widows, as per New Zealand friendly societies rates two years younger, the result being an approximation to the rates of the female population of New Zealand for 1906-10. (7.) Interest has been taken at 4 per cent. The valuation balance-sheet is as follows ;—

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Valuation Balance-sheet m the National Provident Fund as at 31st December, 1916. Liabilities. Value of liability for— £ Pensions ... ... ... ... ... ••■ 386,111 Orphans' benefit ... ... ... ... ... 76,035 Widows' benefit ... ... ... ... 35,088 Incapacity allowance ... ... ... ... ■■ 27,867 Return of contributions on death ... ... ... ... 32,787 Return of contributions on withdrawal ... ... ... 80,242 £638,130 Assets. £ Amount of the fund at 31st December, 191.6 ... ... ... 122,361 Value of contributions payable (assumed half a year after due date) ... 415,559 Value of State subsidy of one-fourth (assumed to be received a year later than above)'... ... " ... ... ... ... 99,894 Debit balance ... ... ... ... ... 316 .£638,130 From this it will be seen that according to the basis of valuation adopted, which is slightly more stringent than that of 1913, the fund was in a solvent position at the valuation date, a merely nominal deficiency being disclosed. As the maternity benefits are annually voted by Parliament they have not been treated as a liability in the above valuation balance-sheet, in which I have set forth the state of the fund at the close of the valuation period, having regard to the prospective liabilities and assets, as directed by section 24 (2) of the Act. This section further requires the report to show the " probable annual sums required by the fund to provide the pensions and other allowances falling due within the ensuing three years without affecting or having recourse to the actuarial reserves appertaining to the contributors' contributions." This has been taken to mean that an estimate is to be made of the portion of the expected claims on the fund falling due during the three years following the valuation, which the contributions, inclusive of the statutory one-fourth subsidy attaching to the contributions, do not provide for. The Actuary is therefore required to state the further subsidies per annum necessary during the period, specified beyond the statutory annual one-fourth subsidy to meet the current charges on the fund, and section 25 (2) of the Act makes " such further amounts (if any) " an additional charge on the State. I have to report, under the provisions of these sections, that beyond the present statutory annual subsidy no " such further amounts " require to be paid during the three years following the date of this valuation. The present investigation therefore shows a satisfactory position as at that time approximately coincident with the initiation of the subsidiary superannuation scheme already referred to. The effect'of the considerable financial obligations incurred since then under the subsidiary scheme will not, of course, be apparent until future valuation takes place. Ist October, 1.919. C. E. Galwey, A.I.A, (London), Actuary.

APPENDIX. TABLE I. Membkhship Qualifications. Any person may become a contributor who— (a.) Is a resident of New Zealand; (6.) Is over sixteen years of age; (c.) Is under forty-five years of age ; and (d.) Whose average income during three years prior to joining has not exceeded £250 a year. Benefits. The following benefits are payable : — (1.) After contributing for twelve months or for such period as the Board determines, a payment not exceeding £6 on the birth of a contributor's child or children, provided the parents' joint annual income does not exceed £200. (2.) After contributing for five years, an allowance after three months' incapacity to work of 7s. 6d. per week for each child under fourteen years of age; not to exceed pecuniary loss. Ceases at age 60. Extends to age 18 in case of an infirm child. (3.) After contributing for five years, an allowance, on the death of a contributor, of 7s. 6d. per week for each child until fourteen years of age, and 7s. 6d, per week for the widow so long as any child is under fourteen years of age.

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(4.) On reaching age 60, a pension of 10s., 205., 305., or 40s. per week, according to tho scale of contributions. (5.) Return of contributions, less benefits, on giving twelve months' notice of cessation of membership, This right is exercisable at any time before drawing the first payment of the pension. (6.) Return of contributions, less benefits, on death, whether before or after receiving pension.

Contributions.

TABLE II. Numerical Progress to 31st December, 1916.

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Age last Birthday of Contributor- when First Contribution is ] made. Weekly Contri- Weekly Contri- ; Weekly Contribution required bution required j bution required to secure a to secure a to secure a Pension of 10s. a Pension of 20s. a , Pension of 30s. a Week at Sixty Week at Sixty j Week at Sixty Years of Age. Years of Ago. Years of Age. Weekly Contribution required to secure a Pension of 40s. a Week at Sixty Years of Age. 16 17 18 19 i s. d. s. il. s. d. 0 9 16 2 3 0 10 18 2 6 0 10 I '8 2 6 on i io 2 9 T s. d. 3 0 3 4 3 4 3 8 20 21 22 .. 23 21 10 2 0 3 0 10 2 0 3 0 11 2 2 3 3 12 2 4 3 6 I 8 2 6 3 9 4 0 4 0 4 4 4 8 5 0 2!) 26 27 28 29 30 31 32 33 3-1 I 4' 2 8 4 0 I 5 2 10 1 3 I 6 3 0 'I 6 17 3 2 I 9 I 8 3 4 5 0 I i> 3 6 5 3 1 10 3 8 5 6 2 0 4 0 6 0 2 2 4 4 6 6 2 3 4 6 6 9 5 4 5 8 6 0 6 4 6 8 7 0 7 4 8 0 8 8 9 0 35 36 37 38 39 2 5 4 10 7 3 2 7 5 2 7 9 2 10 5 8 8 6 3 0 6 0 9 0 3 3 6 6 9 9 9 8 10 4 11 4 12 0 13 0 40 41 42 43 44 3 6 7 0 10 0 3 10 7 8 11 6 4 2 8 4 12 6 4 6 9 0 13 6 4 11 9 10 14 9 14 0 15 4 16 8 18 0 19 8

Numbers. Class 1. Pension Rate, 10s. Class ii. Pension Rate, 20b. Class 3. Pension Rate. 80s. Class 4. Pension Rate, 408. A] Jgregal Annual Contributions, ;o. M. F. j T. M. F. T. M. F. J T. I [ M. F. j T. M. F. T. Total entered Total transferred from other classes ,11,978 244 896 9 12,874 253 1 ,346| 192 110 10 I,450 202 1,538 120 147 15 21 5 168 20 233 14 24 2 257 1 Ii . I 02 I 39 3 101 4 156 12 ited by singl 247 20 13,704 393 1,123 26 14,827 419 a s. d. 57,157 15 0 626 16 4 905: - il3,127 1,658 162 20 188 12,222 273 14,097 1 ,149 15,246 57,784 11 4 Total discontinued Total transferred to other classes 4,146 105 321 8 4,467 113 348 52 215 10 400, 225 40 34 4 5 50 39 I 03 42 4,602I 393 378 26 4,980 419 17,918 7 0 1,246 18 4 Total contributors on books at 3lst December, 1916_ 4,251 7,971 929 576 8,547 4,580 563 62 893 140 t tilO I Vs. Id., i 625 i 1,033 80 82 9 17 89 99 105 168 9,102 4,995 404 745 5,399, 9,847 19,160 5 4 *38,624 6 0 illusive ol 'ment. « Exi , annuai I pren lium c rommr le pa;

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TABLE III. Particulars of Membership, Pensions, and Contributions.

Approximate Oott of Paper. —Preparation, not givon i printing (1,260 copies), £S.

ISy Authority : Marcus F. Marks, Government Printer, Wellington.--1910.

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TAMIiMi 111. Particulars of Membership, Pensions, and Contributions. According to Age at Entry. .According to Age attained. 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 11 42 43 II 45 Age at Entry Number of Age attained Number of Number of 10s. (Nearest). Members. (Nearest). Members. Pensions. 415 16 61 64 774 .17 322 338 820 18 479 513 838 19 627 690 778 20 677 773 697 21 712 890 696 22 638 788 592 23 632 775 546 24 636 775 491 25 574 692 417 26 591 708 389 27 486 593 359 28 437 510 314 29 399 483 301 30 349 402 241 31 335 373 225 32 300 . 331 .. ! 175 33 275 309 .. ! 166 34 239 277 .. I 117 35 195 222 119 36 181 218 81 37 141 165 61 38 115 133 57 39 98 118 54 40 73 90 25 4.1 65 79 28 42 43 54 20 43 45 62 19 44 28 38 29 45 ■ 26 31 46 23 33 47 12 16 48 10 15 49 12 15 50 8 10 51 3 4 Total .. 9,847 .. 9,847 11,587 Weekly Contribution payablo. £ ». d. 2 8 0 12 16 9 20 9 5 28 7 3 32 19 4 40 8 8 36 18 8 38 4 7 40 10 6 37 18 5 41 5 7 36 18 4 33 14 6 33 14 0 29 17 II 29 4 7 27 7 5 26 10 3 25 14 4 2111 5 22 15 11 18 I 10 16 0 I ' I I 9 9 12 5 I II 6 0 8 I 2 10 3 2 7 2 7 5 17 10 6 6 0 3 8 6 2 17 2 3 12 1 2 8 9 0 19 8 £742 15 6 Approximate Cost of Paper. —Preparation, not given ; printing (1,260 copies), £8. By Authority : MAR0V8 F. Marks, Government Printer, Wellington.—1910. Price lit