H.—26a

9. It is doubtful if the capital value of the State's liability in respect of the whole scheme is of more than academic interest, for the financial structure adopted at the inception of the scheme does not provide for the funding of the State's liability. Section 49 of the Act directs that the results of an examination of the Fund shall be set forth "in a report, which shall be so prepared as to show the state of the Fund . . . 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 ensuing three years without affecting or having recourse to the actuarial reserve appertaining to the contributors' contributions." Section 50 provides for payment from the Consolidated Fund each year of " the sum of eighty-six thousand pounds, together with such further amount (if any) as is deemed by the Governor-General 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." The inferences to be drawn from these two sections are that (i) after allowing for subsidiary benefits and expenses of administration, contributors' contributions are to be accumulated until the contributors retire, and the amounts so accumulated are to be applied then to pay such portion of the retiring-allowances granted by the Act as they will; and (ii) the remainder of the aggregate retiringallowances is to be met each year by the State, and for this reason the reports made from time to' time on the position of the Fund are to include estimates for each of the three years following the investigation, of that part of the aggregate retiring-allowances which is not provided by the accumulated contributions. 10. It follows from the inferences of the preceding paragraph that the Fund is a part only of the complete scheme; its liabilities are expenses of administration, widows' annuities at £18 per annum, children's annuities at £13 per annum, all other subsidiary benefits, and such part of the retiringallowances as contributors' contributions will provide; and its assets are contributors' future contributions and the accumulated funds. Obviously, the accumulated funds have been built up solely by contributors' past contributions, for the State subsidy received in any year is disbursed in that year to the beneficiaries entitled to it. The State could in fact pay the portion of the benefits it provides direct to the beneficiaries, but it is convenient and practical to make the distribution through the Fund. Following is a summary of the position of the Fund on this basis, all amounts being to the nearest thousand pounds : — Capital value of benefits, existing and prospective in respect of existing members, £(000) provided by members' contributions .. .. .. .. .. 13,952 Capital value of future expenses in respect of existing members. .. .. 137 £(000) 14,089 Capital value of existing contributors' future contributions .. .. 5,486 Capital value of future subsidies from other employers .. .. 8 Funds as per Revenue Account .. .. .. .. .. 3,199 8,693 Deficiency .. .. .. .. t. .. £5,396 11. The above deficiency is a measure of the extent to which the State has failed to meet its share of benefits paid in the past. The subsidies actually paid in any year have rarely, if ever, been sufficient to meet the balance of retiring-allowances paid after allowing for the portion provided by members' contributions, and the State, by short paying, has in effect borrowed from existing members a substantial proportion of their accumulated contributions. If no steps are taken to meet this deficiency, it will increase with the passage of time, for it represents funds which should be in hand accumulating at interest. The minimum annual payment which will prevent future increases, therefore, is interest on this capital sum at the valuation rate of interest —i.e., £216,000 per annum. Payment of smaller annual sums will result in the deficiency increasing, and, conversely, payment of greater annual sums will result in the deficiency decreasing and ultimately disappearing. A uniform annual payment of £312,000, for example, would redeem the deficiency completely in 30 years. Similarly, uniform annual payments of £273,000 and £251,000 would achieve the same result in forty years and fifty years respectively. 12. Had the State paid the full subsidies required, in the past the deficiency discussed in the preceding paragraph would not now exist and payments from the State in respect of it would not be required. The normal subsidies, however, would still be required—i.e., the State has to meet each year widows' and children's annuities at £13 per annum and such part of the aggregate retiringallowances paid as is not provided by members' contributions. Estimates of the retiring-allowances and widows' and children's annuities which will be paid in each of the five years following the valuation are given in Table V" of the Appendix. For the year ended 31st March, 1940, for example, it is estimated that retiring-allowances will amount to £507,000, £182,000 being due to non-contributory service and £325,000 to contributory service. After allowing for expenses of administration and subsidiary benefits, the accumulated contributions of the retired members will provide £177,000 of retiring-allowances due to contributory service. The remainder of the retiring-allowances due to contributory service—viz., £148,000 —falls on the State, as do also retiring-allowances due to non-contributory service amounting to £182,000. In the same way, provision has been made by members' contributions for widows' and children's annuities at £18 and £13 per annum respectively, estimated at £27,000 for the year, and the State has to provide the balance at £13 per annum, estimated at £20,000.

3