"Pension Schemes Definitely Pay"
Page 19
If you've noticed an error in this article please click here to report it so we can fix it.
says
Sir Edward M. Mountain, Bart.,
Chairman, Eagle Star Insurance Co., Lid.
IT is a truism that every industry should provide for the superannuation of its own personnel when active working years are over, and should contain machinery of some kind to deal with cases of premature death. Many individual enterprises throughout the country have now instituted such schemes in co-operation with their employees, but, taking industry as a whole, the number of families thus protected is still fairly small. Road transport, which is now as firmly established as other industries which antedate it by a century or more, is notably laggard in making provision for the large body of drivers, and the office staffs and mechanics behind them. This is a condition of affairs that ought to be dealt with, and dealt with now. We in the insurance business have a saying that pensions are not expensive, but delay is expensive.
Judged by Economic Soundness. The sound solution of this problem lies in a much more widespread installation of pension schemes by concerns engaged in road transport. They can be arranged for undertakings having only a dozen or so employees, up to the largest enterprises. This entire matter must be judged from the standpoint of economic soundness, that is, will any proposed measure stand the actuarial test? lilt be not actuarially sound, it can result only in disappointment and loss to those connected with it. The modern, contractual and contributory pension scheme, the cost of which is divided between employers and workers, is definitely sound, and no one can lose through being a member of it, even if he leaves the service before reaching the pension age. The articles and correspondence in the Press of the road-transport industry contain many references to the owner-driver in connection with a benevolent plan for the industry. Such pension schemes as I am describing do not include owner-drivers, but it must be remembered that such individuals are in the position of both employer and employee, and that full facilities are available for them to secure for themselves any benefits which accrue to an employee under a regularly constituted scheme.
Pensions are Deferred Annuities.
Pensions are only deferred annuities, and anyone can secure one by paying premiums to a life office. The same condition holds good for the death benefit, or any other features of all the sound schemes now in operation under insurance-company administration. In a scheme, however, it is a question of employees and employers each taking a part in its operation and cost. A first-class pension scheme containing a death benefit equal to approximately one year's earnings, and having many other necessary provisions, usually inVolves (assuming retirement at age 65) contributions from participating employees of 2I--3i per cent. of pay, and a somewhat higher contribution from the employer, including a funded cost of pensions for past service. This funded cost ceases after an agreed period, and the scheme then should be operating on about a 50-50 distribution of cost. However, in the road-transport indus try, the average age of the employees is comparatively low, and the cost of pensions for past service should be correspondingly small. Most employers agree that the addition to their wages bill is more than made up by contentment among employees and by the fact that concerns with pension schemes are able to attract and retain a better type of employee. It is almost unheard-of, for one of these . equitable group-benefit schemes to be abandoned after having once been installed, although provision is made for their winding up without loss to either side. Especially among married workers, a strong inducement would be needed to attract a worker from an employer with a good pension scheme to one who had none. No worker, acting as an individual, could secure life assurance at the low inclusive price of the pension scheme. Employees take an interest in the scheme and are quite willing to contribute their share of the cost, as employees who leave these schemes before attaining pension age have returned to them all their own contributions in cash, or have the option of various other settlements, all favourable to themselves. An important consideration in connection with a pension scheme arises with regard to income tax. All the employer's contributions to the scheme are subject to rebate of income tax at the full rate for the time being. This materially lowers the net cost to the employer. The employees are also entitled to rebate of tax on their contributions, exactly as in the case of life premiums.
Points Employers Should Consider. Every employer has a pension problem, whether he realizes it or not, and. he should give careful attention to the following points,: — (1) In many cases there will be old employees, drawing full salaries or wages, who have become inefficient and who are not "pulling their weight" Most businesses are carrying one or more "passengers," retained for humanitarian reasons. A pension scheme provides for the retirement of such employees in the future; there are no qualms of conscience to the employer and the salary roll is reduced. (2) Avenues of promotion are opened up to the younger men by the automatic retirement of older employees at pension age, and the tempo of the entire organization is quickened. (3) The insurance company handles the whole scheme and is at the service of the employer for advice on any points which arise. (4) Where a pension scheme is impracticable, a group life-assuranceshould, in any case, be installed. The employer can pay the entire cost, which is not formidable, or the scheme can be arranged on a contributory basis with' the employees. Workers welcome the opportunity of securing this protection for their dependents, in collaboration with their employer. Finally, pension schemes definitely pay. They mark an employer as being progressive and as showing concern for the welfare and economic security of those who carry on his business.