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Old Age Pensions Act

Old Age Pensions Act


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In 1902 George Barnes, General Secretary of the Amalgamated Society of Engineers, formed the National Committee of Organised Labour for Old Age Pension. Barnes spent the next three years travelling the country urging this social welfare reform. The measure was extremely popular and was an important factor in Barnes being able to defeat Andrew Bonar Law, the Conservative cabinet minister in the 1906 General Election. (1)

David Lloyd George, the Chancellor of the Exchequer, in the government led by Herbert Asquith, made a speech had warned that if the Liberal Party did not pass radical legislation, at the next election, the working-class would vote for the Labour Party: "If at the end of our term of office it were found that the present Parliament had done nothing to cope seriously with the social condition of the people, to remove the national degradation of slums and widespread poverty and destitution in a land glittering with wealth, if they do not provide an honourable sustenance for deserving old age, if they tamely allow the House of Lords to extract all virtue out of their bills, so that when the Liberal statute book is produced it is simply a bundle of sapless legislative faggots fit only for the fire - then a new cry will arise for a land with a new party, and many of us will join in that cry." (2)

Lloyd George was also an opponent of the Poor Law in Britain. He was determined to take action that in his words would "lift the shadow of the workhouse from the homes of the poor". He believed the best way of doing this was to guarantee an income to people who were to old to work. Based on the ideas of Tom Paine that first appeared in his book Rights of Man, Lloyd George's proposed the introduction of old age pensions.

In a speech on 15th June 1908, he pointed out: "You have never had a scheme of this kind tried in a great country like ours, with its thronging millions, with its rooted complexities... This is, therefore, a great experiment... We do not say that it deals with all the problem of unmerited destitution in this country. We do not even contend that it deals with the worst part of that problem. It might be held that many an old man dependent on the charity of the parish was better off than many a young man, broken down in health, or who cannot find a market for his labour." (3)

However, the Labour Party was disappointed by the proposal. Along with the Trade Union Congress they had demanded a pension of at least five shillings a week for everybody of sixty or over, Lloyd George's scheme gave five shillings a week to individuals over seventy; and for couples the pension was to be 7s. 6d. Moreover, even among the seventy-year-olds not everyone was to qualify; as well as criminals and lunatics, people with incomes of more than £26 a year (or £39 a year in the case of couples) and people who would have received poor relief during the year prior to the scheme's coming into effect, were also disqualified." (4)

To pay for these pensions Lloyd George had to raise government revenues by an additional £16 million a year. In 1909 Lloyd George announced what became known as the People's Budget. This included increases in taxation. Whereas people on lower incomes were to pay 9d. in the pound, those on annual incomes of over £3,000 had to pay 1s. 2d. in the pound. Lloyd George also introduced a new super-tax of 6d. in the pound for those earning £5,000 a year. Other measures included an increase in death duties on the estates of the rich and heavy taxes on profits gained from the ownership and sale of property. Other innovations in Lloyd George's budget included labour exchanges and a children's allowance on income tax. (5)

Archibald Primrose, Lord Rosebery, the former Liberal Party leader, stated that: "The Budget, was not a Budget, but a revolution: a social and political revolution of the first magnitude... To say this is not to judge it, still less to condemn it, for there have been several beneficent revolutions." However, he opposed the Budget because it was "pure socialism... and the end of all, the negation of faith, of family, of property, of Monarchy, of Empire." (6)

Lord Northcliffe, the owner of The Daily Mail and The Times, disliked the idea of paying higher taxes in order to help provide old age pensions and used all of his newspapers to criticize the measures in the budget. The Daily News launched an attack on the wealthy men opposed to the budget: "It is they who own the newspapers, and when we remember that The Times, The Daily Mail, and The Observer, not to mention a host of minor organs in London and the provinces, are all controlled by one man, it is easy to realise how vast a political power capital exerts by this means alone." (7)

Ramsay MacDonald argued that the Labour Party should fully support the budget. "Mr. Lloyd George's Budget, classified property into individual and social, incomes into earned and unearned, and followers more closely the theoretical contentions of Socialism and sound economics than any previous Budget has done." MacDonald went on to argue that the House of Lords should not attempt to block this measure. "The aristocracy... do not command the moral respect which tones down class hatreds, nor the intellectual respect which preserves a sense of equality under a regime of considerable social differences." (8)

The Conservatives, who had a large majority in the House of Lords, objected to this attempt to redistribute wealth, and made it clear that they intended to block these proposals. Lloyd George reacted by touring the country making speeches in working-class areas on behalf of the budget and portraying the nobility as men who were using their privileged position to stop the poor from receiving their old age pensions. The historian, George Dangerfield, has argued that Lloyd George had created a budget that would destroy the House of Lords if they tried to block the legislation: "It was like a kid, which sportsmen tie up to a tree in order to persuade a tiger to its death." (9)

Asquith's strategy was to offer the peers the minimum of provocation and hope to finesse them into passing the legislation. Lloyd George had a different style and in a speech on 30th July, 1909, in the working-class district of Limehouse in London on the selfishness of rich men unwilling "to provide for the sick and the widows and orphans". He concluded his speech with the threat that if the peers resisted, they would be brushed aside "like chaff before us". (10)

Edward VII was furious and suggested to Asquith that Lloyd George was a "revolutionary" and a "socialist". Asquith explained that the support of the King was vital if the House of Lords was to be outmanoeuvred. Asquith explained to Lloyd George that the King "sees in the general tone, and especially in the concluding parts, of your speech, a menace to property and a Socialistic spirit". He added it was important "to avoid alienating the King's goodwill... and... what is needed is reasoned appeal to moderate and reasonable men" and not to "rouse the suspicions and fears of the middle class". (11)

David Lloyd George made another speech attacking the House of Lords on 9th October, 1909: "Let them realize what they are doing. They are forcing a Revolution. The Peers may decree a Revolution, but the People will direct it. If they begin, issues will be raised that they little dream of. Questions will be asked which are now whispered in humble voice, and answers will be demanded with authority. It will be asked why 500 ordinary men, chosen accidentally from among the unemployed, should override the judgment - the deliberate judgment - of millions of people who are engaged in the industry which makes the wealth of the country. It will be asked who ordained a few should have the land of Britain as a perquisite? Who made ten thousand people owners of the soil, and the rest of us trespassers in the land of our birth? Where did that Table of the law come from? Whose finger inscribed it? These are questions that will be asked. The answers are charged with peril for the order of things that the Peers represent. But they are fraught with rare and refreshing fruit for the parched lips of the multitude, who have been treading along the dusty road which the People have marked through the Dark Ages, that are now emerging into the light." (12)

It was clear that the House of Lords would block the budget. Asquith asked the King to create a large number of Peers that would give the Liberals a majority. Edward VII refused and his private secretary, Francis Knollys, wrote to Asquith that "to create 570 new Peers, which I am told would be the number required... would practically be almost an impossibility, and if asked for would place the King in an awkward position". (13)

In a speech on 21st February, 1910, Asquith outlined his plans for reform: "Recent experience has disclosed serious difficulties due to recurring differences of strong opinion between the two branches of the Legislature. Proposals will be laid before you, with convenient speed, to define the relations between the Houses of Parliament, so as to secure the undivided authority of the House of Commons over finance and its predominance in legislation." (14)

The Parliament Bill was introduced later that month. "Any measure passed three times by the House of Commons would be treated as if it had been passed by both Houses, and would receive the Royal Assent... The House of Lords was to be shorn absolutely of power to delay the passage of any measure certified by the Speaker of the House of Commons as a money bill, but was to retain the power to delay any other measure for a period of not less than two years." (15)

Edward VII died in his sleep on 6th May 1910. His son, George V, now had the responsibility of dealing with this difficult constitutional question. David Lloyd George had a meeting with the new king and had an "exceedingly frank and satisfactory talk about the political crisis". He told his wife that he was not very intelligent as "there's not much in his head". However, he "expressed the desire to try his hand at conciliation... whether he will succeed is somewhat doubtful." (16)

James Garvin, the editor of The Observer, argued it was time that the government reached a negotiated settlement with the House of Lords: "If King Edward upon his deathbed could have sent a last message to his people, he would have asked us to lay party passion aside, to sign a truce of God over his grave, to seek... some fair means of making a common effort for our common country... Let conference take place before conflict is irrevocably joined." (17)

A Constitutional Conference was established with eight members, four cabinet ministers and four representatives from the Conservative Party. Over the next six months the men met on twenty-one occasions. However, they never came close to an agreement and the last meeting took place in November. George Barnes, the Labour Party MP, called for an immediate creation of left-wing peers. However, when a by-election at Walthamstow suggested a slight swing to the Liberals, Asquith decided to call another General Election. (18)

David Lloyd George called on the British people to vote for a change in the parliamentary system: "How could anyone defend the Constitution in its present form? No country in the world would look at our system - no free country, I mean... France has a Senate, the United States has a Senate, the Colonies have Senates, but they are all chosen either directly or indirectly by the people." (19)

The Parliament Bill, which removed the peers' right to amend or defeat finance bills and reduced their powers from the defeat to the delay of other legislation, was introduced into the House of Commons on 21st February 1911. It completed its passage through the Commons on 15th May. A committee of the House of Lords then amended the bill out of all recognition. (20)

According to Lucy Masterman, the wife of Charles Masterman, the Liberal MP for West Ham North, that David Lloyd George had a secret meeting with Arthur Balfour, the leader of the Conservative Party. Lloyd George had bluffed Balfour into believing that George V had agreed to create enough Liberal supporting peers to pass a new Parliament Bill. (21)

Although a list of 249 candidates for ennoblement, including Thomas Hardy, Bertrand Russell, Gilbert Murray and J. M. Barrie, had been drawn up, they had not yet been presented to the King. After the meeting Balfour told Conservative peers that to prevent the Liberals having a permanent majority in the House of Lords, they must pass the bill. On 10th August 1911, the Parliament Act was passed by 131 votes to 114 in the Lords. (22)

The Old Age Pensions Act was brought in by Mr. Lloyd George, and provided pensions for some half a million men and women over seventy years of age. But it was a well-recognised fact that the Liberals would never have supported these Bills in their final form, save for the pressure of Labour behind them, which made them fearful of losing their position as the professedly reformist Party in Parliament.

The Labour ranks were very angry and disappointed at the nervousness of the pension proposals. Pensions were to be paid at the rate of 5s. a week to persons over seventy years of age who could prove that they had no other income exceeding 10s. a week. If two pensioners lived together they were to receive only 7s. between them.

This is a war Budget. It is for raising money to wage implacable warfare against poverty and squalidness. I cannot help hoping and believing that before this generation has passed away, we shall have advanced a great step towards that good time, when poverty, and the wretchedness and human degradation which always follows in its camp, will be as remote to the people of this country as the wolves which once infested its forests.

Let them realize what they are doing. It will be asked who ordained a few should have the land of Britain as a perquisite? Who made ten thousand people owners of the soil, and the rest of us trespassers in the land of our birth? Where did that Table of the law come from? Whose finger inscribed it?

These are questions that will be asked. But they are fraught with rare and refreshing fruit for the parched lips of the multitude, who have been treading along the dusty road which the People have marked through the Dark Ages, that are now emerging into the light."

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(1) Ewen H. Green, Andrew Bonar Law: Oxford Dictionary of National Biography (2004-2014)

(2) David Lloyd George, speech at Penrhyndeudraeth (25th September, 1906)

(3) David Lloyd George, speech in the House of Commons (15th June 1908)

(4) John Grigg, The People's Champion (1978) page 159

(5) Hugh Purcell, Lloyd George (2006) page 28

(6) Archibald Primrose, Lord Rosebery, speech in Glasgow (10th September, 1909)

(7) The Daily News (3rd May, 1909)

(8) Frank Owen, Tempestuous Journey: Lloyd George and his Life and Times (1954) page 174

(9) George Dangerfield, The Strange Death of Liberal England (1935) page 20

(10) David Lloyd George, speech at Limehouse (30th July, 1909)

(11) Herbert Henry Asquith, letter to David Lloyd George (3rd August, 1909)

(12) David Lloyd George, speech at Newcastle-on-Tyne (9th October, 1909)

(13) Francis Knollys, letter to Herbert Henry Asquith (28th November, 1909)

(14) Herbert Henry Asquith, speech in the House of Commons (21st February, 1910)

(15) John Grigg, The People's Champion (1978) page 252

(16) Kenneth Owen Morgan, Lloyd George Family Letters (1973) page 153

(17) James Garvin, The Observer (8th May 1910)

(18) John Grigg, The People's Champion (1978) pages 277-278

(19) David Lloyd George, speech at Mile End (13th November, 1910)

(20) Roy Hattersley, David Lloyd George (2010) page 286

(21) Lucy Masterman, C. F. G. Masterman (1968) page 199

(22) Roy Hattersley, David Lloyd George (2010) pages 287-288


Summary

C anada was a changed nation by the end of the First World War (1914-1918). War-time demand led to more industrial production. The urban labour force grew, so that by the 1920s most people lived in the city rather than the country.

New factories favoured the young and jobs that were traditionally done by older people began to disappear. Seniors could look forward to living longer, but many lived in severe poverty and workers who supported aging parents had a hard time saving for their own old age.

Survivor and disability pensions were created for war veterans and their families, but there was still a strong and growing need for a national old age pension system. The Government Annuities plan of 1908 was not the answer since few people could afford them. So in the 1920s, the issue of government assistance for the elderly was back on the political agenda. In 1924, Parliament appointed a special committee to study the question of pensions.

Political advocates like James S. Woodsworth and Abraham A. Heaps argued for a national pension scheme. When his government finally won a majority in 1926, Mackenzie King followed up on his promise to Woodsworth and Heaps by introducing legislation that became theOld Age Pensions Actin 1927.

In 1927, Canada's firstOld Age Pensions Actwas passed:

  • The maximum pension was $20 per month or $240 per year.
  • It was available to British subjects aged 70 or over who had lived in Canada for 20 years.
  • It was restricted to seniors whose income, including the pension benefits, was less than $365 per year (this was determined by the "means test").
  • Status Indians were excluded.

Although eligibility was limited, the Act was a modest beginning to nationwide benefits for the poorest elderly.

Government Annuities:

The Canadian Government Annuities Act of 1908 was one of the earliest significant pieces of social legislation in Canada.

Its purpose was to encourage Canadians to prepare financially for their retirement through the purchase of a government annuity. The Act allowed for the purchase of various annuities for different amounts and lengths of time. At a specified age, the recipient would begin to receive fixed yearly benefits.

The government guaranteed these benefits and assumed all the costs to administer them.

The first annuities issued were to a married couple from Quebec City.

The "Means Test":

The "means test" was used to determine a senior's income, or means.

The test involved provincial pension authorities calculating all aspects of a senior's income (e.g., pensions, income from boarding house operations, etc.) as well as the value of "perks" they received, such as free room and board. The means test, however, did not take into account how much money a person needed to pay for food, shelter, clothing, fuel, utilities or household supplies.

If a senior's annual income, including pensions, was greater than $365, he or she was not eligible for the Old Age Pension. The income each received determined the amount of assistance to which he or she was entitled.

The problem, however, was there was no specific way to calculate a senior's income. Provincial pension authorities had extensive discretion, so the calculations were inconsistent and varied greatly from province to province. For example, some calculations were based on the assumption of income from property when, in fact, such income did not exist. The value of free room and board varied depending on the province. Because a senior's income depended on where he or she lived, some seniors were denied assistance while others received widely varying amounts.

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History of State Old Age Assistance Legislation

A summary taken from the staff report:

“The first state law was passed in Arizona in 1915 by an initiative act, which abolished almshouses and established old age and mothers’ pensions in their stead. However, it was worded so loosely that it was declared unconstitutional on account of its vagueness. In the same year Alaska passes a law, providing assistance to its aged pioneers. This law, though it has been amended on different occasions, is still in effect at the present time.

“No action was taken by any state until 8 years later, in 1923. In that year three states, Montana, Pennsylvania, and Nevada, passed old age assistance laws, but only one of them, that of Montana, has remained in the statute books. In 1925 the Nevada state legislature passed a bill repealing the 1923 law, and putting another one in its place. The Pennsylvania law was declared unconstitutional in 1924 on the basis of the state constitution, which prohibited the legislature from making appropriations for charitable, benevolent and educational purposes. Pennsylvania proceeded immediately to take steps to amend its constitution, but it was not until 1931 that the amendment passed the legislature. Since this amendment had to be repassed in 1933 and then submitted to a referendum vote for approval, it was not until 1934 that Pennsylvania secured action. Thus the decision of the court deferred legislation for ten years in Pennsylvania.

“Ohio, too, took some first steps in the year 1923. The question of old age pensions was submitted to a referendum vote, but it was decided adversely by a vote of almost 2 to 1.

“By 1925 the movement had gained considerable impetus. Although only Wisconsin passed a law which has remained effective since that time there was much activity in a number of the states. California passed a law, which, however, was vetoed by the Governor. Bills were introduced in the legislative sessions of Illinois, Indiana, Kansas, Maine, Michigan, Minnesota, New Jersey, Ohio, and Texas. In Indiana and Illinois the bills passed the lower house, but were not acted upon by the upper chamber. In four states, Colorado, Minnesota, Pennsylvania, and Utah, commissions were appointed.

“In 1926 one law was added, that of Kentucky. In the same year, the Washington Legislature approved a bill, which was vetoed by the Governor.

“In 1927 Maryland and Colorado passed bills.

“At the end of 1928, after six years of agitation, there were only six states and one territory which had made provision for their aged. They were Colorado, Kentucky, Maryland, Montana, Nevada, Wisconsin and Alaska. All the state laws were of the optional type, i.e., they left the adoption or rejection of an old age assistance system to the discretion of the counties. For this reason these laws had very limited effect only. In these six states, there were slightly above 1000 pensioners, and these were found almost exclusively in Montana and Wisconsin, the former having 884, the latter 295 old people on their pension rolls. The total amount spent by the six states in 1928 was, in round numbers, $200,000.(1)

“From 1929 on, the trend in the pension legislation has been toward making the adoption of the old age assistance systems mandatory upon the counties. This type of legislation proved much more effective, especially when it was accompanied by a provision by which the state shared in the expense of the county. Of this latter type was the California law which was passed in 1929. In the same year, Minnesota, Utah and Wyoming passed laws, which did not provide such state assistance, although those of Utah and Wyoming made the adoption of the system mandatory upon the counties.

“In 1930 the Massachusetts and New York laws were passed, which not only were of the mandatory type but also provided for the state sharing in the expense of the locality.

“In 1931 and 1933 the state legislatures were very active in the field of old age pensions. It is estimated that 100 bills were introduced in the legislatures of 38 states in 1931. In that year five new laws were enacted in Delaware, Idaho, New Hampshire, New Jersey, and West Virginia. Of these all except the West Virginia law were of the mandatory type, but only Delaware and New Jersey provided for state funds. Colorado and Wisconsin amended their laws making them mandatory upon the counties as well as making state funds available for the purpose of old age assistance.

“Ten more laws were added in 1933, in Arizona, Indiana, Maine, Michigan, Nebraska, North Dakota, Ohio, Oregon, Washington, and Hawaii. With the exception of Hawaii, they were all mandatory upon the counties, and in Oregon and Washington the state does not share in the expenses of the locality. Arkansas passed a law in 1933, but it was declared unconstitutional by the state supreme court.

“Iowa and Pennsylvania passed mandatory laws in 1934, the state sharing the entire cost.

“By the end of 1934, twenty-eight states and two territories had passes old age assistance laws.”


Irish Pension Records – Census Search Forms

Postcard of Patrick Street, Cork, around the time pensions were introduced in Ireland.

The Old Age Pensions Act 1908 introduced a non-contributory pension for 'eligible' people aged 70 and over. It came into law in January 1909 across England, Wales, Scotland and Ireland.

To be eligible, applicants had to have an income of less than £31 and 10shillings per annum (£31.50), and had to 'be of good character'.

Those disqualified included people in receipt of Poor Relief, institutionalised 'lunatics', and anyone with a prison record within ten years of applying.

Discretionary refusals could also be given to those who had been convicted of drunkenness or those who, while fit and able, had a history of 'habitual failure to work'.

During the first three months of 1909, 261,668 applications were made in Ireland. By 31 March 1910, 180,974 Irish pensions were in force.

Poverty in Ireland

The level of benefit –- not more than 5 shillings a week for a single person and 7 shillings for a married couple –- had been set low for two reasons. First, to encourage people of working age to set aside sufficient funds for their own retirement. And second, to be of value to the very poorest members of society. While not overly generous, the full pension of 5/- was a useful sum. In 1909 a labourer's weekly wage was not much more than 10/-.

Ten years after its introduction, the Old Age Pension rose to 10 shillings a week.

The Journal of the Royal Statistical Society published in December 1910 suggested that the percentage of take up among those eligibile for the Old Age Pension 'could probably be accepted as approximately indicative of the relative poverty of the population'.

The level in England and Wales was 44.7%. In Scotland it was 53.8%.

In Ireland it was 98.6%, once again demonstrating the plight of the island and central government’s lack of investment in it. The pensioner with an income of less than £21 received the full pension of 5s a week. The value diminished by 1 shilling a week for every extra £2.12.6 of annual income. An income of £31.10.0 per annum meant no pension was payable.

The pension was paid on a Friday and was administered by the Post Office.

The level of benefit –- not more than 5 shillings a week for a single person and 7 shillings for a married couple –- had deliberately been set low for two reasons. First, to encourage people of working age to set aside sufficient funds for their own retirement. And second, to be of value to the very poorest members of society. While not overly generous, the full pension of 5/- was a useful sum. In 1909 a labourer's weekly wage was not much more than 10/-.

Ten years after its introduction, the Old Age Pension was increased to 10 shillings a week.

The genealogical value of Irish 'pension' records

Apart from being an interesting social development and of huge importance to the elderly living in poverty, the introduction of the Old Age Pension seems, at first glance, to have little to recommend itself to the average genealogy researcher.

In England, Wales and Scotland that is probably still the case, but Ireland’'s situation was unique.

State registration of births did not begin until 1864 in Ireland (much later than in the rest of Great Britain), so would-be pensioners had no official documentation to prove when they were born and how old they were. A system needed to be established to substantiate such claims.

The chosen method was for a search of the 1841 and 1851 census returns (both still in existence when the Pension was introduced) for documentary evidence of the claimant’s age.

The claimant had to provide their parents' names and their residence in March 1841/1851 (when the censuses were taken).

Pensions Officers sent the particulars of the claimant on a Form 37 to be checked against the census for the townland or address provided to see if the claimant (many of whom were children or young adults at the time) could be discovered and his/her eligibility confirmed.

Both the 1841 and 1851 censuses were held at the Public Record Office in Dublin, where officials carried out the checks and returned their findings to the local Pensions Board.

When, as frequently happened, a search could not find the claimant, the form 37 was returned with 'not found' or 'no trace' written on it.

The introduction of the pension was a huge leap in care for Ireland's elderly.

Up to 1909, what little care was provided by the state came via the Poor Relief (which carried a stigma) or the dreaded Workhouse.

Such was the pension's novelty that long queues formed outside Post Offices on the first day of payments, as families, friends and neighbours ferried their elderly into town to collect their cash, and large groups of spectators gathered to watch them do so.

In Ennis, Co Clare, the crowds and queues grew so big and excited that the police were called in to keep control.

The 'green forms'

Some people chose to directly commission (and pay) the Public Record Office to search the old censuses on their behalf. In these cases, the PRO staff filled in what are now known as 'green forms'.

The Green Forms are a completely separate collection to those mentioned above, even though they contain similar information.

The collection originally dated to 1909 but the first five years' of records were eventually pulped. However, the majority of green forms from 1915 to April 1922 survive.

How to access Irish 'pension records'

The introduction of the pension was a huge leap in care for Ireland's elderly.

Up to 1909, what little care was provided by the state came via the Poor Relief (which carried a stigma) or the dreaded Workhouse.

Such was the pension's novelty that long queues formed outside Post Offices on the first day of payments, as families, friends and neighbours ferried their elderly into town to collect their cash, and large groups of spectators gathered to watch them do so.

In Ennis, Co Clare, the crowds and queues grew so big and excited that the police were called in to keep control.

Most of the Form 37s used by local pension boards are held by PRONI, in Belfast. They relate to people living in Antrim, Armagh, Cavan, Derry, Donegal, Down, Fermanagh, Monaghan and Tyrone at the time of their pension applications and include those who had been born or spent their childhood in other counties. They are also available on microfilm, courtesy of FamilySearch, in PRONI's self-service microfilm room, and their contents were published in two books by Josephine Masterson (see box in right hand column).

Most of the Form 37s used by local pension boards are held by PRONI, in Belfast. They relate to people living in Antrim, Armagh, Cavan, Derry, Donegal, Down, Fermanagh, Monaghan and Tyrone at the time of their pension applications and include those who had been born or spent their childhood in other counties. They are also available on microfilm, courtesy of FamilySearch, in PRONI's self-service microfilm room, and their contents were published in two books by Josephine Masterson.

An additional collection of Form 37s is held by the National Archives of Ireland, in Dublin, covering most of counties Cavan and Fermanagh.

2. Census Search Green Forms

The 'green forms' are also held by the National Archives of Ireland in Dublin. County-by-county indexed books are available in the Reading Room.

3. Online 'Irish pension records'

The collection of 'census search forms' held by the National Archives of Ireland has been digitised and is available free of charge on the NAI's free-to-view Genealogy website. The same records are also available free of charge on FamilySearch and FindMyPast Ireland. The collection is separate to those held by PRONI.


Fraudulent pension claims

All systems are open to abuse, and the late start to civil registration in Ireland provided the argument for many of those who chose to brazen out a fraudulent application.

However, it is worth bearing in mind that while some may have lied about their date of birth, many elderly people simply did not know exactly when they were born.  It had never been particularly important before. They had a rough idea of how old they were, but nothing precise.

Even so, there is no point denying that many bogus claims were submitted.

In the year after the first pensions were paid out, some 38,495 pensions were revoked.

If your ancestors were alive in 1911, shortly after the Irish pension was introduced, check out the Irish census page.


Old Age Pensions Act - History

Prior to 1935 the indigent elderly relied on family, local charity, and county relief. The Great Depression was the catalyst prompting the state and federal governments to become involved in providing monetary assistance to the poor. Some states had instituted old age assistance (OAA) in the early 1900s before the federal government passed the Social Security Act (SSA) on August 14, 1935. However, Oklahoma and several other southern states had not instituted a state-funded program. With the passage of the SSA the federal government offered funding, and states now had an incentive to establish an OAA program. Initially, the SSA provided federal money to states by granting an amount equal to half of the recipient's monthly payment, up to thirty dollars. Thus, if the claimant received thirty dollars or more from the state, the federal government paid fifteen to the state.

Before Oklahoma passed a social security act in 1936, the territorial legislature had enacted a law in 1901 requiring that the counties furnish aid to the poor and needy, including the elderly. Apparently, this worked well until the onset of the Great Depression. In 1931 faced with decreased revenues and increased numbers on relief, the counties could not provide for the destitute. Consequently, the state legislature appropriated $300,000 and established the Emergency Relief Board, which passed funding to the counties. Because this was a stopgap measure, the Veterans of Industry of America, led by Ira M. Finley, the Oklahoma Farmers' Union, and the Oklahoma State Federation of Labor agitated for an Oklahoma old age pension act during the 1930s. In September 1935 during Gov. Ernest W. Marland's administration, three state questions (State Questions 209, 214, and 215) relating to old age pensions and revenue to fund the program were presented to Oklahoma voters. Only S.Q. 214 authorizing pensions, social security, and a welfare commission was passed. However, opponents of the question presented to the secretary of state documentation that some of the signatures on the initiative petition were invalid. In February 1936 the Oklahoma Supreme Court ruled S.Q. 214 illegal.

On July 7, 1936, S.Q. 225, establishing a welfare program and its administration, and S.Q. 226 (Oklahoma Social Security Act), calling for assistance for the aged, blind, crippled children, and dependent children, were passed. An additional 1 percent sales tax, for a total of 2 percent, was approved to pay for the new welfare program. Seventy-five percent of the revenue from the 2 percent sales tax went toward OAA. In August 1936 the Oklahoma Department of Public Welfare was established, which administered the old age assistance program and other welfare programs. In order to qualify for old age assistance, Oklahoma recipients must be age sixty-five or older, must have been a state resident for five of the last nine years and the last year being continuous residency, and had to have insufficient income or other resources to support themselves. Application of the state's old age assistance caused problems due to Oklahoma's diverse cultures. For example, the land division clerk at the Five Civilized Tribes Agency in Muskogee helped American Indians determine their age by researching tribal rolls.

During fiscal year 1938, 64,607 OAA recipients received an average monthly payment of $15.14. Although there was a decline in recipients during World War II due to increased industrial employment, by fiscal year 1952 there were ninety-four thousand claimants in Oklahoma. As time passed, more elderly qualified for Social Security through Old Age, Survivors, and Disability Insurance (OASDI) and did not need OAA between December 1950 and October 1963 the number of recipients declined 16.2 percent.

Although old age assistance was originally meant to be temporary until individuals qualified for social security through the OASDI, some people continue to receive old age assistance. These include the permanently and totally disabled who cannot work and pay into Social Security and some elderly who draw a small Social security check and who also qualify for OAA. Public Law 92-603 passed in 1972 authorized the Supplemental Security Income (SSI) Program, a federally administered income assistance program to the needy aged, blind, and disabled persons based on uniform, nationwide eligibility requirements. SSI went into effect in January 1974 and replaced the former federal-state administered programs of old age assistance whereby the states established eligibility qualifications. At the turn of the twenty-first century Oklahoma was one of forty-four states that paid state supplemental payments to SSI recipients.

Bibliography

Department of Public Welfare Collection, Archives, Oklahoma Department of Libraries, Oklahoma City.

Joseph J. Klos, Public Welfare in Oklahoma (Stillwater: Oklahoma State University, 1965).

Walter Richard Shuttee, "Old Age Assistance in Oklahoma" (M.A. thesis, University of Oklahoma, 1953).

Cecil E. Walton, "Public Welfare in Oklahoma" (M.A. thesis, University of Oklahoma, 1950)

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Old Age Pensions: A Brief History

Note: This entry is a portion of Special Study #1, a lecture Dr. Bortz, the first SSA Historian,developed as part of SSA’s internal training program. Up until the early 1970s new employees were trained at SSA headquarters in Baltimore before being sent to assume their new duties in offices around the country. As part of this training, Dr. Bortz presented a curriculum on the history of Social Security. This lecture, developed in the early 1970s, was the core of that curriculum. It features an extensive overview of social policy developments dating from pre-history up to the passage of the Social Security Act in 1935.

The Problem of Economic Security for the Aged

The problem of the aged became a more important one in the industrial age because, among other things, the capacity of the aged for self-support was being undermined. Changes in economic organization and family structure had relegated them to a marginal status in the modern industrial society. Modern industrial techniques had hastened economic superannuation by using up human energy at greater speed within a shorter period of time. No longer was there this patriarchal family, as in the primitive agricultural community when one large family existed and where all starved or prospered together.

Lacking both authority and a significant economic function, the aged were also affected by the spatial mobility of the modern nucleated family. For the economic system depended on this mobility, but it loosened home ties and family solidarity in the process.

Thus the aged could no longer rely upon the institution of the family as a buffer which had protected them against dependency in pre-industrial societies. Yet, protection through voluntary thrift or insurance was more impractical than in the case of any other risk.

In contrast to other areas, where preventive efforts lessened risk, improvement in hygiene seemed to aggravate it rather than relieve it. Old age was a long term rather than a transitory condition. So the amount of savings required was more than most workers could afford. Nor could anyone time, or predict, the duration of old age. Besides, the very remoteness of the risk tended to discourage saving.

Would children support their aged parents? In all too many cases, no, for many workers could barely support their own families. And as for those aged without children, this had no relevance at all.

Since the end of the 19th century, the increasing number of industrial workers left without an income in old age had been a matter of growing public concern. In the 1890’s a number of trade unions established homes for their aged members and shortly afterwards began to experiment with retirement benefit systems. About the same time, first the railroads, then a few of the large corporations, set up private pension plans for their employees. By 1929, railroads, public utilities, the metal trades, ore, banking and insurance, along with electrical apparatus and supply industries, accounted for more than 80% of the employees covered.

It was estimated that in 1930 only 3 1/2 million persons were covered, and by 1932 about 140,000 persons were receiving such industrial pensions, with less than 15% of all wage and salaried employees being covered.

Keep in mind that the industrial pensions were often poorly funded — most were discretionary, implying a moral rather than a legal obligation on the part of the employer.

Jumping ahead a bit, it should be noted that a special national retirement system for railroad workers, which, in effect, took over the pension obligation of their railroad companies, was enacted in 1934 but declared unconstitutional the following year. A revised act, designed to overcome the objections raised by the Supreme Court was adopted in August 1935.

A bill introduced in the Massachusetts legislature in 1903 was probably the first to offer assistance to the aged on a State level. It did not pass. The general attitude, here as in most of the United States, however, was that the thrifty and worthy did not become destitute and that to take from children the obligation of supporting their parents would destroy the family. Before the 1920’s Arizona was the only State to enact an old age pension measure, and, since it was declared unconstitutional, an Alaska pension law of 1915 was the only one in operation until 1923.

In the 1920’s, old age pensions became a leading issue. A number of State survey commissions were set up–with the Pennsylvania commission of 1920-1927 the first to take a clear-cut position in favor of State assistance to aged persons without responsible relatives. Between 1923 and 1933, the majority of States enacted old age pension legislation, with Pennsylvania, Montana and Nevada taking the initiative in 1923. However, Pennsylvania’s law was declared unconstitutional in 1924, and Nevada’s measure was converted from a compulsory to an optional one. Other States did follow soon after and, in summary, by 1928, 11 states had enacted pension laws and between that year and 1933 — more were added, making a total of 28 States, with 23 mandatory on the localities and 15 that provided State financial aid.

The measures in effect up to 1929 were optional and locally financed. Like similar mother’s pension legislation, they were either inoperative or defective. Many States had long residence requirements and other restrictive eligibility conditions. By 1932, only 102,000 persons were receiving pensions with $22,000,000 the annual cost of assistance.

A trend toward mandatory laws with State financial aid to the localities began in 1929 with the enactment of such a law in California.

On the federal level it is true that old age pension legislation had been introduced in Congress earlier than 1920. Representative William B. Wilson of Pennsylvania (later to become Secretary of Labor) prepared a bill in 1909 providing for pensions of $120 a year to the aged who satisfied the property or income qualifications. The bill was never reported out of the Committee on Military Affairs. Interesting enough the A.F. of L. endorsed this measure.

In 1911, Congressman Victor L. Berger, a socialist from Wisconsin, introduced a bill which provided for pensions up to $4 a week for those aged whose income was less than $10 a week. It, too, failed but it did attract attention.

Pressure was exerted and legislation was proposed for a retirement annuity plan for Federal workers. Strong agitation began to make itself felt in 1914 and success was finally achieved in 1920– with the Sterling-Lehlbach Act. It covered some 300,000 Federal employees and its passage added impetus to State measures.

On the State level, major growth in the development of State and municipal pensions for policemen, firemen and teachers occurred after 1910. Massachusetts, in 1911, was the first to establish a compulsory retirement program for State employees. By the late 1920’s municipal retirement systems for firemen and policemen were practically national, and teacher’s pensions were common. As time passed and experience was gained, there was an increasing preference for contributory systems and more concern shown for actuarial soundness.

A shift in the content of proposed Federal legislation occurred in the late 1920’s and early 1930’s. A measure introduced in 1927 by Representative William L. Sirovich of New York, which had been prepared by the American Association for Old Age Security, substituted the Federal grant-in-aid technique for direct Federal pensions. A similar bill was introduced in 1932 by Senator Clarence Dill and Representative William Connery, Jr. It was reported favorably by the House Labor and Senate Pensions Committees, but it failed to come to a vote before the congressional session ended. These proposals and the precedents established in Vocational Rehabilitation and maternal and child care during the 1920’s helped pave the way for the Federal categorical assistance programs later included in the Social Security Act.

It should be emphasized that there was never, prior to the 1930’s, any serious consideration of compulsory, contributory, old age insurance in the United States . The pension approach was more expedient, it avoided the onus of compulsion, was simple to administer, and it bypassed the problem of workers already retired or nearing old age. As an assistance rather than an insurance program, pensions could be made conditional and work incentives could be protected.

(Source: http://www.ssa.gov/history/bortz.html)

6 Replies to &ldquoOld Age Pensions: A Brief History&rdquo

I had a great-aunt, never married, lived alone that drew what I was told was an old age pension. I was born in 1940 so I remember receiving about $140 a month to live on during the 1940 and into the 1950s. She died in 1959. She lived with us briefly during the 1950s but later in a nursing home. My question is how was the old age pension funded? She never worked and was never married so I know she wasn’t drawing Social Security.

Dear Shia: There are two better resources for learning an answer to your question: One is the U.S. Social Security Administration the other is your local or state Department of Public Welfare or Human Services. Regards, Jack Hansan

Am i entiled to old age pension.i live in florida,i am 66 years old?

You can find the answer to your question by visiting your local Social Security office. (Call first to make an appointment.) You can also call the federal agency at 800-772-1213 to learn about Supplemental Security Income benefits.

I,m trying to find out which states in the Us offer O.A.P. benefits

Every state has an agency or department responsible for Old Age Assistance under the Supplemtary Security Income program (SSI). John E Hansan

Explore historical materials related to the history of social reform at VCU Libraries’ Image Portal.


Roosevelt’s Radical Idea: Social Security

Until Franklin D. Roosevelt became president, most social assistance plans in America were dependent on the government, charities and private citizens doling out money to people in need.

Roosevelt, however, borrowed a page from Europe’s economic security rulebook and took a different approach. He proposed a program in which people contributed to their own future economic security by contributing a portion of their work income through payroll tax deductions.

Basically, the current working generation would pay into the program and finance the retired generation’s monthly allowance.


Contents

Employment-based pensions Edit

A retirement plan is an arrangement to provide people with an income during retirement when they are no longer earning a steady income from employment. Often retirement plans require both the employer and employee to contribute money to a fund during their employment in order to receive defined benefits upon retirement. It is a tax deferred savings vehicle that allows for the tax-free accumulation of a fund for later use as a retirement income. Funding can be provided in other ways, such as from labor unions, government agencies, or self-funded schemes. Pension plans are therefore a form of "deferred compensation". A SSAS is a type of employment-based Pension in the UK. The 401(k) is the iconic self-funded retirement plan that many Americans rely on for much of their retirement income these sometimes include money from an employer, but are usually mostly or entirely funded by the individual using an elaborate scheme where money from the employee's paycheck is withheld, at their direction, to be contributed by their employer to the employee's plan. This money can be tax-deferred or not, depending on the exact nature of the plan.

Some countries also grant pensions to military veterans. Military pensions are overseen by the government an example of a standing agency is the United States Department of Veterans Affairs. Ad hoc committees may also be formed to investigate specific tasks, such as the U.S. Commission on Veterans' Pensions (commonly known as the "Bradley Commission") in 1955–56. Pensions may extend past the death of the veteran himself, continuing to be paid to the widow.

Social and state pensions Edit

Many countries have created funds for their citizens and residents to provide income when they retire (or in some cases become disabled). Typically this requires payments throughout the citizen's working life in order to qualify for benefits later on. A basic state pension is a "contribution based" benefit, and depends on an individual's contribution history. For examples, see National Insurance in the UK, or Social Security in the United States of America.

Many countries have also put in place a "social pension". These are regular, tax-funded non-contributory cash transfers paid to older people. Over 80 countries have social pensions. [4] Some are universal benefits, given to all older people regardless of income, assets or employment record. Examples of universal pensions include New Zealand Superannuation [5] and the Basic Retirement Pension of Mauritius. [6] Most social pensions, though, are means-tested, such as Supplemental Security Income in the United States of America or the "older person's grant" in South Africa. [7]

Disability pensions Edit

Some pension plans will provide for members in the event they suffer a disability. This may take the form of early entry into a retirement plan for a disabled member below the normal retirement age.

Retirement plans may be classified as defined benefit, defined contribution or defined ambition / target benefit according to how the benefits are determined. [8] A defined benefit plan guarantees a certain payout at retirement, according to a fixed formula which usually depends on the member's salary and the number of years' membership in the plan. A defined contribution plan will provide a payout at retirement that is dependent upon the amount of money contributed and the performance of the investment vehicles utilized. Hence, with a defined contribution plan the risk and responsibility lies with the employee that the funding will be sufficient through retirement, whereas with the defined benefit plan the risk and responsibility lies with the employer or plan managers.

Some types of retirement plans, such as cash balance plans, combine features of both defined benefit and defined contribution plans. They are often referred to as hybrid plans. Such plan designs have become increasingly popular in the US since the 1990s. Examples include Cash Balance and Pension Equity plans.

A Defined Benefit (DB) pension plan is a plan in which workers accrue pension rights during their time at a firm and upon retirement the firm pays them a benefit that is a function of that worker's tenure at the firm and of their earnings. [9] In other words, a DB plan is a plan in which the benefit on retirement is determined by a set formula, rather than depending on investment returns. Government pensions such as Social Security in the United States are a type of defined benefit pension plan. Traditionally, defined benefit plans for employers have been administered by institutions which exist specifically for that purpose, by large businesses, or, for government workers, by the government itself. A traditional form of defined benefit plan is the final salary plan, under which the pension paid is equal to the number of years worked, multiplied by the member's salary at retirement, multiplied by a factor known as the accrual rate. The final accrued amount is available as a monthly pension or a lump sum, but usually monthly.

The benefit in a defined benefit pension plan is determined by a formula that can incorporate the employee's pay, years of employment, age at retirement, and other factors. A simple example is a Dollars Times Service plan design that provides a certain amount per month based on the time an employee works for a company. For example, a plan offering $100 a month per year of service would provide $3,000 per month to a retiree with 30 years of service. While this type of plan is popular among unionized workers, Final Average Pay (FAP) remains the most common type of defined benefit plan offered in the United States. In FAP plans, the average salary over the final years of an employee's career determines the benefit amount.

Averaging salary over a number of years means that the calculation is averaging different dollars. For example, if salary is averaged over five years, and retirement is in 2006, then salary in 2001 dollars is averaged with salary in 2002 dollars, etc., with 2001 dollars being worth more than the dollars of succeeding years. The pension is then paid in first year of retirement dollars, in this example 2006 dollars, with the lowest value of any dollars in the calculation. Thus inflation in the salary averaging years has a considerable impact on purchasing power and cost, both being reduced equally by inflation.

This effect of inflation can be eliminated by converting salaries in the averaging years to first year of retirement dollars, and then averaging.

In the US, 26 U.S.C. § 414(j) specifies a defined benefit plan to be any pension plan that is not a defined contribution plan (see below) where a defined contribution plan is any plan with individual accounts. A traditional pension plan that defines a benefit for an employee upon that employee's retirement is a defined benefit plan. In the U.S., corporate defined benefit plans, along with many other types of defined benefit plans, are governed by the Employee Retirement Income Security Act of 1974 (ERISA). [10]

In the United Kingdom, benefits are typically indexed for inflation (known as Retail Prices Index (RPI)) as required by law for registered pension plans. [11] Inflation during an employee's retirement affects the purchasing power of the pension the higher the inflation rate, the lower the purchasing power of a fixed annual pension. This effect can be mitigated by providing annual increases to the pension at the rate of inflation (usually capped, for instance at 5% in any given year). This method is advantageous for the employee since it stabilizes the purchasing power of pensions to some extent.

If the pension plan allows for early retirement, payments are often reduced to recognize that the retirees will receive the payouts for longer periods of time. In the United States, under the Employee Retirement Income Security Act of 1974, any reduction factor less than or equal to the actuarial early retirement reduction factor is acceptable. [12]

Many DB plans include early retirement provisions to encourage employees to retire early, before the attainment of normal retirement age (usually age 65). Companies would rather hire younger employees at lower wages. Some of those provisions come in the form of additional temporary or supplemental benefits, which are payable to a certain age, usually before attaining normal retirement age. [13]

Due to changes in pensions over the years, many pension systems, including those in Alabama, California, Indiana, and New York, have shifted to a tiered system. [14] For a simplified example, suppose there are three employees that pay into a state pension system: Sam, Veronica, and Jessica. The state pension system has three tiers: Tier I, Tier II, and Tier III. These three tiers are based on the employee's hire date (i.e. Tier I covers 1 January 1980 (and before) to 1 January 1995, Tier II 2 January 1995 to 1 January 2010, and Tier III 1 January 2010 to present) and have different benefit provisions (e.g. Tier I employees can retire at age 50 with 80% benefits or wait until 55 with full benefits, Tier II employees can retire at age 55 with 80% benefits or wait until 60 for full benefits, Tier III employees can retire at age 65 with full benefits). Therefore, Sam, hired in June 1983, would be subject to the provisions of the Tier I scheme, whereas Veronica, hired in August 1995, would be permitted to retire at age 60 with full benefits and Jessica, hired in December 2014, would not be able to retire with full benefits until she became 65.

DB funding Edit

Defined benefit plans may be either funded or unfunded.

In an unfunded defined benefit pension, no assets are set aside and the benefits are paid for by the employer or other pension sponsor as and when they are paid. Pension arrangements provided by the state in most countries in the world are unfunded, with benefits paid directly from current workers' contributions and taxes. This method of financing is known as pay-as-you-go. [15] The social security systems of many European countries are unfunded, [16] having benefits paid directly out of current taxes and social security contributions, although several countries have hybrid systems which are partially funded. Spain set up the Social Security Reserve Fund and France set up the Pensions Reserve Fund in Canada the wage-based retirement plan (CPP) is partially funded, with assets managed by the CPP Investment Board while the U.S. Social Security system is partially funded by investment in special U.S. Treasury Bonds.

In a funded plan, contributions from the employer, and sometimes also from plan members, are invested in a fund towards meeting the benefits. All plans must be funded in some way, even if they are pay-as-you-go, so this type of plan is more accurately known as pre-funded. The future returns on the investments, and the future benefits to be paid, are not known in advance, so there is no guarantee that a given level of contributions will be enough to meet the benefits. Typically, the contributions to be paid are regularly reviewed in a valuation of the plan's assets and liabilities, carried out by an actuary to ensure that the pension fund will meet future payment obligations. This means that in a defined benefit pension, investment risk and investment rewards are typically assumed by the sponsor/employer and not by the individual. If a plan is not well-funded, the plan sponsor may not have the financial resources to continue funding the plan.

DB criticisms Edit

Traditional defined benefit plan designs (because of their typically flat accrual rate and the decreasing time for interest discounting as people get closer to retirement age) tend to exhibit a J-shaped accrual pattern of benefits, where the present value of benefits grows quite slowly early in an employee's career and accelerates significantly in mid-career: in other words it costs more to fund the pension for older employees than for younger ones (an "age bias"). Defined benefit pensions tend to be less portable than defined contribution plans, even if the plan allows a lump sum cash benefit at termination. Most plans, however, pay their benefits as an annuity, so retirees do not bear the risk of low investment returns on contributions or of outliving their retirement income. The open-ended nature of these risks to the employer is the reason given by many employers for switching from defined benefit to defined contribution plans over recent years. The risks to the employer can sometimes be mitigated by discretionary elements in the benefit structure, for instance in the rate of increase granted on accrued pensions, both before and after retirement.

The age bias, reduced portability and open ended risk make defined benefit plans better suited to large employers with less mobile workforces, such as the public sector (which has open-ended support from taxpayers). This coupled with a lack of foresight on the employers part means a large proportion of the workforce are kept in the dark over future investment schemes.

Defined benefit plans are sometimes criticized as being paternalistic as they enable employers or plan trustees to make decisions about the type of benefits and family structures and lifestyles of their employees. However they are typically more valuable than defined contribution plans in most circumstances and for most employees (mainly because the employer tends to pay higher contributions than under defined contribution plans), so such criticism is rarely harsh.

The "cost" of a defined benefit plan is not easily calculated, and requires an actuary or actuarial software. However, even with the best of tools, the cost of a defined benefit plan will always be an estimate based on economic and financial assumptions. These assumptions include the average retirement age and lifespan of the employees, the returns to be earned by the pension plan's investments and any additional taxes or levies, such as those required by the Pension Benefit Guaranty Corporation in the U.S. So, for this arrangement, the benefit is relatively secure but the contribution is uncertain even when estimated by a professional. This has serious cost considerations and risks for the employer offering a pension plan.

One of the growing concerns with defined benefit plans is that the level of future obligations will outpace the value of assets held by the plan. This "underfunding" dilemma can be faced by any type of defined benefit plan, private or public, but it is most acute in governmental and other public plans where political pressures and less rigorous accounting standards can result in excessive commitments to employees and retirees, but inadequate contributions. Many states and municipalities across the United States of America and Canada now face chronic pension crises. [1] [17] [18]

DB examples Edit

Many countries offer state-sponsored retirement benefits, beyond those provided by employers, which are funded by payroll or other taxes. In the United States, the Social Security system is similar in function to a defined benefit pension arrangement, albeit one that is constructed differently from a pension offered by a private employer however, Social Security is distinct in that there is no legally guaranteed level of benefits derived from the amount paid into the program.

Individuals that have worked in the UK and have paid certain levels of national insurance deductions can expect an income from the state pension scheme after their normal retirement. The state pension is currently divided into two parts: the basic state pension, State Second [tier] Pension scheme called S2P. Individuals will qualify for the basic state pension if they have completed sufficient years contribution to their national insurance record. The S2P pension scheme is earnings related and depends on earnings in each year as to how much an individual can expect to receive. It is possible for an individual to forgo the S2P payment from the state, in lieu of a payment made to an appropriate pension scheme of their choice, during their working life. For more details see UK pension provision.

A defined contribution (DC) plan, is a pension plan where employers set aside a certain proportion (i.e. contributions) of a worker's earnings (such as 5%) in an investment account, and the worker receives this savings and any accumulated investment earnings upon retirement. [19] These contributions are paid into an individual account for each member. The contributions are invested, for example in the stock market, and the returns on the investment (which may be positive or negative) are credited to the individual's account. On retirement, the member's account is used to provide retirement benefits, sometimes through the purchase of an annuity which then provides a regular income. Defined contribution plans have become widespread all over the world in recent years, and are now the dominant form of plan in the private sector in many countries. For example, the number of defined benefit plans in the US has been steadily declining, as more and more employers see pension contributions as a large expense avoidable by disbanding the defined benefit plan and instead offering a defined contribution plan.

Money contributed can either be from employee salary deferral or from employer contributions. The portability of defined contribution pensions is legally no different from the portability of defined benefit plans. However, because of the cost of administration and ease of determining the plan sponsor's liability for defined contribution plans (you do not need to pay an actuary to calculate the lump sum equivalent that you do for defined benefit plans) in practice, defined contribution plans have become generally portable.

In a defined contribution plan, investment risk and investment rewards are assumed by each individual/employee/retiree and not by the sponsor/employer, and these risks may be substantial. [20] In addition, participants do not necessarily purchase annuities with their savings upon retirement, and bear the risk of outliving their assets. (In the United Kingdom, for instance, it is a legal requirement [ needs update ] to use the bulk of the fund to purchase an annuity.)

The "cost" of a defined contribution plan is readily calculated, but the benefit from a defined contribution plan depends upon the account balance at the time an employee is looking to use the assets. So, for this arrangement, the contribution is known but the benefit is unknown (until calculated).

Despite the fact that the participant in a defined contribution plan typically has control over investment decisions, the plan sponsor retains a significant degree of fiduciary responsibility over investment of plan assets, including the selection of investment options and administrative providers.

A defined contribution plan typically involves a number of service providers, including in many cases:

  • Trustee
  • Custodian
  • Administrator
  • Recordkeeper
  • Auditor
  • Legal counsel [21]
  • Investment management company

DC examples Edit

In the United States, the legal definition of a defined contribution plan is a plan providing for an individual account for each participant, and for benefits based solely on the amount contributed to the account, plus or minus income, gains, expenses and losses allocated to the account (see 26 U.S.C. § 414(i) ). Examples of defined contribution plans in the United States include individual retirement accounts (IRAs) and 401(k) plans. In such plans, the employee is responsible, to one degree or another, for selecting the types of investments toward which the funds in the retirement plan are allocated. This may range from choosing one of a small number of pre-determined mutual funds to selecting individual stocks or other securities. Most self-directed retirement plans are characterized by certain tax advantages, and some provide for a portion of the employee's contributions to be matched by the employer. In exchange, the funds in such plans may not be withdrawn by the investor prior to reaching a certain age—typically the year the employee reaches 59.5 years old-- (with a small number of exceptions) without incurring a substantial penalty.

Advocates of defined contribution plans point out that each employee has the ability to tailor the investment portfolio to his or her individual needs and financial situation, including the choice of how much to contribute, if anything at all. However, others state that these apparent advantages could also hinder some workers who might not possess the financial savvy to choose the correct investment vehicles or have the discipline to voluntarily contribute money to retirement accounts.

In the US, defined contribution plans are subject to IRS limits on how much can be contributed, known as the section 415 limit. In 2009, the total deferral amount, including employee contribution plus employer contribution, was limited to $49,000 or 100% of compensation, whichever is less. The employee-only limit in 2009 was $16,500 with a $5,500 catch-up. These numbers usually increase each year and are indexed to compensate for the effects of inflation. For 2015, the limits were raised to $53,000 and $18,000, [22] respectively.

Examples of defined contribution pension schemes in other countries are, the UK's personal pensions and proposed National Employment Savings Trust (NEST), Germany's Riester plans, Australia's Superannuation system and New Zealand's KiwiSaver scheme. Individual pension savings plans also exist in Austria, Czech Republic, Denmark, Greece, Finland, Ireland, Netherlands, Slovenia and Spain [23]

Many developed economies are moving beyond DB & DC Plans and are adopting a new breed of collective risk sharing schemes where plan members pool their contributions and to a greater or less extent share the investment & Longevity risk.

There are multiple naming conventions for these plans reflecting the fact that the future payouts are a target or ambition of the plan sponsor rather than a guarantee, common naming conventions include:

  • Defined Ambition Plans
  • Collective Defined Contribution Schemes Pensions (the original Longevity risk sharing scheme invented in 1653).

Risk sharing pension sponsor examples Edit

  • Canada: Healthcare of Ontario Pension Plan (HOOPP)
  • US: State of Wisconsin Investment Board
  • US: TIAA
  • APAC/Europe: Tontine Trust
  • UK: Royal Mail Pension Fund
  • Netherlands: Stichting Pensioenfonds ABP
  • Denmark: Arbejdsmarkedets Tillægspension

Hybrid and cash balance plans Edit

Hybrid plan designs combine the features of defined benefit and defined contribution plan designs.

A cash balance plan is a defined benefit plan made to appear as if it were a defined contribution plan. They have notional balances in hypothetical accounts where, typically, each year the plan administrator will contribute an amount equal to a certain percentage of each participant's salary a second contribution, called interest credit, is made as well. These are not actual contributions and further discussion is beyond the scope of this entry suffice it to say that there is currently much controversy. In general, they are usually treated as defined benefit plans for tax, accounting and regulatory purposes. As with defined benefit plans, investment risk in hybrid designs is largely borne by the plan sponsor. As with defined contribution designs, plan benefits are expressed in the terms of a notional account balance, and are usually paid as cash balances upon termination of employment. These features make them more portable than traditional defined benefit plans and perhaps more attractive to a more highly mobile workforce.

Target benefit plans are defined contribution plans made to match (or resemble) defined benefit plans.

Contrasting types of retirement plans Edit

Advocates of defined contribution plans point out that each employee has the ability to tailor the investment portfolio to his or her individual needs and financial situation, including the choice of how much to contribute, if anything at all. However, others state that these apparent advantages could also hinder some workers who might not possess the financial savvy to choose the correct investment vehicles or have the discipline to voluntarily contribute money to retirement accounts. This debate parallels the discussion currently [ when? ] going on in the U.S., where many Republican leaders favor transforming the Social Security system, at least in part, to a self-directed investment plan.

Defined contribution pensions, by definition, are funded, as the "guarantee" made to employees is that specified (defined) contributions will be made during an individual's working life.

There are many ways to finance a pension and save for retirement. Pension plans can be set up by an employer, matching a monetary contribution each month, by the state or personally through a pension scheme with a financial institution, such as a bank or brokerage firm. Pension plans often come with a tax break depending on the country and plan type.

For example, Canadians have the option to open a Registered Retirement Savings Plan (RRSP), as well as a range of employee and state pension programs. This plan allows contributions to this account to be marked as un-taxable income and remain un-taxed until withdrawal. Most countries' governments will provide advice on pension schemes. [ citation needed ]

In the classical world, Romans offered veteran legionnaires (centurions) military pensions, typically in the form of a land grant or a special, often semi-public, appointment. Augustus Caesar (63 B.C.–A.D. 14) [24] introduced one of the first recognisable pension schemes in history with his military treasury. In 13 B.C. Augustus created a pension plan in which retired soldiers were to receive a pension (of minimum 3,000 denarii in a lump sum, which at the time represented around 13 times a legionnaires’ annual salary) after 16 years of service in a legion and four years in the military reserves. The retiring soldiers were in the beginning paid from general revenues and later from a special fund (aeririum militare) established by Augustus in 5 or 6 A.D. [25] This was in an attempt to quell a rebellion within the Roman Empire which was facing militaristic turmoil at the time. This, whilst did ease tensions within the empire, allegedly became one of the main reasons for the Empires eventual collapse [ citation needed ] as it struggled to finance the extensive support to which it committed itself. Despite helping the military, the Empire did little to help ordinary systems as the concept of social security came around at a much later time in history.

Widows' funds were among the first pension type arrangement to appear. For example, Duke Ernest the Pious of Gotha in Germany founded a widows' fund for clergy in 1645 and another for teachers in 1662. [26] 'Various schemes of provision for ministers' widows were then established throughout Europe at about the start of the eighteenth century, some based on a single premium others based on yearly premiums to be distributed as benefits in the same year.' [27]

Germany Edit

As part of Otto von Bismarck's social legislation, the Old Age and Disability Insurance Bill was enacted and implemented in 1889. [28] The Old Age Pension program, financed by a tax on workers, was originally designed to provide a pension annuity for workers who reached the age of 70 years, though this was lowered to 65 years in 1916. Unlike accident insurance and health insurance, this program covered industrial, agrarian, artisans and servants from the start and was supervised directly by the state. [29]

Germany's mandatory state pension provisions are based on the pay-as-you-go (or redistributive) model. Funds paid in by contributors (employees and employers) are not saved and neither invested but are used to pay current pension obligations.

Recently, the German government has come under criticism for the impending disaster posed by the exorbitant tax burden resulting from civil servants' pensions. A study, commissioned by the Taxpayers Association, that Professor Bernd Raffelhüschen of the Generation Contracts Research Center of the University of Freiburg carried out states that by 2050, the state will have to spend 1.3 to 1.4 trillion EUR to supply its civil servants. The majority of it, about 870 billion EUR, is therefore spent on pensions. [30] [31]

The federal government's financial statements for 2016 already show the extent of that disaster. According to this, the expected costs for pensions and subsidies for medical treatment for the number of federal civil servants at the end of 2016 will amount to 647 billion EUR over the course of the next ten years. That is 63 billion EUR more than in the previous year - an increase of ten percent in just one year.

  • Pension obligations of EUR 477.96 billion (plus 9.7 percent) and
  • Aid obligations of EUR 169.02 billion (plus 13.4 percent). [30][31]

Officials, judges and soldiers account for 238.4 billion EUR of the expected pension expenditure of almost 478 billion EUR. In addition, there are legacy issues from the times of large state-owned companies: the federal government has to pay out 171 billion EUR for old-age pensions for former postal officials and 68.5 billion EUR for former railway officials.

The problem: while the government preaches private pension provision to workers, the state itself has failed to build adequate reserves for the wave of pensions in the coming years. The federal government has been trying to create a cushion since 2007. So far, however, this has only amounted to 14 billion EUR by 2018. Professor Bernd Raffelhüschen criticised that the state had made high pension commitments for decades, "but initially didn't build up any reserves for a long time."

Pensions, thus, represent a considerable burden for public budgets. As Professor Bernd Raffelhüschen calculated in his study in 2005, the present value of the pension burden for the federal states amounts to 1,797 billion EUR, which is larger than the Germany's total public debt.

In various federal states, efforts are being made to secure pension expenditure by setting up pension funds for newly hired civil servants. Fiscal relief is, however, only to be expected when the newly hired officials retire. The share of tax revenue needed to supply for the pensions will increase from approximately 10% in 2001 in many federal states to over 20% in 2020. In the extreme case of the city-state of Hamburg, every fourth euro of income will be used to finance pensions for their retired civil servants.

Ireland Edit

There is a history of pensions in Ireland that can be traced back to Brehon Law imposing a legal responsibility on the kin group to take care of its members who were aged, blind, deaf, sick or insane. [32] For a discussion on pension funds and early Irish law, see F Kelly, A Guide to Early Irish Law (Dublin, Dublin Institute for Advanced Studies, 1988). In 2010, there were over 76,291 pension schemes operating in Ireland. [33]

United Kingdom Edit

The decline of Feudal systems and formation of national states throughout Europe led to the reemergence of standing armies with their allegiances to states. Consequently, the sixteenth century in England marked the establishment of standardised systems of military pensions. During its 1592–93 session, Parliament established disability payments or “reliefe for Souldiours . [who] adventured their lives and lost their limbs or disabled their bodies” in the service of the Crown. This pension was again generous by contemporary standards, even though annual pensions were not to exceed ten pounds for “private soldiers,” or twenty pounds for a “lieutenant.” [25]

The beginning of the modern state pension came with the Old Age Pensions Act 1908, that provided 5 shillings (£0.25) a week for those over 70 whose annual means do not exceed £31.50. It coincided with the Royal Commission on the Poor Laws and Relief of Distress 1905-09 and was the first step in the Liberal welfare reforms to the completion of a system of social security, with unemployment and health insurance through the National Insurance Act 1911.

In 1921, The Finance Act introduced tax relief on pension contributions in line with savings and life insurance. As a consequence, the overall size of the fund was increased since the income tax was now added to the pension as well. [34]

Then in 1978, The State Earnings-Related Pension Scheme (SERPS) replaced The Graduated Pension Scheme from 1959, providing a pension related to earnings, in addition to the basic state pension. Employees and employers had the possibility to contribute to it between 6 April 1978 and 5 April 2002, when it was replaced by the State Second Pension.

After the Second World War, the National Insurance Act 1946 completed universal coverage of social security, introducing a State Pension for everybody on a contributory basis, with men being eligible at 65 and women at 60. [34] [35] The National Assistance Act 1948 formally abolished the poor law, and gave a minimum income to those not paying National Insurance.

The early-1990s established the existing framework for state pensions in the Social Security Contributions and Benefits Act 1992 and Superannuation and other Funds (Validation) Act 1992. Following the highly respected Goode Report, occupational pensions were covered by comprehensive statutes in the Pension Schemes Act 1993 and the Pensions Act 1995.

In 2002, the Pensions Commission was established as a cross-party body to review pensions in the United Kingdom. The first Act to follow was the Pensions Act 2004 that updated regulation by replacing OPRA with the Pensions Regulator and relaxing the stringency of minimum funding requirements for pensions while ensuring protection for insolvent businesses. In a major update of the state pension, the Pensions Act 2007, which aligned and raised retirement ages. Following that, the Pensions Act 2008 has set up automatic enrolment for occupational pensions, and a public competitor designed to be a low-cost and efficient fund manager, called the National Employment Savings Trust (or "Nest").

United States Edit

First "American" pensions came in 1636, when Plymouth colony, and subsequently, other colonies such as Virginia, Maryland (1670s) and NY (1690s), offered the first colonial pension. The general assembly of the Virginia Company followed by approving a resolution known as Virginia Act IX of 1644 stating that ". all hurt or maymed men be relieved and provided for by the several counties, where such men reside or inhabit." [36] Furthermore, during King Philip's War, otherwise known as the First Indian War, this Act was expanded to widows and orphans in Virginia's Act of 1675. [37] [38]

Public pensions got their start with various 'promises', informal and legislated, made to veterans of the Revolutionary War and, more extensively, the Civil War. They were expanded greatly, and began to be offered by a number of state and local governments during the early Progressive Era in the late nineteenth century. [39] [40]

Federal civilian pensions were offered under the Civil Service Retirement System (CSRS), formed in 1920. CSRS provided retirement, disability and survivor benefits for most civilian employees in the US Federal government, until the creation of a new Federal agency, the Federal Employees Retirement System (FERS), in 1987.

Pension plans became popular in the United States during World War II, when wage freezes prohibited outright increases in workers' pay. The defined benefit plan had been the most popular and common type of retirement plan in the United States through the 1980s since that time, defined contribution plans have become the more common type of retirement plan in the United States and many other western countries.

In April 2012, the Northern Mariana Islands Retirement Fund filed for Chapter 11 bankruptcy protection. The retirement fund is a defined benefit type pension plan and was only partially funded by the government, with only $268.4 million in assets and $911 million in liabilities. The plan experienced low investment returns and a benefit structure that had been increased without raises in funding. [41] According to Pensions and Investments, this is "apparently the first" US public pension plan to declare bankruptcy. [41]

A growing challenge for many nations is population ageing. As birth rates drop and life expectancy increases an ever-larger portion of the population is elderly. This leaves fewer workers for each retired person. In many developed countries this means that government and public sector pensions could potentially be a drag on their economies unless pension systems are reformed or taxes are increased. One method of reforming the pension system is to increase the retirement age. Two exceptions are Australia and Canada, where the pension system is forecast to be solvent for the foreseeable future. [ citation needed ] In Canada, for instance, the annual payments were increased by some 70% in 1998 to achieve this. These two nations also have an advantage from their relative openness to immigration: immigrants tend to be of working age. However, their populations are not growing as fast as the U.S., which supplements a high immigration rate with one of the highest birthrates among Western countries. Thus, the population in the U.S. is not ageing to the extent as those in Europe, Australia, or Canada.

Another growing challenge is the recent trend of states and businesses in the United States purposely under-funding their pension schemes in order to push the costs onto the federal government. For example, in 2009, the majority of states have unfunded pension liabilities exceeding all reported state debt. Bradley Belt, former executive director of the PBGC (the Pension Benefit Guaranty Corporation, the federal agency that insures private-sector defined-benefit pension plans in the event of bankruptcy), testified before a Congressional hearing in October 2004, "I am particularly concerned with the temptation, and indeed, growing tendency, to use the pension insurance fund as a means to obtain an interest-free and risk-free loan to enable companies to restructure. Unfortunately, the current calculation appears to be that shifting pension liabilities onto other premium payers or potentially taxpayers is the path of least resistance rather than a last resort."

Challenges have further been increased by the post-2007 credit crunch. Total funding of the nation's 100 largest corporate pension plans fell by $303bn in 2008, going from a $86bn surplus at the end of 2007 to a $217bn deficit at the end of 2008. [42]

Most national pension systems are based on multi-pillar schemes to ensure greater flexibility and financial security to the old in contrast to reliance on one single system. In general, there are three main functions of pension systems: saving, redistribution and insurance functions. According to the report by the World Bank titled "Averting the Old Age Crisis", countries should consider separating the saving and redistributive functions, when creating pension systems, and placing them under different financing and managerial arrangements into three main pillars.

The Pillars of Old Age Income Security: [43]

Properties Mandatory publicly managed pillar Mandatory privately managed pillar Voluntary pillar
Financing Tax-financed Regulated fully funded Fully funded
Form Means-tested, minimum pension guarantee, or flat Personal savings plan or occupational plan Personal savings plan or occupational plan
Objectives Redistributive plus coinsurance Savings plus coinsurance Savings plus coinsurance

However, this typology is a rather prescriptive one than descriptive and most specialists usually allocate all public programmes to the first pillar, including earnings-related public schemes, which does not fit the original definition of the first pillar. [44]

Zero pillar Edit

This non-contributory pillar was introduced only recently, aiming to alleviate poverty among the elderly, and permitting fiscal conditions. It is usually financed by the state and is in form of basic pension schemes or social assistance. [45] [46] In some typologies, the zero and the first pillar overlap. [44]

First pillar Edit

Pillar 1, sometimes referred to as the public pillar or first-tier, answers the aim to prevent the poverty of the elderly, provide some absolute, minimum income based on solidarity and replace some portion of lifetime pre-retirement income. It is financed on a redistributive principle without constructing large reserves and takes the form of mandatory contributions linked to earnings such as minimum pensions within earnings-related plans, or separate targeted programs for retirement income. These are provided by the public sector and typically financed on pay-as-you-go basis.

Second pillar Edit

Pillar 2, or the second tier, built on the basis of defined benefit and defined contribution plans with independent investment management, aims to protect the elderly from relative poverty and provides benefits supplementary to the income from the first pillar to contributors. [47] Therefore, the second pillar fulfils the insurance function. In addition to DB's and DC's, other types of pension schemes of the second pillar are the contingent accounts, known also as Notional Defined Contributions (implemented for example in Italy, Latvia, Poland and Sweden) or occupational pension schemes (applied, for instance, in Estonia, Germany and Norway). [47]

Third pillar Edit

The third tier consists of voluntary contributions in various different forms, including occupational or private saving plans, and products for individuals.

Fourth Pillar Edit

The fourth pillar is usually excluded from classifications since it does not usually have a legal basis and consists of "informal support (such as family), other formal social programs (such as health care or housing), and other individual assets (such as home ownership and reverse mortgages)." [46] [48]

These 5 pillars and their main criteria are summarised in the table below by Holzmann and Hinz.

Multipillar Pension Taxonomy: [46]

Pillar Objectives Characteristics Participation
0 Elderly poverty protection “Basic” or “social pension,” at least social assistance, universal or means-tested Universal or residual
1 Elderly poverty protection and consumption smoothing Public pension plan, publicly managed, defined benefit or notional defined contribution Mandated
2 Consumption smoothing and elderly poverty protection through minimum pension Occupational or personal pension plans, fully funded defined benefit or fully funded defined contribution Mandated
3 Consumption smoothing Occupational or personal pension plans, partially or fully funded defined benefit or funded defined contribution Voluntary
4 Elderly poverty protection and consumption smoothing Access to informal (e.g. family support), other formal social programs (e.g. health) and other individual financial and nonfinancial assets (e.g. homeownership) Voluntary

Government can play with four different channels to finance the retirement pension. These economic policies are the following ones: [49]

  • Decrease of real pensions,
  • Increase of employee social contribution,
  • Increase of employer social contribution,
  • Increase of the retirement age.

These channels have been used by many governments to implement new retirement pension reforms. In the past, they had been sometimes simultaneously used (two or three channels used in the same time for a pension reform) or with a targeted way (on a certain group of persons such as in a certain business sector).

Retirement pensions turn out to be considerable amounts of money. For instance, in France, it is about 300 billion euros each year, namely 14-15% of French GDP. It is therefore very interesting and informative to illustrate the impacts of these different channels to finance the retirement pension, especially nowadays since many riots take place in different countries against new retirement pension reforms or willing to change the national retirement pension process. [50]

Simulating these economic policies is then useful to understand every mechanism linked to these channels. Four different channels to finance retirement pensions will be simulated successively and will allow to explain their impacts on main economic variables presented below with an eight-year horizon. Some software of macroeconomic simulation allows to compute and display them. The implementation of these economic shocks and their mechanisms will be analysed in the following sections. [51]

The economic variables of interest are various but the main ones can be chosen as follows: GDP level (impact in %), total employment level (impact in %), price index (impact in %), price growth rate (impact in points), current account (impact in GDP points), public finance balance (impact in GDP points) An objective relation may also be used. This one is a linear combination of the previous variables. This one is weighted according to the prominence given to some variables. For instance, if the government mainly focuses on GDP level and public finance balance, their assigned coefficient can be chosen as 0.3 each (the sum of the coefficients must be equal to 1). Other more specific variables could be used such as: household expenses level, corporate investments level, domestic demand level, purchasing power level and the like.

As a consequence, simulations are very relevant for everyone to understand the impacts of these channels to finance the retirement pension. However, simulations could be used in a reverse manner. Given the objective of government to get an economic variable improvement by a certain number, the four channels can be adjusted in order to achieve this goal. For example, a government may have an objective to get a public finance improvement by 2/3 GDP point the year 8.

In order to lead these simulations, the choice of hypotheses assumed is crucial. Concerning exchange rates, one can use the Purchasing Power Parity (PPP) measurement which happens to be an absolute purchasing power comparison in the countries concerned. Regarding interest rates, one can choose the Taylor Rule with a risk premium coefficient of -0.1. External trade price elasticities can also be assumedtobe -1. When it comes to Monetary Union, it depends on which country the study and thus the simulations are led. A Monetary Union can be concerned with any country. However, in order to get consistent results, a country such as Germany, France or Italy could be analysed. In this case, the monetary union is established with other European countries members of the euro area. Finally, every economic policy is led in the country concerned only.

Decrease of real pensions Edit

This economic shock is to permanently decrease the amount of real pensions paid to retirees by for example 1 GDP point. Transfers from public power to households are therefore dropped by 1 GDP point. In the case of France (given 14-15% of GDP corresponds to retirement pensions), this is a drop of 7.5% of mass pension benefits.

It proves to be demand shock insofar as the household’s available income decreases in the short term. This drop of purchasing power implies a diminishment of consumption and of demand in general. The activity is then negatively affected. However, the current account is improved as imports decrease following the reduce of domestic demand. In the medium term, since this cut of consumption and demand, unemployment increases. The price index decreases as the consumption price drops. As a consequence, exports increase. The real labour cost falls increasing thus companies’ margins which limits the degradation of investments. The drop of consumption remains higher than the increase of current account which thereby results in the decrease of GDP. The public finance balance increases following the diminishment of pension benefits spent to retirees. However, unemployment benefits increase and given the drop of consumption and of household’s incomes, which implies a fall in the incomes received from income tax and VAT by public administration. [51]

Increase of employee social contribution Edit

This economic shock involves the permanent increase of employee social contribution by for instance 2 points. This social contribution is spent by household as a share of mass wages received by them.

It turns out to be a demand shock because household’s disposable income decreases from the short term. Indeed, the income perceived by employees is reduced following the increase of employee social contribution. As the previous channel, the drop of purchasing power result in a diminishment of consumption and demand in general. It implies a drop in activity. However, the current account is improved as imports are reduced following the cut of interior demand. In the medium term, the implications are similar to the decrease of real pensions. Employment and the price index decrease. Exports increase and the drop of investments is limited. The GDP decreases too. Finally, in the short term, the public finance balance increases but is quickly limited (but remains an increase) with the decrease of revenues from VAT and income taxes and the increase of unemployment. [51]

Increase of employer social contribution Edit

This economic shock is to permanently increase employer social contribution by for instance 2 points. This social contribution is spent by employer as a share of mass wages paid to each employee.

It proves to be a supply economic shock. Indeed, the rise of the labour cost degrades the labour demand and increases the costs of production. The competitivity is degraded and results in the drop of the purchasing power. Job losses are then attended: the unemployment strongly increases. This shock is also inflationary given that household’s consumption prices rise. As corporations’ profitability drops, exports and companies’ investment fall too. The current account drops and this shock is not expansionist: the GDP decreases. Finally, the public finance balance is improved but less than planned. Indeed, employer social contribution is increased but it happens to be less than expected as unemployment rises. In addition, income tax is lower than before the shock, employee social contribution increases and unemployment benefits expenses increase. [51]

Increase of the retirement age Edit

This economic shock involves an increase of the retirement age. To do so, it implies a permanent increase in the working age of for instance 2% and to decrease the number of retirees of an equivalent amount. For this last step, it is tantamount to decrease global real pensions by a certain number of GDP point. In order to find this precise number for the simulation, we can assume people live on average 80 years, study during 20 years and are retirees during 20 years. As a consequence, an increase of 2% for life expectancy at work amounts to a decrease of 4% for life expectancy in retirement. Real pensions make globally a certain percentage of the GDP according to the country chosen. By knowing it, you can finally find the certain number of GDP point to simulate the decrease of number of retirees. For instance, in France real pensions make globally around 15% of GDP. Finally, -4% of 15% makes a decrease of 0.6 of GDP point.

In the short term, this labour force shock (supply policy) leads to an increase of unemployment which negatively affects household’s purchasing power. The consumption decreases along with demand in general which leads to a decrease of activity. However, the current account is improved as imports are reduced with the drop of domestic demand. In the medium term, through the rise of unemployment, gross salary and the real labour cost progressively decreases. It results in the progressive increase of employment and thus the gradual decrease of unemployment. The household’s consumption prices decrease: this shock is deflationary. The competitivity is improved which lead to a job creation and the boost of economic activity. The GDP increases and this shock is therefore expansionist. Administration’s financing capacity improved in the short term happens to be limited in the medium term. Indeed, the drop of prices decreases the tax bases, especially household income. [51]


Social Security Act

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Social Security Act, (August 14, 1935), original U.S. legislation establishing a permanent national old-age pension system through employer and employee contributions the system was later extended to include dependents, the disabled, and other groups. Responding to the economic impact of the Great Depression, five million old people in the early 1930s joined nationwide Townsend clubs, promoted by Francis E. Townsend to support his program demanding a $200 monthly pension for everyone over the age of 60. In 1934 Pres. Franklin D. Roosevelt set up a committee on economic security to consider the matter after studying its recommendations, Congress in 1935 enacted the Social Security Act, providing old-age benefits to be financed by a payroll tax on employers and employees.

A 1937 U.S. government pamphlet explaining the workings of Social Security provided this characterization of the act:

In general, the Social Security Act helps to assure some income to people who cannot earn and to steady the income of millions of wage earners during their working years and their old age. In one way and another taxation is spread over large groups of people to carry the cost of giving some security to those who are unfortunate or incapacitated at any one time. The act is a foundation on which we have begun to build security as states and as a people, against the risks which families cannot meet one by one.

Railroad employees were covered separately under the Railroad Retirement Act of 1934. The Social Security Act has been periodically amended, expanding the types of coverage, bringing progressively more workers into the system, and adjusting both taxes and benefits in an attempt to keep pace with inflation.


Social Security

Sympathy with the principle of extending pensions to those who have reached an age where they are no longer able to support themselves has been growing rapidly and 28 states now have measures looking to this end. In the last few year sentiment in favor of such legislation has increased noticeably, and the state programs have been constantly expanded, but due to the influences of the present time a curious and anomalous situation has arisen. Most of the states have been so hard pressed financially to meet emergency needs resulting from unemployment and the depression generally, that the claims of the old age pension measures have been pushed into the background for lack of appropriations. As a result, while the number of laws in force has doubled in the last two years, the number of old people actually receiving pensions has increased but slightly. As far as most of states are concerned the spirit is willing but the exchequer is weak. Some way must be found to insure that budget appropriations be made just as much for old age pensions as for other legitimate state expenses. It is suggested that a remedy for the situation must be provided by increased financial support to be derived from either state or federal resources.

How Many Would be Eligible for Old Age Pensions

While we know that 6,500,000 people in the United States are over 65 years it is difficult to arrive at the number of old people whose lack of means would entitle them to a pension. Last December there were 500,000 over 65 receiving emergency relief, while 115,000 were receiving state pensions, with long waiting lists of eligibles.

It is certain, however, that a very much larger percentage of the aged are without adequate means of support than these figures would indicate. A study based on the Monthly Labor Review of August, 1934, shows that in Wisconsin, for example, out of the 112,000 persons of eligible age in the state, of whom unquestionably a considerable percentage were in need of assistance, only 1.8% were receiving pensions. It has been estimated by competent observers (Epstein) that approximately 2,700,000 of the 6 ½ million persons of 65 and over in the United States in 1930 were supported wholly or partly by others.

Weaknesses & Defects of the Present System

There are some obvious weaknesses and defects in all of the existing state old age pension laws. One of the most important of these is the restrictive residence requirements. Fifteen or twenty years of residence within the state, as required in most of the laws, presupposes a degree of security and permanence of employment which has been conspicuously lacking among our unskilled workers, whose labor is frequently of a highly migratory order. It is, of course, in the ranks of these unskilled workers that we find the great proportion of the needy aged, and yet great numbers are at all times branded ineligible for pensions by this provision, which obviously calls for revision. It was inserted, when the first measures were passed to protect the more forward-looking states from being swamped by an influx of applicants from states which had no such legislation. Today, with 28 states committed to old age pensions, the need for such stringent residence requirements has grown much less. In this connection it is of interest that many states require but one year's residence for mothers' pensions.

Another obvious weak point of the present laws is that the extreme age at which a person becomes eligible for a pension is set so high, in the majority cases. While some people are able to continue to work even after 70, it becomes increasingly difficult, due to certain well-known conditions of our industrial system, for most wage earners to obtain employment that gives them sufficient for their needs long before they are 70. Not only is there a very definite feeling that the age at which a person can qualify for a pension should be made considerably lower, but it is also suggested that if the pension were made available at an earlier age it would be an inducement to the worker, who might otherwise hang on to his job, to retire and make way for a younger man.

The administration of the old age pension laws is another focal point for criticism. County administration is charged with being often political, and the county courts generally lack the facilities for a thorough investigation before pensions are granted. To overcome the latter weakness, county judges are now utilizing the investigational machinery of the administration, while several states (other than Wisconsin) have vested the right to grant pensions in some state agency.

Another defect in the old age laws lies in the stringency of the "means test" provided for in these statutes. It is inconceivable that old age pensions will ever be granted on a non-contributory basis to everybody regardless of their means, but it is not necessary, as the present laws provide, to require applicants for pensions to prove not only that they are in need, but that they have no near relatives who can support them. Although at times relatives may be in a position to render some little assistance, "the struggle for existence of all people who are working for a living is so keen and the prospects of security are so uncertain that it would seem unwise to impose upon relatives who are just a little bit better off than the applicant for the pension the duty of contributing towards his support." At all events, pensions should not be denied because relatives fail to discharge their obligation to support an old man or woman who is indigent, but instead, the county (or state) should have the right to recover the amount of the pensions paid from such delinquent relatives.

But the most serious defect in the old age pension laws lies in their inadequate financial provisions. Where the counties, as in Wisconsin, must carry the major part of the cost, they have found old age pension a very great burden in their present financial situation, and even where the state is the unit for financing, it is difficult for many of the states to carry this burden unaided. At present, moreover, the federal government is bearing most of the relief costs, while it bears no part of the old age pension expenditures. There is, consequently, a strong incentive for counties and states to put old people on relief rather than on pensions. This is precisely what has actually happened. There is a tendency to bracket the eligible pensioner with the rest of his family and to put the whole group on the inadequate relief dole, rather than to pay the elderly member the old age pension, to which he is entitled, an economy which has little to recommend it.

Amount Of Pensions in Various States

The maximum pensions allowed are $150 per year in North Dakota $15 a month in Hawaii and Indiana $20 monthly in Delaware, Idaho, Montana, Ohio, and Utah and $30 a month in Arizona, California, Colorado, Maine, Maryland, Michigan, Minnesota, Nevada, New Jersey, Oregon, Pennsylvania, West Virginia, Wisconsin, and Wyoming. Alaska pays $35 per month to men and $45 to women. In New Hampshire the maximum is set at $7.50 per week. The New York and Massachusetts acts set no specific maximum, leaving the matter to the discretion of the administrative officials. In several states one-third of the sums expended on pensions by the local governments is reimbursed by the state in several others the state and the counties share the cost equally in a few the state or territory assumes the entire cost and in 14 the entire cost is borne by the counties. On December 31, 1932, there were a total of 100,959 persons in receipt of benefits in thirteen states, more than half of them in New York. The total expenditures in 1932 amounted to $25,095,000.

While all these pensions are small they are beyond all question very much better than any system of relief, because they insure to the old person a small but definite income. The certainty of receiving this small amount regularly gives a feeling of security which has a very noticeable effect on the health and well-being of the recipient. At the same time, it has been definitely proven that the granting of these pensions is less expensive to the tax-payer than the upkeep of almshouses. As Mr. Epstein has pointed out, "The economy of the pension system if demonstrated by the fact that as against an average expenditure of over $40 monthly per capita in poorhouses, the average monthly pension in the states which paid such in 1932 amounted to only $22.35, or about half the cost of maintenance in an almshouse.

"At the same time pension experience fully bears out the prediction of supporters of these laws that a self respecting system of care in their own homes would ultimately result in considerably reducing the need for the expensive institutional care of the aged. A recent study of nine states made by the American Association for Social Security disclosed that while during the years of the depression the total almshouse population has increased greatly in every state in the Union, the increase has been very much less in the states with pension laws as compared with those without such laws. Thus, whereas Connecticut, without a pension law, witnessed during 1931-32 an increase of 32.2 per cent in its almshouse population, its more industrial neighbor, Massachusetts, which started its pension plan in the middle of 1931, had an increase of only 15.8 per cent, or less than half as great. The same general fact holds true of other states. But even more striking, are the New York facts: In 1929, the year just preceding the enactment of New York's old age security system for persons of 70 years and over, the number of inmates over 70 increased by 567, or 15%. Following the first two years of the operation of the law the number of inmates over 70 years of age actually dropped by 332, a decrease of 7.5%. Significantly, the number of inmates under 70, and therefore ineligible for pension grants, increased during the same period by 1,837 or 29%."

As has been said, the amount is small, and could not very well be otherwise. Since the President outlined his plans in his message of June 8 to further security for the aged there have sprung up a number of organizations which are encouraging old people to believe that pensions of absurdly large amounts are possible. One, for instance, which has had quite lot of publicity, and apparently has enrolled thousands of trusting old people under its banner is advocating a pension of $200 a month to everybody who reaches the age of 60. A little simple arithmetic will show that to give this pension to the more than 10 million in this age group would cost 24 billions a year, or over half of our national income of last year.

In fairness to the legitimate demands of other needy groups, the public can never be asked to provide non-contributory old age pensions of more than very modest size.

Many of the European countries which have had old age pensions in operation over a long period have now both contributory and non-contributory pensions. Great Britain started her first old age pension law in 1908, which gave a small sum weekly to any person who reached the age of 70 without a certain minimum income. In 1926 she put into effect a system of contributory pensions which entitled the worker to a pension on reaching the age of 65, at the same time retaining the non-contributory pension, somewhat liberalized in its terms, so that a pension would still be available at 70 to those who for some reason do not come within the insurable class.

The new contributory system will eventually finance itself. In the meantime pensions have been made payable at once to all workers reaching the age of 65, providing they have been insured for at least five years under the sickness insurance system with which the new old age pension plan is closely connected. In the transitional period, since pensions are payable at once, the government is supplying the necessary funds.

A contributory system, of course, does away with the necessity of a means test, the pension becoming available at the stipulated age as a right for which the worker has contributed his share. It may also be possible to arrange a scale of premiums and benefits in such a way that the worker can be given the opportunity of building up for his old age an income compatible with his standard of living.


Federal Subsidy To The State Pension Laws

While it would be of advantage to start such a system with as little delay as possible, it is recognized that this would not in any way solve the problem of the very large number of aged who have no hope of ever finding work again, and could not possibly contribute to such a scheme. Also, even if such a system were adopted considerable time would have to elapse during which contributions were being collected, in which the available funds would be insufficient to take care of the claims on it and federal aid would be necessary.

To take care of this situation, there is considerable sentiment in favor of federal grants-in-aid to bolster up the state pension laws already in operation, on the principle that it is much better to work on what we already have functioning than to start something new and untried although there are a number of fairly obvious weaknesses and defects in the pension laws as they stand at present and there is also the very depressing problem of financing them, it is believed that these are by no means insurmountable difficulties.

The federal grants-in-aid would be contingent on compliance with certain standard requirements as to age, time of residence, minimum amounts of pension, administration, etc. Such grants would not only encourage the states which now have pension laws to make them more effective, but would encourage the states which have not yet passed such legislation to adopt similar measures. This arrangement, it is believed, would in a reasonable length of time give such widespread protection as to approximate the coverage which would be given by any national measure and would at the same time avoid any constitutional difficulties. Grants-in-aid have been customary in the past, and their constitutionality, is not questioned. It has been estimated that if all states should pay at 70 pensions such as Wisconsin now authorizes and the federal government should undertake to reimburse to the states 1/3 of the cost, the government's share would be $32,000,000. If the pensionable age were lowered to 65, it has been estimated that the federal share on the basis of one-third of the cost would be around $100,000,000.


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