Private Plans in Six Countrz’es*

NFORMATION on private pension survivor benefits. The law sets up a tirement rather than the period of plans in other countries has not restrictive income test for receipt of . I hitherto been readily available in benefits that is a form of means test. age. - Following the the United States. These plans, estab- pattern of the public system, the usual lished to supplement the public pro- Private Plans retirement age provision in private visions in effect to protect workers and Types of plans and coverage.- plans is 65 for men and 60 for women. their dependents or survivors, take Private pension plans have been in Some plans provide later retirement many forms, varying with the coun- existence in Denmark for at least 50 ages, adding as much as 5 years for try’s economy and the adequacy of the years. A majority of the larger em- both sexes. There is a trend toward basic social system. The ployers have contributory plans cover- increasing the retirement age in pri- following summary of private pension ing salaried employees and providing vate plans to 67 for men and 63 for plans in efIect in Denmark, Norway, retirement, disability, and survivor women as a result of the increasing Sweden, and Switzerland as of Sep- benefits. Although some plans for average age of the population. tember and October 1952, and in Aus- wage earners exist, workers have not, Pension amount.-Few plans relate tralia and New Zealand as of October as a rule, been interested in contribu- benefits to average earnings-the 1951, is based on a series of surveys tory private plans, since payment of a usual practice in the United States made by H. Walter Forster as a service private pension may operate, through under insured plans. About half the to those of his firm’s clients who have the income (means) test, to reduce the plans are of the money-purchase type, branches in the countries he visited. amount of the public pension. Such in which an agreed percentage of cur- These reports have been made avail- reduction in benefits is of more signifi- rent pay is invested by the employer able to the Social Adminis- cance to wage earners than to salaried and employee in a level-premium tration. employees. contract, with the sum of the pur- This summary touches only briefly An Insurance Board closely super- chases determining the benefit level. on the social insurance provisions in vises noninsured funded plans; Under this type of funding, the older effect in the six countries.1 although it does not supervise insured the employee upon entering the plan plans, it has approved an agreement the smaller the pension. An approach Denmark between the private insurance com- to adequacy is sometimes achieved for panies and the Government’s State older employees by a supplement for Public System Insurance Company establishing ac- past-service credit and establishment The social insurance system in Den- tuarial standards and other provi- of a reasonable minimum pension. Al- mark pays male workers 65 years of sions. At the end of 1950, there were though this type of plan has much age and over and female workers aged approximately 2,500 insured Plans appeal for employers because of fixed 60 and over a flat basic pension on re- covering 50,000 employees and 300 costs, the trend is away from such tirement, plus a series of allowances noninsured plans covering 43,000 em- plans. paid under specified conditions. The ployees. Additional employees are under the remaining half basic pension varies with the size of covered by informal plans, the mere of the private plans are based on the community of residence and is ad- announcement of which gives employ- “Anal” pay-that is, pay at time of re- justed semiannually to the cost of liv- ees certain legal rights. tirement. The benefits amount to 50- ing; it is not related to wage rates. A Eligibility for participation.-Be- 70 percent (usually 66% percent) of pension is also payable in case of total fore an employee becomes eligible to average earnings in the last 3-5 years disability, but there is no provision for participate in an established private after 25-35 years of service, and they pension plan, he is usually required to are proportionally less for shorter * Based on reports made by II. Walter have worked l-3 years in the estab- service. These plans reflect the influ- Forster, a director and former president of lishment and to have attained age ence of the public plans for the mili- Towers, Perrin, Forster & Crosby, Inc., 20-30 (the average is under age 25). tary and the civil service, which date pension consultants. The summary was prepared by Herman B. Brotman, Division Many plans establish a maximum age from 1851 and which pay pensions of of Program Analysis, Bureau of Old-Age for entering the plan; for some the 70 percent of final pay after 35 years and Survivors Insurance. maximum is as low as age 40. This of service, with an employee contribu- 1 For details on the public programs see provision is designed to lower em- tion of 5 percent of earnings. In addi- Carl H. Farman and Veronica Marren Hale, Social Security Legislation Throughout ployer costs under funded plans, but tion to presenting the employer with the World (Division of Research and Sta- since the older worker thus excluded the problem of varying costs, the final- tistics, Bureau Report No. 16), 1949; Carl is usually covered by a special plan pay plans are expensive since each pay H. Farman, “World Developments in Social requiring additional employer flnanc- increase raises all prior-service costs. Security Legislation,” Social Security Bul- letin, March 1950; and Konrad Persson. ing when and if the employee attains Maximum benefits.-Many plans at- ‘Social Welfare in Sweden,” Social Secur- retirement age, the employer costs are tempt to reduce costs by devices that ity Bulletin, April 1949. largely shifted to the period after re- limit the amount of the pension. In

10 Social Security Denmark, it is customary to provide a pension. Under insured plans, the not sufficient to cover the entire con- maximum salary base on which pen- widow’s pension is payable for life tribution. Employers may deduct their sions may be computed, but the pres- regardless of whether there are any total contributions for income-tax sure is to increase such maximums as young children, and it continues even purposes, provided the contribution is wage levels increase and as high-level in the event of remarriage. Noninsured not larger than the premium for an employees are affected. Other plans plans are usually less liberal; if the annuity with benefits equal to those introduce limitations by excluding marriage took place after the em- in the pension plan. Past-service costs, from the base salary increases after ployee was 55-60 years old, the widow if paid in lump sums, cannot in gen- age 55-60 or cost-of-living allowances. is frequently ineligible for a pension. eral be charged off in less than 6 years. Employee rights on separation. - The orphan’s pension is a flat Pensions are considered taxable in- Partly as a result of legal requirements amount in some cases. In most cases, come in Denmark, where tax rates are but chiefly from accepted practice, however, it is 10 percent of the father’s relatively high even at low income Danish workers usually have rights prospective pension for half orphans levels. based not only on their own contribu- and 20 percent for full orphans. The Norway tions but also on those of their em- pension is usually payable until the ployer at the time of separation. orphan attains age 18, but in some Public Sys tern Under the plans insured with an in- cases it is payable until age 2 1. The Norwegian public system pays surance company, the premiums may Death benefits and life insurance.- all persons aged 70 or over a uniform be continued by the employee himself In view of the provision of survivor flat pension on retirement, subject to or jointly with his new employer un- benefits, most private plans do not in- a means test, with supplements pro- der the old contract; the contract can clude payment of death benefits. When vided by many of the municipalities be amended to fit the plan with the a death benefit is provided, the benefit (political subdivisions, including rural new employer; the employee may be is limited to an amount equal to ap- areas). Seamen and forestry workers given a paid-up benefit; a woman proximately 1 year’s pension. Very are covered by special plans that omit leaving to marry may receive a cash little group life insurance exists in the means test and that permit retire- payment, as may a worker who emi- Denmark. ment at age 60 and 65, respectively. grates to another country; or an em- Disability. - Almost all the private There is no national provision for pay- ployee may receive in cash the surren- plans provide for pension payment in ment of permanent disability pensions der value of the policy arising from his cases of permanent disability. Full before retirement age, but municipali- own contributions or at least half the pensions, computed on the assumption ties in some cases pay such pensions. total premiums plus 4-percent inter- that the current rate of pay for the Restricted widow’s pensions are pay- est. employee would have continued until able if the pensioner dies after age 70 Under the noninsured funded plans, normal retirement age, are payable if (following retirement), provided the minimum rights are established by a working ability has been decreased by widow is over age 60. Orphan’s pen- 1936 law (amended in 19501, as fol- at least two-thirds. In some instances sions are not provided, but separate lows: (1) Service under the plan of the pension amount is graded in ac- children’s allowances are paid to pen- less than 5 years gives the employee cordance with length of service, and a sioners for each child under age 16. rights to his own contribution plus in- stated minimum is payable after a terest of 3.5-4.5 percent and less the reasonable minimum length of service. Private Plans cost of the insurance risk. (2) After 5 Survivor protection remains in force. Types of plans and coverage.-Pri- years of service under the plan, the Contributions. - Employer contri- vate plans have existed in Norway for employee has rights to total contribu- butions under the money-purchase more than 50 years. A large number of tions (including the employer’s) plus plans average about 10 percent of pay- salaried employees but relatively few 4-percent interest and less the cost of roll. For the final-pay plans, employer wage earners are covered. An Insur- the insurance risk. (3) If an employee contributions amount to about 20 per- ance Board under the Ministry of So- is dismissed for an offense and is con- cent of payroll, although the costs are cial Affairs supervises the pension in- victed to serve a prison term or con- higher for the most liberal plans. In surance companies, which have un- victed of a fraud against the employer, Denmark, employers usually make vol- derwritten about 2,500 plans covering he loses all rights to the employer’s untary contributions in high profit about 50,000 employees. In addition contributions. (4) An employee’s years to cover past-service costs, to there are about 150 funded noninsured rights are transferred to the pension reduce future payments, to increase Plans that have definite benefit sched- plan of the new employer, but if there benefits, or to strengthen reserves. ules covering some 30,000 employees is no such plan an annuity must be Almost all plans (80-90 percent) re- and about 1,500 funded plans that do purchased for him (cash is paid in- quire employee contributions. The not have definite benefit schedules. stead of an annuity if the rights equal standard contribution is 5 percent of The coverage of these latter plans, less than 12 months’ salary). earnings, but it may amount to as established out of war profits and Survivor benefits.-Most of the pri- much as 8 percent. other types of profits and viewed by vate plans make provisions for regular Tax provisions.-Employees are per- the Ministry as a step toward a defi- payments to widows and orphans sep- mitted to deduct their contributions to nite insured or noninsured plan, is un- arately. Widows usually receive 50-60 private plans for income-tax purposes known. percent of the husband’s prospective up to a certain maximum, generally Although it is customary to have

Bulletin, August 1953 11 separate plans with different beneflts ice and include disability and survivor Plans covering salaried employees for salaried employees and wage earn- benefits. In plans for wage earners provide separate widow and orphan ers, a technicality in the tax law, it is customary to pay an amount pensions. Widows’ pensions are usu- which permits insured plans to cover equal to the anticipated national and ally 50 percent of the husband’s pro- either or both groups of workers, municipal pensions, plus the “free spective pension, but there is a trend makes coverage of both groups man- amount”-the amount of income per- toward increasing the amount to 60 datory for noninsured plans.2 mitted in the means test for the public percent to match the provisions of the Eligibility for participation.-To be pension-until age 70, and only the civil-service, seamen’s, and forestry eligible to participate in a private free amount thereafter. Pensions for workers’ public plans. Under the in- pension plan, an employee is usually wage earners sometimes vary with sured plans, the widow’s pension con- required to have served l-5 years and marital status. The subsidiaries of tinues after remarriage, but it gener- to have reached age 20-25. The maxi- United States and British companies ally is discontinued under noninsured mum entry age is 50-55, but, as in operating in Norway usually use an plans. Widows are barred from receiv- Denmark, workers hired at an older average-pay rather than a Anal-pay ing pensions under some plans if the age are usually paid comparable bene- system, as they ordinarily do in their marriage occurred less than 1 year be- fits by the employer through an in- home countries. fore the death of the husband or if the formal pay-as-you-go plan. The re- Maximum benefits. - Beneflt levels husband was already aged 60 at the sult is merely to shift the timing of are limited through various devices. time of the marriage. Pensions for employer costs to the period after re- Many plans establish a maximum sal- half-orphans are provided as follows: tirement and to protect the currently ary base or state a maximum pension one child, 40 percent of the widow’s funded plan. amount. Other plans exclude salary pension (half the father’s prospective Retirement age. -Most plans Pro- increases made within 5-10 years of pension) ; two children, 60 percent of vide a retirement age of 60-68 for men retirement or after ages as low as 50; the widow’s pension; three, 75 per- and 55-63 for women, but the average some exclude from the base any cost- cent; four, 90 percent; and five or is age 65 for men and age 60 for of-living allowances. Legislation has more, 100 percent. Full orphans re- women. In view of the retirement age been introduced to limit tax credits to ceive twice as much. Orphan pensions of 70 in the public system (dating contributions producing a maximum are payable until the children attain from 19371, there is a tendency to pension equal to the maximum in the age 18 or, in some cases, a higher age raise the retirement age for both men military and civil-service retirement if they are continuing their education and women in the private plans. This systems.4 or are disabled. tendency is encouraged by the Nor- Employee rights on separation. - Death benefits and life insurance.- wegian Government in view of the in- The employee’s rights on his separa- Insured plans often pay death bene- creasing proportion of older persons tion from a job often include rights fits equal to 1 year’s pension. Such in the population, the existence of a based on the employer’s contributions death benefits are paid on death be- labor shortage, and the belief that the as well as on his own. Noninsured defi- fore retirement or half at retirement average worker can continue on the nite benefit plans provide full rights and half at death after retirement.5 job until the attainment of this higher even after such comparatively short Disability. - Payments in case of age.3 service as 5 years. Indefinite benefit permanent disability occurring before Pension amount. - Practically all plans provide rights based on the em- retirement are not usual in plans cov- plans are of the final-pay type. Sal- ployee’s own contributions. Under in- ering wage earners and are provided aried employees receive pensions equal sured plans the employee himself or in only half the plans covering sala- to 40-60 percent of final pay on retire- jointly with a new employer may con- ried employees. In these latter plans, ment. The usual provision is for a tinue to carry all or some of the insur- the payment for total disability is al- pension of 50 percent after 30 years ance contract. In noninsured plans most always equal to the prospective of service and proportionally less for the employee is entitled to a reduced, old-age pension the employee would shorter service. Inclusion of this pro- paid-up annuity. If a woman leaves have received if he had continued at vision results from the influence of employment to marry or a worker the same rate of pay until retirement. the military and civil-service retire- emigrates to another country, rights Payments for partial disability are ment systems, which provide 66 per- are paid in cash. scaled, in proportion to the degree of cent of final pay after 30 years of serv- Survivor benefits. - Survivor bene- disability, down to 25-percent disabil- fits in plans covering wage earners, as ity. 2 A revision of the tax law, in December distinguished from salaried employ- Contributions. - Costs of private 1962, makes new-plan coverage of the two ees, are based on the worker’s prospec- plans in Norway, practically all of groups of workers mandatory although tive pension if he dies before he which are of the Anal-pay type, are the benefit provisions may be different. reaches age 70; no beneflts are pro- rather high. Employer contributions 3 Under the tax-law revision of Decem- ber 1952, retirement ages of less than 67 vided in the private plans if death for men and 62 for women can be written occurs thereafter since in such cir- 5 Under the tax-law revision of Decem- into new plans only with the special con- cumstances the public system pays the ber 1962, employer contributions for death sent of the Ministry of Social Welfare. A pension. benefits and life insurance features are study by the Mlnlstry in early 1953 showed not deductible for income-tax purposes that the average retirement age in private since deductions are restricted to contrl- plans was 67 for men and 62 for women. 4 Passed in December 1962. butlons for pensions.

12 Social Security vary from 29 to 25 percent of payrolls, earners have been more recently in- plans usually require employee contri- less employee contribution&s troduced, labor unions have not been butions since they assure beneflt pay- Approximately half the plans cov- especially interested in such contribu- ment, but the Pension Foundation and ering salaried employees require em- tory plans because receipt of a private Free Foundation plans do not. The ployee contributions, usually 5 percent pension payment would operate to re- latter types of Plans were established of earnings. Wage earners sometimes duce the total public pension as a re- out of high wartime and postwar prof - contribute moderate sums. sult of the application of the means its as extremely flexible systems to Taz provisions. -For national and test. In addition to the private p!ans provide substantial pensions to retired municipal income-tax purposes, em- described below, there is a consider- salaried employees, to permit adjust- ployees may deduct contributions to able amount of individual contract in- ment of pensions to keep them below private pension plans and premiums surance (annuities), especially popu- the means test level in the public sys- for life and voluntary sickness insur- lar among the self-employed and the tem, to permit the granting of cost-of- ance. Employers, who are subject to a professional groups since contribu- living increases to pensioners, and to national tax of 45-50 percent of net tions (premiums) are tax-deductible. supplement insured plans under cer- income, may deduct the total employer The private plans fall into four cate- tain circumstances, such as transitory contribution to an old plan except for gories : arrangements for new workers too old large, lump-sum payments. Legisla- to participate in the regular plan. tion restricts the maximum contribu- 1. Svenska Personal-Pensionskassen Eligibility for participation. - An tion per employee that the employer (S.P.P.1, a group insurance company, employee usually becomes eligible to may deduct under new plans to the founded in 1917 by employers specific- participate in an existing plan after a amount that would provide a pension ally to provide pensions. It operates period of service, such as 2 years, and as an insurance company under Gov- attainment of age 21-25. Older work- equal to the maximum pension in the ernment supervision and pays definite military and civil-service systems.7 and assured benefits. It underwrites ers are often excluded from participa- Pensions are considered taxable in- 5,065 plans covering 126,000 salaried tion and covered by another type of come in Norway, since contributions employees. plan. are essentially tax free. Retirement age.-The usual retire- 2. Pension Funds, which may be in- ment age in the private plans is 65 for Sweden sured. These funds operate on an a.c- tuarial basis, under the supervision of men and 60 for women. There is a Public System the Royal Pension Board. Assets must tendency to increase the retirement The Swedish public system pays be invested outside the employer’s age to 67, at least for men, since this workers 67 years of age or over a flat business. Benefits have a high degree is the retirement age under the public of assurance. These funds cover about program. pension as a matter of right, plus a 200 plans and 100,000 salaried em- series of supplements, some of which Pension amount. - The S.P.P. has ployees working in such enterprises as set the standards for pension levels. are subject to a means test. The sup- the cooperative movement, the mer- plements consist of payments to cover The pension amount for salaried em- chant marine, insurance companies, ployees is usually 60 percent of final variations in housing costs among the and banks. different areas, a wife’s allowance, an pay after 30 years of service and pro- 3. Pension Foundations. There are portionately less for fewer years of extra allowance for blindness, and an approximately 1,000 registered pen- allowance adjusted quarterly to a service. This rate is somewhat less sion trusts, supervised by the Royal than that for civil-service employees. cost-of-living index. Pension Board but with less strict ac- tuarial provisions than the Pension Subsidiaries of United States and Private Plans Funds. Employees have a real base of British companies use an average-pay T?lpes of plans and coverage.-Fri- protection. The foundation is a pre- rather than a final-pay concept, as vate plans have existed in Sweden for ferred creditor in case of bankruptcy. they would in their home countries. more than 50 years. They cover sala- The employer cannot withdraw re- Pensions for the relatively small num- ried employees almost exclusively. Al- serves. The foundation can dispose of ber of covered wage earners are gen- reserves to make actual pension pay- though some plans covering wage erally on a fiat (uniform) basis and ments but only to the extent that re- are paid in full until the pensioner serves for future pensions are not reaches age 67, when they are reduced 6 The tax-law revision of December 1952 reduced. to the maximum income that the encourages employers to make extra con- tributions to a “premium fund” to cover 4. Free Foundations, coverage un- means test permits the worker to re- contributions in years when the employer known, not required to register, and ceive without reducing his public pen- might not be able to pay such contribu- without national governmental super- sion. tions or premiums. vision. These foundations offer the Maximum benefits.-The size of the 7 The tax-law revision of December 1952 employee less definite protection than pension is limited by establishing a ahows an employer to deduct an adcii- do the Pension Foundations. The tional amount, up to the amount of his foundation is not a preferred creditor maximum salary base or by relating contribution. if paid into a “premium in case of liquidation, and employers the pension amount to a lower per- fund” to cover contributions in years centage of higher earnings. In some when the employer might not be able to can withdraw reserves at any time to pay contributions or premiums. The pre- cover current pension costs. plans, salary increases after age 55-60 mium fund may not exceed 9 times the are excluded from the pension compu- annual premium. See also footnote 5. The S.P.P. and the Pension Fund tation, but cost-of-living allowances

Bulletin, August 1953 13 are generally included. In other plans, available from several insurance com- of service. Because the law became a limitation of the ratio of the em- panies largely or solely at the expense effective in 1948, maximum pensions ployer contribution to the employee of the employee. There are between will not be payable until 1968. The contribution causes late salary in- 600 and 700 such plans covering about law requires no means test and pays creases to have little effect on the pen- 125,000 employees. Benefits range up pensions as a matter of right, regard- sion finally payable. to two-thirds of annual earnings. less of income. Survivor benefits are Employee rights on separation.-In Disability.-All S.P.P. plans and provided. No provision for disability S.P.P. and Pension Fund plans, em- most Pension Fund plans provide per- is made in the public pension system. ployees on separation have practically manent disability pensions, usually full rights based on both their own after 90 days of at least 50-percent dis- Private Plans and their employer’s contributions. ability. The amount of the pension is Types of plans and coverage.-Pri- An old S.P.P. contract may be contin- related to the degree of disability and vate plans have existed in Switzerland ued by the employee himself or jointly ranges from 50 percent to 100 percent for more than 50 years. About 2,000 with his new employer; otherwise the of the prospective retirement pension, insured and 1,000 noninsured plans employee receives a paid-up benefit. computed on the assumption that the are in effect. Wage earners as well as A woman who resigns to marry or employee would have continued at the salaried employees of the major em- a worker who emigrates to another same rate of pay until retirement. The ployers are usually covered, although country receives a lump-sum benefit. disability pension usually may begin some plans are restricted to the sala- In no case does an employer receive at any age, regardless of cause, except ried employees. There is no Federal repayment or credit for his contribu- that workmen’s compensation pay- supervision, but most Cantons check tion. ments are deducted from the pension to ensure that funds are used for the Survivor benefits.-S.P.P. and Pen- in the case of work injuries or ill- purposes specified. Most noninsured sion Fund plans pay separate widow’s nesses. plans are employer-administered and and orphan’s pensions on the death of Contributions.-In view of the high allow some latitude as to amounts paid the employee. The widow’s pension is costs of final-pay plans (the usual type and persons benefited. usually 50 percent of the husband’s in Sweden), employer contributions The three major types of plans in prospective pension, payable at any range up to 30 percent of payroll, less use are final-pay, money-purchase, age whether or not there are young any employee contributions. In those and average-earnings. The early pri- children. It is discontinued on re- plans that assure benefit payments, vate plans, strongly influenced by the marriage. The amount of the orphan’s employee contributions are required. Federal employee and railroad plans, pension is also related to the father’s The rates are usually 6 percent for were of the final-pay type but have prospective pension, as shown below. women and unmarried men and 8 per- gradually changed to the money- cent for married men. The higher rate purchase type. Since money-purchase for married men covers the provision plans penalize the employees hired at Percent of father’s for a widow’s pension. an older age, supplementary and pension Number of orphans Tax provisions.-Employee contri- minimum pensions have been intro- mlf Full butions and some insurance and an- duced that partly wipe out the savings orphans orphans nuity premiums are deductible for in- in costs. The subsidiaries of United I i come-tax purposes. Employers may States and British companies usually l-_---.------.-.--.-----..-.-.- 37.5 2.-...--..---.-.....-.--..-...- ;: 55.0 deduct all pension payments made out employ average earnings, as in the 3 ._____.-.- ______-.- .____-.. -. 67.5 4...... ~....~.~...... ~..~~... ;; 75.0 of current income and/or all contribu- plans common in their home coun- Each additional child- .__.... 5 5.0 tions to private plans, including con- tries. tributions for past service, in any Eligibility for participation.-Em- amount. ployees generally must serve l-5 years These pensions are payable until the Pensions from private plans as well and be over age 20 before becoming orphan reaches age 21, or later if he is as those from the public system con- eligible to participate in an existing incapacitated. stitute taxable income to the pen- private plan. The usual provision re- Death benefits and life insurance.- sioner - subject, however, to liberal quires 3 years’ service and age 23. The The S.P.P. plans usually include en- deductions. maximum entry age for newly hired dowment life insurance covering about employees ranges from 35 to 55, with 50 percent of the annual salary. The Switzerland an average of 45. The older workers maximum endowment policy written are, however, often covered by a modi- is the sum of the prospective pension Public System fied plan. and the widow’s pension, which could The Swiss public system pays pen- Retirement age.-Most plans pro- amount to 90 percent of the annual sions, on retirement, to men and un- vide for retirement at age 65 for men salary. The benefits are paid in full in married women aged 65 and over. A and 60 for women. A few plans use age a single payment if death occurs be- couple may receive a pension if the 62 for women, but the recent trend is fore retirement. Otherwise half is paid employee is aged 65 and his wife is at to raise the retirement age for women on retirement (early, disability, or least 60 years old. The pension is re- to 65 since the public system provides normal retirement) and the other half lated to length of covered service, with for retirement at that age for both on death. Group life insurance is the maximum payable after 20 years sexes.

14 Social Security Pension am.ount.-Most of the Anal- pension for a full orphan is generally Australia and New Zealand pay plans, with beneflts proportional 50-100 percent more than that for a to length of service, provide pensions half orphan. Most plans carry a maxi- Because of the high degree of simi- ranging up to 50 percent of final pay, mum provision that stipulates that larity in the basic systems in Australia though some pay as high as 70 per- the total of the widow-and-orphan and New Zealand, these two countries cent. Some plans provide pensions of payments may not exceed the em- are treated together. Significant dif- 30-40 percent of final pay after a ployee’s prospective pension or 50-60 ferences are indicated. minimum length of service. The percent of his pay at death. money-purchase plans pay whatever Death benefits and life insurance.- Public System the contributions (usually 10-15 per- Under final-pay plans, a death benefit In both countries, uniform old-age cent of earnings) bought in annuities. equal to three to five times the pension beneflts, based on a means test, are Average-earnings plans, as in the amount is usually paid. Money-pur- paid at specified ages without regard United States, pay pensions related to chase plans provide a death benefit, to previous employment and earnings. wage rate, earnings levels, and length through an endowment contract, that This approach, and the nature of the of service. A few plans give the retir- is equal to the capital sum expected tax laws, have to a large degree deter- ing employee rights to the entire capi- at retirement. Other plans include mined the kind of private plans that tal accumulated at time of retirement, group life insurance contracts. have developed. payable as a lump sum. Disability.-Not all the private plans Australia pays a uniform pension to A limiting factor is usually intro- pay disability pensions. Of those that men aged 65 and over and women aged duced through establishment of a do, some provide a scale of bene- 60 and over. The combined pension maximum salary base. fits based on length of service, others for a couple approximates 50 percent Employee rights on separation.- pay the amount of the retirement pen- of the average earnings in the Nation. While the separated employee has sion computed on the assumption that In New Zealand a uniform pension rights based on his own contributions, the employee’s wages would have re- (the age benefit) is payable, subject rights based on the employer contri- mained unchanged to age 65, and still to a means test, after age 60. For a butions are rare. Some few plans do others pay 10 percent of the death couple, both aged 60, the age benefit award such rights in case of separa- benefit annually. may, in the case of a worker with low tion for ill health (when no disability Contributions.-The more liberal earnings, exceed his final wage. At age pension is provided) or when the em- final-pay plans require an employer 65, a new uniform payment (the uni- ployee is discharged because of lack contribution of 20-30 percent of pay- versal superannuation benefit) be- of work. roll. Money-purchase plans cost the comes payable as a matter of right Survivor benefits.-At least two- employer lo-15 percent of payroll, the without an income test. This benefit, thirds of the private plans provide a higher figure being the usual one, plus though uniform, is progressive-that widow’s pension, but only if the hus- the additional costs of past-service is, although all pensioners receive the band died before retirement. Under credits and minimum pensions where same amount (E85 per year in 1953), the usual provision, the widow’s bene- provided. the amount increases by E5 on April 1 fit is about 50 percent of the husband’s Employee contributions are always of each calendar year for all pen- prospective pension. Some plans com- required, but the formulas vary. Some sioners, and it is scheduled to reach a pute the widow’s pension as 20-40 per- plans determine employee contribu- maximum of $149 10s.per year (equal- cent of the husband’s pay at time of tions as a percentage of earnings- ing the age benefit) in 1966. If the age death. usually less than 5 percent; others benefit exceeds the universal super- Limitations may be introduced. A provide for employee contributions annuation benefit, the worker con- plan may require, for example, that equal to one-third to one-half of bene- tinues to receive the former after age the marriage must have taken place fit costs. Plans that provide uniform 65. before the husband reached a specified benefits require a flat-sum employee age. Under some plans, if the widow contribution. Private Plans was more than 10 years younger than Tax provisions.-Under the Federal Types of plans and coverage.-The the husband, the pension is reduced income-tax laws, the employee may nature of the public system in both by 2-4 percent for each such year in deduct his total contributions. Prac- countries has encouraged the develop- excess of 10. If the widow remarries, tice among the Cantons varies. Treat- ment of private plans that more nearly it is usual to pay her a lump sum equal ment of the employer’s deduction also resemble contributory savings plans to her pension for l-3 years and to dis- varies among the Cantons, but the de- with life insurance coverage than continue the pension. duction of his contributions is un- plans that pay regular monthly pen- Plans that provide a widow’s pen- limited under Federal tax provisions sions. There are about 1,200 insured sion also provide orphan’s pensions; (except during World War II, when plans in New Zealand and about 4,800 some plans pay pensions for the or- the deduction was limited to 15 per- insured plans and 1,200 noninsured phan but not for the widow. The pen- cent of the payroll amount). plans in Australia. The average num- sion for a half orphan is usually lo-20 Pensions are regarded as taxable in- ber of persons covered by each plan is percent of the father’s prospective come, but most pensioners pay no in- low, since most establishments are pension, but some plans pay lo-20 come tax as a result of the high level small and plans tend to cover only percent of the father’s Anal pay. The of tax-free income. male employees.

Bulletin, August 1953 15 Most plans are on an individual- employee contribution. Under an fare fund, derived from special em- contract basis, since little group insur- alternate method sometimes used, the ployer contributions, recaptured divi- ance is written in these countries. employee is given a range of contribu- dends, capital gains from investment Ninety percent of the plans are en- tion rates (2.5-10.0 percent of earn- of funds, collection fees paid to trust- dowment contracts of a given face ings) , from which he chooses the rate ees by insurance companies, and the amount, maturing at a stipulated (re- he wishes to pay. The employer like. Large reserves of this type can tirement) age and providing life in- matches the contribution. For bene- be used to increase the employee’s re- surance for the same face amount (for fits based on past service, a supple- tirement benefits. men) to the maturity date. For ment to future service contributions A number of plans provide that em- women and for those men who cannot is added. If, for example, a supple- ployees who commit a dishonorable pass the medical examination, a spe- mental contribution rate of 0.2 percent act or cause the employer a loss can be cial endowment contract is written for each year of past service is to be deprived of some or all of their rights that, in the event of death before the added to a B-percent rate for future in order to reimburse the employer. maturity date, refunds premiums plus service and the employee has had 15 In some cases, dismissals for other interest. The endowment contract at years of past service, the total em- forms of misconduct may reduce pay- maturity (retirement age) can pay a ployer contribution rate would be 8 ments to an employee. lump sum or can be used to purchase percent (5 percent plus 15 times 0.2 In the operation of some plans, an an annuity for the employee or for the percent). estimate is made of the anticipated employee and his beneficiaries, or Part In definite benefit plans, for bene- dividends up to the time the employee of the lump-sum payment may be used Ats based on future service, the plan will retire. This “bonus” is then used by the employee for voluntary Pur- provides an endowment of 100-200 either to increase the employee’s bene- chase of such annuities. The nonin- percent of current annual pay. The fits over those guaranteed by the cur- sured plans usually are established as employee pays half the costs, not to rent employer and employee contribu- a trustee corporation, often investing exceed 5 percent of earnings, while the tions or to reduce the employer’s in the employer’s business. Even employer pays the remaining costs up current contributions in anticipation under insured plans, an individual to the tax-free limit. If the plan pro- of the effect of the accumulated bonus. trustee is set up to act as counselor to vides a regular pension, such as the Employee rights on separatiox- the employee in view of the complex sum of 1’/4 percent of each year’s pay, The general practice in private plans decisions he must make at the time of the employee pays a Axed percentage is to guarantee the employee, as a retirement. of earnings-say, 4 percent-and the minimum, the’return of his own con- Eligibility for participation.-Some employer pays the rest of the cost. For tributions at any time, plus a gradual plans require up to 3 years of service benefits based on past service, an addi- increase in rights based on the em- before an employee can participate, tion to the regular pension plan bene- ployer contribution, in proportion to but the tendency is to make him eli- fit is provided-3/4 of 1 percent of pay the length of service. High turnover gible soon after employment. at the time of the plan’s introduction, after short employment causes high Retirement age.-In Australia the multiplied by years of service, paid for net employer costs since the guarantee age qualification for retirement by an additional employer contribu- of the return of the employee’s contri- matches the retirement age under the tion In some plans the endowment butions to the employee uses up the public system-65 for men and 60 for amount is determined by adding, for total surrender value of the policy and women. In New Zealand, in the pro- each year of past service, an amount results in’s loss to the employer of the visions for retirement of male employ- equal to 1 week’s earnings at the time contribution that he has made. ees, about half the plans match the the plan was established. Survivor benefits.-Survivor bene- age for the age benefit under the pub- At retirement age, except in the few fits are not normally provided directly. lic system (60) and half match the regular pension plans, the trustee and The life insurance feature of the en- age for the universal superannuation the employee must decide how to dis- dowment contract (to maturity under benefit (65). The provision for female pose of the capital sum (endowment) the plan) and the voluntary purchase employees in New Zealand is usually available. The disposition is usually of beneficiary annuities by the em- age 50 or 55, with only a few plans made in the following order: (1) Ap- ployee at retirement substitute for this requiring attainment of age 60 for re- plying to purchase of home (or paying benefit. The welfare funds mentioned tirement. off mortgage), and to debt on such above sometimes make payments to Pension amount and contributions. items as furniture and personal effects, widows. -Benefits and contributions are which do not enter into the means test Disability.-Some noninsured plans linked together in a wide variety of for the public pension; (2) purchase provide permanent disability pay- formulas, of which the following are of annuity equal to allowable tmaxi- ments, usually equal to the prospective examples : mum) income in the means test for retirement benefit. A number of em- In indeflnite benefit tmoney-pur- public pension; (3) building capital ployers provide disability benefits as chase) plans, for beneflts based on up to permissible limit for receipt of a supplement to the insured endow- future service, a Axed employee contri- full public pension; and (4) making ment plan. bution rate is established, with the permissible investments. Tax provisions.-In both countries, employer matching or exceeding the Many plans include a special wel- employer and employee contributions

16 Social Security are deductible for income-tax pur- taxable income, but if the pension is or no to be payable on the poses, up to specified limits. purchased for a specified number of pension. Australia considers tax-free the years (not for life), the employee gets In both Australia and New Zealand, portion of a regular pension benefit his capital back tax free. The em- if the beneflt is paid as a capital sum, that represents capital but treats the ployee must, however, pay the social only 5 percent of the capital sum re- interest as taxable income. In New security- tax (7.5 percent) on his pen- ceived in the year is considered tax- Zealand, a regular pension for life is sion, even if his exemptions cause little able income.

Notes and Brief Reports mately 1 million account numbers were issued in 1952 to this group. Applicants for stantial impact of registrations result- Although the provisions for their cov- Account Numbers, 1952 ing from the 1950 amendments, it ex- erage became effective on January 1, ceeded the average number in the 1951, most self-employed persons The issuance of 4.4 million new em- years 1945-50 by more than 1.5 mil- needing account numbers did not ap- ployee account numbers in 1952 lion (table 2). ply until shortly before they paid their brought to 106.8 million the total In 1952 the volume of account num- first social security contributions number of accounts established since bers issued was maintained at a rela- when filing their income-tax returns the beginning of the program (table tively high level chiefly because of the for 1951, which were due March 1952. 1). While the 1952 total was 564,000 large registration of the nonfarm self- Many account numbers also were fewer than the number established in employed covered by the 1950 amend- issued to the self-employed during the 1951, the first year to show the sub- ments. It is estimated that approxi- latter half of 1952; during this period a number of persons who had failed to report a social security account num- Table L-Number of applicants for account numbers and the cumulative number as of the end of each period, by sex and by year, 1940-52 ber on their income-tax returns were requested by the Bureau of Old-Age [In thousands] and Survivors Insurance to obtain their number and forward this infor- I Total i- Male Female Y- - mation. Period Total ,3umulative Cumulative Total (Xmmlative Two other factors affected the vol- total Bs of total as of during total as of “,?‘i end of period end of period period e:cd of period ume of account numbers issued in .- .- 1952-the expansion of employment 1940~...~~~.~.~....~.~~~.~.~.~~~ 5,227 54,225 37,342 2,147 16,883 opportunities in consumer and defense 1941-_..~.~..~-.-~~.~-~.~-~.~-~- 6,678 41,044 2,976 19,859 1942--..-...-.~-~.~-~.~.~.~.~~~- 7,638 %E $3 47,49644,592 23,949 industries, and the receipt of applica- 1943--. ..__..._._..__._____----. 7,426 75:967 ~~ 28,471 tions from persons employed either by 1944__..---...--..-..-.------4,537 80,544 2: 709 31,180 1945--..-.-.---..-..------.-.-. 3,321 gsy 1:504 i 49,32450,828 1,817 32,997 State and local governments or by 1946--..-~.~~~~.~.~-~.~.~~~.~~~. 3,022 1,432 * 52,260 1.590 34,587 1947v ..______.______. 2,728 89:575 1,299 53,559 1,429 36,016 nonprofit organizations who were 1948~...~~~.~~~...~.~~~~~~~~.~~~ y$ 92,295 1,305 54,864 1,415 37,431 brought into coverage in 1952 under 1949--....------....-.------. 94,635 1,113 55,977 1,226 38,657 1950--.--.----...-..------~. 2:891 97,526 1,405 57,362 1,485 40,142 the voluntary coverage provisions of 1951--..-.-.--.-....--.-.------. 4,927 102,453 2,420 59,802 2,507 42,649 1952--..------..----.-..---.-.-- 4,363 106,816 2,292 62,094 2,071 44,720 the 1950 amendments. - - Fewer accounts were established in

Table 2.-Distribution of applicants for- account numbers, by race, age group, and se%, and by year, 194o+j2 Total Negro T Under age 20 Aged 20 and over 1 Year I- Total Male Total ) Male Female Male Female Male Female l----- _- 1940.__.______-- ______5,226,638 2,146,656 630,337 413,984 216,353 2,137,542 1,264,299 873,243 3,089,146 1,815,733 1,273,413 1941______.______6,677,584 x% 2,976,117 786,668 506,979 277,689 3,174,241 1,885,858 1,288,383 3,5(x,343 1,815,609 1,687,734 1942._.______7,637,416 3: 547:376 4,090,040 905,238 457,146 2,013,325 1,707,338 $yg 1,534,051 2,382,702 1943______7,415,294 2,901,273 4,514,021 1,058,178 355,341 %G %G 1,335,Q39 1,813,233 1,065,334 ymp& 1944______.__ 4,528,578 1,826,179 2,702,394 738,739 253,197 485:542 2:444: QQ5 1,213,002 1,231,w3 2:cm: 533 613,177 1945-m.______3,321,384 1,505,839 1,815,545 504,321 195,313 309,cm 1,851,854 922,562 pp$ 1,469,630 &Q32: ‘$g 1946-e.______3,022,057 1,431,760 1,590,297 388,489 185,708 202,780 1,600,260 746,796 1,421,797 1947______..______2,727,810 1,299,092 1,428,718 314,788 154,975 159,813 1,620,237 819:145 1,107,573 498:000 1948______2,719,642 1,304,625 1,415,017 309,790 150,628 159,182 1,7’70,613 3 % 858,424 949,029 392,436 %! ~~~ 1949______-.- ______2,339,502 1,113,006 1,226,496 259,629 125,342 134,278 1,518,152 773:289 744,863 821,350 339,717 481:633 1950-m..______2,890,570 1,405,340 1,435,221 319,272 157,739 161,533 1,385,658 1,001,757 883,901 1,034,912 403,592 601,32?l 1951._.______4,927,120 2,420,488 2,506,632 768,533 282,037 426,496 2,537,114 1,373,921 1,163,193 2,390,co6 1,046,567 1,343,439 1952.______4,363,351 2,292,309 2,071,042 428,887 lss, 114 229,773 2,2Q7,742 1,203,883 1,0%,859 2,065,609 1,033,426 982,183

1Includes a small number of applicants whose ageswere not reported.

Bulletin. August 1953 17