By John F. L. Bray
1. The right way
Rerum Novarum, Pope Leo XIII wrote: "If a workman's wages be sufficient to enable him comfortably to support himself, his wife and children. he will find it easy. if he be a sensible man, to practice thrift. and he will not fail, by cutting down expenses. to put by some little savings and thus secure a modest source of income".
"If he lives sparingly, saves money and invests his savings, these savings, in such a case, are only his wages under another form; they should be completely at his full disposal as are the wages he receives for his labour."
"The law, therefore, should favour ownership and its policy should be to induce as many as possible of the people to become owners."
THE right way therefore is for the worker to save for his own old age out of an adequate family living wage. The State "should induce as many as possible of its people to become owners".
One way of doing this would be for the State to require that every firm in the country should adopt a scheme guaranteeing to all their workers under age 47 a pension at 65 of 60 per cent. of average earnings.
Contributions would be based on a percentage of earnings by the workers, matched by equal contributions from their employers.
The State, for its part, could agree to pay the current market rate of interest on a government stock (such as 3+ per cent. War Loan), with a minimum of 4 per cent.
The moneys would he accumulated in approved funds. which would be actuarially valued at stated intervals. The profits of the managers of the fund could he restricted to a small percentage of any actuarial surplus. These funds would submit their transactions to committees of employers' and workers' representatives tk hose job would be to see to it that the workers' interests (as owners) were safeguarded.
THE State should not dissipate these savings by harsh taxation; it should safeguard them from the depreciation that results from inflationary creation of money. Both the private and the government schemes in this country have this common feature: contributions by the worker are
matched by equal contributions by the employer.
The worker's contribution is evidently part of his wages. The employer's contribution is also part of the workers wages it is what the Americans call a "fringe benefit". The combined contributions, invested and accumulated at cornpound interest are therefore the workers' own property "and should be as completely at his full disposal as are the wages he receives for his labour."
At 4 per cent. interest. a combined contribution of 5 per cent. of earnings (21 per cent. by the worker, 23 per cent. by the employer) would produce an accumulated sum at the age of 65 sufficient to pay a pension of 60 per cent. of average earnings from the age of 20.
For workers entering the scheme at age 35, the contribution would be 10 per cent., for those entering at age 46. the combined contribution would he 20 per cent. of earnings.
If the worker dies prematurely or retires through ill-health or if a woman worker leaves to get married. the combined contributions accumulated at 4 per cent. could be paid over in a lump sum.
2. The wrong way
It's the workers' own money AS promoter of the common good, the State has the duty of taxing the rich in order to provide for the needs of the aged poor who cannot earn enough for their livelihood.
Over the past 50 years, the Governments of this country have extracted fixed weekly contributions from the workers reinforced by equal contributions from their employers and supplemented by State subventions.
The State has collected these contributions and paid them over as pensions to the old people.
The average worker doubtless thinks that his contributions go to provide his pension. They do nothing of the kind. They are all paid over to provide pensions for others. and there is never anything in the kitty; nobody ever owns anything. This method of providing for old age has five unhappy consequences.
FIRST, all workers who enter "insurance" at age 38 or under pay excessive contributions: The current pension of 80s. a week requires a combined contribution of 15s. 10d. a week. In 20 years time, because of the growing preponderance of old folk, this combined contribution will have to be raised to 18s. 10d. per week.
At 4 per cent interest. a worker aged 20 could secure a pension of 80s. a week at age 65 by the accumulation over 45 years of a combined weekly contribution of 6s. 4d. a week.
So, under the present system, the younger workers pay two and a half times too much for their pensions and all future generations will pay two and a half times too much. We shall never get straight.
SECONDLY, under the present System, the workers' savings arc destroyed. The country's high standard of living is derived from the industry and skill of the workers, allied to the vast array of power resources and capital equipment. Labour without capital is helpless.
To maintain and renew the nation's capital equipment requires the expenditure of 10 per cent, of the national ''cake". To improve upon our standard of living, further sums must be spent.
If industry and the Government decide to build the capital equipment needed to improve the standard of living, the money to pay for this equipment must be found from somewhere. Normally it is found from savings and an excess of tax revenue over the current Government expenditure.
I F savings and taxation are in
sufficient, the plans may have to be curtailed for lack of money. Workers will have to be sacked, there will be unemployment.
Alternatively the money needed to carry out the plans can he raised by borrowing newly created money from the banking system by inflationary creation of money. So the present system, by dissipating the worker savings may lead to unemploym4au or inflation.
THIRDLY, this policy saps the initiative of the people because it makes them rely upon the State instead of upon their own efforts.
It turns lice men into slaves of the State.
FOURTHLY, it prevents the mass of the people from ever becoming owners. It perpetuates the propertyless proletariat. T h e people's savings are taken from them by the State and doled out to others.
FINALLY, under present legislation, the poorer workers pay for pensions for many old people who already have a substantial income. There is no reason on earth why workers earning flO a week should pay 1.5s. 10d. (combined) contribution in order to provide a pension of 80s. a week for a man who already has a pension of £1,000 a year.
But that is what is happening.
However, the State has made these provisions, and under the modern "law of the Medes and the Persians" it seems, these promises must be kept, however, inequitable they may be.
THE scheme suggested in the first section would provide 60 per cent. pension at a reasonable cost for all workers under 47. Here the rich should help the poor. and the best way of doing this is by taxation.
In 38 years' time, the few survivors of the people now aged 47 and over will all be over 85 years of age. So the Government's task is to provide the money needed by the Ministry of Pensions to pay out these pensions over the next 38 years.
The cost will rise in the next 18 years from £700 million to £800 million. In the following 10 years it will fall rapidly to £250 million,
and in the 10 years after that it will fall further to £50 million.
In this year's Budget a total of £600 million is provided for new capital expenditure. of which £350 millions is to be met out of taxation and £250 millions will have to be borrowed.
If the scheme outlined in Section I were adopted, it would bring in contributions from workers under age 47 amounting to 1,000 million a year : the Government could then borrow the whole £600 million it requires for capital expenditure. The contribution out of taxes to the Ministry of Pensions could be raised to £520 million a year without increasing the level of taxation.
The weekly contributions at present rates from workers over 47 will fall from £200 million to nothing in the next 18 years. This gives the accompanying table of income and expenditure of the Ministry of Pensions over the next 38 years.
The result IN the first 18 years the deficit will rise gradually to £280 million. Over the next 10 years the account will roughly balance. In the final 10 years the surplus will rise from £270 million to £470 million.
The Government could therefore borrow the sums needed to meet the growing deficit of the first 18 years, and pay back the loans
years. years. After the surplus of the last 10
After 38 years the Government will have to provide pensions out of taxes for a small and diminishing number of old people over 85 years of age. The rest of the workers will be too busy saving for their own pensions (or enjoying pensions resulting from their savings).
The private pension funds owned by the workers would have invested funds amounting to considerably more than £20,000 millions. We should have a "property owning democracy."