The Effect of Changed Economic Conditions and State Insurance on Private Pension Fund Benefits, Contributions and Valuations

Extract

Twice in the past forty years war has abruptly changed economic conditions in the country and the new economic conditions have in their turn affected the circumstances of all pension funds. Before the war of 1914–18, the great majority of pension funds provided pensions based on the average salary through the period of service for a low contribution rate, The inflation of salaries and wages between 1914 and 1919 disclosed the weakness of the system since the pensions provided proved to be small in comparison with the new level of remuneration and to be inadequate to support the member during retirement. The experiences of this period led to the adoption of the system of basing the pension on the remuneration of the final year of service or of the average remuneration of the years immediately prior to retirement, The financing of the additional pensions to members for whom pensions on the pre-1914 basis had been provided and the establishment of the new system for members currently contributing was materially assisted by the high yield obtainable on investments. It should be added that for a scheme with funds invested before 1914 the depreciation of assets due to the high interest rates which had been obtaining immediately after the war increased the cost of reorganization of the scheme.