CHAPTER XIII

VOLUNTARY AND SUBSIDIZED SYSTEMS OF OLD AGE INSURANCE

The first State efforts to relieve the problems of old age were generally made by means of some form of voluntary or subsidized savings insurance. The adoption of the compulsory principle of insurance against old age was unthought of at first. The States’ assistance was limited to encouraging and helping the wage-earning classes to accumulate savings which would protect them against old age. The Teutonic nations were the first to inaugurate the compulsory principle of social insurance. In the early days Latin speaking countries were proud of the fact that they did not adopt the German principle of compulsion and, instead, established voluntary systems of savings insurance. English-speaking peoples, on the other hand, have generally followed the non-contributory or straight government pension plans.

Voluntary and Subsidized Old Age Savings Systems were established as early as the middle of the last century. Although practically all countries started out with voluntary insurance plans the latter are in operation now in comparatively few countries. Most nations were compelled to abandon them as ineffective and substitute either compulsory insurance or straight pensions. France was the first to follow Germany’s example in adopting a compulsory old age insurance system in 1810. Since the signing of the Armistice, Italy and Spain have also changed from voluntary to compulsory insurance, while a few other countries have either adopted compulsory insurance plans or have been considering the adoption of such recently. The merits of these plans and the reasons for their abandonment have been discussed in an earlier chapter and need not be repeated here. In the chapters that follow an account of the old age pension systems as they exist abroad is presented. An effort has been made to bring them up to date. However, on account of the war, and the general difficulties of securing European data which resulted from it, this aim has been only partly realized.

BELGIUM

The Belgian “General Savings and Retirement Fund” was originally founded in 1850. As in the case of all voluntary insurance plans, it was created for the purpose of inducing wage-earners to provide for their old age, by affording them opportunities to save under the protection of the government. During the fifty years that followed the establishment of this fund many devices were employed to attract a greater number of persons to make deposits. This was done by reducing still further the minimum of deposits, by influencing children from six to fourteen years of age to join the fund and by appropriations for annual subsidies made by the national and provincial governments to mutual aid societies and similar organizations which induce their numbers to join the fund. In spite of all these encouragements, however, there was little success made in securing any considerable number of wage-earners to make deposits and provide for their old age.

In 1800, a law was enacted which sought further to encourage wage-earners to provide annuities for their old age by adding state subsidies to their own deposits and by giving special grants to the needy aged. The law permitted any person over 18 years of age to pay into the fund for himself or for another person. The depositors were not required even to make regular payments either at fixed periods or of a fixed amount. The minimum of deposit was one franc (normally 18 cents). The principal aim of this fund was to attract the poorer classes, as the law excluded from benefits those classes who paid above a certain maximum amount in taxes or licenses, as well as state officials who were entitled to old age pensions by virtue of previous laws. The annuities were paid at the age of 65 and could not exceed 1,200 francs ($231.60). In addition to the regular annuity the government made a contribution in the form of a premium which was added to the sums paid by the insured. The government subsidies ceased when the total credited to the insured person was sufficient to secure him an annuity of 360 francs ($72.00).

The government subsidies granted under the law of 1800 were small and did not prove sufficiently attractive to the old people. The amounts were therefore increased by an amendment passed in 1803. The latter provided a government allowance of one hundred per cent. on the first six francs ($1.16) deposited by a person who on January 1st, 1803, was between the ages of 40 to 45; the subsidy increased to 150 per cent. for those who were between the ages of 45 to 50 on that date, and amounted to 200 per cent. on the first six francs for those persons who were 50 years old at the time the law was enacted. These extraordinary subsidies naturally increased the number of depositors tremendously. According to Dr. Rubinow:[261] “In 1880 the number of insured was only 12,000 and under the influence of the subsidies began to grow, though slowly, and by 1888 it amounted to 168,000. The systematic granting of subsidies ordered by the act of 1800, in one year doubled the number of depositors. In 1802 it reached half a million. The increase in the rate of subsidies in 1803 brought the number to 636,000 and by 1810 it was well over 1,000,000.” There are no figures available in this country to show the tendency of the savings fund since the conclusion of the war. Savings in general, however, have greatly increased in Belgium. During the last eleven months of the year 1818, the Belgian postoffice savings banks received deposits amounting to 368,000,000 francs as against 262,000,000 francs in 1818.[262]

The savings fund could not meet the immediate problem of old age. The Belgian government, therefore, in addition to subsidizing savings, practically established a system of temporary old age pension grants. These pensions were given to all persons 65 years of age and over, provided they were Belgian subjects and had been residing in Belgium at least one year prior to their application for relief. These straight pension grants were given only to workmen, i. e. “men and women actually working with their hands for an employer, in consideration of a wage, whether such work be performed on time wage or piece wage, at home or away from home, and whether it be domestic, agricultural, industrial or handicraft work.” The claimant, the law also specified, must be in want, which was defined as “a state in which the resources of the person are insufficient to enable him to support himself and his family in accordance with the standard of comfort prevailing among workmen of his trade in the district in which he resided.”

The amount of the straight pension given was very small, namely 65 francs ($12.55) per year. The pensions were originally intended to cease in 1811 and government subsidies were to be given only to those who had made deposits in the savings fund. However, in May, 1811, the law was further extended to continue till 1814.

The experiences of the Belgian fund are sometimes pointed to as indicating the success of voluntary insurance. However, while it is true that the Belgian experience has proved quite successful, it must be accounted for by the extreme measures undertaken to attract depositors. It is obvious that subsidies of 150 to 200 per cent. would attract a great number of persons. But these are hardly different from straight pensions. Prior to the war, it was also claimed by students of social insurance that in spite of all efforts, the average annual payment per deposit in Belgium was steadily declining.[263]

CANADA

The Canadian Parliament, in 1808, passed an act authorizing the issuing of government annuities for old age. This act was amended in 1808, in 1810, in June, 1813, and in 1820. The law originally authorized the Minister of Trade and Commerce to make contracts with any person domiciled in Canada for the sale of an immediate deferred annuity, as follows: “(1) for the life of the annuitant, (2) for a term of years certain, not exceeding 20 years, provided the annuitant shall so long live, (3) for a term of years certain, not exceeding 20 years, or for the life of the annuitant, which ever period shall be the longer. Also for an immediate or deferred annuity to any two persons domiciled in Canada during their joint lives and with or without continuation to the survivor.”

The system of government annuities is at present in charge of a Superintendent of government annuities in the Post Office department. Payments are made in three forms: weekly payment, yearly payment, and single payment. The rates for females are somewhat higher than those for males. Premiums may be paid to the department directly or to any postmaster. Any person resident or domiciled in Canada may now purchase an annuity. Plans are also provided by which employers may co-operate with their employés in the purchase of annuities.

No annuity can be granted on the life of any person other than that of the actual annuitant. It cannot be less than $50 a year and the total amount payable by way of an annuity cannot exceed $5,000 a year. The age limit of 55 years formerly required at which an annuity could begin was abolished in 1820. If the annuitant dies before the expiration of the specified number of years, the annuity must be paid to his legal representatives for the remaining number of years, unless agreements to the contrary have been made between the State and the annuitant. The rate of interest on moneys returnable was increased from three to four per cent. by the 1820 amendment.

Up to Dec., 1820, there were a total of 4,857 annuities issued in Canada. The total receipts up to the same date were $4,751,677.17. The average amount of annuity purchased was about $250.[264] This small number of annuitants is exceedingly significant in view of the fact that the Annuities Act “was passed in order to promote habits of thrift, and to afford facilities whereby the people of Canada might be aided and encouraged to make provision for old age by the purchase of Annuities” and by the department’s advertising the fact that under the recent amendment if “a man who began at the age of 20, to buy an annuity of $500 to commence at 60—which he could do at a cost of but little more than one dollar per week—were to die just before the first payment of annuity was due, his heirs would receive the tidy sum of $5,181.83.”

In addition to the voluntary system of insurance against old age, the government has also provided, for the benefit of the employés of the Intercolonial Railways and Prince Edward Island Railways, a separate fund which was established by an act of March 27, 1807, and which was later amended in 1808, and in June, 1813. Under this fund, the insured persons and the state contribute equal shares; the latter’s contribution, however, cannot exceed $100,000 per annum. The employé’s first monthly contribution is fixed at three per cent. of the monthly wages and the remainder at one and one-half per cent. Pensions are given, (1) to those who have attained the age of 70; (2) to those who have become physically or mentally incapacitated; (3) to persons who have attained the age of 60 and wish to be retired from service (after 15 years of service in all three cases); (4) to persons permanently disabled, as a result of injuries while at work; and (5) to persons who at the time when the act was passed have already reached the age of 70 and who have been at least ten years in the service. The amount of the pension is based on one and one-half per cent. of the average monthly pay received during the eight years immediately preceding the granting of the allowance, multiplied by the number of years of service. The maximum pension is limited to $20 per month, and cannot be more than two-thirds of the average monthly wage. It is also provided that before an employé can become entitled to participate in any of the benefits he must serve six months on probation, during which period he must contribute to the fund.

The Canadian Royal Commission on Industrial Relations in its report of 1818 declared:

“We recommend the question of making some provisions by a system of State Social Insurance for those who through no fault of their own are unable to work, whether the inability arises from lack of opportunity, sickness, invalidity, or old age. Such insurance would remove a spectre of fear which now haunts the wage-earner and make him a more contented and better citizen.”

JAPAN

A postoffice life insurance system was adopted by the Diet of Japan in the 1815–16 Session and went into operation in October, 1816. The business is under the Minister of Communications. Each of the 7,000 postoffices in Japan acts as an agency for the receiving of contract applications and the collecting of premiums for life insurance policies. All persons between the ages of 12 and 60 inclusive, are eligible for insurance.

Policies are of two kinds, whole life and endowment. The latter are divided into 10, 15, 20, 25, 30, 35 and 40 year endowment policies. Medical examination is not required but in all cases individual applicants must have a personal interview with a postoffice official. Provisions are also made for group insurance.

On March 31, 1820, there were a total of 1,588,715 insurance contracts in operation. The total premiums amounted to $347,085 and the contracts in force to $76,355,222. Over 58 per cent. of the policies were whole life policies and 41.6 per cent. were endowment policies.[265]

In October, 1820, the government established a bureau in the department of Communications to deal with the question of State life insurance. Hitherto only a small section had been engaged in this work. The new bureau with its increased staff is expected to take up the matter of State life insurance on much broader lines.[266]

SWITZERLAND

There is no federal insurance law in Switzerland at the present time. Each Canton makes its own insurance provisions. As a result both the voluntary and compulsory-contributory insurance plans can be found there. The two voluntary cantonal insurance organizations are the Social Insurance Fund of Canton Neuchatel and the Old Age Insurance Fund of Canton Vaud. The former is a mutual organization with optional membership which was established by the cantonal law of May 15, 1806, and which enjoys a cantonal subsidy. It provides straight life insurance policies as well as combination and annuity policies.

Of the total number of policies in Canton Neuchatel during the year 1813, 6,620 policies, representing insurance to the amount of $1,242,820, were straight life insurance policies, and 7,707 policies representing $2,653,750, were mixed policies and 545 policies, representing $50,180, were annuity policies.

The Old Age Insurance Fund of Canton Vaud was established by a law enacted in March, 1807. This fund combines old age insurance with the various forms of savings deposits. The premiums or deposits may be either definite or provisional. In the latter case deposits may be withdrawn within ten years after payment. The principal purpose of this fund is to enable employers to provide for old age insurance for their workmen without being compelled to risk losing such payments, in case of the premature death or disability of the insured. The insurance fund also makes special efforts to encourage deposits by women and children, especially school children. In addition the cantonal government makes very liberal contributions to the premiums or deposits of citizens of the Canton, who are industrial tradesmen or workmen, whose annuities do not fall due before their 55th year, and whose annual premiums or deposits range from six francs ($1.16) and do not exceed 60 francs ($11.58).

The total number insured persons in this fund during the years 1812 and 1813 were 13,823 definite and 14,886 provisional. The total premiums received during the same year were $30,141 and $33,531 respectively, to which there was added $15,052 and $16,664 cantonal contributions. The total payments to the insured amounted to only $470 and $724 respectively. The comparatively low payments are explained by the fact that the fund has been in existence a short time.

A commission of experts appointed by the Swiss Federal Assembly to study the problem of social insurance brought in a comprehensive report[267] in regard to the problem in June 1818. The Commission recommended the adoption of a Federal compulsory insurance system against old age and invalidity. The insurance, it suggested, should be made compulsory either for certain classes of workers or for the entire Swiss population. The Commission recommended that the pensionable age be set at either 60 or 65 years. The contributions, the experts suggested, are to be made by the insured persons, the employers, the confederation, the Cantons and the Communes. It made no definite recommendations in regard to either the amounts of contributions or the pensions payable. It left to the law givers to decide whether they shall be uniform as in France, or shall vary in accordance with earnings, contributions and age as in Germany and in a few other countries. The Commission favoured a uniform rate of pension, however, although it did not preclude a modest graduation according to the length of time insured, or the taking out of supplementary insurance.

To meet the immediate needs of the aged, the Commission recommended the granting of straight annuities to those who have passed the age limit at the time the law is enacted. This to apply only during the period of transition, until this class gradually disappears. The Commission also recommended the continuation of the voluntary insurance plans now in existence for purposes of supplementary insurance.

MASSACHUSETTS

The Massachusetts system of Savings Bank Life Insurance and Old Age Annuities was devised and sponsored largely by Supreme Court Justice Louis D. Brandeis and the Massachusetts Savings Insurance League which Justice Brandeis organized. The plan first went into operation in June, 1808. Under the State law, savings banks were authorized to establish insurance departments, and to issue policies upon the lives of persons, as well as to sell annuities in accordance with the regulations provided by the State Insurance Commissioner. These savings banks insurance departments have no stockholders and are established solely for the benefit of the depositors.

The Massachusetts system of Savings Bank Insurance is a State aided plan in so far as the State largely bears the expenses involved in the administration of the system, and aims to give to Massachusetts wage-earners and their families all that their money can possibly buy of real insurance. Justice Brandeis stated that the purpose of the act was (1) “To give Massachusetts wage-earners an opportunity to secure safe life insurance at the lowest possible cost, as a substitute for industrial life insurance; (2) To give to Massachusetts wage-earners an opportunity to make provisions for their old age by the purchase, out of current earnings, of annuities at the lowest possible cost. (3) It is also designed to furnish a partial solution of the problem of providing for the superannuated workingman, by making the opportunities for saving the workingman’s money as numerous as the opportunities for wasting it.”[268]

In addition to purchasing straight life insurance policies, residents of Massachusetts may, under the State’s Savings Banks Insurance System, secure also (1) Twenty Payment Life Insurance; (2) Twenty year Endowment Insurance; (3) Old Age Annuities; (4) Combination Insurance and Annuities; and (5) Immediate Annuities. The maximum annuity is limited to $1,000. Agencies for collecting premiums have been established by the Insurance Banks in large manufacturing and commercial establishments, peoples’ institutes, social settlements, and trade unions. In 1820 there were more than 300 such agencies scattered throughout the State. The amounts of the monthly payments for the different policies are given in a table on the following page.

MONTHLY PREMIUMS OF SOME OF THE OLD AGE COMBINATION INSURANCE ANNUITIES IN MASSACHUSETTS ——Old Age Annuity—— Combination Insurance & Annuity Beginning $250 Insurance and $250 Insurance and Annuity Annuity Annuity $200 Annuity at Age $200 Annuity at Age at Age at Age 60 at Age 65 60 65 15 $1.68 $1.06 $1.88 $1.28 16 1.76 1.10 1.87 1.33 17 1.84 1.16 2.06 1.38 18 1.84 1.20 2.15 1.44 18 2.04 1.26 2.25 1.50 20 2.14 1.32 2.36 1.57 21 2.24 1.38 2.47 1.64 22 2.36 1.46 2.58 1.71 23 2.48 1.54 2.72 1.78 24 2.62 1.62 2.85 1.87 25 2.76 1.70 2.88 1.85 26 2.82 1.78 3.15 2.05 27 3.08 1.88 3.31 2.14 28 3.24 1.88 3.48 2.25 28 3.44 2.08 3.68 2.36 30 3.64 2.20 3.88 2.48 31 3.84 2.32 4.11 2.61 32 4.04 2.44 4.35 2.74 33 4.34 2.58 4.61 2.88 34 4.62 2.74 4.88 3.03 35 4.82 2.80 5.18 3.22 36 5.24 3.08 5.53 3.40 37 5.60 3.28 5.88 3.60 38 6.00 3.48 6.28 3.82 38 6.44 3.70 6.75 4.05 40 6.84 3.86 7.24 4.31 41 7.48 4.22 7.78 4.58 42 8.08 4.52 8.40 4.88 43 8.76 4.86 8.08 5.23 44 8.54 5.22 8.88 5.61 45 10.42 5.62 10.78 6.02 46 11.44 6.06 11.80 6.48 47 12.62 6.58 12.88 7.02 48 14.02 7.14 14.38 7.58 48 15.66 7.78 16.06 8.25 50 17.66 8.52 18.07 8.00 51 20.12 8.38 20.54 8.87 52 23.18 10.36 23.63 10.88 53 27.16 11.54 27.62 12.07 54 32.50 12.82 32.87 13.48 55 40.00 14.60 40.48 15.18 56 16.68 17.28 57 18.28 18.82 58 22.66 23.32 58 27.20 27.88 60 33.56 34.28

For the eleven years the system has been in operation there were, early in 1820, over 20,000 policies written of all kinds. The number of old age annuities was less than 300. The small number of old age annuitants may be taken as a fair indication of the possibilities of voluntary insurance in this country. With a population of nearly four million and after eleven years’ experience, less than 300 persons are taking advantage of this form of old age insurance in Massachusetts. Miss Alice H. Grady, Secretary of the Savings Bank Life Insurance, while admitting that the Massachusetts experience would seem to show that the people are either unwilling or unable to purchase old age annuities, contends, however, that: “this inference is not entirely correct, the simple fact being that the people do not know about them. For lack of funds we have not yet been able to demonstrate what could be done by means of an educational campaign to teach the people what deferred annuities are and the advantage of this form of savings against old age.

“We believe,” continues Miss Grady, “that if the time shall come when we are able to bring home to our people, by means of a systematic educational campaign, the knowledge and benefits of this system, we shall find them both intelligent and responsive to this form of appeal, and ready to make voluntary savings against old age, as they are now learning to do against sickness and death.”

That the Massachusetts experience with voluntary insurance has proved unsuccessful seems obvious. To explain the general apathy on the ground of mere ignorance is to ignore the basic problems discussed in the preceding pages. The difficulties of saving for old age are unquestionably more fundamental and are indicative of the success voluntary old age insurance systems may have in this country. Unfortunately, the persons who need this insurance most cannot take advantage of it. However, there are other advantages which, it is claimed, have come about as the result of the adoption of the Bay State plan. Miss Grady contends that: “Coincident with the establishment of savings bank life insurance in Massachusetts, the big industrial companies not only improved the conditions of their policies but also reduced the cost of their weekly premium insurance about 20 per cent. The great significance of this reduction has become increasingly apparent as the years have come and gone. For instance, during the year 1815, the wage-earners of Massachusetts alone paid to the industrial insurance companies on weekly premium policies the astonishing sum of $12,000,000. Had it not been for the reduction in cost above referred to, it is a fair assumption that the amount paid to the industrial companies last year (1816) by our Massachusetts people would have been not $12,000,000 but $15,000,000. Those $3,000,000 remain in the pockets of the Massachusetts wage-earners or have been used by them to purchase other necessities of life. Bearing this in mind it is not difficult to understand why the State is willing to contribute the modest sum of $20,000 a year toward the support of an institution which has been instrumental in bringing about this immense saving to our people. One might even go so far as to hazard the suggestion that the people of Massachusetts are getting an extraordinary good return on an exceedingly small investment.”[269]

WISCONSIN

In 1811 the Legislature of Wisconsin authorized the issuing of policies of life insurance and annuity contracts by the State. This was done by establishing a “Life Fund,” “to be administered by the State without liability on the part of the State, beyond the amount of the fund, for the purpose of granting life insurance and annuities, to persons who at the time of the granting of such insurance and annuities, are within the State or residents thereof.”

Applicants must be between the ages of twenty and fifty inclusive. These may purchase the following policies: (1) Ordinary life; (2) Twenty payment life; (3) Ten year endowment; (4) Endowment at age sixty-five; or (5) Term to age sixty-five. The advantages of this state fund are: (1) Its soundness; (2) Its low cost of operation, as profits are eliminated and no agents’ commissions to be paid; (3) No great overhead expense, as it is under the State Insurance Commissioner and only clerical help are being paid from the Life Fund.

When the Wisconsin Life Fund was established its promoters, among the many other advantages claimed for it, declared that: “it is the stepping stone to annuities to protect old age and perhaps to solving other economic and industrial problems.” Unfortunately, the life fund in Wisconsin has been a political pawn. It was sponsored and established during a LaFollette State administration and the Fund was fairly successful in its first few years. Then an opposing State administration came in and efforts to develop the life fund have slackened until it has become practically unknown in the State. Today, it is said that the only persons who are maintaining their insurance policies are the university professors at Madison.