CO129-483 - Others & Individuals - 1923 — Page 555

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A DADAI ad imala 1 retrei mot to deathTING lounaau 9.J 201

i.-

Assume a Scheme with funds of Rs.500,000 to have been taken over by the Government 20 years ago,

and further assume that after deducting the total suma paid on account of pensions from the total contributions received, there has been a uniform yearly credit balance of Rs.1,000. Such funds would now stand at Rs.1,639,297, on the assumption that Government had, in the meantime been paying interest at 6% per annum on the "mean monthly balances",

2. Now this Rs.1,639,297, when increased by the present value of the future contributions, is the total sum which the Government possesses for the fulfilment of all present and future obligations so far as the current and prospec- tive pensions of existing members are concerned.

3.

This Rs.1,639,297 being the fund actually shown in theAccounts, Government, will, for the future, pay 8% (instead of 6%) thereon, and 8% upon all future accretions thereto.

4.

So that when the processes mentioned in section II (9) of my Report are adopted, we are dealing with the actual facts, namely, that up to a certain moment interest was at 6% and that, from such moment, 8% is substituted. This is clear, since, if we regard every individual case, the sum of their values found by operations (a) and (b) of that section of my Report will be equal to the funds, or Rs.1,639,297: hence, on the basis of facts, we have

and we only recognised 6% interest up to this epoch, then proceed to convert this 76% accumulated) cash into its equivalent pensions on the assumption that the future rate of interest will be 8%. again, in precise accord with facts,

5.

Contrast, then, the procese suggested in paragraph 5 of your letter (No.26454/21 of the 24th. July 1923), namely, "that the new-rates of pension should be calcul- ated as if the 8 tables had been in operation during the whole period of the contributions on which the pen- sions are based? The necessary implication and condi- tion are that interest muat have been credited in the preceding example at this rate (namely 8%) during the entire period of 20 yeɛra.

6.

Take the funds of Rs.500,000 mentioned at the be- ginning of section (1), and assume that, owing to the higher 8% pensions now introduced, there has been no bal- ance of income from contributions remaining after paying current pensions, in place of the balance ofRs.1,000 there presumed: accumulating, then, at 8% (instead of 6%) the fund would amount in the same period of 20 years to Rs.2,330,478, which would represent the sum required by Government when added to the present value of the future contributions ( the latter being identical with that supposed in 2 above), for the fulfilment of all present and future liabilities in respect of existing members: hence we start upon the new epoch of 8% inter- est with a debt of Rs.691,181 (namely Rs.2,330,478 less the actual funds in hand amounting to Rs.1,639,297). In 10 years this defiedt of Rs.691,181 would stand at Rs.1,492,207; in 20 years at Rs.3,211,566; and in 30 years at Ra.6,955,117.