In order to cover all the ground, I think it will be best if I try to give you my line of thought in dealing with a large Industrial Company desirous of establishing a Contributory Pension Fund, but in this connection I shall not discuss formulae or the construction of Valuation Factors.

I do not propose to dwell at length on Schemes under what is known as the “Money Purchase Plan” or, in other words, a series of deferred Annuities, where each Contribution purchases a definite amount of deferred Annuity. Except in the case of a very small Staff or a group of small Staffs where the numbers are few and where the salaries cover a wide range, such a Scheme does not meet the needs of the Staff and moreover, it is very inflexible. In fact, it is impossible to form a Scheme on this basis where the Pensions are to be calculated as a percentage of the retiring salary or wages or an average of the salary or wages received during the five or seven years prior to retirement. Further, no provision is made for Incapacity Pensions and, if Contributions are fixed, no definite relation can be established between Pension and retiring Salary or Wages.

It is hardly necessary to remind Members of this Society that little has been written in the Journal of the Institute on this subject.

Annuities are essentially uniform, monotonous things, devoid for the most part of those ingenious gadgets and fascinating sideshows with which we are wont to dress up Life Insurance for the edification of the non-technical public. The annuity, however, for all its smooth exterior, is a thing to be handled with caution. We have always to keep in mind the following obvious but very important facts:—

(a) That the contracts, in most cases, are completed in one transaction, for good or ill;

(b) that, among immediate annuities, there are few withdrawals or alterations;

(c) that the rate of mortality, especially among those female lives which form the bulk of our experience, is always diminishing;

(d) that this diminishing mortality is to the Companies' disadvantage;

(e) that there is nothing which exactly counterbalances (d);

(f) that there are no bonus-sharing annuities, so far as I am aware, which can be utilised to exhibit profit or absorb loss.

There appears to be very little information, especially of recent date, relating to infantile mortality, in the publications of the Institute, and it is possible that a discussion upon the mortality of very young lives would be of service to those who have to deal with infantile assurances to any great extent.

It is well known that infantile mortality rates have, generally, shown continuous improvement during the present century, and we cannot say that such rates have yet reached their lowest limit. For example, the deaths of males and females respectively during the first year of life as exhibited by successive English Life Tables are:—

The subject can perhaps be treated most effectively by following through the natural sequence of events, starting from the time at which some publicly constituted body of persons, such as a national government, municipal authority or company decides that it desires to borrow money.

It must be explained that I have applied the term “Borrower” both to persons borrowing money by means of bonds and to those raising capital by means of shares.

The first step is to get into touch with representatives of a financial “house” who, as specialists in such matters, will assist in the technical and other problems involved. This brings us automatically and immediately to the question of underwriting which may be denned as the process by which, for a consideration known as the underwriting commission, the requisite subscription to a new issue is guaranteed. It is the process by which the borrower virtually effects an insurance policy, under which the “insurers” or “underwriters” guarantee to subscribe for that part of the issue not applied for by the general public.

The first investigation to be made on the continuous plan adopted by the Institute and Faculty has been that into the Annuity experience for the period immediately following the close of the investigation into the Mortality of Annuitants 1900-1920 (which traced the experience of individual annuities).

There were three very good reasons for this:—

(1) The investigation could proceed while data relating to Assured lives were being collected (the Continuous Annuity Experience dates from 1921 while the Assured lives will run only from 1924).

(2) Having obtained so recent an experience as that for the period 1900-1920, there was the opportunity to watch the trend of annuitant mortality without any material break.

(3) It acted as a “pilot” run before the more important venture into the Assured lives experience.