Social Security In America

Part II

OLD-AGE SECURITY

Chapter IX

OLD-AGE SECURITY ABROAD

GENERAL INTEREST in providing old-age security manifested itself in Europe about the middle of the nineteenth century. The earliest legislative efforts were made in Belgium, France, and Italy. Purely voluntary old-age and invalidity funds were set up and offered to the working population, which was permitted to purchase small old-age annuities. Very little, however, was accomplished for the wage earners by this voluntary insurance. Even the addition of substantial governmental subsidies did not induce many workers to make provision for themselves.

Subsequent legislation toward old-age security followed two patterns. One was that of non-contributory assistance grants "for the aged and deserving poor" on a plan similar to that adopted in 1891 by Denmark, the pioneering country in old-age assistance. The other was that of compulsory contributory old-age insurance adopted by Germany {1} in 1889 and patterned after that of the customary miner's funds that had existed in European mining communities from the Middle Ages.

By the outbreak of the World War, systems of non-contributory old-age assistance had been established in Denmark, Great Britain, New Zealand, Australia, Newfoundland, and Iceland, and nominally in France, while contributory insurance had been instituted in Germany, Luxemburg, Rumania, and Sweden, and legislated for later operation in the Netherlands.

Since the war, two British Dominions, Canada {2} and the Union of South Africa, one South American state (Uruguay), and the island of Greenland have established gratuitous systems, while Norway has enacted a non-contributory old-age assistance law but deferred its operation. In this same period, 15 countries, including France, Great Britain,{3} and Italy, have legislated and organized general con-

{1}See appendix X for an account of the German system of contributory old-age insurance.

{2}See appendix VIII.

{3}The British systems of non-contributory and contributory old-age insurance are described in appendix VII.

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tributory old-age insurance measures. A half dozen other nations have established insurance schemes for selected industrial groups.

Table 39 gives a summary of the countries which have enacted legislation for old-age security through non-contributory old-age assistance and contributory insurance, together with the year of enactment of the law and its coverage. From this summary it will be noted that in the British Dominions and a half dozen other countries, the state, by a non-contributory plan, provides a gratuitous grant on proof that the aged person has insufficient income for self-support and has been guilty of no serious misconduct. A tabular summary of the principal provisions of the foreign non-contributory old-age assistance laws may be found in table 40.

Twenty countries abroad, including all large industrial nations and many small ones, have enacted legislation for the protection of superannuated industrial workers through contributory insurance. In addition to these 20 countries there are general old-age schemes operative in several Swiss cantons, as well as limited systems in five nations in Central and South America. These limited systems give protection to selected groups of wage earners, chiefly railroad workers, seamen, and employees of public utilities and banks. Most of these laws, including both those of general and those of restricted coverage, insure against invalidity as well as old age, and two-thirds of them also include survivors' insurance, i. e., pensions for the surviving widow and children in the event of the insured worker's death.

(IMAGE OF TABLE 39-PART 1)
(IMAGE OF TABLE 39-PART 2)
(IMAGE OF TABLE 39-PART 3)

The shift of interest abroad from gratuitous old-age assistance to contributory insurance has been prompted mainly by two considerations: (1) The widespread objection to the "means-test" basis of non-contributory old-age assistance and the desire to make grants available as of right on arrival at old age; (2) objection to the financial strain upon the public exchequer occasioned by the increasing percentage of aged persons who qualified as in need of help and therefore were entitled to old-age assistance.

Both France and Great Britain, in setting up their contributory old-age insurance schemes for wage earners, recognized that in addition to the insured population there would always be a small number of needy aged from higher income levels and other uninsured economic groups who would not be eligible for insurance benefits. They have therefore retained their non-contributory plans to provide old-age assistance for these destitute uninsured men and women.

The French old-age insurance scheme, which was included in the general social insurance bill of 1928, merits special mention on the score of transitional arrangements, i, e., the provision made for older workers. Casual reading of the measure might suggest that little security is afforded this class of insured persons, as only a benefit proportioned to their years of insurance is guaranteed them. The clause on minimum pensions, however, modifies this situation radically and guarantees all pensioners who have been insured at least 5 years (no pension being due for a shorter insurable period) annuities which amount to five-sixths of the normal full pension of the lowest-paid workers and nearly one-half of the normal full pension of the

(IMAGE OF FOLD-OUT TABLE 40-PART 1)
(IMAGE OF FOLD-OUT TABLE 40-PART 2)

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next stratum of the insured. Thus, at least a subsistence pension is assured all annuitants from the year of initial benefit payments.

All the insurance systems, except those of Sweden and the three Swiss cantons, which cover the entire population, restrict their coverage almost exclusively to employed workers. From the standpoint of needed protection, an old-age insurance scheme, of course, should include all persons of low earnings, whether self-employed persons or wage earners. The practical difficulty of collecting from the independent workers, however, has stood in the way of their inclusion on a compulsory basis. All the administrative problems of a poll tax are involved. It is on practical and not on theoretical grounds that the usual coverage of old-age insurance laws is confined to persons who can be reached through their employers.

It is worth noting that a Czechoslovakian measure enacted in 1925 calling for a separately organized insurance scheme for independent workers has not yet been put into operation. It should also be mentioned that Sweden's experience has resulted in contribution delinquencies in industrial centers running well over 40 percent, which suggests that the broader coverage is more nominal than factual. Chile's system includes independent artisans, and several of the European laws cover certain selected classes of self-employed workers.

Contributions from both employers and the insured workers are required in all these systems except those of Soviet Russia, Spain, and the Netherlands. In all the countries except Russia, the government contributes either by paying part of the premium or, more commonly, by adding to the annuities which contributions will yield. In Russia the entire cost of the insurance is assessed to the employer who is in most cases the state itself. In Spain and in the Netherlands the insurance cost of small basic annuities is shared by employers and the public exchequer. Employees contribute if they desire to do so in order to obtain annuities more adequate than the basic pensions. The British old-age insurance scheme, like the other parts of their social insurance program, is based upon uniform contributions and uniform annuities, while the continental systems graduate both their contributions and annuities in accordance with the wages of the insured person. The British scheme has the great advantage of simplicity. It could be suitable, however, only in a country without substantial variations in the cost of living.

The pensions actually received, stated in terms of foreign currency, mean little if anything to most Americans. For purposes of illustration a comparative table which expresses the contributory old-age pension as a percentage of the engineering laborer's wage in each of the countries is given in table 41.

Tables 42 and 43 give a summary of the number of old-age pensioners in foreign countries who were in receipt of annuities in the

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most recent year for which the data were available. Table 42 also shows these pensioners as a percentage of the population of eligible age, while table 43 indicates the variation in these percentages in several countries since the non-contributory pension systems were placed in operation.

(IMAGE OF TABLE 42)
(IMAGE OF TABLE 43)

The most significant post-war incident in old-age security legislation abroad was Great Britain's insurance act of 1925. Her apceptance of the contributory insurance principle after nearly a generation's experience with gratuitous assistance is of special importance to the United States. It is of major interest, moreover, that pensions were made payable to the insured workers as of right, shortly after the institution of the contributory plan. This was made possible through Government provision of the necessary funds for the older workers. The scheme will ultimately be self-sustaining. In view of the interest in the British plans, detailed data on their old-age security provisions are given in appendix VII.

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The Canadian systems of non-contributory old-age assistance and of voluntary annuities are described in appendix VIII, and appendix X gives a detailed account of the financial history of the German contributory old-age insurance system which is combined with invalidity and with survivors' insurance.

Many of the foreign systems of old-age insurance are combined with survivors' insurance, providing pensions to widows and orphans of the insured. Appendix IX describes the provisions for survivors in Europe.

In a number of countries which have compulsory, contributory old-age insurance systems, persons who are exempt by change in occupation or income level after a specified length of coverage in the compulsory system are permitted to continue their insurance voluntarily, by paying the equivalent of both employer and employee contributions. These countries are: Austria, Belgium, Brazil, Bulgaria, Chile, Czechoslovakia, Ecuador, France, Germany, Great Britain, Greece, Hungary, Italy, Luxemburg, Netherlands, Poland, Rumania, and Yugoslavia.

In certain other countries persons who are not covered by the compulsory, contributory pension system are permitted to insure voluntarily by paying their share and the equivalent of an employer's share of the contribution. This provision permits self-employed persons and those outside the occupations compulsorily covered to participate in the benefits of the insurance system. Such provisions occur in the contributory old-age pension laws of Austria, Belgium, Brazil, Bulgaria, Chile, Czechoslovakia, France, Germany, Greece, Hungary, Italy, Luxemburg, Netherlands, Poland, Spain, Sweden, and Yugoslavia. Especially when combined with invalidity insurance these systems require a medical certificate and are limited to persons under specified ages. An income limit is also set in a number of countries.

Only a few countries have voluntary annuity systems under government auspices. This type of voluntary insurance differs from voluntary participation in a compulsory old-age pension plan in that no income limits or occupational qualifications are set. In Canada,{4} Ecuador, France, Japan, and the Netherlands, which have such systems, it is found that relatively few persons (except in France) take advantage of the opportunity for the purchase of annuities from the government.

{4} See appendix VIII for an account of the Canadian system of voluntary annuities.