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1852.

Deferred Annuities.

419

began to feel the first approaches of infirmity.* He might then plod cheerfully onward through the intervening years, with none

of the grinding anxieties and fears of the workhouse which now beset him, having made himself sure of a quiet and respectable home for his old age.

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Government has not been insensible to the importance of facilitating and encouraging the purchase of small deferred annuities by the poor. An Act was introduced by Lord Althorp (3 & 4 Will. 4. c. 14.) to enable parties, through the instrumentality of the savings' banks, to purchase such annuities of not less than 47., nor more than 301. - the annuitant to have the option of paying down the whole purchase-money at once, or by weekly, monthly, or yearly instalments. As an additional encouragement, it was provided that if the purchaser became unable to continue his payments, or died before the annuity commenced, the whole sum he had actually paid should be returned, without interest, to himself or his representatives. The reason of the small use that has been made of this Act, and the admirable substitute proposed for it by the Bill introduced (but alas! not passed) last Session, have been so clearly explained in a paper, which we cannot be mistaken in attributing to Mr. Poulett Scrope, that we shall give them in his own words:

'That Act, however, so far as regards deferred annuities, has been very nearly inoperative. Only a few hundred persons have, in the course of the seventeen years since its enactment, purchased a deferred annuity; and the entire amount of such annuities granted, appears from a recent return to fall within 9,000l.

The cause of this failure was the insertion in the Act of a clause entitling the purchaser of a deferred annuity to reclaim his money (but without interest) at any time, on the plea of inability to keep up the periodical payments agreed upon, and for his executors to do the same if he died before the annuity commenced. It was represented to Lord Althorp that these conditions were indispensable to induce any parties to purchase deferred annuities. They had the precisely opposite effect, of preventing any, or scarcely any purchases. And this by making it the act of a fool to do so.

For these conditions rendered it necessary of course that the tables should be calculated on the principle of keeping every person's account separate from the rest. And the deferred annuity he was allowed to purchase, was therefore absolutely less in amount than the immediate annuity he might at the same age purchase with the same money if left to accumulate at compound interest in the savings' bank, with the disadvantage of his being obliged in the first case to

* A monthly payment of 12s. beginning at twenty-one years of age, will secure 301. a year at the age of fifty-five, the money to be returned in case of death before that age.

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fix beforehand the age at which it should commence, instead of buying it when he might want it, as he could do in the latter mode. Moreover, the principle of payment by instalments, or periodical payments, permitted by the Act of 1833, is essentially a vicious one. The incomes or earnings of the industrious classes are generally precarious. Sickness, accident, local or temporary depressions of trade, and suspension of employment consequent on this or other causes, must very frequently make it next to impossible to keep up regularly a series of periodical payments through a long succession of years. If the money paid is not returnable when the engagement is dissolved under such circumstances, the engagement itself has operated as a mere trap to entice the sanguine and unwary into a contract in which they are very likely to sustain a cruel loss. If the money is made returnable, the benefit bargained for is, as has been shown already, necessarily inferior to what may be obtained by its deposit in the savings' bank, and the ultimate purchase of an immediate annuity.

'These considerations appear to have influenced the Chancellor of the Exchequer in framing the clauses of the Savings' Bank Bill now (1850) before the House of Commons, which extend the provisions of the existing Annuities Act, without, however, repealing any portion of that statute, which will still be available for all parties who choose to make use of it.

'It is proposed, subject to the same limitations as to amount, regulation, and management as in the existing Act, to allow parties to contract with the Commissioners of the National Debt, through the savings' banks or parochial societies, for deferred annuities, to commence at any age, and to be calculated on the same principle of mutual assurance as is adopted by the benefit societies. Consequently, as in those societies, no money will be returned; and the superior benefit derivable from this principle may be seen by comparing the amount of annuity purchasable under the two systems. For instance, an annuity of ten pounds per annum, to commence at the age of 65, may be purchased at once by a person of the age of 20, on the proposed plan, for the small sum of 71. 2s. 6d. ; while under the Act of 1833, it would cost 167. 7s. 6d. To a purchaser of the age of 30 the difference will be as between 117. 16s. 10d. and 31. 14s. 3d.

'All purchases will be required to be completed at once by single payment, so as to avoid the trap of an agreement for periodical payments. But, in order to bring this mode of purchase within reach of the poorest classes, the amount of annuity purchasable at one time is reduced from four pounds, the limit in the old Act, down to one pound; and, for the sake of simplifying the accounts and transactions, no fractional annuities, other than even sums in pounds, will be granted so that the half-yearly payments will always be in sums of ten shillings or its multiple, and the accounts may be kept in decimals.

To show by example the working of this plan, a person of the age of 25 may purchase an annuity of one pound per annum, to com→ mence at the age of 65, for the moderate sum of 18s. 5d. which we

1852.

Benefit Building Societies.

421

must suppose he may accumulate without difficulty, by depositing his small weekly savings either in the savings' bank, or in the hands of a friend, or his employer, or the parochial society. At the end of a few months, or in the next year, he will probably be able to add another pound to his annuity at a very slight increase of payment, and so on, till he has secured the full annuity he may desire - the maximum being 301. or about 12s. a week, an income not very magnificent, but enough to secure independence, and tolerable comfort in old age.

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We cannot sufficiently express our regret that a Bill containing such admirable and much needed provisions should have been allowed to drop, whatever have been the amount or kind of opposition it had to encounter-opposition which we must again characterise as discreditable in a more than ordinary degree.

Another mode of investment which has lately become a great favourite both with the middle and working classes, is afforded by what are termed Benefit Building Societies. The first which is known to have been established dates from 1815, and was founded at Kirkcudbright, under the auspices of a benevolent nobleman, the Earl of Selkirk. The example was followed soon afterwards in various quarters of the North of England, especially in Lancashire. After 1830, these societies increased so rapidly as to attract the attention of the Legislature; and in 1836 a special Act (6 & 7 Will. 4. cap. 32.) was passed for their guidance and protection, which gave them some of the privileges, and subjected them to some of the rules, which had previously been extended to Friendly Societies. Up to September, 1850, more than 2000 of them had been duly registered under the provisions of this Act in the United Kingdom, - of which, in England alone, 169 were added in the first nine months of that year. Many of these Societies appear to have been dissolved, or to have expired with the efflux of time; but it appears from Mr. Scratchley's work, that about 1200 are still in existence, the total income of which is calculated at not 'less than 2,400,000l. a year. In fact, there are two or three whose annual incomes are between 50,000l. and 60,0007.

' each.'

Some of these Societies are temporary and some permanent. Some are confined to a specified number of members, who associate at the outset for a special and limited purpose, and the association expires by a natural process as soon as this purpose is accomplished. Others continue adding to their numbers indefinitely, and offer a permanent investment to all who join them. In the former case, a certain number of individuals who are desirous of building for themselves, or becoming possessors of the

houses they dwell in, form themselves into a Society, subscribe certain specified weekly or monthly sums, which are applied, in the first instance, to the purchase of land on which the dwellings are to be erected, and then, as fast as they accumulate in sufficient amounts to erect a house, are alloted to each member in turn (the individuals who take precedence being decided by arrangement or by lot), till all are provided for, and the concern is closed. Of course, as each several assignment is made, a security is taken upon the house of the fortunate individual, to ensure the continuance of his periodical payments till all the members are similarly circumstanced. By this arrangement, the subscription of very moderate sums (say 5s. or 10s. a month) will enable any one, in the course of a few years, to become owner as well as occupier of a very comfortable dwelling; and, if he wishes, a possessor of the elective franchise.

The permanent and more numerous Societies are slightly different in their machinery:

A benefit building society (says Mr. Scratchley) when properly constituted, is a species of joint stock association, the members of which subscribe periodically, and in proportion to the number of shares they hold, different sums into one common fund, which thus becomes large enough to be advantageously employed by being lent out at interest to such of the members as desire advances; and the interest, as soon as it is received, making fresh capital, is lent out again and again so as to be continually reproductive. Large sums may be raised in this manner; e. g. if 1000 shares were subscribed for at 10s. a month per share, the amount in one year would be 60007., which month by month as received, might be advanced to any members who might wish to become borrowers. The payments of BORROWERS are so calculated as to enable them to repay, by equal monthly instalments, within a specified period, the principal of the sum borrowed, and whatever interest may be due upon it throughout the duration of the loan. The other members who have not borrowed, and who are generally termed INVESTERS, receive at the end of a given number of years a large sum, which is equivalent to the amount of their subscriptions, with compound interest accumulated upon them.

'The idea of a society upon this principle, correctly formed, and afterwards properly managed, is of the most admirable kind. For, on the one hand, it holds out inducements to industrious individuals to put by périodically from their incomes small or large sums, which are invested for them by the society, and at the end of a certain time are repaid to them in the shape of a large accumulation, without their having themselves the trouble of seeking suitable investments; while, on the other hand, the money subscribed, being advanced to some of the members, enables them to purchase houses or similar property, and to repay the loan by small periodical instalments, extended over a number of years. . . . The annual repayments required

1852.

Impediments to Investments in Land.

423

by the society upon a loan, do not much exceed the rent of such a house as could be purchased with the sum borrowed; so that a man living 10 or 14 years in a house, instead of paying rent to his landlord, and thus losing so much money for ever, pays it with a small addition to a building society for a limited number of years, at the expiration of which the property becomes entirely his own, - the money advanced being in the mean time secured by a suitable mortgage.'

It is obvious that the desirableness of these Societies as a mode of investment for the humble classes, must depend entirely upon the soundness of the principles on which they are based, and the strictness with which these principles are adhered to in the management. Much money has, no doubt, been lost and spirited away in these undertakings, and none should be trusted by the poor that are not duly certified and registered; but when this precaution is observed, we believe they deserve the encouragement and favour they have received. Mr. Scratchley's work is a careful exposition of the rules which should guide their constitution and management, drawn up by a competent and experienced man.

Investments in land have hitherto been almost entirely out of the reach of the humbler classes in this country. The enormous difficulty and expense thrown in the way of the acquisition of small properties by the uncertainty of titles, the complexity of the law, and (till recently) the heavy stamp duty, have done much to quench and crush that desire for the possession of land, so natural to all men, so flattering both to pride and to gentler and worthier feelings, and so stimulated with us by the political privileges attached by our ancient Constitution to freehold property. Still the sentiment has to a great extent survived, notwithstanding the circumstances which have long made the gratification of it almost an impossibility; and a conviction is gradually growing up among all classes, that this impossibility involves an injustice, and cannot much longer be either defended or retained. For ourselves, though sharing the doubts expressed by some witnesses examined before Mr. Slaney's Committee, as to whether the purchase of land will generally prove a profitable mode of investment for the savings of the poor; though cognisant of the disappointment and misery which such investments, under Mr. Feargus O'Connor's auspices, have brought upon hundreds of the working classes; though differing from many philanthropists, and from some economists, as to the moral and political consequences of the extensive possession of small freeholds by the peasantry; though thinking that the experience of France and

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