Occupational Pensions

The earliest private provision for retirement or old age was either a pension or savings tied to life assurance. It was possible from the time of Elizabeth I (1558 - 1603) to insure one’s life against the risk of death during a short fixed period. The use of premium tables based on age and calculated on an actuarial basis dates from the founding of the Equitable Life Assurance Society in 1762.

The development of endowment assurance made it possible for private individuals to combine savings for old age with provision for dependents. The Life Assurance Act was passed in 1774 to regulate abuses in this area. The Institute of Actuaries was founded in 1848 and actuarial methods began to be studied. After 1858 amongst the wealthy to whom income tax was then confined, only about a fifth of taxpayers# availed themselves of the relief on premiums for insurance policies.

The earlier occupational type pensions in England were reputed to be those established by the mediaeval trade guilds. The funds of these schemes were forfeited during the reign of Henry VIII (1509 - 1547). In 1749 a scheme was established by statute for merchant seamen# which lasted until 1852. In 1770 the Governor of Bengal in India established a trust fund for the relief of invalided military personnel and their widows from the East India Company.

In the eighteenth century the working class tended to subscribe to friendly societies or trade unions in order to cover themselves for unemployment or sickness. Trade unions sometimes paid sickness and unemployment benefits to their older members which were in effect retirement pensions. Friendly societies achieved more widespread coverage and also provided de facto pension benefits for long standing members, but by the end of the nineteenth century these liabilities were causing problems for the societies. The most successful of these societies was the Northumberland and Durham Miners’ Permanent Relief Society which was founded in 1862. In Ireland friendly societies developed slowly and it had been estimated that in the early twentieth century there were only about 40,000 members.

Employers would have been influenced by benevolent paternalism in establishing schemes. In the nineteenth century there was a long tradition of employers rewarding long standing employees with ex-gratia pensions. There was a major difference between a pension given as an act of grace, and a scheme established to give an enforceable right to a pension. According to Hannah, the picture of private occupational pension provision in the nineteenth century is incomplete. Ex gratia provision was widespread, but its extent was unknown. Sometimes ex gratia pensioning was difficult to distinguish from the formal schemes, and even today difficulties arise here.

As noted above the pension schemes established by the state as an employer were an important model for schemes in the private sector. By the end of the nineteenth century nearly all the railway companies had established schemes for their salaried staff. In 1873 the Railway Clearing System Superannuation Fund Association established the first multiple employer final salary superannuation scheme. This was made compulsory for all new employees. In the typical scheme the employee paid 2.5% of his salary, which was matched by the company. Both employees and employers were represented on the committee of management, though with employers playing the leading role. The reason these schemes were possible was because it was simple to add a pension fund clause to the bill establishing the railway company, while it was going through parliament. Thus an act of parliament provided the legal basis for a separately constituted fund. This also applied in the case of the gas companies. The largest was the Gas Light and Coke Company which introduced a scheme for staff in 1842 and for manual workers in 1870. In the United States the first formal pension scheme was established in 1875 by the American Express Company. In the United States by 1925 about 400 pension plans were in existence, covering 400,000 workers, a third of whom were employed by four giant corporations: U. S. Steel Corporation, the Pennsylvania and New York Central Railroads, and the American Telephone and Telegraph Company.

In other sectors financial institutions such as banks and insurance companies also made pension provision for employees. The Prudential in 1872 and the Royal Exchange in 1880 being among the first. In manufacturing industry Siemen Brothers had a scheme as early as 1872, J. & P. Coats in 1895 and Colmans and W. D. & H. O. Wills in 1899. As late as 1900 perhaps around 5% of the employees in the public and private sector were covered. From the beginning of the twentieth century employers began to see occupational pension schemes as “an act of business common sense” and not merely as a means of looking after their employees when they became too old to continue to work.