§ 67. Brigadier Peto
asked the Secretary of State for Commonwealth Relations if he will make a statement on the present state of the Indian Military Widows and Orphans Fund, with particular reference to the conditions which will in future govern the rates and pensions payable.
§ Mr. P. Noel-Baker
Briefly, the position is as follows. Pensions already being paid from the Transferred Fund are guaranteed by the rules against any reduction. New pensions are granted at rates dependent upon the interest earned by the Fund. The Fund was depleted by war casualties among subscribers; and in order to avoid any reduction in rates of benefit, His Majesty's Government in the United Kingdom have decided to recoup the Fund for the loss. I hope that the "Untransferred Fund" will come within the scope of any pensions capitalisation scheme that may be arranged.231W
Following is a full statement of the position:
The Indian Military Widows and Orphans' Fund was established in 1915 to provide pensions for the Widows and Orphans of European officers of the Indian Army. The Fund is self-supporting, the pensions being met from the contributions of the officers concerned. Up to 31st March, 1937, the balances of the Fund were held as book debts of the Government of India, which allowed interest on them at the current long term rate for Indian sterling securities, with the proviso that in no case was the rate to be reduced below 4 per cent. Owing to the high rates of interest prevailing after the last war it was possible to increase the rates of pension granted to a level 50 per cent. above that initially contemplated.
With effect from 1st April, 1937, the greater portion of the balances were transferred from the Government of India to the custody of Commissioners in this country, who were charged by an Order in Council made under Section 273 of the Government of India Act, 1935, with the duty of investing them in a specified range of securities, based roughly on those permitted by the Trustee Act. The investment was made at an average rate of approximately 3½ per cent.; and as this was ½ per cent. less than the minimum previously guaranteed it became impossible to maintain pensions at a level 50 per cent. above the original rates. A new graduated scale was therefore laid down under which the rates of pension varied from 27½ per cent. to 40 per cent. above the original rates, according to the ages of the subscribers and beneficiaries concerned. About one quarter of the total membership elected under a provision of the Order in Council, to remain under the existing conditions. The two portions of the original Fund, that is to say the portion transferred to Commissioners and that remaining in India, are referred to as the "Transferred" and "Untransferred" Funds.
After the division in 1937, the rates of pension fixed for the Transferred Fund were based on the assumption that a rate of 3½ per cent. would continue to be earned on the balances, which, in view of the relative immaturity of the Fund, would normally increase for many years. The general fall in the yield of gilt-edged 232W securities after the war made it impossible to maintain this rate. Moreover the casualties, incurred by subscribers in the war occasioned a loss to the Fund estimated to amount in capital value at 31st March, 1945, to £275,000. These two causes would have made necessary a reduction, averaging some 12 per cent. of present rates in the pension to be granted to the dependants of living subscribers. Pensions actually in course of payment are under the rules guaranteed against any reduction. It has now been decided however that, following the precedent of the action taken after the war of 1914–18, the loss caused by war casualties shall be made good to the Fund by the United Kingdom Government. It will be necessary therefore to consider only such reductions as are due to the fall in the rate of interest. These are comparatively small and detailed proposals will be laid before subscribers as early as possible.
The position of the Untransferred Fund is still under consideration. The aim is to secure that any pensions capitalisation scheme that may be negotiated should cover the benefits payable from these Funds, in the case of European subscribers; and it is contemplated that, as such pensions would then be closely assimilated to those payable from the Transferred Funds, the rates would be reduced to the level of the latter.