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constant excess of the market rate of int. above the rate limited by law, had added to the expense incurred by borrowers on real security, and that such borrowers had been compelled to resort to the mode of granting annu. on lives; a mode which has been made a cover for obtaining a higher rate of int. than the rate limited by law, and has further subjected the borrowers to enormous charges, or forced them to make very disadvantageous sales of their estates.
One of the witnesses called before the Committee was Mr. Sugden (now Lord St. Leonards). He stated that when the market-rate of int. was above the legal rate, the landed proprietor was compelled to resort to some shift to evade the Usury Laws. He had known annu. granted for three lives at 10 p.c. upon fee-simple estates unincumbered, and of great annual value, in a Register County. He had also known annu. granted for four lives, and more would have been added, but for the danger of Equity setting aside the transaction on account of the inadequacy of the consideration. Latterly, many annuities were granted for a term of years certain, not depending on lives. On being asked whether, were there no laws limiting the rate of int., better terms could or could not have been obtained, he answered: I am decidedly of opinion that better terms could have been obtained for there is a stigma which attaches to men who lend money upon annu. that drives all respectable men out of the market. Some leading men did latterly embark in such transactions, but I never knew a man of reputation in my own profession lend money in such a manner, although we have the best means of ascertaining the safest securities, and of obtaining the best terms.
In 1818 also Mr. John Clark, who was then engaged in founding the European (No. 1), wrote a pamphlet in support of the claims of that office, on the ground that it meant to conduct annuity transactions on more equitable terms than had formerly prevailed. He says:
Annu. at present are either certain or redeemable, at the option of the grantor: if certain, they pay the annu, amounting to 12, 14, 16, or 18 p.c., as long as the life or lives selected shall continue to exist; but if redeemable, it may be paid off at any period, by six months' notice, or six months' advance of the annu., in addition to the sum originally borrowed. In either case the terms are hard on the granter, who, perhaps, through some temporary want of a particular sum, is induced to grant an annu, at the high rate before stated, which he must either continue to pay as long as he lives, or return the sum originally borrowed, after having paid perhaps an excessive annu. for years.
It may be well here to state that the practice of dealing in annu. so far as ins. offices were concerned was almost the reverse of what it is now. The office, instead of receiving a principal sum of money, in consideration of which it was to grant an annu. for the life of some particular person, used to advance a sum of money, in respect of which the borrower agreed to pay a certain annuity-often varying from 12 to 18 p. c.-during the remainder of his life. This method of dealing in annu. originated, as we have already intimated, in the sixteenth or seventeenth cent. ; and was designed especially to evade the Usury Laws.
In 1819 there appeared in Dr. Rees' Cyclopædia, an art. on L. Annu. This was written by Mr. W. Morgan. In the same year there was pub. by Wm. Tate, The Calculations of L. Annu., and the Public Funds Simplified and Explained, etc.
In 1820 Mr. Wm. Hendry pub., The Method of Calculating the Values of Life Annu., Assu., Fines Payable on the Renewing of Leases, etc., etc.; with an appendix containing Tables of the Values of Life Annu. by Stat. 36 Geo. III. c. 52.
In 1821 the 2nd ed. of Mr. Morgan's Principles and Doctrine of Assu. and Annu. on Lives was pub. The formulæ for determining the values of contingent reversions, originally given by the author in the Phil. Trans., were in this ed. substituted for the approximations given in the 1st ed.; and it contained tables of the Values of Annu. on single and joint lives calculated from the Northampton and Swedish Tables, taken from Dr. Price's Observations, etc. Otherwise there was nothing new, except a T. showing the number of persons ins. in the Equitable So. who died of each disease in each decade of age from 10 years to 80, and above 80 years of age during the term of 20 years, commencing with 1801. The want of a proper explanation of the facts connected with the compilation of this T. led to some misunderstanding, of which we shall speak under EQUITABLE EXPERIENCE TABLE.
In 1821 Mr. J. B. Benwell pub. An Essay on Int. and Annu., chiefly respecting those cases when compounded by instalments intercepted within yearly, as half-yearly, quarterly, momently; embracing a summary of the ambiguities averred of the solutions on Dr. Price's and De Moivre's principle, with a critical examination into the source of them, etc. In 1822 an Act was passed, 3 Geo. IV. c. 92, to explain the Act of 1813 regarding the inrolment of memorials of grants of annu. There is nothing very special in it. An annu. deed, a memorial of which had been inrolled, was declared valid, though the deed itself had not been inrolled (sec. 2). This Act was not to give add. validity to any deed, nor to give effect to any deed declared void, or affect any proceedings at law commenced before 31 May, 1822.
In 1823 Mr. R. Thomas pub. Tables of the Values of Annu. and Assu.
In 1824 Mr. Francis Corbaux pub. An Inquiry into the State of the National Debt, in which was embodied a plan of finance for the redemption of the National Debt., upon the principle of Terminable Annu. ; and an appendix on State Lotteries, with suggestions
respecting a perpetual lottery "upon a system equitable, productive, and unobjectionable," in aid of the plan of redemption.
In the same year Mr. Peter Watt pub. Comparative Tables of Rates of L. Assu. demanded in Scotland: with an exposition of the doctrine of Life Ins. and annu.: showing how the rates are calculated, and the present value ascertained, when claimed on a bankrupt estate or sold for their true value.
In 1825 Mr. Francis Corbaux pub. The Doctrine of Compound Int. illustrated and applied to Perpetual Annuities, to those for terms of years certain, to L. Annu., etc., with Tables giving the current values of annu. on single and joint lives. This, like Mr. Corbaux's other works, is ably written. The author says:
Annu. on single or on joint lives,
with other prospective transactions, equally founded upon the operation of compound int. combined with the chances affecting the duration of human life, collectively form a copious subject, already enlarged upon by able writers of this and other countries. The intention, here, is therefore to treat that subject with great brevity: merely stating the general principles upon which it rests, with so much of their application as will be sufficient for estab. the basis of calculations relative to the transactions above described; and superadding a few tables which, occasionally consulted, may so far guide the unpretending reader as at least to prevent his being betrayed into gross errors, upon a matter beset with difficulties, and involving considerations of a delicate and complicated nature.
In 1825 a Committee of the H. of Commons sat upon Friendly Sos., among the witnesses examined were Mr. Finlaison, Mr. W. Morgan. Mr. Joshua Milne, Mr. Frend, and others. The Committee pub. a report, in the appendix to which is contained a most valuable collection of Tables relating to sickness, annu., and the law of mort., as prepared by Dr. Price, Mr. Morgan, Mr. Glenny, Mr. Finlaison, and others. The remaining space at our command for the completion of the present art. will not allow us to dwell upon this. We shall, however, have occasion to notice these Tables in various parts of this work. [FRIENDLY Sos.] [SICKNESS.]
By the Bankruptcy Amendment Act, 6 Geo. IV. c. 16, sec. 54 (1825), it was provided that an annuitant might prove for value of annu. on bankrupt estate, regard being had to its original cost, and the depreciated value by lapse of time. No T. of mort. was specified.
In 1825 Mr. Geo. Thatcher pub. A Treatise on Annu. for fixed periods, particularly Gov. Long. Annu., showing a defect in theory, with its remedy; and when annu. are dear and cheap. To which was added a practical T. for calculating long annu.
In 1825, or early in 1826, Mr Griffith Davies pub. his Tables of Life Contingencies; and therein was contained a T. of the mort. which had prevailed among the lives ins. in the Equitable So. at all ages above 10, based upon the statement of Mr. Morgan, already referred to (1821). Mr. Davies gave Tables of the values of annu. on single and joint lives, calculated both from the Table he had constructed [EQUITABLE EXPERIENCE] and from the Northampton T., rather fuller and more complete than any that had been pub. previously except that those derived from the mort. of the Equitable necessarily included no ages under 10. The values according to the Northampton T. were given only at the rates of 3 and 4 p. c. int.; but Mr. Davies, not content to take them on Dr. Price's authority, had, like Mr. Babbage, calculated them anew, and, as well as the other values of annu., has carried them to four places of decimals.-Milne. The Annuity Values as deduced by Mr. Davies from
the Equitable Experience are as annexed:
In comparing this table with others, it must be borne in mind that a great majority of ins. lives are males, on which account the values are somewhat lower, especially from 15 to 55 years of age, than they would have been had there been nearly equal numbers of both sexes.
In 1826 was passed another Act, 7 Geo. IV. c. 75, to further explain the Act of 1813 regarding the inrolment of memorials of grants of annu. It merely defines what witnesses are required.
19'647 45 13.845 18.944 50 12'599 11'349
In 1826 also Mr. Charles Babbage pub. his Comparative View of the various Institutions for the Assu. of Lives. In that work he also gave a T. of the mort. which had prevailed among the ins. lives in the Equitable, at all ages above 10 years, based upon Mr. Morgan's statement (1821); and a T. of the value of annu. based thereon. He also gave formule and Tables not materially differing from those of Mr. Barrett, for determining the values of temporary and deferred, as well as increasing or decreasing, annuities, and assu. on single lives: these T. being derived from his own T. of the EQUITABLE EXPERIENCE, and from the CARLISLE Table.
This work of Mr. Babbage's did much to draw popular attention to the subject of life annu. and life ins. It was reviewed in the Edinburgh and Quarterly Reviews; and it was also translated into the German. [BABBAGE, CHARLES.]
His Table of annu. values from the EQUITABLE EXPERIENCE is given on the next page. It must be remembered, in comparing it with others, that it is calculated at
3 p.c. We annex the CARLISLE 3 p.c. annuity values in a parallel col. for purposes of comparison.
In 1827 another Committee of the H. of Commons on F. Sos. was appointed and sat; this time really with the view of eliciting information on the law of Mort., and the values of L. Annu. and Assu. in this country. The report of the Committee of 1825 was referred to this committee for consideration. Among the witnesses examined were Mr. Joshua Milne, Mr. Francis Baily, Mr. Charles Babbage, Mr. Benjamin Gompertz, Mr. John Naylor, Mr. Griffith Davies, Mr. J. D. Bailey, Mr. W. Morgan, and Mr. John Pensam, all men of known position in the then actuarial world. It is sufficient to say that the report abounds with information on annu. values, and kindred subjects; and that the appendix contains many tables of great interest.
As both this and the report of 1825 are now very rarely to be met with, it may be well to state that their substance will be given in these pages as the various topics to which they apply shall arise.
The scale for granting Gov. L. annu. under Mr. Perceval's scheme in 1808 had been calculated upon the Northampton T. As early as 1819 Mr. John Finlaison had demonstrated to Mr. Vansittart, that in consequence of the errors of these tables, the country was losing £8000 p. month. The demonstration, however, did not carry conviction to the mind of the Chancellor of the Exchequer; and even his successor Mr. Robinson paid no attention to the representation.
Mr. Finlaison addressed another letter, dated 30th April, 1827, to the Sec. of the Treasury, in which he showed that the loss occurring to the nation by means of these annu. was now at the rate of £8000 p. week, and that the loss in the preceding 3 months had amounted to £95,000 and upwards.
This last letter appears to have produced the desired effect, for in 1828 the National Finance Committee reported, that "having in the course of their inquiries discovered that the conditions under which the Commissioners of the Sinking Fund are required by the Act for enabling the Commissioners of the National Debt to grant annu. are extremely disadvantageous to the public, they feel it to be their duty to call the immediate attention of the House to the expediency of repealing that Act." The grant of L. Annu. on the Northampton rates was accordingly suspended on the 25th July, 1828; all the preceding Acts relating thereto being repealed. This was preparatory to the measure to be introduced in the following session.
In 1828 Mr. Edward Hulley pub. Tables showing the Values of Annu. and Assu. upon lives of equal ages, in single and ann. payments, according to the NORTHAMPTON T. MORT, rate of int. 3 p.c.; to which were added, examples and remarks illustrative of the method of determining the present values of these reversions analytically.
In the same year Mr. Lubbock read before the Cambridge Phil. So. a paper On the Calculation of Annu., and on some questions in the theory of Chances; and the same was pub. in the Trans. of that So. The paper is reprinted in vol. v. of the Assu. Mag., p. 197. In the following year (1829) Mr. Lubbock read another paper before the same So., On the Comparison of Various Tables of Annu., which was also pub. in the Trans., and reprinted in vol. v. of Assu. Mag., p. 277.
In 1829 a Select Committee of the House of Commons was appointed "to consider the petition of Cadogan Williams, recommending the purchase of Life Annu. under the authority of Gov." Turning to the petition, we find the following:
Your petitioner, who has paid much attention to the subject of assu, as they apply to the circumstances of the lower classes of society, does most humbly suggest as his opinion that it would be conferring great benefit on society in general, and the lower classes in particular, were the opportunity given them of buying an annu. to be paid them in the event they attained the age of 60 years, as it would be putting the lower classes in possession of means to make a provision against old age, which they do not at present possess. Your petitioner does further beg to suggest, that such assu. is unlimited in its application in a civilized country, and might be estab. and conducted under the authority of His Majesty's Gov., as there would be no risk of imposition from its members, it being dependent upon natural results, and in no wise on morals, which most other assu, cos, are more or less; and the contingency of pestilence which, were it to happen, might be trying to the resources of some cos., would be in its favour!
The document is unique; but a Committee was appointed; and in due course reported (inter alia) that
To the wealthy, and even to those who possess even a moderate share of affluence, numerous opportunities are afforded by the ins. offices and by Gov. securities, of providing incomes contingent upon remote events; while the humbler classes, to whom the means of insuring independence in advanced life are even more important, have hitherto enjoyed no opportunities of accomplishing this most desirable end.
The Committee stated, on the authority of Mr. Finlaison, that “a weekly payment of 25. continued from 20 to 30 years of age will secure to the contributor a life annu. of £20 p.a., to commence at the age of 55; a similar payment of 114d. from 20 years of age to 55 will secure to the contributor a life annu. of £20 from the termination of his contribution." The Committee suggest that the Savings Banks might be used to aid in the extension of the system; and this plan was actually adopted in 1853.
Strange to say, the Committee do not refer to an Act before the House that very session and passed into law, by which an annual payment of not less than £5 might be made available for the purchase of a deferred annu.; although one of the witnesses called attention to the same. The Committee made no other suggestions except that, if reappointed next session, they would try to frame a measure. The vicissitudes of parliamentary life are great; and they were not re-appointed.
The Act of 1829 just referred to was the 10 Geo. IV. c. 24. By authority of its provisions a new era was commenced in this branch of national finance. The preamble recites: "And it is expedient that the said Commissioners (of the National Debt) should be enabled to grant such annu. in future according to the duration of human life, as ascertained by recent Tables of Obs. thereon." The Act then provides that annu. shall not be granted on any life or nominee under 15 years of age, with power to the Commissioners to decline granting an annu. on "sufficient grounds." Annu. might be purchased with money or by transfer of stock, but no stock less than 100 to be received. A new provision enabling the Commissioners to receive sums of not less than £5 p.a. for purchase of deferred annu. was introduced for the especial benefit of the industrial classes. The nominees were still to be residents in the U. K. All stocks to be converted into 3 p.c. before being exchanged. All money paid for purchase to be applied to reduction of National Debt. The tables of annuity values to be approved from time to time by the Commissioners of the Treasury, or any three of them; but such tables might be altered, revoked, or recalled, and new ones substituted, on proper notice given in the Gazette. Tables for time being in use to govern value of annu. to be granted. L. annu. under this Act to be carried to same account as those formerly granted. Annuities for years to be carried to separate account. Proof of age required: if no proof of birth, age at baptism taken. Persons might purchase annuities on lives of other persons' nominees, there being no restriction in this Act of amount of annu. to be granted on any one life. On death of annuitant, a quarter's annu. to be payable. L. annu. might be trans., in one amount, but nominee must not be changed; annu. for years might be transferred in one or more amounts. Registers, transfers, and receipts exempt from stamp duty. Heavy penalties for fraud. Accounts of annuities granted to be laid before Parliament.
The tables to be used in connexion with the Act, as they were liable to be changed, were not appended to the Act, but pub. separately. From the Tables first calculated, in conformity with this Act, some curious results have flown. In the first place, the new tables had been adopted with a view to prevent the loss which the former tables were on all hands admitted to have produced. Again, these new tables were calculated from materials in which the Gov. advisers had entire confidence-so much confidence, perhaps, that some very obvious defects in them were overlooked. They were indeed constructed from what may be termed selected lives: but the entire question of selection was not then sufficiently understood. The influence of selection is inherent to newly selected lives. It wears off after a series of years. To be efficacious it must be fresh. Selection was soon made against these tables, in a manner not before contemplated. The tables first adopted under the Act authorized an annuity of £62 to a man aged 90 for each £100 sunk. The first payment 3 months after the purchase. Shrewd gentlemen from the ins. offices, and from the Stock Exchange--aye, even the Commissioners of Greenwich Hospital, who were not always accredited with being the shrewdest of men-saw an opportunity, and availed themselves of it. In a word, a system of speculation in L. annu. set in equal to that of any former period, and far more certain in its results to the individual operators. Agents were sent off to the north to the hills of Cumberland, and the glens of Scotland. Robust men aged 90 were at a premium. Yorkshire was not overlooked: there were numerous old men residing in the glorious scenery of the West and North Ridings, whom to secure as nominees was to secure a fortune. There are numerous records current of the fortunes made by private speculators of these we take little heed: but under head of GOVERNMENT ANNUITANTS we shall adduce some authentic statistics which furnish results of real value.
The mistake was discovered and stopped by the removal of the advanced ages from the Table-but not till serious loss had resulted. We observe the following note to the tables now in use: "The Commissioners, etc., give notice that they will not grant any
annuity under the provisions of the Act upon the continuance of the life of any male or female nominee above the age of 65, unless the nominee shall have bonâ fide a beneficial interest in such annuity.'
In 1829 Mr. John Finlaison, the Actuary to the Commissioners of the National Debt, laid before Parl. an elaborate report, upon which he had been engaged for a period of 10 years, on the duration of life of the purchasers of the life annuities granted by Gov. under the Acts already enumerated, and among the nominees of the several Tontines to which we have referred. The following is a summary of the principal Tables in this report.
I. Observations on the English Tontine, which commenced in July, 1693-the last member dying in 1783-embracing 1002 lives.
2. Ditto L. annu. issued at the Exchequer, in 1745, 1746, 1757, 1766, 1778, and 1779, embracing 2552 lives.
3. Ditto three Irish Tontines of 1773, 1775, and 1778, embracing 3557 lives.
4. Great English Tontine of 1789, embracing 3495 selected lives.
5. Ditto lives chosen by lot, 4831 lives.
6. Ditto on the lives of the two last classes combined after age 50-both sexes.
7. Ditto on the Mort. of the nominees of L. annu. chargeable on the Sinking Fund issued in 1808, and in every subsequent year, 6892 lives.
The other tables show the results obtained from the same data for the sexes separately. The following are annu. values deduced from each of the preceding tables; 4 p.c. int., both sexes combined:
The annu. values deduced from the lives included in column No. I will be observed to be much less than those given in any of the other columns. This has led to various surmises. It will be noted that the lives included belong to an earlier period-to the previous century. But could that alone account for the difference? No. The real facts appear to be that Tontine projects being new in England, the lives were very badly selected. In the absence of exact information, it was natural to conclude that the younger the lives nominated, the greater the chance of survivorship. Experience has shown that there is a limitation in this respect. The mort. tables show that a life aged 5 has a better chance of living than a life aged I; and a life at 10 a better chance than a life at 5. Now, more than half the lives in the 1693 Tontine were under II when nominated, and more than one-fourth were under 6; and then, as male children frequently appear more robust than females, a larger proportion of males were selected. This was mistake number two. Subsequent investigations have shown that females are much better lives for such purposes than males. But at the period of these early Tontines-to which we have called special attention in the progress of this chapter-there is reason to suppose that even Dr. Halley was not aware of this fact. Mr. Milne thinks it probable that on account of their beauty and healthy appearance many children of scrofulous constitutions may have been selected. They on an average would be short-lived. Again, many of the nominees probably resided in Lond. or other large and crowded towns. This would add another cause of deterioration. The nominees in some French Tontines of about the same period were much better lives, as is shown by the annu. values deduced from their experience by De Parcieux.
It is curious to note the small difference between the results of columns 4 and 5 in the above table. The lives from which the results in No. 4 were deduced were selected. Those upon which No. 5 is based were chosen by lot; but they were taken from the upper and middle classes of society-as indeed in all prob. were those of No. 4. A considerable majority of females were included in No. 4; and of males in No. 5. It is probable that the different proportion of the sexes really accounts for the small difference in results that obtains; and not the influence of selection in any form.