It has long been recognized by statute and by general consent that the main purpose of a pension scheme is the provision of annuities for employees on their retirement and for the dependants of employees who die either in service or after retirement. In recent years, however, the provision of lump-sum benefits in addition to annuities has become widespread; in national and local government service, and in some of the public boards, superannuation arrangements include the provision of lump sums on a substantial scale. In industry and commerce, the advantages of tax-free lump sums have been vigorously sold, with considerable success, by brokers specializing in pension-scheme business.

The objects of this paper are to place such claims in perspective and to explain in broad terms the various methods by which lump-sum benefits may be provided. Reference will be made to insured and to privately administered schemes, but the detailed provisions of trust deeds and insurance contracts are not within the scope of this paper.

This paper is not intended either to be an exhaustive treatise on investment department practice, or to give the student any assistance in examinations on investment policy. It is hoped, however, that it might engender an interesting discussion of points which a newcomer to an investment department will find useful, and it may give some background to examination reading. The paper is concerned only with investment in securities dealt in on the Stock Exchange.

The prime purpose of the Stock Exchange is to bring together buyer and seller of stocks and shares. In most Exchanges, including the provincial ones in this country, this meeting is made directly by the broker of the buyer finding the broker of the seller, or vice versa. In London a shop-keeping system exists with a number of firms of jobbers making prices in specialized sections of the market. For instance, three firms of jobbers will buy or sell insurance shares, and those same firms operate in three or four other sections of the market—one of them operates in bank, shipping, tea and hire-purchase shares.

The best known and most common type of option is that where an investor pays money (option money) for the call—that is for the right to buy shares at the current price in 3 months time.

This is best explained by an example. Suppose share A stands at 50s. (market price 49s. 10½d.–50s. 1½d.) and the option rate is 4s.

Then the investor pays:

Option money 4s.

Commission (as for buying a share at 50s. 1½d.)

This payment gives him the right to buy the share at the ‘striking price’ on any ‘declaration day’ within the term of the option.

On being asked to prepare something on Friendly Societies for the Students' Society it seemed reasonable to attempt two things—one, to put them more into perspective in modern conditions, the other, to see what they might be able to teach the actuary professionally. The following notes are the result: it is hoped that, besides forming a useful basis for the discussion, they will themselves have something worth while to contribute to the subject.

Perhaps the most important characteristic of a Friendly Society is its registration under the Friendly Societies Acts (the relatively rare occurrence of an unregistered society is ignored); the restrictions of these acts have therefore to be accepted for the sake of their advantages. The constitution is a book of rules and the government is in the hands of the trustees—in whose names the assets are registered—and a committee appointed by the members at a general meeting. The rules cover all such matters as objects, eligibility, benefits, contributions, duties of officers, changes of rules, of name, nominations, dissolutions, investments and so on as required by good sense and the Acts.