GOVERNMENT ANNUITIES--OPINIONS CONCERNING THEM--GREAT LOSS TO THE
STATE.--MR. MOSES WING’S LETTER.--MR. FINLAISON.--NEW ANNUITY
ACT--ITS ADVANTAGES TO JOBBERS.--ENDEAVOURS TO PROCURE OLD
LIVES.--ANECDOTES CONCERNING THEM.--PHILIP COURTENAY.
Up to the year 1808 there was no mode of investing money in life
annuities at once safe and profitable. Although the assurance were also
annuity offices, yet, at this period, only three of any standing were
in existence, and the public had seen and suffered so much from the
failure of various joint stock companies, that they regarded all new
societies with a proper degree of jealousy. At the time above named
there had been a speculative excitement in the money market, followed
by a disastrous panic. Many companies had been compelled to wind up
their business, and others, having no business to wind up, had been
left to their fate. And of annuities granted by private persons, the
public had a well-founded horror; for the persons who had chiefly
granted them were bankers, stock-jobbers, and mock millionnaires, who
had often been swept away by panics on the Stock Exchange. In 1809
complaints were instituted that persons wishing to make provision
for themselves or their families had no certain fund on which such
annuities could be secured, and the ministers were made aware of many
infamous practices which often plunged whole families into ruin. The
Government, therefore, determined to become dealers in life annuities,
and in the very outset made a considerable and almost fatal mistake.
The tables of mortality known as the Northampton were the chief basis
on which the various life assurance companies founded their premiums;
and, by a singular error, the state adopted the same basis on which to
grant annuities for life; but as the most intelligent men of the day
were employed in calculating and constructing tables, the Government
was scarcely to blame, particularly as they sought no profit, entering
into the undertaking solely from a consideration of its advantages to
the community.
From 1809 to 1819 this system continued. The speculators soon found
out that the Government charge for a life annuity afforded a very
remunerative investment, and the insurance offices made considerable
profit by purchasing and reselling them. The Commissioners of Greenwich
Hospital also selected many of the most healthy of their pensioners,
and bought large annuities on them,--a proceeding productive of as
much profit to the commissioners as of loss to the state. The mistake
made by Government in its calculations was no secret. Actuaries and
accountants were well aware of it; and Mr. Moses Wing wrote to the
chancellor, informing him that the tables on which they were granted
were productive of great loss to the revenue. The ordinary lassitude
of Government was displayed in the chancellor’s reply, that it was not
expedient to make any alteration, as “the compilation of new tables
would be attended with much difficulty.” Mr. Wing then wrote again,
showing that there was a loss of 15 per cent. on some, and on others
of 20 and 24 per cent.; and that on a transfer of 12,000,000_l._ stock
there was a loss of not less than 2,691,200_l._, and from this, the
chancellor took refuge in a dignified silence.
In 1819 the attention of the authorities was again drawn to the same
fact. But vainly for many years had they been informed that the
public money was wasted; that no capitalist in London would grant
annuities on the same terms; and that a serious loss was incurred.
Government servants, like kings, can do no wrong, and the information
was officially pooh-poohed! Letters might be written, and the receipt
acknowledged; but the letters were shelved with due determination not
to recur to them in a hurry. Among the assailants, however, was one
who was important as well as vigorous, and very annoying questions
were put in the House of Commons. It was the day when large majorities
answered every unpleasant topic, and for a time the querists were
silenced. At last it was stated that Mr. Finlaison had informed the
Chancellor of the Exchequer that Government was losing 8000_l._ per
month by its supineness, and “the patriots,”--so miscalled because
they were in opposition,--seized on this important point to harass
their opponents. It was triumphantly replied that the bill had been
in operation since 1808, and was founded on the Northampton bills of
mortality. As Dr. Price passed for an authority, and as a name goes a
great way, the patriots were dumb, until one of more mark than the rest
hinted that the value of life, as estimated by a life assurance company
for its own benefit, and on which enormous profits had been made by
them, would be just as unfavourable to the granters of life annuities;
that the proportion of gain to the office would be the proportion of
loss to the Government. The ministers shook their heads at this, and
required time to consider. The economical members pressed their point,
and urged an investigation. Night after night they pursued their foes
with clamour, and day by day they reiterated their assertions in the
clubs. The reports and rumours which were spreading in the financial
world, and the assertions which were everywhere made, were, indeed,
somewhat alarming. It was said that, according to Mr. Finlaison’s
report, 400,000_l._ a-year was being lost; many, determined not to be
outdone, asserted 100,000_l._ a-week was the lowest estimate; others,
that an insurance office had realised 60 per cent. by dealing in them.
Statements like these were so injurious to the financial character
of the Government, that it was found necessary to stop them; and the
chancellor said that, as only 640,000_l._ had been granted in the shape
of life annuities, it was not very likely we were losing 100,000_l._
weekly; that Mr. Finlaison was employed in constructing tables; and
that, though this gentleman had certainly stated the terms were too
favourable, yet the true amount of loss would be difficult to attain,
Mr. Finlaison’s estimate being an abstruse calculation as to the amount
of the National Debt which would be redeemed in sixty years, compared
with the amount which would have been redeemed had no annuities been
granted. This he estimated at 3,200,000_l._ less than would have
been attained by the Sinking Fund. At last, in 1829, Mr. Finlaison
reported to the House, and the tables in connexion were certainly the
most valuable of the kind then published. Access had been given to
every document bearing on the subject. The registries of the tontines,
the ages attained by the lives on which annuities had been granted a
century previous--the experience of the offices--procured a mass of
information which was turned to great advantage. The tables fill fifty
folio pages, and show the rates of mortality, the value of annuities on
single lives at all ages, among many classes of annuitants, separate
and combined; the sexes being distinguished, both in exhibiting the law
of mortality and the value of annuities.
These tables were satisfactory in the evidence they gave of a material
improvement in the average duration of life. In forty years so great
a change had taken place in the condition of the people, that the
decrease of mortality was from 1 in 40 to 1 in 56. They proved, also,
to demonstration, the extraordinary difference between the longevity of
men and women, a circumstance not hitherto known to a certainty, but
one which was most important to the granters of annuities. The result
of all these calculations was comprised in the fact mentioned,--that
the public, at the end of thirty-five years, will be burthened with
a perpetual annuity of 96,000_l._, owing to the error so tardily
rectified. We shall now see the mode in which these errors were amended.
There is something very provocative of mirth in the economical
movements of Government. They had just been obliged to annul tables
which had been in operation for twenty years; they had been compelled
to acknowledge to the House that they had been wasting the public
money; they had employed an actuary for ten years in procuring
information on which new tables could be constructed, and scarcely
had these been brought into operation than they found they were again
in error. While the new act was preparing which was to enable the
Government to sell life annuities and annuities for certain terms of
years, the tables were shown to a gentleman in the Bank of England, who
at once declared that those which were framed for lives above a certain
age were too low in price. It was replied that they were taken from
the experience of the assurance offices, and that they represented the
average value of life at that period. “Yes!” was the reply, “but if
select lives are brought, what becomes of your average?”
The act was passed; and by the tables which it authorized a man of
ninety by paying 100_l._ would receive for life an annuity of 62_l._
The first payment commenced three months after the purchase, and if the
nominee lived one year and a quarter, the nominator received back all
the purchase money, so that every half year the annuitant lived after
this was pure gain.[18]
The shrewd gentlemen of the Stock Exchange immediately saw and
seized the advantage. Agents were employed to seek out in Scotland
and elsewhere robust men of ninety years of age, to select none but
those who were free from the hard labour which tells on advanced
life, and to forward a list of their names. The Marquis of Hertford,
of unenviable notoriety, added to his vast wealth by choosing as
nominees those who were remarkable for high health; on two only,
taking annuities of 2,600_l._ Wherever a person was found at the age
of ninety, touched gently by the hand of time, he was sure to be
discovered by the agents of the money market, the members of which
speculated with, but scarcely perilled their wealth on the lives of
these men, on such terms.
The inhabitants of the rural districts of Scotland, of Westmoreland,
and of Cumberland, were surprised by the sudden and extraordinary
attention paid to many of their aged members. If they were sick, the
surgeon attended them at the cost of some good genius; and if they
were poor, the comforts of life were granted them. In one village
the clergyman was empowered to supply the wants of three old, hale
fishermen during the winter season, to the envy of his sick and ailing
parishioners. In another, all the cottagers were rendered jealous by
the incessant watchful attention paid to a nonogenarian by the magnate
of the place. It was whispered by the less favoured that he had been
given a home near the great house; that the cook had orders to supply
him with whatever was nice and nourishing; that the laird had been
heard to say he took a great interest in his life, and that he even
allowed the doctor twenty-five golden guineas a year, so long as he
kept his ancient patient alive.
One man was chosen of above ninety who would walk eight miles any day
for 6_d._ The hills and dales of the north of England, with the wild
moors and heaths of Scotland, peopled by those who never breathed
the air of cities, furnished nominees; and, lest there should be
any lurking disease, they were examined by a medical man to confirm
the appearance they bore. There were several curious anecdotes in
connection with these shrewd speculations. There were two baronets
offered, illustrative of an old story. Both were nonogenarians, both
were sound, wind and limb; the one was remarkable for his extreme
temperance, the other for drinking two bottles of wine daily, but both
first-rate lives.
The offices were besieged with contracts on such men as these.
Notwithstanding the heavy losses which Government had sustained by
the previous tables, they lost much more by the present oversight,
for against lives chosen with so much care and nursed with so much
attention, there was not a chance.
One legend is extant to show the trouble which the nominators would
take, in order to procure a person on which they could safely invest
their money.
An eccentric, simple old man, an amateur angler in the streams which
adorn the dales of Cumberland and Westmoreland, gave rise to the
following attempt to procure him:--This man, named John Wilson, had
not been born in the dales, but had come at an early age to take his
lot among the single-minded people who dwell there. He had bought a
small farm, on the produce of which, tilled by his sons and grandsons,
he lived. He was soon found out by the agents of the speculators; but
for some reason, known only to himself, refused to be speculated on,
and as the secret of his birthplace was confined to his own breast, no
register of his age could be procured without his consent. At ninety
he would have passed for seventy. He would wander for whole days with
only his fishing-rod and basket among the lakes and rivers of his
adopted home. For a week together he would be away from his dwelling,
lodging, when the night came, wherever he could procure a bed. In vain
was he tempted with presents of fishing-rods; in vain the choicest
London-made fly was offered; he turned away with an air of indifference
and defied the temptation.
There came to reside in the village, apparently on account of his
health, a young gentleman who took John’s fancy, for he was fond of
fishing and had never asked the old man where he was born. To him he
showed his choicest retreats for casting the fly, told him stories of
wonderful throws he had made, and wonderful fish he had caught, and
pleasant were the long summer days passed by these two in the deep
recesses of the hills, following the course of rivers, and tracing
streams to their rise. It never entered into the old man’s thoughts,
that one of those who were interested in knowing his birthplace was
becoming a bosom friend. But so it was. The invalid had only sought
the neighbourhood for that purpose, and when he had thoroughly gained
his confidence, he turned the conversation very cautiously to the old
man’s early history. The latter showed no symptoms of anxiety, and the
Londoner went yet further: still there was no alarm apparent. But the
next question, which, if answered, would have settled the point, was
too abruptly put. The ancient angler wheeled round, faced his companion
sorrowfully, and merely saying--“Eh! man, the ways of the world, the
ways of the world!” shouldered his rod, and disappeared down a ravine
close by, leaving his companion to find his way home as best he could,
and far too much annoyed to remain any longer in the neighbourhood
where he had been so unsuccessful.
When schemes like these were resorted to, and this is only one of
many[19], it is obvious that the expected gain must have been great.
One house alone entered into contracts on the lives of men similar
to those described, for thousands, and the first to open a contract
was the Marquis of Hertford, whose attention was probably drawn to
the speculation by Mr. Croker. Philip Courtenay, Queen’s Counsel and
Member for Bridgewater, was another. He availed himself of his tour on
the Northern Circuit to seek out old and healthy lives. Just at this
time the House of Lords refused so resolutely to pass the Reform Bill,
that the monarch was expected to force them into compliance. The mind
of the people was greatly excited; and, unable to account for Mr.
Courtenay’s avidity, a Yorkshire paper gravely asserted that Earl Grey,
being determined to carry the Reform Bill, had employed the Member for
Bridgewater to choose a sufficient number of aged persons to receive
the honour of peerage, the prime minister being determined to swamp the
Upper House with nonogenarians rather than fail in his purpose.
One firm alone, that of Benjamin and Mark Boyd of the Stock Exchange,
took three-fourths of the entire contracts for their friends; and
as the lives chosen by them were good, it is probable that their
constituents averaged a profit of 100 per cent. The desire to speculate
on nonogenarian lives soon became a mania. Barristers with a few
thousands,--ladies with a small capital,--noblemen with cash at their
bankers, availed themselves of the mistake. It is difficult to say
to what extent it would have proceeded, had not Mr. Goulburn availed
himself of a clause in the act, to cease granting annuities which might
prove unfavourable to government.