Committee on Economic Security (CES)

Volume II. Old Age Security

Other Staff Reports
General Discussions


Edwin E. Witte

Number of States with Old Age Pensions

Sympathy with the principle of extending pensions to those who have reached an age where they are no longer able to support themselves has been growing rapidly and 28 states now have measures looking to this end. In the last few year sentiment in favor of such legislation has increased noticeably, and the state programs have been constantly expanded, but due to the influences of the present time a curious and anomalous situation has arisen. Most of the states have been so hard pressed financially to meet emergency needs resulting from unemployment and the depression generally, that the claims of the old age pension measures have been pushed into the background for lack of appropriations. As a result, while the number of laws in force has doubled in the last two years, the number of old people actually receiving pensions has increased but slightly. As far as most of states are concerned the spirit is willing but the exchequer is weak. Some way must be found to insure that budget appropriations be made just as much for old age pensions as for other legitimate state expenses. It is suggested that a remedy for the situation must be provided by increased financial support to be derived from either state or federal resources.

How Many Would be Eligible for Old Age Pensions

While we know that 6,500,000 people in the United States are over 65 years it is difficult to arrive at the number of old people whose lack of means would entitle them to a pension. Last December there were 500,000 over 65 receiving emergency relief, while 115,000 were receiving state pensions, with long waiting lists of eligibles.

It is certain, however, that a very much larger percentage of the aged are without adequate means of support than these figures would indicate. A study based on the Monthly Labor Review of August, 1934, shows that in Wisconsin, for example, out of the 112,000 persons of eligible age in the state, of whom unquestionably a considerable percentage were in need of assistance, only 1.8% were receiving pensions. It has been estimated by competent observers (Epstein) that approximately 2,700,000 of the 6 ½ million persons of 65 and over in the United States in 1930 were supported wholly or partly by others.

Weaknesses & Defects of the Present System

There are some obvious weaknesses and defects in all of the existing state old age pension laws. One of the most important of these is the restrictive residence requirements. Fifteen or twenty years of residence within the state, as required in most of the laws, presupposes a degree of security and permanence of employment which has been conspicuously lacking among our unskilled workers, whose labor is frequently of a highly migratory order. It is, of course, in the ranks of these unskilled workers that we find the great proportion of the needy aged, and yet great numbers are at all times branded ineligible for pensions by this provision, which obviously calls for revision. It was inserted, when the first measures were passed to protect the more forward-looking states from being swamped by an influx of applicants from states which had no such legislation. Today, with 28 states committed to old age pensions, the need for such stringent residence requirements has grown much less. In this connection it is of interest that many states require but one year's residence for mothers' pensions.

Another obvious weak point of the present laws is that the extreme age at which a person becomes eligible for a pension is set so high, in the majority cases. While some people are able to continue to work even after 70, it becomes increasingly difficult, due to certain well-known conditions of our industrial system, for most wage earners to obtain employment that gives them sufficient for their needs long before they are 70. Not only is there a very definite feeling that the age at which a person can qualify for a pension should be made considerably lower, but it is also suggested that if the pension were made available at an earlier age it would be an inducement to the worker, who might otherwise hang on to his job, to retire and make way for a younger man.

The administration of the old age pension laws is another focal point for criticism. County administration is charged with being often political, and the county courts generally lack the facilities for a thorough investigation before pensions are granted. To overcome the latter weakness, county judges are now utilizing the investigational machinery of the administration, while several states (other than Wisconsin) have vested the right to grant pensions in some state agency.

Another defect in the old age laws lies in the stringency of the "means test" provided for in these statutes. It is inconceivable that old age pensions will ever be granted on a non-contributory basis to everybody regardless of their means, but it is not necessary, as the present laws provide, to require applicants for pensions to prove not only that they are in need, but that they have no near relatives who can support them. Although at times relatives may be in a position to render some little assistance, "the struggle for existence of all people who are working for a living is so keen and the prospects of security are so uncertain that it would seem unwise to impose upon relatives who are just a little bit better off than the applicant for the pension the duty of contributing towards his support." At all events, pensions should not be denied because relatives fail to discharge their obligation to support an old man or woman who is indigent, but instead, the county (or state) should have the right to recover the amount of the pensions paid from such delinquent relatives.

But the most serious defect in the old age pension laws lies in their inadequate financial provisions. Where the counties, as in Wisconsin, must carry the major part of the cost, they have found old age pension a very great burden in their present financial situation, and even where the state is the unit for financing, it is difficult for many of the states to carry this burden unaided. At present, moreover, the federal government is bearing most of the relief costs, while it bears no part of the old age pension expenditures. There is, consequently, a strong incentive for counties and states to put old people on relief rather than on pensions. This is precisely what has actually happened. There is a tendency to bracket the eligible pensioner with the rest of his family and to put the whole group on the inadequate relief dole, rather than to pay the elderly member the old age pension, to which he is entitled, an economy which has little to recommend it.

Amount Of Pensions in Various States

The maximum pensions allowed are $150 per year in North Dakota; $15 a month in Hawaii and Indiana; $20 monthly in Delaware, Idaho, Montana, Ohio, and Utah; and $30 a month in Arizona, California, Colorado, Maine, Maryland, Michigan, Minnesota, Nevada, New Jersey, Oregon, Pennsylvania, West Virginia, Wisconsin, and Wyoming. Alaska pays $35 per month to men and $45 to women. In New Hampshire the maximum is set at $7.50 per week. The New York and Massachusetts acts set no specific maximum, leaving the matter to the discretion of the administrative officials. In several states one-third of the sums expended on pensions by the local governments is reimbursed by the state; in several others the state and the counties share the cost equally; in a few the state or territory assumes the entire cost; and in 14 the entire cost is borne by the counties. On December 31, 1932, there were a total of 100,959 persons in receipt of benefits in thirteen states, more than half of them in New York. The total expenditures in 1932 amounted to $25,095,000.

While all these pensions are small they are beyond all question very much better than any system of relief, because they insure to the old person a small but definite income. The certainty of receiving this small amount regularly gives a feeling of security which has a very noticeable effect on the health and well-being of the recipient. At the same time, it has been definitely proven that the granting of these pensions is less expensive to the tax-payer than the upkeep of almshouses. As Mr. Epstein has pointed out, "The economy of the pension system if demonstrated by the fact that as against an average expenditure of over $40 monthly per capita in poorhouses, the average monthly pension in the states which paid such in 1932 amounted to only $22.35, or about half the cost of maintenance in an almshouse.

"At the same time pension experience fully bears out the prediction of supporters of these laws that a self respecting system of care in their own homes would ultimately result in considerably reducing the need for the expensive institutional care of the aged. A recent study of nine states made by the American Association for Social Security disclosed that while during the years of the depression the total almshouse population has increased greatly in every state in the Union, the increase has been very much less in the states with pension laws as compared with those without such laws. Thus, whereas Connecticut, without a pension law, witnessed during 1931-32 an increase of 32.2 per cent in its almshouse population, its more industrial neighbor, Massachusetts, which started its pension plan in the middle of 1931, had an increase of only 15.8 per cent, or less than half as great. The same general fact holds true of other states. But even more striking, are the New York facts: In 1929, the year just preceding the enactment of New York's old age security system for persons of 70 years and over, the number of inmates over 70 increased by 567, or 15%. Following the first two years of the operation of the law the number of inmates over 70 years of age actually dropped by 332, a decrease of 7.5%. Significantly, the number of inmates under 70, and therefore ineligible for pension grants, increased during the same period by 1,837 or 29%."

As has been said, the amount is small, and could not very well be otherwise. Since the President outlined his plans in his message of June 8 to further security for the aged there have sprung up a number of organizations which are encouraging old people to believe that pensions of absurdly large amounts are possible. One, for instance, which has had quite lot of publicity, and apparently has enrolled thousands of trusting old people under its banner is advocating a pension of $200 a month to everybody who reaches the age of 60. A little simple arithmetic will show that to give this pension to the more than 10 million in this age group would cost 24 billions a year, or over half of our national income of last year.

In fairness to the legitimate demands of other needy groups, the public can never be asked to provide non-contributory old age pensions of more than very modest size.

Contributory Pensions

Many of the European countries which have had old age pensions in operation over a long period have now both contributory and non-contributory pensions. Great Britain started her first old age pension law in 1908, which gave a small sum weekly to any person who reached the age of 70 without a certain minimum income. In 1926 she put into effect a system of contributory pensions which entitled the worker to a pension on reaching the age of 65, at the same time retaining the non-contributory pension, somewhat liberalized in its terms, so that a pension would still be available at 70 to those who for some reason do not come within the insurable class.

The new contributory system will eventually finance itself. In the meantime pensions have been made payable at once to all workers reaching the age of 65, providing they have been insured for at least five years under the sickness insurance system with which the new old age pension plan is closely connected. In the transitional period, since pensions are payable at once, the government is supplying the necessary funds.

A contributory system, of course, does away with the necessity of a means test, the pension becoming available at the stipulated age as a right for which the worker has contributed his share. It may also be possible to arrange a scale of premiums and benefits in such a way that the worker can be given the opportunity of building up for his old age an income compatible with his standard of living.

Federal Subsidy To The State Pension Laws

While it would be of advantage to start such a system with as little delay as possible, it is recognized that this would not in any way solve the problem of the very large number of aged who have no hope of ever finding work again, and could not possibly contribute to such a scheme. Also, even if such a system were adopted considerable time would have to elapse during which contributions were being collected, in which the available funds would be insufficient to take care of the claims on it and federal aid would be necessary.

To take care of this situation, there is considerable sentiment in favor of federal grants-in-aid to bolster up the state pension laws already in operation, on the principle that it is much better to work on what we already have functioning than to start something new and untried although there are a number of fairly obvious weaknesses and defects in the pension laws as they stand at present and there is also the very depressing problem of financing them, it is believed that these are by no means insurmountable difficulties.

The federal grants-in-aid would be contingent on compliance with certain standard requirements as to age, time of residence, minimum amounts of pension, administration, etc. Such grants would not only encourage the states which now have pension laws to make them more effective, but would encourage the states which have not yet passed such legislation to adopt similar measures. This arrangement, it is believed, would in a reasonable length of time give such widespread protection as to approximate the coverage which would be given by any national measure and would at the same time avoid any constitutional difficulties. Grants-in-aid have been customary in the past, and their constitutionality, is not questioned. It has been estimated that if all states should pay at 70 pensions such as Wisconsin now authorizes and the federal government should undertake to reimburse to the states 1/3 of the cost, the government's share would be $32,000,000. If the pensionable age were lowered to 65, it has been estimated that the federal share on the basis of one-third of the cost would be around $100,000,000.

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