Introduction
The basic need for insurance and pension arrangements stems from
personal risk and uncertainty. From the earliest times it was natural to
look for some mechanism whereby, upon the occurrence of specified
events, the necessary sums could be provided as of right at an adequate
level out of funds earmarked for the purpose.
Ancient Civilisations
Gambling with dice was common among ancient peoples, and they had
some idea of risk, chance and likelihood. Why, then did they not develop
the subject of probability in any mathematical way? Pensions were
provided in ancient Greece. Usury was common in ancient Greece and Rome.
An attempted insurance fraud was recorded by Demosthenes around 350 B.C.
Medieval Pensions
You could get a retirement pension in medieval England as a
clergyman, for military service, as a civil servant, for service in a
great household, by purchase from a monastery, as a member of a craft
guild, or from a contract with a younger member of your family. There
was no concept of retirement at a fixed age ? unless you were wealthy,
you went on working as long as you could.
Corrodies and other Retirement Provision
Corrodies were offered by monasteries and hospitals in return for a
single lump sum. You, and sometimes your wife, then received board and
lodging for life, and often a cash pension in addition.
Usury in the Middle Ages
In 1235 money was being lent in England by Italian or French
merchants known as Caursines, at high interest rates of 43% per annum or
more. Even churches and monasteries borrowed from them. Jews also lent
money and until their expulsion from England in 1290 they were protected
by the King. Usury then became illegal and went underground, with
merchants finding ways round the prohibition by dressing up
money-lending as an ordinary commercial transaction (?chevisance?).
The Beginnings of Insurance
Marine insurance was invented around 1350 in Italy, when the risk
element was separated from the financing element of a voyage. In London
in 1575 marine insurance became regulated by an Office of Assurances,
which was established by the Government in order to achieve fair play
between the underwriters and their clients. There was also a limited
amount of life insurance.
Charging Interest is made Lawful
In England it became lawful in 1571 to lend money at interest rates
of up to 10% per annum. However, there was a great controversy about
whether this was morally acceptable or conformed to religious doctrines.
The Study of Compound Interest
Richard Witt, a mathematical practitioner of London, published a
landmark work on compound interest in 1613. Was Napier?s invention of
logarithms inspired by compound interest tables? Compound interest
techniques spread and were taught in schools. Henry Phillippes in 1654
discussed which rate of interest to use for different types of land
transaction, allowing for risk.
Pensions, 1500-1700
At the Reformation in 1538/9 many dispossessed monks were awarded
pensions for life. By 1550 the City of London had a well-established
pensions system for its retired employees. Samuel Pepys had to pay a
pension to his predecessor as Clerk of the Navy Board. Superannuation
schemes were introduced for naval officers. Poor people were granted
small weekly pensions by local authorities and other organisations.
The Chatham Chest
The Chatham Chest, established around 1590, was financed by seamen?s
contributions deducted from their wages, and it granted pensions to
disabled seamen. This very early occupational pension fund had a crisis
in 1667 when the Chest had run out of money and the cripples were
gathering at Chatham for their annual payday. After over 200 years of
useful service it was eventually absorbed into Greenwich Hospital.
Graunt, Petty and the Plague
The recurrence of plague outbreaks in London every few years led to
the publication of weekly Bills of Mortality. In 1662 John Graunt, a
London draper, statistically analysed the past Bills and drew some
brilliant conclusions, including estimates of the population of London,
and of England and Wales. He also produced the first life table to be
based, at least partly, on real-life data. Probably assisted by Sir
William Petty, he was the first person to make sense of the patterns of
life and death.
The Creation of Actuarial Science
In Holland Christian Huygens in 1657 showed the value which should be
placed on the chances of winning and losing various sums. Jan de Witt
did some largely unpublished work on the price which should be charged
by the State for granting annuities to people. In England some
unpublished work was done by Sir Richard Corbet, but the main
development occurred in 1693 when Edmond Halley created actuarial
science and published a paper containing his famous life table.
The Spread of Insurance
Fire insurance companies were established in London from 1680
onwards. A few life insurance companies were also founded, for example
the Amicable in 1706. Unfortunately many ?bubble? insurance companies
were also formed ? including some which promised to insure their clients
against childbirth or marriage!
Becoming More Scientific
The period 1700-1750 saw the further development of practical
techniques for placing a value on life annuities and on property leases
granted for a person?s lifetime. New life tables appeared, based on the
mortality experienced in various English and European towns. Corbyn
Morris showed that an insurance company?s chance of being ruined
decreases as the number of insurances underwritten increases.
Dawn of the Modern Era
The Equitable Insurance Society, founded in 1762, was the first life
insurance company offering whole-life insurances to be based on
scientific principles, as established by James Dodson. Richard Price, a
non-conformist minister, wrote on numerous actuarial matters and
published the Northampton life table. He justifiably criticised as
financially unsound some newly-formed annuity societies, which promised
deferred annuities from age 55. Tontines were still being used to
provide increasing annuities, though they never became really popular.
Friendly societies provided small insurance benefits for working people.
By 1800 the groundwork had been laid for the great expansion of
insurance and pension arrangements which would occur in the following
two centuries.
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History
of Pensions 
