The purpose of this paper is to consider some of the practical problems arising from the application of punched cards to one particular aspect of Life Office work, namely the work connected with bonus distribution in Ordinary Branch business.

No attempt has been made to describe the punched-card equipment itself, since this was fully dealt with in the paper submitted to the Institute in 1948 by N. E. Coe, K. J. Hedley andL. H. Longley-Cook; this paper also contained a comprehensive survey of the application of punched cards to Life Office work, including brief references to their use in connexion with bonus distribution.

The history of the actuarial profession in South Africa starts, as far as is known, during the last decade of the nineteenth century when three actuaries arrived in the Cape Colony from the United Kingdom. Two of these took up positions with the two South African life offices which were then in existence and the third became Government Actuary to the Cape Colony. By the time the Union of South Africa was established in 1910, four more actuaries had arrived from the United Kingdom, and a further four had arrived by 1920. Some of these gentlemen established permanent homes in this country, while others returned overseas after varying periods of time. It was no doubt due to these early beginnings that the actuarial homes of South African actuaries are today London and Edinburgh.

The first South African-born actuary qualified as a Fellow of the Faculty in 1921, and since that time increasing numbers of South Africans have become qualified, mostly as Fellows of the Faculty.

It is a matter of some regret to me that a member of the Actuarial Society of South Africa cannot be here this evening to provide an introduction to the paper before you. While I feel I am honoured by my South African friends in being asked, as an ex member of the Society, to undertake this duty, I must confess that I am wondering whether my personal experience is sufficient to qualify me for this task.

For much of his work the actuary is concerned with the people living around him and I think therefore that I should say something about the people living in the Union of South Africa.

South Africa was first discovered around the end of the fifteenth century, but it was not until 1652 that the first settlement was made by the Dutch East India Company. The settlers were under the control of Jan van Riebeeck who was charged with the duty of providing fresh vegetables, etc., for replenishing the stores of ships rounding the Cape.

During the past decade ‘electronic brain’ and ‘automation’ have become part of the vocabulary of most inhabitants of this country and of many others. Some users of these expressions, however, have at the most only the vaguest impression of the equipment and techniques involved, of their capabilities, and, which is perhaps most important, of their limitations.

The Institute has been fortunate. The paper by R. L. Michaelson which was presented in April 1953 explained, in considerable detail, the logical operation of an electronic digital computer, while A. C. Baker's paper two years later demonstrated how an installation based on this type of equipment might be used for life office work. Moreover, the Institute has set up several study groups concerned with different aspects of the subject, while from the Society of Actuaries in America emanates a steady flow of reports, for the most part based on practical experience within the insurance companies of the U.S.A.

In 1952 the Statutes relating to income tax were gathered together into one consolidating Statute, the Income Tax Act, 1952 and the whole system of taxation of a life office is laid down in a few sections of this Act. The position has been modified by the passing of the Finance Act, 1956, but the effect of this will be considered in the latter part of these notes. A proper understanding of the relevant sections of the 1952 Act necessitates some knowledge of the fundamental principles of income tax in general as laid down in the Act. As it is the object of these notes to try to deduce as clearly and logically as possible from the Act how a life office is taxed with special reference to its annuity fund, it will therefore be desirable to refer briefly to some of these general principles.

Income is charged to tax in one of two ways, viz. by deduction of tax at the source by the payer of the income or by direct assessment on the recipient under one or other of the five Schedules A, B, C, D and E, enumerated in Section 1 of the Act.