Confirmation by Government that employee pension payments are to rise slightly comes after a detailed study into the long-term future of the Bermuda system.

Pension experts from Britain pored over statistics outlining pension payments, worker contributions and population forecasts before offering advice about what the Island should do to ensure it is not facing a pensions time bomb in years to come.

On the back of financial forecasts from Whitehall ? requested by the Bermuda Department of Social Insurance ? Finance Minister Paula Cox announced on Friday that businesses and unions were being consulted on plans to increase the age of retirement.

But it could be some time before a decision is made on whether to raise the retirement age up from 65.

Of more immediate interest for workers, however, is Government?s decision to increase pension contributions from 1.25 percent more than benefit payments, to 1.75 percent more.

Ms Cox said the slight rise would help combat long-term effects of population changes that threaten the solvency of the Contributory Pension Fund.

She told the House of Assembly that the Island?s fund was in good shape, with the short-term financial outlook positive. The market valuation of its assets stood at just over $1 billion at the end of this September ? about 13 times more than the yearly projected payout of some $75 million in pensions and allowances.

But it looks certain the problem of how to look after an increasingly ageing population will continue to keep Government finance officials on their toes.

The report, from the Government Actuary Department in the UK and which looks at the Bermuda Contributory Pension Fund as it stood on August 1, 2002, concludes that the number of seniors receiving pensions was expected to grow steadily over the next 30 years. From then numbers are expected to gradually decline.

The possibility of a pension fund black-hole comes when the figures on the working population contributing to the pot are added to the equation.

The study states that the population of workers is expected to remain broadly stable in the short-term but decline more significantly over a longer period.

?Consequently, the cost of benefits is expected to increase substantially relative to the contribution base represented by the employed population.

?So contributions will need to increase at a faster rate than benefits over the long term.?

The rate of this increase, the report adds, will depend on actual population changes ? not just 40-year projections? and how the fund performs in the investment markets.

Painting a series of scenarios, the report says that if contributions were to rise by 1.25 per cent a year more than benefits, and the fund earned a real rate of return of 3.5 percent per year, then it was likely to increase for about 15 years before declining and would be empty by 2040.

A real rate of return of two percent would exhaust the fund within 30 years and a five percent return would see the fund increase for about two decades, then remain broadly level for the next 20.

As an example, the report adds:

?If contributions were to increase in line with benefits, then the fund is likely to be exhausted within the 40-year projection period, even with a real rate return (from investments) of five percent a year.

?Thus, over the longer term, this is likely to necessitate higher increases in contribution rates relative to benefits.?

Bermuda does not stand alone as it gets to grips with the challenge of keeping the pension system healthy amid the backdrop of an increasingly ageing population.

But this new report gives finance officials on the Island a crucial overview of possible problems ahead, and of the need for pension contributions to keep rising at a faster rate than benefits, if Government pensions are to stay at present levels in real terms.