Senators passed an order increasing pensions by three percent yesterday.

Government said the money, backdated to August this year, will be paid by Christmas.

However, contributions will rise by 4.25 percent in August next year.

Progressive Labour Party Sen. Raymond Tannock said normally pension benefits were increased every two years but this rise would be the second within 12 months.

The three percent rise applies to contributory old age pensions, gratuities, disability benefits, widow and widower allowances and gratuities as well as non-contributory old age pensions and disability benefits.

Around half of the 8,500 recipients of contributory pensions get the maximum $893 a month, said Sen. Tannock.

"The three percent rise will raise benefits to a maximum of about $920 per month."

The strong showing of the contributory pension fund had allowed Government to postpone the 4.25 percent increase in contributions until the summer, he said.

"The proposed increase in contributions of 4.25 percent accords with the actuarial advice that contribution increases should be at least 1.25 percent points higher than benefit increases in order to maintain the fund on a sound financial footing."

He said the fund in November was $789 million, roughly 12 times more than the annual pay-out of $65 million.

"Government's investment strategy for pension fund assets is achieving good results.

"The market valuation of assets in the contributory pension fund in November was over $100 million higher than at the same time in 2002.

"In November, 2002 the market valuation was $678 million."

However, Independent Senator Walywn Hughes said the increase in contributions was a flat rate which would affect both chamber maids and the head of XL Capital. "It gets heady at the lower scale."

And he said the fund was only back to where it was two years ago after a massive drop in 2002.

Sen. Tannock said the three percent rise was in line with the underlying rate of inflation, despite the September rate of 3.8 percent.

"The Department of Social Insurance is ready to act on this order as soon as it is approved by the Senate and seniors may anticipate receiving their pension increase in their December pension cheques including the increments for August, September, October and November."