Senators approved a three percent increase in the rate civil servants must pay into the Public Service Superannuation Fund ? a move designed to ensure the long-term health of the pension scheme.

The Public Service Superannuation Amendment Act was introduced by Progressive Labour Party Senator Raymond Tannock who said changes in the demographics of Bermuda's working population has caused the need to increase pension contributions.

Opposition senators wholeheartedly supported the amendment.

"Demographic effects are having an impact on the sustainability of pension schemes world-wide," Sen. Tannock said. "It's good news that we're generally living longer and healthier lives, and spending longer in education and training.

He added: "But this is making pensions more costly as we have to pay them for longer on the basis of shorter working lives."

Currently civil servants contribute five percent of their salary. Their the pension contributions will rise to eight percent over the next three years, increasing in one percent increments.

Police, fire and prison officers will see their contributions rise to 9.5 percent over the next three years as they receive greater benefits.

Sen. Tannock said that civil servants should feel confident in their pension scheme because it is a defined benefit plan, which is regarded as more valuable than a defined contribution scheme in that the benefit plan is based on a proportion of the final salary.

This means Government takes on all the risk while benefits in a contribution scheme depend on the performance of investments.

The fund has always operated at a cash deficit in that the pension contributions cover approximately two-thirds of the annual pension benefits and amounts transferred out of the Fund annually.

The shortfall is made up from the Consolidated Fund and is a liability to the Public Service Superannuation Fund. Sen. Tannock said this should provide civil servants with confidence because it means that the fund is fully backed by the Government.

In order to ensure that the liabilities of the Superannuation Fund do not seriously deteriorate its financial position Government relief is sometimes required.

In 2001 the Government wrote off $35 million of the Superannuation Fund's liability to the Consolidated Fund.

"In the fiscal year of 2005 Government announced its intention in the 2005/2006 Budget Statement to provide relief to the Fund by a write off of amounts due from the fund as a special contribution to the Fund," Sen. Tannock said. "At the time, the estimate of the amount owed by the Fund to the Consolidated Fund was $44 million."

Sen. Tannock said the write offs were necessary because without them the annual short fall of the fund would require the liquidation of assets which would in turn reduce the earning capacity of the fund and its financial situation would deteriorate further.

He also said that the new contribution rates should diminish the deterioration of the Fund in the future.

It will be necessary, he said, to rectify the liability incurred during previous years and that to do so the Government will be required to provide more special contributions to the Fund.

United Bermuda Party Senator Bob Richards said he did not take issue with the amendments and that they were needed.

Independent Senator Walwyn Hughes applauded the Government, saying: "Congratulations to the Government for biting the bullet on this one and making sure the fund will continue to work."

He also wanted to reassure people that the Fund is not broke and that the current moves by Government are attempting to assist the fund in the long term.

Senate President Alf Oughton said of the amendment: "It's about time that people not be allowed retire so early because adding an extra five years of work means another five years of contributions before people can access their pensions."