Government’s Public Service Superannuation Fund will pay out an extra $1.7 million a year as a result of an increase in pension benefits for civil servants.The increases are based on the defined benefit scheme, which takes cost of living increases into account.Yesterday, Junior Finance Minister David Burt told the Senate that Government would have to continue to make special contributions to the Civil Service pension scheme to correct “inherited unfunded liability”.Sen Burt said the Public Service Superannuation Fund (PSSF) which covers pensions for Government officials such as teachers, prison officers and police officers had $429.3 million in assets as of September 30.“[This is] roughly 9.6 times more than the annual projected benefit payout of some $44.9 million in pensions for this fiscal year,” he said. “Although the PSSF is fully backed by the Government this fund balance provides further security of benefits.”Sen Burt said the Ministers and members of the Legislature Pension Fund (MMLPF) had $9.4 million in assets as of March 31, roughly 21 times more than the annual projected payout of some $454,000 in pension benefits.He added that the increase in pensions for Ministers and members of the legislature only amounted to $59,000 in additional benefit payments this year.This means civil servants and public sector workers will receive an additional $705 a year, bringing their pension to $18,352.For ministers and members of the legislature their benefits will increase by $1,379 bringing the total to $35,857.Yesterday, the Senate passed the pension orders to increase the benefits for the approximately 2,190 receiving these pensions.Sen Burt explained how the pension scheme differed from many in the private sector.“The plan is a typical defined benefit plan,” he said. “A defined benefit pension scheme is often regarded as more valuable than a defined contribution scheme.“This is because the benefits from a defined benefit scheme are often calculated as a proportion of final salary, with the employer carrying all the investment risk, while defined contribution benefits depend on the investment performance of the participant’s account or pension pot.“The pensions are also index-linked which protects them against inflation.”Moreover, PSSF is fully backed by the Government, meaning if it is unable to meet the benefit needs Government can take money out of the Consolidated Fund something that has happened in the past.Sen Burt said Government had started taking steps to make sure the pension scheme’s long-term viability, including increasing contributions, and deal with historical problems within the PSSF.Since April 2006 PSSF contribution rates increased from five percent for regular members and 6.5 percent for uniformed officers to eight percent for regular members and 9.5 percent for uniformed members in 2008.“This is part of the funding strategy to place the PSSF on a more stable footing and to attend to some longstanding PSSF specific issues that have had significant impact on the financial position of the PSSF,” Sen Burt said.As a result of the increased contributions the PSSF went from an $11 million cash deficit in 2006 to an $8.5 million surplus in 2010.“The increase in the pension contribution was only the first step in fixing this inherited problem and Government must still address the unfunded liability incurred from prior non-contributor service and prior inadequate contributions,” he added. “Government contributions in excess of the matching contributions will be required.“The Government’s policy has been to reduce the inherited unfunded liability through a series of special contributions and a sound investment strategy that best meets the PSSF’s financial objectives.“Going forward we will continue this policy in a manner which is responsible transparent and fair.”In 2001 the Government wrote off $35 million of the PSSF’s liability to the Consolidated Fund, the Government of Bermuda’s main operating account. Four years later it wrote off an additional $44 million owed by the PSSF to the Consolidated Fund.Sen Burt said the “historic unfunded liability” issues dated back to 1982, when it was established, because contributions were just one percent. Although the contribution rose to five percent Sen Burt said an actuarial review at the time said this was still inadequate. The actuary also advised against making payments from the PSSF until 1991, instead making payments from the Consolidated Fund, however the Government of the day chose to start the PSSF payments in 1986.The last actuarial review was done in 2008 and stated the funded ratio of the PSSF was 34 percent and expected to rise to 36 percent in 2010. The next actuarial review is due March 31.United Bermuda Party Senator Jeanne Atherden noted that many companies are moving away from the defined benefit plan to the defined contribution plan to cut down on costs.She added: “It is the people who are working who are paying for the increases in benefits, they are paying more in contributions.”She asked what the actuarial report’s assumed rate of return was in 2008 and was told 6.5 percent.Independent Senator Walwyn Hughes said he was aware that he had a good pension scheme after working within the Civil Service for 40 years.He added: “I have to give credit to this Government for taking the steps that needed to be taken in 2006, there was no way that five percent would cover it.”He said Government may also have to consider putting a cap on [the PSSF] and making it a defined contribution plan for people who join after a certain date.