Pensions are set to be frozen at current levels for Government employees and MPs, Minister of Finance Bob Richards announced.

Mr Richards told the House of Assembly that pensions were massively underfunded and that he would introduce legislation aimed at ending regular cost of living increases.

He said the cost of living clause in the civil service pensions scheme added about 23 percent to pension costs on funds that were already only 33 percent funded.

He said afterwards: “It’s a question of we do this or the pension funds run out of money. These are the difficult choices, but we think it’s fair.”

And he added: “There are other adjustments we have to make — the status quo for pensions is just not sustainable.

“They will run out of money and basically be bankrupt and there is a Government guarantee to these funds.

“If the funds go bankrupt, the funds will come out of the Consolidated Fund.

“This will also affect past MPs, current MPs and future MPs. We are taking the pain right alongside former civil servants.”

Mr Richards said the plan had been backed by the Pensions and Benefits Working Group — a claim that Jason Hayward, president of the white collar union BPSU disputed.

Mr Hayward said: “We understand that there are problems with the current way pension funds are operating.”

But he added: “I find the announcement a bit premature because union representatives sit on that working group and I don’t know that the conversations had proceeded to the extent that recommendations had been made.”

And Mr Hayward said he would have expected the unions to have been consulted before any decision was made.

“The working group are still having discussions — it was never agreed that we were going to put forward recommendations to the Minister.

“We don’t want to be a hindrance to the process, but we do expect proper consultation when changes are made that will affect these individuals.”

Mr Richards told MPs: “Demographic effects are having an impact on the sustainability of pension schemes worldwide.

“It’s good news that we’re generally living longer and healthier lives and spending longer in education and training.

“But this is making pensions more costly as we have to pay them for longer on the basis of shorter working lives.”

At present, two-year reviews are carried out based on the all items consumer price index prepared by Government statisticians.

If the cost of living is found to have risen by 0.5 percent or more, pensioners are given an increase.

Mr Richards told the House that a review is due on July 1, but said that the MPs and civil service pension schemes’ “significant unfunded positions” urgent action was needed.

He added: “In terms of sustainability, this should be considered as a necessary change at this time and would impact all members.

“It is fair to have it affect pensioners as well as active members as the plan was not in reality funded at the level required to fund pensioners’ benefits when they retired.

“Based on this recommendation, no pensioner would receive a lower pension than already being received.”

Mr Richards added that both the Government actuary and the SAGE Commission, which was set up to look at ways to cut the cost of Government, had both recommended freezing pension payments at current levels.

And he said the move was line with changes in the private sector.

But he added: “It should be noted that if other benefit changes are introduced to the plans, it may be possible to restore some degree of indexation to all pensioners in the future, depending on how the funded position — and its long term viability — improves.”

Other changes to public sector pensions being considered include a change in the final average earnings definition from the final salary figure at retirement to a number based on a five-year average prior to retirement and an increase in the age for payment from 60 to 65 and from 55 to 60 for special groups.

And Mr Richards said actuarial reductions in pensions if an employee takes early retirement before the age of 65 were also being considered.