Seniors will see no rise in their Government pension benefits this year, after eight successive years of increases.

Government will also freeze the level of contributions into the Contributory Pension Fund, Finance Minister Paula Cox said yesterday.

Some 11,190 people — or more than one in six of the Island's population — receive benefits under the Contributory Pension scheme, which currently provides a maximum benefit of $1,319.61 per month.

Ms Cox said an increase in benefits and contributions was likely next summer.

The freeze on benefits comes after increases of five percent in each of the past two years.

Overall, the pension has increased by nearly half over the past decade, Ms Cox said.

"For our seniors, the near 50 percent increase in pension benefits put through by this administration since its time in Government is above the underlying trend rate of inflation," Ms Cox told MPs in the House of Assembly yesterday.

"Therefore seniors' pensions will be in good shape for many years to come and will be able to be shielded from the effects of inflation by periodic adjustments in line with the movement in the Consumer Price Index.

"It is anticipated that both contributions and benefits will be adjusted during the next review period and uplifted in August 2011."

Bermuda's pension fund is facing similar challenges to those in many other developed economies, as people live longer.

An ageing population increases demands on the fund, even as the working population which pays into it shrinks.

The number of seniors receiving pension benefits is set to more than double over the next 40 years, according to demographic estimates, Ms Cox said.

To ensure the scheme is sustainable, Ms Cox said Government plans to increase the rate of contributions relative to increases in benefits. Up to now, when there was a pension benefits increase, contributions increased by 1.75 percentage points more. Thus last year, when pensions went up five percent, contributions were increased 6.75 percent.

In future, contributions will increase by 2.5 percentage points more than benefits, based on the recommendation of a Government-commissioned actuarial review of the fund, Ms Cox announced.

The actuaries concluded that without the change the Contributory Pension Fund would continue to grow for the next 12 years, but then would then start falling and the fund would be exhausted by 2041.

Their estimate is based on an annualised real rate of return of 3.5 percent (after inflation) for the fund. During the three-year period of 2006-2008 the real rate of return was 3.6 percent.

With contributions increasing by 2.5 percent, the fund is sustainable over the next four decades, according to the review.

The fund, which also provides disability pensions and non-contributory benefits, was worth about $1.27 billion at the end March this year, Ms Cox said. Returns were strong in 2009 and the first quarter of this year, she added.

United Bermuda Party MP Grant Gibbons asked Ms Cox whether the Ministry of Finance or the Pension Commission had carried out any studies to show what degree retirees would have decreasing reliance on the contributory pension fund as their occupational pensions come into play.

In 1998, Dr. Gibbons was Finance Minister when the then UBP Government passed legislation requiring employers and employees to each contribute, at a rate of five percent of the employee's income, to occupational pension plans. The scheme came into effect some ten years ago.

Ms Cox replied that the Ministry of Finance worked as part of joined-up government and a lot of data had been compiled. Dr. Gibbons then asked whether the Ministry of Finance or the Pension Commission would undertake a study to show the adequacy of the current pension fund.

The Minister said the Ministry of Finance and the Pension Commission would always do what was required to ensure seniors were provided for. "I don't think I'm prepared to say there is going to be an undertaking, in the specific terms couched by the member," she added.

Dr. Gibbons said later that the occupational pensions were designed to provide a pension of 60 to 70 percent of an employee's finishing salary.

"For those retiring now, it will not have a huge impact, but a number of years down the road, we will see a shift towards the occupational pensions as the primary source, rather than the contributory scheme," Dr. Gibbons said.

On hearing the news of the pension benefits freeze, Age Concern executive director Claudette Fleming said: "It's not a surprise, given all that has happened economically over the past couple of years."

She added that some seniors would be surprised, having become accustomed to an annual rise in benefits, at the lack of one this year.

"It doesn't make it any easier for seniors, because the things they need have all gone up in price, like food, utilities and health care," she said.

"Many people have come to rely on their pensions and we do expect that more people will be looking for additional support."