The Audit Commission has proposed that civil service pensions be cut in times of deflation, saying more than $5 billion will be spent unnecessarily over the next 20 years due to system rigidity. But the Civil Service Bureau rejected the finding and argued that deflation was a short-term phenomenon. At present, monthly pension payments under the Pensions (Increase) Ordinance go up with the inflation rate. They can be frozen, but not cut, when there is deflation. When an officer retires he receives a lump sum and monthly payments until he dies. 'The purchasing power of pensions will be enhanced rather than maintained [during deflation,]' Director of Audit Dominic Chan Yin-tat said in the latest report on pensions released yesterday. The commission said the Consumer Price Index (A), which is an indicator of the inflation rate, dropped 3.8 percentage points in 1999-2000. Inflation is expected to rebound to 3.9 per cent in 2000-01. With 53,540 pensioners eligible for the scheme, the payments would be $4.2 billion in 2000-01. Had pensions been cut in line with deflation, $160 million would have been saved for 2000-01. Based on the life expectancy of the pensioners, the total extra cost of the current system is put at $3.04 billion. A further $1.85 billion would be spent for 10,784 deferred pensioners and 6,628 early retirees, assuming their life expectancy is 25 years beyond the normal retirement age of 60. These two groups of civil servants are not eligible for immediate pension increases. But they are entitled to accumulated pension increases, which take effect when they reach retirement age. A bureau spokesman said: 'We do not see a case to introduce fundamental changes to the long-established pension increase policy and mechanism, which has been consciously made statutory since 1993. 'There is no question of overpayment of pensions or undue pension increases.' He denied the policy was upheld because any cuts would violate a Basic Law guarantee that civil servants' benefits should not be less than they were before the handover.