Wednesday, 1 July 2009

clergy pension scheme update

The Church of England has published a press release Update published on Clergy Pensions Scheme.

The Church of England has today published a second and more detailed report on the impact of the credit crunch and recession on the financial position of the Funded Clergy Pension Scheme. The report puts forward various options relating to the future of the scheme.

The last actuarial valuation of the scheme, carried out as at 31 December 2006, revealed a deficit of £141m. This is currently being eliminated by way of extra contributions paid by the ‘employers’ participating in the scheme, in addition to the contributions required to pay for future benefits. Some modifications were also made to the scheme in 2007 to help contain costs…

…The conclusion reached is that further changes to the scheme will be necessary to return it to affordability, and the report sets out a number of proposals for achieving this which include limiting the annual increase in the pensionable stipend, moving for future service the accrual period for a full pension from 40 to 43 years, changing the pension age from 65 to 68 and contracting back into the Second State Pension. The report also sets out options for the future structure of the scheme including retaining the existing defined benefit arrangement, moving onto a defined contribution basis and introducing a hybrid arrangement…

The 23-page detailed report is published as a .doc file.

There will be a presentation about this report at the July General Synod, but not a formal debate. The press release explains:

The report has been issued to all the organisations participating in the scheme, including the 44 diocesan boards of finance, and responses are due by the end of October. The Task Group will then make its final recommendations to the Archbishops’ Council which will decide what proposals should be put to the General Synod which must ultimately approve any changes to the scheme rules.

The 2 page Summary section of the report is reproduced below the fold.

CLERGY PENSIONS CONSULTATION PAPER FROM THE ARCHBISHOPSTASK GROUP

Summary

1. The Church of England now faces difficult choices over the future of its clergy pension scheme. The Pensions Board has already had to increase from the beginning of 2010 the contributions that dioceses and others have to make to fund the scheme. Unless action is taken, far larger increases look unavoidable from 2011 even if the financial markets recover somewhat before the next formal valuation of the pension fund at the end of 2009.

2. All the indications from the dioceses are that the sorts of increases that will be required are unaffordable. The Task Group is clear, therefore, that some significant changes to the present pension scheme will be needed. The objective must be to continue to make adequate provision for our clergy in retirement in a manner that is sustainable in the long term.

3. There is no simple solution. It has already been suggested by some that the Church Commissioners should be called on to clear the deficit in the pension fund. This would, in the view of the Task Group be a mistake.

4. The historic assets of the Commissioners are already being used to pay for pension benefits earned before the funded scheme was introduced in 1998. To disperse even more of these assets would be to meet today’s liabilities at the expense of future generations. It would also reduce immediately the Commissioners’ ability to make money available for distribution, especially to the less well resourced dioceses.

5. The Task Group’s judgement, therefore, is that a solution needs to be found that is consistent with the proportion of their budgets that dioceses are already devoting to pension costs. Currently dioceses have to pay the Pensions Board a contribution of £7,797 for every clergy member of the scheme for whom they are responsible. That represents 39.7% of the national minimum stipend (‘the contribution rate’). From January 2010, that will increase to 45% (an annual rate of £8,838) and on present estimates could rise to around 57% (£ 11,195 on current stipend rates) from 2011.

6. On the basis of what it has already heard from dioceses the Task Group has concluded that the target contribution rate for any solution should be around 42%, which is itself nearly double what the rate was when the funded scheme was introduced in 1998.

7. Much less than this would have an unacceptable impact on the income prospects for clergy in retirement. Much more is unlikely to be affordable without disproportionate damage to other aspects of the Church’s mission and ministry.

8. At this stage the Task Group has not identified a recommended option. Instead it has worked up three possible models. All other things being equal, all would produce, in total, the same level of retirement income but they differ in terms of where the risk lies that things will turn out differently.

9. One option would preserve a modified version of the present defined benefit scheme and would leave most of the future funding risk with those who fund the contributions. One would move all clergy to a defined contribution arrangement for future service where the pension earned largely depends on the size of the pension pot accumulated and they would bear the risk that this will turn out to be less than expected. The third would move them to a hybrid scheme for future service - that is where part of the pension received would be on a defined benefit basis and part would be based on a defined contribution arrangement. Under this option the risk is shared between the clergy and those paying the pension contributions.

10. Since each of the three possible approaches needs to cost around 42% they have certain common features. Each would involve :-

  • contracting the clergy scheme into the State Second Pension,
  • limiting the annual increase in pensionable stipend to price inflation,
  • changing the pension age for future service from 65 to 68, and
  • moving, for future service, the accrual period for a full pension from 40 to 43 years.

These common factors are explained in paragraphs 69 to 91.

11. None of the possible changes would affect pensions already in payment, nor would they affect pension rights already earned by those still in service. They could, however, potentially affect the amount of pension that existing clergy would receive at the moment of retirement depending on when the person concerned takes retirement and the other market factors explained later in this report.

12. The Task Group is seeking comments (sent to the address below) on these possible approaches by the end of October. It will then decide what recommendation to make in November to the Archbishops’ Council, which in turn will have to bring a proposal to the General Synod for approval in February 2010.

13. After that there will need to be a statutory consultation with all members of the pension scheme with a view to Synod approving any necessary rule changes if possible in July 2010 before the Pensions Board has to set the contribution rate from 2011.

Please submit your response to : ‘pensionstaskgroup@c-of-e.org.uk’ .

Clergy Pensions Task Group
June 2009

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Comments

I see from Document Properties that the author of the report is "Godfather", which gives it a slightly mafioso quality!

Overall, a well constructed report which frames the debate effectively - neither leaving it so wide open that respondents cannot frame coherent responses, nor narrowing it so far that there is no flexibility left.

The changes they propose common to all options seem inevitable and correct, in the challenging circumstances. The choice between the remaining three options is harder; whilst the hybrid model seems the most attractive, in practice it still moves all risk to clergy as the DC contribution will be reduced by however much the DB contribution increases.

Posted by: Stuart on Wednesday, 1 July 2009 at 11:14am BST

The word scheme, in North America, is used mostly to describe an underhanded plan. As in a scheme to steal little old lady's money, or a bunch of scheming crooks. So whenever I read news of the Church Pension scheme, I imagine +++Rowan and a bunch of bishops in some back room of Lambeth, using pension money to bet on horses...

Posted by: Aaron Orear on Wednesday, 1 July 2009 at 2:22pm BST

Given that over the last 25 yrs the average age at ordination has increased I think to about 40yrs ,fewer and fewer clergy are likely to clock up 30 let alone 43 yrs service.Many will do around 20-25.I therefore wonder just how the pension scheme has got into this state.Clearly the loss of £800million by the Church Commissioners hasnt helped.£23 million to pay off those leaving over the ordination of women was another blow.But looking back now to my choirboy days in the late 1950's I do wonder how this has happened. I hope some competent economic historian might write a book on what has happened to the C of E's finances since 1945.It will be an instructive tale!Frankly I think many of the issues now bubbling to the surface need to be looked at together...number of dioceses/dignatories/bureaucracy and so forth.Bit by bit it seems to me the fabric of a National Church is being unpicked because it is simply financially unviable, and with the polarisation and fragmentation of the last 20 or so years we will increasingly end up with a sort of congregationalism with a light touch episcopacy. There has been extraordinary change in the 30yrs of my ministry..clearly the future is even more opaque but it shows that it is pretty well impossible to have a National Church if you dont have a church tax.Trying to sustain a National Church as a voluntary body is increasingly difficult, but what exactly would the C of E be, if it didnt identify as a national parochially ordered Church.

Posted by: Perry Butler on Wednesday, 1 July 2009 at 3:57pm BST

I would seriously consider bringing all pensions earned from now on back to the 'National Minimum Stipend' base (eg for Bishops). None of the arguments which supposedly apply to stipends really apply to pensions.

There is a suggestion that this isn't worth much. But I reckon it could be 1-2% (not least because the senior posts are generally held by older people, and therefore the enhanced pension costs more to fund than if they were younger). And in the context of the tight figures being discussed here even marginal savings would be significant.

Posted by: Mark Bennet on Wednesday, 1 July 2009 at 10:31pm BST

Some of this is down to Labour removing pension credits soon after taking office in the 1990s, which has hit every pension fund. The estimated deficit on final salary pension funds in the UK is roughly £200bn, though some of that is also due to the stock market. Final salary schemes are being abandoned left, right and centre, and the CofE has tried hard to hold on to this one, and should be given credit for doing so.

Still, as a 40-year old vicar with 11 years service under my belt, it's a bit of a worry.

Posted by: David Keen on Thursday, 2 July 2009 at 8:36am BST

Trying to sustain a National Church as a voluntary body is increasingly difficult, but what exactly would the C of E be, if it didnt identify as a national parochially ordered Church.

Umm - an ordinary denomination, like every other province of the Anglican Communion???

Posted by: Tim Chesterton on Friday, 3 July 2009 at 12:58am BST

Possibly Tim, but I rather fear that in the English situation the comprehensiveness of the C of E and the fragile bonds that hold it together would mean that it would gently implode.After all, its "a good boat to fish from ", as many have said. And a C of E vicar has a richer life,I think, because he isnt simply pastor to a congregation.

Posted by: Perry Butler on Saturday, 4 July 2009 at 3:27pm BST
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