Comments: Church of England Funded Pension Scheme valuation

At the current level of interest rates, a change 0.5% inevitably makes a huge difference to the projected deficit - the outcome will depend on whether the projections are right. I hope the actuaries considered finer adjustments as well - in my experience 0.5% is the default, with 0.25% a remotely possible option. I would suggest that 0.1% gradations should have been considered. What is more the thinking should be more public.

However, these are just projections, and the ones we have are conservative in relation to historical rates.

The Pension Board comment on the maturity of the scheme and the investment policy is, to my mind at least, correct. A rebalancing towards fixed interest investments (gilts and bonds) would lead to a significant reduction in assets as interest rates increased. All assets would be affected, of course, but equities would tend to increase in value reflecting economic growth (if the economy were to grow).

The big issue that is whether by direct or indirect investment, clergy pensions are likely to depend on taking (at least part of) the rewards of growth out of economies other than our own (which are growing more quickly). That works in the era of the free movement of capital, but there is an unacknowledged political risk (as well as an ethical question) behind the inherent assumptions here.

The clergy pension I am promised when I retire is supposed to go up in line with the minimum stipend benchmark. But in cash terms, what was projected ten years ago when I might retire at 65 is approximately what I will get when I am 68 on projections now. I am not in ministry for the pension, but having chosen to be (expensively) inducted into the world of finance in my youth, this is pretty much what I expected, except that my generation will not properly retire below 70 anyway, unless health intervenes.

The Church Commissioners, who once thought their whole fund might be taken up by pensions now have a pension liability about a third of their assets. This shows how fickle projections are, and this is especially true in a relatively young fund, which has a limited asset base in relation to the number of prospective pensioners.

Posted by Mark Bennet at Tuesday, 4 February 2014 at 9:37pm GMT

It's a bit of a pity that the Pensions Board statement includes the sentence about asking to meet Mr Ralfe. In their statement they should stick to arguments about the facts---Mr Ralfe states his case clearly and the Board are absolutely right to refute them as they have.

This also raises issues about whether General Synod is really a fit governance body for this purpose---both because of general competence and because of conflicts of interest, with such a large representation of members of the scheme.

Mr Ralfe says that if his concerns had reached the floor of Synod then there would have been pressure for a defined benefits scheme. An interesting question---I doubt it, because the risk calculation is a difficult one for most pension scheme members to make. But the larger question is to what extent the Church needs to step back from providing clergy with things like housing, pensions, etc and to what extent it would do better to pay a higher salary with much fewer fringe benefits. At present the church goes on about homelessness but an audit of unoccupied and underoccupied clergy housing would be interesting.

Posted by Turbulent priest at Wednesday, 5 February 2014 at 8:24am GMT

Fairly arrogant piece by Mr Ralfe in the FT, who tracks many large pension funds, appearing to second guess their trustees and advisers. It is unclear who, if anyone, he is trying to serve. His bond mantra is well known and is not universally accepted by other pension investment experts. My experience of the Pensions Board (of which I have never been a member) while on the General Synod is that it is highly accountable. The clergy scheme has to be a balancing act. Current members do not contribute to it (for good reasons) and it will be preserved as part of the overall clergy terms of service until such time as it becomes unsustainable for the individual parishes. The General Synod does debate this stuff and has decided that currently the church does not wish to depart from the defined benefit scheme or move to a hybrid version.

Posted by Anthony Archer at Wednesday, 5 February 2014 at 8:28am GMT

Apologies for typo in my comment...I meant "move to a defined contributions scheme".

Almost nobody would choose of their own volition to move to a DC scheme because of risk aversity, certainly not in a public debate, but some experts think this is because DC schemes aren't properly explained. There is a big upside potential, but of course individuals get only one throw of the dice!

One of the big problems is that they are usually linked with lower contribution rates, so people are being asked two questions at once.

I wasn't criticising GS's good intentions on this matter, but I really wonder whether there are all sorts of unexamined issues around conflict of interest, lack of understanding of financial issues and pensions in particular, etc etc.

Anthony Archer is not in either of these categories! But lurking here is another question, almost theological: should clergy have "public sector" or "private sector" conditions?

Posted by Turbulent priest at Thursday, 6 February 2014 at 7:40am GMT
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