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 ARCHBISHOPS’ TASK GROUP
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 :-
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 : ‘firstname.lastname@example.org’ .
Clergy Pensions Task Group