There has seldom been a more challenging time for pension trustees, as the
industry undergoes one of its biggest upheavals for decades. Now, in common
with private companies and public bodies, the Church of England faces
significant questions about pensions.
As people live longer and longer, pension-fund liabilities have continued
to grow. At the same time, predictions about pension funds' future returns from
stock-exchange investments keep going down. Average returns from stocks and
shares have dropped from 13 per cent per year to about 8 per cent per year
since 1995. That means more to pay out, and less to pay out from.
Now government moves designed to make pension schemes more secure for their
members are imposing further obligations on the trustees of all defined-benefit
pensions schemes. The Pensions Act 2004 and recent regulations will require
trustees to be still more cautious in estimating future investment returns.
And, where the long-term bill appears to exceed the estimated assets available
to meet it, trustees will be expected by the Pensions Regulator to require
those funding the scheme to tackle the problem within a realistic time-
That means one of only two things. Either significantly more money has to
be pumped into pension funds, or the increasing cost of the schemes has to be
contained. Through no fault of our making, the Church now finds itself having
to make its own hard decisions on the way pensions are funded for clergy and
In the past ten days, the Church has published a report,
Clergy Pensions - The Challenge Facing the Church, by a pensions task
group set up by the Archbishops of Canterbury and York (
News, 3 March). This sets out the facts and the issues that the Church now
has to address as it embarks on an important consultation exercise, which is
likely to lead to decisions by the General Synod next year.
In considering the way forward, we shall have to take account of the
proposed changes to the state pension. The report to Government in December
from a group chaired by Lord Adair Turner proposed raising the state pension
age, and introducing a national pension savings scheme, into which all
employers and employees would be enrolled, unless they already belonged to a
suitable occupational scheme.
The Church has been committed to offering good-quality occupational schemes
for clergy and lay staff to supplement what the state provides. I am sure it
will want to continue doing so. The question is what to do about the
ever-escalating cost of providing the present guaranteed levels of benefit.
Outside the public sector (where the taxpayer provides the guarantee), the
vast majority of defined-benefits schemes are currently carrying substantial
deficits. That is why more than 70 per cent are already closed to new (and in
some cases to existing) members for future service. Over the first weeks of
2006, several large companies - including Iceland, Arcadia, John Lewis,
Rentokil, and the Co-op - have announced significant changes to their pension
The scheme that the Board administers for the staff of the National Church
Institutions is currently undergoing its formal three-yearly valuation, and the
one for clergy takes place at the end of 2006. The report published last week
reveals that the cost of the present clergy pension is likely to increase by at
least a third, and possibly by as much as two-thirds. That would mean that the
dioceses, which currently pay more than £55 million in clergy-pension
contributions, would face an extra annual bill of between £20 million and
nearly £40 million.
The Pensions Board first became aware of the likely impact of the new
regulations in the middle of last year. Like many others responsible for
pensions, we indicated our concerns to Government and the Pensions Regulator
that the proposals could have the effect of making the future for pensions
less, rather than more, secure. A code of practice, which covers the detailed
operations of the new regulations, is due to be published by the Pensions
Regulator in April.
In the mean time, the Church needs to prepare itself to make some
tough choices in the coming months. How much more is the Church able and
willing to afford? If rising costs have to be contained, how should pension
arrangements be changed in a way that still makes adequate provision for
The report from the pensions task group will be discussed at a
meeting of diocesan representatives on 27 March, and followed by a consultation
exercise throughout the Church, starting later in the spring.
These are not easy issues. They matter greatly. I would like to emphasise
that the Pensions Board, working with the Archbishops' Council, the Church
Commissioners, and the dioceses, will be doing all it can to identify the best
Allan Bridgewater CBE is chairman of the Church of England Pensions
Board. He is also the chairman in the UK of Swiss Re, the world's largest life
and health reinsurer. Clergy Pensions - The Challenge Facing the Church
is available at