Clergy pensions

by
15 July 2009

Ecumenical engagement: the Very Revd Archimandrite Ephrem Lash

Ecumenical engagement: the Very Revd Archimandrite Ephrem Lash

THE SYNOD received a presentation about clergy pensions, followed by questions.

The chairman of the Archbishops’ Council’s Finance Committee, Andrew Britton, intro­duced the presentation. The deep economic recession was far from over, he said; dioceses were facing strains, and the Archbishops’ Council was seeking to reduce the demands on them. The most significant implication was the clergy pension scheme: the interim rise in contributions already announced was not large enough to cope with the situation.

The secretary and chief executive of the Pensions Board, Shaun Farrell, said that it pained him greatly to have to look at the scheme again so soon. He had hoped that the changes would be sufficient, but emphasised that a defined-benefits scheme was always vulnerable. He described the aggregate deficit of all defined-benefit schemes of £175 billion as “eye-watering”.

The deficit in the clergy pension fund should have been £120 million, but had now risen to £350 million, and the chances of getting back on track were remote. The proportion of the scheme covered by assets had dropped from 77 per cent in 2006 to 56 per cent in 2008 — only half what was required to meet the existing liabilities of pensions already earned. The contribution rate in 1997 was 21.9 per cent: in 2009, it was estimated to be 56.6 per cent unless changes were made — £11,000 in cash terms.

The Task Group was proposing modification to the scheme to bring the costs to an affordable level: to cap future increases in pensionable stipend to RPI (a step that employers such as Marks & Spencer had taken). Those retiring in future would receive a lower percentage.

The second option was to increase the pension age from 65 to 68, anticipating a similar move in the state pension age. This was related to future service: the impact on clergy within a few years of retirement would not be strong. Increasing the service required for full pension from 40 to 43 years would also have less impact on those closer to retirement.

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The fourth modification would be to contract back into the Second State Pension (S2P). An overall rate of 42 per cent was the Task Group’s current best estimate of what was affordable. The pendulum had swung back so that clergy would be better opting in to the S2P.

Retaining but further modifying the defined-benefit scheme would mean most of the funding risk remained with the “employers”, but costs could still go up and down in the future. Closing the defined-benefit scheme and moving to a defined-contribution arrangement would give employers greater control over costs and would transfer the main risk to the clergy. A hybrid arrangement would share the risk between them.

Adrian Greenwood (Southwark) asked whether, with the pensionable age for a full state pension likely to be increased to 70, the Church should be prophetic and go that way now. He wondered whether it would be possible to “means-test” the pension so that it targeted those who did not have personal wealth. (He was told by Mr Britton that it was not possible.)

April Alexander (Southwark) was concerned about the assumptions of risk which were in the report. She was concerned that the regulator might require a larger risk margin to be taken into account by the “employer” — i.e. the dioceses — on the deficit for the past service of clergy. There had been a 2.4-per-cent fall in the values of the assets in the pension fund since it started. The assumption was now that there would be a “massive” six-per-cent annual fall. Some dioceses, it had emerged, did not feel that the 42-per-cent contribution rate was suf­ficiently prudent.

Canon Simon Bessant (Sheffield) said that some clergy had lost their vision and it was hoped that they would retire one day. If that day was put back, there might be a loss of finance, because of their impact on their parishes. Clergy were under increasingly heavy workloads. How were they to make provision for their futures when they were not allowed to engage in trade, nor, however hard they worked, would they increase their stipend?

Susan Cooper (London) remarked that a modest increase in giving “would leave us with so much money we would not know what to do with it”.

Graham Smith (Gloucester) said that pensions were deferred pay. The report said that increases in contributions were unaffordable because of the “millstone of historic deficit” that must be paid off within the time set by the regulator. The Church Commissioners should not be used to offset this deficit.

The Bishop of Ripon & Leeds, the Rt Revd John Packer, asked whether there was any reason why the clergy should vote for any pension arrangements other than a defined-benefits scheme.

Dr Jamie Harrison (Durham) said that, over the next 35 to 40 years, people would be living longer increasingly, and wondered whether there should be a “gradual increase” in pensionable age.

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