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Good Money Week: How to be wise when clergy pension planning

27 September 2019

Pension planning should not be put off, Ted Harrison learns especially by members of the clergy


Lobbying for your pension to be invested ethically can contribute to saving the planet, while still making good returns

Lobbying for your pension to be invested ethically can contribute to saving the planet, while still making good returns

How to be a wise clergy virgin

ETHICAL considerations aside, retirement finances can be daunting. Richard Wood, a chartered financial planner and head of the Ecclesiastical Financial Advisory Service, advises people not to leave it too late to start thinking about the time when they will no longer be working and receiving a stipend or salary.

At clergy pre-retirement seminars, Mr Wood finds that the questions asked boil down to the two essentials: “How much money will I have to live on?” and “Where will I live?”

”Circumstances are so different for everyone who retires,” the retirement officer in Salisbury diocese, Canon Ann Philp, says. “Some clergy have never done anything else, will have never had any money spare to invest in a house of their own, will rely in retirement entirely on their church pension, and live in a home provided through the Church. Around now, almost the last generation of those who were ordained in their early twenties are coming up to retirement.”

Richard Wood

Increasingly, however, the trend is that members of the clergy will have been ordained after several years in secular employment. On retirement, Canon Philp says, “they may have a pension to draw on from that earlier job. They may have a spouse who has worked and has a pension of his or her own. Some ‘wise virgins’ might also have bought a retirement cottage when prices were affordable. When I was diocesan director of ordinands, I strongly discouraged any ordinand who had a home from selling it to pay for training.”

When Mr Wood starts fact-finding with an individual, he looks at the total Church of England Pensions Board statement. He also gets a state-pension forecast, and asks for details of any other relevant pensions that might have accrued. In one unusual case, he recalls, a retired clergyman and his wife had 13 different pension sources.

Financial advisers will also ask about objectives in retirement. Mr Wood says that he met one priest “who wanted to have enough money to hire an office to keep his books, and focus on study and writing undisturbed”.

The amount received annually will depend on how much has accumulated in the pension pot; retirement age; whether a pensioner wants payments to continue to a partner after death; whether benefits are to be inflation-proofed; and a retiree’s state of health and lifestyle (when actuaries calculate what pension to pay out, someone with a shorter life expectancy — for instance, with a poor health record, or a long-term smoker — will receive a larger monthly payment in the expectation that it will be paid out for fewer years).

THE family firm of independent financial advisers run by Anne and Melanie Wray have specialised in advising clergy for more than 20 years. “Clients come to us at various stages of their lifetime to discuss pensions. We offer an initial free consultation to allow us to create a financial summary for each client, which includes pensions, investments, savings, and property. Our approach comprises listening carefully to each client’s needs. When reviewing investments or pensions, we always check with our clients about their preference for ethical investments.”

In the main, there are two kinds of pension, Melanie Wray says: “Defined benefit pensions — such as that of the Church of England Pension Scheme — and defined contributions pensions. Following a change in the pension rules, all employees are automatically enrolled into their employer’s pension scheme if they meet a set criteria.

“The benefits of defined benefit pensions are such that it is very rare that clients would consider transferring these into a private arrangement. There are various options available to clergy with their private pension benefits, such as contributing to the additional voluntary contributions scheme [administered by Legal and General], and it is always advisable to speak to a financial adviser to make sure these options are fully considered.”

Melanie Wray

For all who retire, whether in church or secular employment, there are key decisions to be taken once the facts are known about the total pension pot available. On retirement, almost every member of the clergy who has been in stipendiary ministry is entitled to a lump sum, equivalent to about three times the annual pension to be received. HMRC allows up to 25 per cent of any pension pot to be taken on retirement as a lump sum. The more that is withdrawn in cash at this stage, however, the less will be available to provide an income. There may also be tax implications.

But the first key decision on approaching retirement age is deciding when to retire. The state retirement age — from when a state pension will be paid — is set to rise to 66 in October next year, and to 67 between 2026 and 2028; and a further rise to 68 expected. Retirement dates otherwise vary considerably, and many professions present a range of options, with early retirement at a reduced pension being one of them.

QUESTIONS need to be asked, and answered honestly. When is the right time to retire? What will my purpose and priorities be in the future? Am I planning to help the wider community through voluntary work? Am I retiring from employment to pursue a new vocation? What will my position in the family be after the life of work?

Clergy may stay in office until the age of 70. “When we look at income, it might well be the case that, with two state pensions and a church pension, a clergy couple will be better off in retirement — but that is before we look at the costs,” Mr Wood says. “After living in a vicarage, there will be the costs of housing, rates, insurance, and heating to be met entirely from income.”

“For some, these horrible extras come as an awful shock,” Canon Philp says. “They find it all very difficult — although, in time, most get used to the new situation.” She encourages clergy who continue working part-time to take fees and expenses due. “They are valuable top-ups for some, and, if not needed, can always be gift-aided back.”

How much a retired couple need to live on depends largely on housing and lifestyle. The consumer organisation Which? carried out a survey of 6000 pensioners earlier this year, and found that an annual income off £27,000 was needed for a comfortable retirement (requiring £298,000 in a pension pot with a joint-life annuity, or £215,450 in a pension pot with income drawdown, on top of the state pension). They estimate that couples wanting foreign travel and to update their car every five years need a joint income of about £42,000 (requiring a pension pot of more than half a million.)

Changes in the law should make it easier to hold pension companies to account. “The large pension funds don’t make it easy for ordinary members to ask questions, but we urge [people] to read the small print in annual statements, and write to boards of trustees to ask questions,” Mr O’Sullivan says.

In addition to becoming a pensions activist, the challenge of climate change is to explore how to live more simply. The choice of transport, food, clothing, and leisure activities — even how much plastic one uses — can all make a significant personal contribution to leaving a better world for the next generation.

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