THE Church of England Pensions Scheme for the clergy has significantly reduced its deficit during its latest valuation, and hopes to eliminate the gap entirely in just three years.
The Scheme is the main pension scheme for clergy, and provides pensions to all clergy for service from 1 January 1998. (Pension provision from before that is funded by the Church Commissioners.)
At its last valuation, in 2015, the scheme was shown to have a deficit of £236 million. This has now been cut to £50 million, the latest valuation (which runs to the end of 2018) has shown.
The actuarial evaluation of the scheme showed that it has assets worth £1.818 billion. The value of the pensions that it must pay out in the future is put at £1.868 billion, i.e. a shortfall of £50 million.
The falling deficit is largely the result of a new actuarial methodology, which estimates how the scheme’s pool of investments will perform in the future.
Previously, the scheme used the methodology “gilts plus”: a more hypothetical procedure based mainly on the expected performance of UK Treasury bonds, known as gilts, which have traditionally been a staple choice for pension funds to invest in.
The chief investment officer of the C of E Pensions Board, Pierre Jameson, said that the “unique position” of the clergy pension scheme meant that a shift to the “asset-led funding” method was more accurate.
“We are still open to new members, unlike most private-sector defined-benefit schemes,” he said. “We therefore have a long investment horizon, which enables us to take advantage of a wider choice of asset classes and widening our investment mix.”
Over several years, the Pensions Board has been moving its investment portfolio away from stocks and shares and towards less volatile assets. Asset-led funding takes into account the actual balance of investments in the board’s portfolio when assessing what future returns will be.
The change in valuation does not affect how much clergy who are expecting to rely on pension payments will receive. Neither will dioceses be asked to contribute more money to the scheme. Once the remaining small deficit is closed, by 2023, the contribution rate is likely to be cut.
The change in methodology was not a paper exercise to wish away the deficit, he said. Asset-led funding better reflected the actual investment strategy for the Pensions Board, and was therefore more able to work out what future returns would be.
Both the Pensions Regulator’s and the Pensions Board’s actuaries were aware of the change in methodology, and had raised no objections.
“[It] also makes sense in the context of the Church as a historic institution, able to take a long-term view of investments,” Mr Jameson said.
In the past 15 years, the Pensions Board (which manages several other smaller schemes as well as the clergy scheme) has returned, on average, eight per cent each year.