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Church launches consultation on pensions policy

1 March 2006

 

Go direct to Pensions Update section of this site

In common with private companies and public bodies, the Church of England is to review its pensions policy.

Like other defined benefit pension schemes, the Church’s pension schemes are under pressure because of the long-term reduction in returns from stock exchange investments, and the increasing life expectancy of members.

Recent government moves designed to make pension schemes more secure for their members are also likely to have an adverse impact on the cost of the Church’s pension schemes.

The Church today (March 1st) publishes a report by a pensions task group set up by the Archbishops of Canterbury and York. This sets out the issues facing the Church as it embarks on the consultation exercise likely to lead to decisions being taken by General Synod, the Church’s ‘parliament’, in summer 2007.

The report has been produced to assist dioceses and parishes engage with the pensions issues in an informed way. In the introduction, the report says: “The decisions that the Church of England now faces are not merely complex but of great importance, touching as they do on the way in which the Church supports its clergy, and indeed its lay staff, both before and in retirement.”

The Church has made known its concerns to the government. The Bishop of Ripon & Leeds, the Rt Revd John Packer – who chairs the Archbishops’ Council’s Deployment, Remuneration & Conditions of Service Committee – has written to John Hutton, Secretary of State for Work and Pensions setting out the Church’s concerns.

The Bishop pointed out that “steps which have no doubt been taken with the intention of making pensions more secure, could end up having the very opposite effect.”

Earlier last year, the Chairman of the Church of England Pensions Board, Allan Bridgewater wrote to the Chief Executive of the Pensions Regulator, Tony Hobman, and the pensions task group met with him and his chairman, David Norgrove, in January to express their concerns and discuss the impact of the pensions regulations.

The key points from the report – ‘Clergy Pensions – The Challenge Facing the Church’ –  are:

  • In common with other defined benefit pensions schemes, the Church has to make key decisions about the future of its pensions schemes. The report emphasises: “The new situation is not the result of anything the Church has done. The new requirements apply to all such pensions schemes, many of which are, as a result, closing or making significant changes.”
  • New pensions scheme funding regulations and a code of practice to be introduced under the Pensions Act 2004 will radically change the way in which schemes have to calculate their assets and liabilities.
  • Firstly, the Pensions Act 2004 places a requirement on pensions funds to take a more cautious view of likely investment returns and to adopt an investment policy that attempts to reduce risk.
  • Secondly, new regulations stipulate that deficits in pensions funds should be made good as quickly as possible. The clergy pensions scheme, like nearly all such schemes, has been in deficit in recent years as a result of increased longevity and lower investment returns. In 2003, the Trustees agreed that a deficit of £91 million accumulated since January 1st 1998 could be funded by additional contributions over 15 years  - an acceptable period under the previous arrangements. Now the Pensions Board will have to review whether this period is sufficiently prudent and be prepared to justify its decision to the Regulator.
  • Taken together, the impact of the new regulations could prompt an increase in the contribution rate paid into the Clergy Pensions scheme from the present 33.8 per cent of the pensionable stipend to between 46 per cent and 57 per cent.
  • This would mean an additional annual contribution of between £2,000 and £4,000 per clergy person. Based on 9,000 clergy members, the total costs to the Church of England of the additional payments would be between £18m and £36m per year. In context, it costs an estimated £900 million a year to run the Church of England’s 13,000 parishes and 43 cathedrals.
  • These costs would need to be met by the dioceses from contributions made by parishes, as the scheme is currently non-contributory for clergy members.

The examination of the way forward for the pensions schemes comes in advance of the statutory three-yearly valuation of the clergy pensions scheme as at December 2006.

The full text of the report, that has been issued to bishops, deans, diocesan secretaries, chairs of diocesan boards of finance, diocesan lay and clergy chairs, is available here, alongside the covering note from the Secretary General, an annex of key facts on the funded clergy pensions scheme,  and a copy of the letter from the actuaries to the pensions scheme.

 

Notes to editors:

1. The pensions task force comprised: Allan Bridgewater (Chair of the Pensions Board), Michael Chamberlain (Chair of the Archbishops’ Council Finance Committee) and Andreas Whittam Smith (First Church Estates Commissioner). The group has been supported by the three Chief Executives: Andrew Brown (Church Commissioners), Shaun Farrell (Pensions Board) and William Fittall (Archbishops’ Council) with Chris Smith (Chief of Staff at Lambeth)

2. The Church Commissioners fund all clergy pensions earned from service up to the end of 1997. All clergy pensions earned from January 1998 are funded by contributions paid by dioceses from parish share payments.

3. Parochial clergy are currently paid an annual stipend of around £19,000, with some variance between dioceses, and in addition have the use of a house provided by the Church. The current (defined benefit) pension, payable at 65 to those with 37 years’ full time service is £11,686. A lump sum of three times the pension is also payable on retirement. In retirement, members have the responsibility for accommodating themselves, though the Pensions Board does provide some assistance for those with limited resources.

4. Clergy in the Church of England are members of the Clergy Pensions Scheme.  The Pensions Board operates two other schemes. One for the staff of the National Church Institutions and one for lay staff employed by dioceses and many other church organisations. The benefits payable under these schemes vary but many are on a defined benefit basis. They will therefore also be affected by the new scheme funding regulations in due course.