George Austin looks back at how General Synod first established clergy pensions along with compulsory retirement, the undertakings they made then and the proposals now being presented
Church pensions and retirement housing matter to all clergy and lay-workers, retired or not, so the General Synod debates in July need to be followed closely, especially by the retired clergy who have no vote and no representation among those who will be making the decisions. But there is still time to lobby members.
There is no question that pensions have improved over the past 60 years, from the days when an incumbent paid his retired predecessors pension out of his own, often inadequate, stipend. This ended in about 1950 and by 1980 the basic pension had risen to £2,000, with the following year seeing the largest annual increase ever of 25% to £2,500.
The announcement of this was made in a Synod debate in 1981 on a more radical report from a working party whose aim was to work ‘towards a longer-term aspiration of a total pension equal to two-thirds of the Central Stipends Authority minimum stipend of the previous year.’ This was eventually achieved, with the implication that this would be continued in a long-term hopeful future for the beneficiaries.
It seems now that this will change, with pension increases capped at the rate of inflation or at 3-5% on the previous year, whichever is the lower figure, ‘rather than in line with increases to stipends’ The Pensions Board has advised pensioners that ‘all future pension increases should be in line with increases in the retail price index, up to a maximum figure.’
In the long term this will mean that pensions in payment will fall in comparative value to stipends and those who have served the Church all their working lives will suffer. Even if it is financially necessary, it is nevertheless a regrettable trend in the Church of God.
The Pensions Board letter goes on to say that this ‘would slightly reduce the pension payments the Church Commissioners make and allow them to provide more non-pension financial support to the Church.’ This can surely have no other interpretation than that money is to be taken from pensioners and diverted to other expenditure. If that is indeed the case, it is not merely regrettable but quite appalling.
I hope that we may be given an indication of how much annual reduction is given to ‘other expenditure’ – bishops’ expenses perhaps? – in order that those of us who give 10% of our income to church and charity may make the appropriate reductions.
In the February debate the Bishop of Ripon and Leeds stated that ‘the full pension at the point of retirement will remain at two-thirds of stipend.’ Does this mean that existing pensioners will over the years be on reduced pensions by comparison with those who are newly retired?
In other words, will existing pensions continue to be based on two-thirds of that year’s stipend plus up to 3-5% (or lower if the RPI increase is less) or will it be based on the initial two-thirds of stipend at the time of retirement? This is not clear from the Pension Board’s round robin.
What of retirement housing? When the Synod in its early days decided on compulsory retirement at 70, it was realized that this could create considerable difficulties for poorer clergy and a working party (of which I was a member) was set up to try to find a satisfactory solution. The debate on its report and recommendations was held in February 1980, led by Dean Fenton Morley who had chaired the group.
He reported that in 1979, three-quarters of new pensioners had been able to arrange their accommodation privately, but that this left a considerable number who needed help. Clergy concerns had grown as a result of an ‘escalating cost of housing which in 1979 rose by, on average, 29%.’
But even if only 25% of retiring clergy needed help with housing, that was a need which must be met. At that time the maximum mortgage allowed was £12,000, though as a speaker was to point out later in the debate, that was not quite half the average cost of a modest house (£26,000).
Under the CHARM scheme, the Pensions Board is now prepared to lend up to £125,000 towards retirement housing at a rate of 4% the first year and rising as pensions rise. Perhaps the present £125,000 seems a fair increase at 10-4 times in terms of inflation, though there are other problems.
In the February 2007 debate, it was pointed out that someone on a full church and state pension would have received about £16,000 p.a., putting them ‘in the top 20% in terms of retirement income’- though it was added that they have to provide for their housing out of that. And there’s the rub. By the age of 65, most people hope to have by then paid off their mortgage and so do not have that added burden.
I am not suggesting for a moment that the clergy should provide their own housing. Teachers and nurses have great problems in finding affordable housing in London but can at least choose less expensive areas in which to live. How would an incumbent there possibly afford to purchase his own house if his parish was in one of the many affluent areas where even a modest-sized house could cost at least film?
It is difficult even after retirement. If a clergyman has the basic total income mentioned above of £16,000, this will require an interest repayment on a £125,000 mortgage of £5,000 p.a. – about one-third of his annual assets. When the pension was raised in 1981 to £2,500, a Pensions Board mortgage of £12,000 at 4% would have cost £480 p.a., so that if with a state pension this became, say, £3,000, the interest would be only 16% of his total income. Not easy!
And when the scheme was introduced in the 1980s, the cost of housing was much less anyway, especially in the light of the housing inflation of the past decade. In 1996 we bought a retirement house with four bedrooms at 35% of the price at which it is now on the market. Put the other way, it has increased in value by 287%. That has been the common increase in those years, whereas the clergy stipend has perhaps increased by 50% and so the problem worsens.
There is another possible area of future difficulty. On 1 February 2007, the Commissioners announced that, following a competitive tender, they had sold their financial interest in a portfolio of housing loans’ granted by the Pensions Board. They explained that it was a sale of their rights ‘to receive income and capital receipts on the loans’ and was not a sale of ‘the bricks and mortar.’
Was this a decision by the Assets Committee acting alone or was it approved by the Board of Governors? During the 18 years I was a Commissioner, from 1978 until 1995, and a member of the Board for much of that time, I know that if anyone questioned actions of the Assets Committee, we were told firmly that it was not our business to do so. This lack of accountability was part of the reason for the financial disasters of the early 1990s.
So now the 1,300 retired clergy still have their original equity share in the property, but the interest will be paid to a private company which will also gain from any increase in their share of the property’s value when the beneficiaries of the loan eventually die.
The Commissioners have written to all the retired clergy concerned (that is, those with loans) to ‘reassure them that their loan conditions with the Pensions Board remain unchanged.’ Can it be certain that loans to new pensioners will enjoy the same loan conditions?
But the Church Commissioners are a charity, so their sale of this property portfolio is in a sense a privatization. The Commissioners must of course manage their huge funds like any other investment company – in their case not for shareholders but for the Church. A private company has a first duty to shareholders, and recent history – for example, in the denationalization of the railways – has shown how disastrous this can be sometimes for consumers, however highly reputable the company may be.
Although clearly the provision of housing loans had always meant that this was in a sense an investment in property, I had always regarded them as part of the charitable service the Commissioners gave to the Church and not a part of their
general property assets, such the Metro centre in which they then had a very large investment. It is an additional worry that this was clearly not the case.
On the matter of assets, the clergy have always lived in tied accommodation, of which their increasing value has been of no benefit to them but rather to the Church of England itself. If there are, say, 10,000 parsonage houses that 40 years ago were each valued then at an average estimate of £15,000 – £150m in total – their value now would surely modestly average £400,000 each, totalling some £4bn. The clergy may have had the ‘advantage’ of comfortable tied housing, rent and rates free, but the real long-term benefit has been to the general assets of the Church.
Retired clergy have cause to thank the Pensions Board which over the years has provided excellent pastoral care and concern for the Church’s retired employees that has been second to none. In July, the Synod will again consider the plight of pensioners. No-one should doubt the good intentions of those seeking to balance the needs of those who have served the Church for so many years against the dire financial situation which this and many other pension schemes now face.
But it is hard not to wonder if for clergy pensioners there are storm clouds on the horizon. \ND\