Pensioned Off?

Until 1954 clergy pensions were provided from a separate fund financed by contributions from the clergy together with grants from the Church Commissioners and the Church Assembly. The assets of this fund were then transferred to the Church Commissioners who took on the responsibility of meeting the whole cost of provision of pension benefits from their investment income.

The annual cost of pension benefits has risen steadily over the years. In 1954 it amounted to a mere 7% of the Commissioners’ income, though this cost had risen to 24% by 1980 when a policy to improve pensions was approved by the General Synod. Expressed as ‘three aspirations’ which were fully achieved in 1990, it provided a full service pension equal to two-thirds of the previous year’s National Minimum Stipend for incumbents, a widow’s pension equal to two-thirds of the clergy pension and a retirement lump sum equal to three times the pension at retirement. Annual expenditure on pensions by then had risen to 35% of the Commissioners’ income (which had itself increased sharply over this period) reflecting increases in pensioner numbers, improvements in pension benefits and the impact of stipend increases. These factors have continued to affect costs and, coupled with the impact on the Commissioners’ resources of the poor performance of the property portfolio in the early 1990s, resulted in pensions absorbing over 50% of the Commissioners’ 1994 income.

The Lambeth Group, which was asked by the Archbishop of Canterbury in 1992 to report on the Commissioners’ borrowings and asset management, sought advice about the Commissioners’ pension liabilities from Bacon and Woodrow, a leading firm of consulting actuaries, who expressed the view that pension outgo would continue to rise as a percentage of investment income to about 57% by 2000, to 90% by 2010 and could rise further thereafter if no steps were taken to change the present arrangements.

Watsons (another leading firm of consulting actuaries who were appointed by the Commissioners to provide independent advice about their liabilities and investment strategy) in their Report of July 1994 confirmed Bacon and Woodrow’s advice that on realistic assumptions pensions would, over the medium term, gradually absorb all the Commissioners’ income if the current arrangements continued unaltered. This would mean that discretionary support for poorer dioceses would have to be extinguished altogether in fifteen years’ time and other non-pension expenditure thereafter.

Early corrective action was essential and the Commissioners, the Pensions Board and the Central Board of Finance worked together closely to evolve a common central understanding of what needed to be done. Regular consultations were also held with the House of Bishops and with the Chairmen and Secretaries of Diocesan Boards of Finance. Following these discussions a debate took place in General Synod in July 1995 when five key principles were approved as the ‘indispensable foundations of the proposed new arrangements’:

1 Recognition that the current arrangements for meeting the overall costs of ministry are not sustainable and that the base of financial support for the Church’s ministry must be widened and enlarged through increased giving and other means.

2 Confirmation by the Commissioners of their continuing commitment to meet their existing liability for past service including pension increments.

3 Pension contributions for future service to be raised from dioceses (through funds raised from parishes) ……… and invested in a separate fund.

4 Transitional provisions to phase in the impact of pension contributions on dioceses and parishes.

5 The introduction of legislation to empower the Commissioners to use capital for pension purposes.

As the next stage draft proposals for enabling legislation will be accompanied by reports to General Synod. As part of the overall process, a review of pension benefits is being conducted by the Pensions Board which will be making a report to Synod. Further consideration is also being given to the precise method by which the Commissioners will discharge their liability for past service benefits. It is intended that everything should be in place for the new financing arrangements to commence in 1998.

There is a misconception that actuarial consultants determine benefit levels, or for that matter the ultimate costs of the package chosen, but this is not the case. When determining rates of contributions actuaries make a number of financial and demographic assumptions which are regarded as realistic taken as a whole in the expectation that fluctuations in some of the factors will tend to balance each other out in the long run. An overall aim is normally for the rate of contribution – generally expressed as a percentage of the total pensionable pay-roll of scheme members – to be kept as stable as possible. Progress is monitored by carrying out triennial reviews both of the current position and the assumptions about the future.

Finally let me express a personal view that while the requirement for dioceses to make pension contributions will inevitably increase overall diocesan expenditure, these increased outgoings must be matched by increased levels of giving from ourselves. It would be very serious indeed if giving levels were to fall short because Church leaders were unable to sustain the confidence lay people have in the Church of England and the message it is committed to proclaim.

Trevor Stevenson is a member of the Pensions Board and has recently been elected to the General Synod’s Standing Committee.