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Update published on Clergy Pensions Scheme

30 June 2009

The Church of England has today published a second and more detailed report on the impact of the credit crunch and recession on the financial position of the Funded Clergy Pension Scheme. The report puts forward various options relating to the future of the scheme.

The last actuarial valuation of the scheme, carried out as at 31 December 2006, revealed a deficit of £141m.  This is currently being eliminated by way of extra contributions paid by the ‘employers’ participating in the scheme, in addition to the contributions required to pay for future benefits. Some modifications were also made to the scheme in 2007 to help contain costs [see notes].

An annual update on the financial position of the scheme as at 31 December 2008, reveals that the deficit on the scheme has risen to £352m as a consequence of the general fall in share prices in 2008 and the fall in the yields on government securities which are used to calculate pension scheme liabilities. The update also reveals that if conditions remain unchanged at the end of 2009, when the next formal valuation of the scheme takes place, there would need to be a significant increase in the pension contribution rate.

The scheme trustees, the Church of England Pensions Board, has been monitoring the situation closely and in April concluded that the deterioration in the funding position necessitated an interim increase in the contribution rate from 39.7% to 45% of the pensionable stipend with effect from 1 January 2010 pending the results of the next triennial valuation which will become available later in 2010.

The report published today has been prepared by a Task Group commissioned by the two Archbishops and comprises the Chairman of the Pensions Board (Dr Jonathan Spencer), the First Church Estates Commissioner (Andreas Whittam Smith) and the Chairman of the Archbishops’ Council’s Finance Committee (Andrew Britton) assisted by the Chief Officers of the three organisations and the Chief of Staff at Lambeth Palace. Their report is available via the Church of England website.

The conclusion reached is that further changes to the scheme will be necessary to return it to affordability, and the report sets out a number of proposals for achieving this which include limiting the annual increase in the pensionable stipend, moving for future service the accrual period for a full pension from 40 to 43 years, changing the pension age from 65 to 68 and contracting back into the Second State Pension. The report also sets out options for the future structure of the scheme including retaining the existing defined benefit arrangement, moving onto a defined contribution basis and introducing a hybrid arrangement.

Andrew Britton, who chairs the Task Group said today, “It is regrettable that the church is having to consider further changes to the scheme, but unless there is a dramatic improvement in the value of the pension fund in the second half of this year, further action is unavoidable. We believe that we have identified some options that will deliver a good pension within the limits of what the church as a whole can afford.”

The report has been issued to all the organisations participating in the scheme, including the 44 diocesan boards of finance, and responses are due by the end of October. The Task Group will then make its final recommendations to the Archbishops’ Council which will decide what proposals should be put to the General Synod which must ultimately approve any changes to the scheme rules. 

 

Notes

1. The clergy pension scheme operates on a defined benefit (final salary) basis and provides a pension on retirement of up to two-thirds of the pensionable stipend at the point of retirement plus a lump sum of three times the pension depending on the length of service.

2. The current full service pension for parochial clergy is £13,093 pa plus a lump sum of £39,279.

3. There are more than 200 individual church bodies who participate in the scheme but 96% of scheme members are sponsored by the 44 diocesan boards of finance.

4. The funded scheme covers all benefits relating to service after 1 January 1998 with all benefits earned before that date being funded by the Church Commissioners. The scheme, in total, has around 9,000 active members and 13,000 pensioners

5. In 2006/2007 the Clergy Pensions Task Group carried out a review of the scheme to explore ways of containing the increase in costs which resulted from the last actuarial review. Following extensive consultations, the General Synod in July 2007 approved a number of changes to the scheme to help contain costs which took effect from 1 January 2008 and applied to all service carried out beyond that date.

• A period of 40 years to earn a full pension (all service before that date was on the basis of 37 years)

• Pension benefits earned after that date will increase annually in line with RPI up to a maximum of 3.5%.

6. The current contribution rate is 39.7% of the pensionable stipend. This equates to c 22% once the value of the free house is taken into account.

7. The past service deficit of £141m identified at the last actuarial review in 2006 is being recovered over a 15 year period as part of the overall contribution rate referred to above.