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New Archbishop will be faced with huge pension deficit

12 November 2012

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The former Archbishop of Canterbury has seen his fair share of problems in the Church, but one thing seems to have remained largely unaddressed; its ever-rising pension deficit. Hopefully Etonian and former oil executive Justin Welby, the new Archbishop of Canterbury, is good with numbers.

As the wider economical context remains very uncertain, with continuing volatility in financial markets and no set proposals yet from the Government to reform the state pension and the State Second Pension, a new report on the Clergy Pension Scheme by the Archbishops' Pensions Task Group shows nothing but doom and gloom for the future of the scheme.

The Task Group points out that at its best, the deficit shrank faster than expected from £262m (December 2009) to £172m (April 2010). At its worst, the adverse market conditions took it to £507m (November 2011).

At the last annual report (December 2011) the scheme deficit was an estimated £484m. It has since fallen back somewhat, but the Board still expects the December 2012 valuation to show an increased deficit above the December 2009 level.

In the report the Task Group states its view that the aim -though at this stage it cannot be more than that- should be to manage the consequences of the forthcoming actuarial valuation of the Clergy Pension Scheme without making further changes to benefits. It does not believe introducing a hybrid scheme or moving to a defined contribution scheme will help the clergy.

And according to arguments put forward by the BBC's Robert Peston, who wrote about the matter on the BBC website, this sounds like a fair point. He points out that clergy pensions can't be seen by many as lavish to start with. For example, pensions of the Archbishops of York and Canterbury will range from £21,000 and £28,000, according to the annual report of the Church's Pensions Board.

Nevertheless, the valuation at the end of 2012 seems bound to show a larger deficit than last time, even though the Pensions Board's investments have performed well. The increased deficit is the result of the current level of UK gilt yields – the lowest for 300 years – which are currently increasing the value of liabilities for pension funds.

On top of that the Church seems to have a rather old fashioned approach to investing. Whereas figures from The Pensions Regulator (TPR) show that UK pension funds are holding more bonds than equities nowadays, the Church seems to stick with its equity based portfolio.

In the report the Pensions Board and scheme actuary have done some thinking on how any increased pension deficit might best be managed.  Barring further substantial deterioration, initial indications are that a possible solution that could avoid changes to the current scheme could involve a combination of measures.

For example, they would include some changes to the financial assumptions used, an increase in the length of the recovery plan and some increase in the contribution rate paid by dioceses. Depending on the size of the- hopefully small- increase in contributions needed, consideration might need to be given, on affordability grounds, to some stipend restraint.

The Pensions Board which is working with the Church Commissioners has also begun a programme of closer engagement with dioceses, with workshops taking place in each region before Christmas. After the valuation period in May/June 2013, when a new report will be released and the new Archbishop of Canterbury has had time to read through all his papers, a detailed report is expected from the actuary, and hopefully then will Justin Welby take the steps necessary to save the scheme and the future of his clergy.


First published 12.11.2012

By Alexandra Zeevalkink  -

Edited by Monique Simpson