GENERAL SYNOD

1

Pensions and Retirement Housing
Presentation by Shaun Farrell Secretary Chief
Executive Church of England Pensions Board
2
1927 Clergy Pension Measures

• Prior to 1927 no pension as of right
• Pensions Board created
• Guaranteed Pensions paid at age 70
• Funded by
• Money from Ecclesiastical Commissioners
• Church Assembly grant
• Incumbent contribution 3 of stipend

3
1954 Clergy Pensions Measure

• Church Commissioners took on full responsibility
  for all pension costs
• Member contributions ceased
• Church Commissioners took over assets of the fund
  then 8m
• Note
• Church Commissioners pension liabilities 2006
  1.8bn

4
1980 The Three Aspirations to improve pensions

• Pensions 2/3rds stipend at 65 for 37 years
  service (12,400 p.a.)
• Lump sum 3x pension (37,200)
• Widow(er)s pension 2/3rd of members pension
  (8,266 p.a.)
• All achieved by late 1980s
• BUT

5
1992 re-evaluation showed thatChurch
Commissioners had-

• Taken on far more expenditure commitments than
  their assets could support
• so
• Financial support to dioceses reduced by
  45m p.a. 1992 1997
• Clergy Pensions Measure 1997 established current
  funded scheme which takes over all pension
  commitments from 1998
• Church Commissioners remain responsible all for
  pension benefits earned up to 1997

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Funded clergy scheme

• 1998 Scheme set up
• Initial contribution set at 21.9 of stipend
  (2,900 per person - 27m for Church as a whole)
• 2000 - First actuarial valuation
• Contribution rate rises to 29.1 (4,668 per
  person - 47m for Church)

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Funded clergy scheme (cont.)

• 2003 - Second actuarial valuation
• Contribution rate rises to 33.8 (5,925 per
  person - 57m for Church)
• End of 2006 Third actuarial valuation to be
  carried out

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Why are costs rising?

• Long term investment returns are lower
• Life expectancy increasing
• Government regulations

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All shares index 10 year average returns to-
Total return p.a.
15
13.3
13.3
13.6
13.1
12.6
13.5
10.8
11.9
7.9
7.9
10
7.3
6.4
5
1994 1995 1996 1997 1998
1999 2000 2001 2002
2003 2004 2005
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Average life expectancy at birth
84.0
77.0
75.4
70.8
68.2
Age (Years)
47.3
(Est)
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Remaining life expectancy at 65
20?
18
17.2
15.2
13.9
Years
(Est)
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Types of Pension Scheme

• Defined Benefit/Final Salary
• Level of pension guaranteed
• Employer must pay whatever is required to meet
  benefits
• Funding risk all with Employer
• Defined Contribution/Money Purchase
• Employer contribution defined
• Pension depends on how much goes into fund from
  contributions and investment returns achieved
• Risk lies with employee

13
Recent Developments

• Over 70 of all defined benefit schemes are now
  closed to new members or to all staff
• Many firms have switched to less expensive
  pension schemes

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New Government regulations

• Designed to make schemes more secure for their
  members
• Scheme trustees encouraged to take cautious view
  about future investment returns (particularly
  from stocks and shares)
• Any scheme deficits should be made up over the
  shortest time possible
• But extra caution comes at a cost

15
Events-

• November 2005 Pension Boards actuaries provide
  update on financial position of the pensions
  scheme
• Indicates likelihood that costs will rise again
  (perhaps substantially) when 2006 valuation takes
  place
• Archbishops create Task Group to evaluate the
  situation group first report published 1 March
  2006 second report on 30 June 2006
• Both available on website www.cofe.anglican. org

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Report Findings-

• Deficit on the scheme could rise from 91m (2003
  valuation) to 170m
• Pension costs would have to rise again
  significantly if current benefits maintained
• Could mean annual contribution rising from 6,000
  per person to over 8,000

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Report Findings-

• Could mean another 20m p.a. for the Church as a
  whole
• Church members unlikely to be able to find all
  the extra money required
• Scheme benefits will need to be reviewed

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Subsequent Steps

• Pensions Board raises pension contribution to
  39.8 (7,188 p.a.) for 2007 on an interim basis
• Second Task Group report makes some specific
  recommendations
• Two consultations carried out
• (a) dioceses
• (b) scheme members
• General Synod approves recommendations in July
  2007

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The changes

• The defined benefit scheme will be retained but
  modified to make it less expensive
• Scheme changed as follows for all service from 1
  January 2008-
• Increase from 37 to 40 years service needed to
  earn a full pension
• (b) Pensions, once in payment, to increase each
  year in line with price inflation (up to a max of
  3.5) not stipends

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Key points

• All pension rights earned up to the change are
  protected under law cant be taken away
• Increase to 40 years service only applies to
  current active clergy (i.e. not those already
  retired)
• All service up to change banked on basis of 37
  year accrual period
• Clergy can still retire at 65

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Key points (cont)

• Does not mean all existing clergy having to work
  an extra 3 years to get full pension
• Examples
• 30 years current service 7 months extra
• 20 years current service 1 year 5 months
  extra
• 10 years current service 2 years 3 months
  extra

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Key points (cont)

• Pension benefits earned up to 1 January 2008
  are increased in line with RPI up to 5 p.a.
• Pension benefits earned after change are
  increased in line with RPI up to 3.5 p.a.

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2006 Actuarial Review

• Pensions Board sets new contribution rate for
  period 2008 2010 at 39.7 i.e. no more than
  interim rate for 2007
• Without the changes approved by General Synod
  rate would have been 45

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The CHARM SchemeChurchs Housing Assistance for
the Retired Ministry

• Clergy with some capital to invest are granted
  mortgage loans by the Pensions Board (mostly
  financed by Commissioners) to enable them to
  purchase property
• Those without sufficient resources are able to
  occupy a property owned by the Board (mostly
  financed by the Commissioners)

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The CHARM Scheme (Cont.)

• On mortgage loans, pensioner pays interest only
  at 4 p.a. rising each year (in line with index
  of stipend and price inflation growth)
• On rented properties, occupiers pay occupation
  charge to cover interest and other property costs
  (around 300-400 per month at current rates)
• Subsidy of 3m p.a. paid into the scheme by
  dioceses so that no pensioner pays more than 30
  of his/her total gross income on housing costs

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The CHARM Scheme (Cont.)

• Approx one third of clergy use scheme
• Mortgage loans are value linked so that the
  increase in the value of the properties is split
  between the Commissioners and the pensioners (or
  his/her estate) in line with the initial capital
  contributions
• Maximum loan of 125,000 recently increased to
  150,000
• Maximum purchase price on rental scheme
  recently increased from 150,000 to 200,000
  (225,000 in SE Counties)

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Review of retirement housing

• Review group set up to look at additional options
  to assist clergy
• Due to report back to General Synod in July 2008