Clergy Pensions

1
Clergy Pensions
What they provide What the problems are The
options open to us
2
Current Provision Defined Benefit Scheme

• 1/60th for every year served, upto a max 2/3rds
  National Min Stipend
• Lump sum on retiring 3x pension (2x stipend)
• Death in service
• Widows pension
• Cost 39.7 of stipend

3
Who pays?
4
How the Fund is Calculated

• Rate of Stipend
• Age Profile of Clergy
• Projected Life Expectancy
• Amount of Contributions expected
• Interest Earnings expected
• Probable Investment Growth
• All against expected out-flow of pension payments
  to determine rate of contribution needed to get
  right fund

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Present Problem
Present rate of payment 39 is not enough 45
required next year 57 probably required 2011 and
beyond
6
What do we do?

• Find the money
• Change the scheme

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Modifications to reduce costs

• Cap future increases in pensionable stipend to
  RPI
• Increase pension age 65 ? 68 (for future service)
• Increase service required for full pension 40 ?
  43 years (for future service)
• Contract back into Second State Pension

These reduce cost by around 15 i.e. to 42
8
Contracting into Second State Pension (S2P)

• Consequences
• Employees will pay extra 1.5 NI (approx 250
  p.a. for an incumbent)
• Employers will pay more NI but overall cost of
  future pensions is reduced equivalent to 2.5
  off the contribution rate (4.5m p.a.)

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Contracting into Second State Pension (S2P)
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Future StructureOPTION 1

• Retain defined benefit scheme as now but further
  modified
• Retains as much as possible of existing scheme
• Most of the pension is still guaranteed
• Most of the funding risk remains with employers
• But costs could still go up or down in the future

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Future StructureOPTION 2

• Close the defined benefit scheme and move to a
  defined contribution arrangement
• Part of the pension on retirement is guaranteed
  (DB element)
• Remainder comes from the defined contribution
  section but amount depends on investment returns
• Risk is shared between employers and the clergy

12
Future StructureOPTION 3

• Hybrid arrangement part defined benefit - part
  defined contribution
• Part of the pension on retirement is guaranteed
  (DB element)
• Remainder comes from the defined contribution
  section but amount depends on investment returns
• Risk is shared between employers and the clergy

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Bishops Councils Proposal
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The real issue
The debate is presented in financial terms,
limiting engagement with the issue. Underlying
this is a question of the Churchs
Faithfulness
to Clergy and Parishes, driven by a argument of
Affordability
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Faithfulness

• Retrenchment from/desertion of parishes by the
  institutional Church

• Chip, chip, chip away from the understanding that
  the Church would look after Clergy

• We risk making this worse because of
  affordability

16
Affordability

• Parishes currently contribute to clergy pensions
  at a rate of 40 of NMS

• This is a very high level historically and is
  putting a real strain on parish and diocesan
  finances across the country

• We are now told this isnt enough

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How the pension works
On retirement clergy take out a lump sum (2)
They then take out 66p a year for 20 years (13)
There is still a bit left over
You pay in 40p a year for 40 years (16)
















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Is this a fair summary?

• This assumes the contributions are simply paid
  into the bank and earn inflation rate income!

• This would be prudent to a fault

• Flat stipend rates mean wage inflation is minimal

• Therefore there is no long term problem with
  paying at 40 - indeed it should be a maximum

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Why are we being asked for more?

• Complex but component elements are
• Deal done to split the scheme in 1997
• Bad investment markets recently
• Actuarial valuation techniques

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Bishops Councils proposal will

• Undo the 1997 deal
• Enable longer term view to be taken
• Enable a more reasonable valuation basis

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Can we afford not to be Faithful?