Presentation byShaun Farrell

Secretary & Chief ExecutiveChurch of England Pensions Board

Pensions and Retirement Housing

1927 Clergy Pension Measures

Prior to 1927 no pension as of right

Pensions Board created

Guaranteed Pensions paid at age 70

Funded by

(a) Money from Ecclesiastical Commissioners

(b) Church Assembly grant

(c) Incumbent contribution 3% of stipend

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

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 member’s pension (£8,266 p.a.)

All achieved by late 1980’s

BUT

1992 re-evaluation showed that

Church 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

Funded clergy scheme

1998 – Scheme set upInitial 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)

Funded clergy scheme (cont.)

2003 - Second actuarial valuationContribution rate rises to 33.8% (£5,925 per person - £57m for Church)

End of 2006 – Third actuarial valuation to be carried out

Long term investment returns are lower

Life expectancy increasing

Government regulations

Why are costs rising?

All shares index – 10 year average returns to:-

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

10%

5%

15%

Total return p.a.

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

12.6

13.1

11.9

13.3 13.3

13.5

13.6

10.8

7.36.4

7.9 7.9

Average life expectancy at birth

0

10

20

30

40

50

60

70

80

90

1900 1950 1970 1999 2000 2020

Age(Years)

(Est)

68.270.8

75.4 77.084.0

47.3

Remaining life expectancy at 65

02468

101214161820

1950 1970 1990 2000 2020

Years

(Est)

13.915.2

17.218

20?

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

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

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

Events:-

November 2005 : Pension Board’s 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

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

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

Report Findings:-

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

Subsequent Steps

The changes

1. The ‘defined benefit’ scheme will be retained but modified to make it less expensive

2. Scheme changed as follows for all service from 1 January 2008:-

(a) 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

Key points

All pension rights earned up to the change are protected under law – can’t 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

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

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.

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%+

The CHARM SchemeChurch’s 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)

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

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)

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