The Financial Times UK comments on the near insolvency of the CoE church pension fund. Notes the Archbishop of Canterbury and Archbishop of York criticism of the equity market when the Church of England itself has been playing the market with risky investments:
Questions are now being asked as to how the Church was able to lose so much and why its actuary ignored a decade of advancements in portfolio theory to advise on a course of action it knew to have inherently large risks. While UK pension schemes are all suffering the after-effects of the credit crunch, the Church’s stands out; unusually, it invested all its assets in stock markets. “They just decided to go double or quits at the casino,” says John Ralfe, a pensions consultant who has been critical of investment strategies that focus on the returns, but not the risks, of equity investment.
Broken dioceses such as Winchester must now foot the bill. The annual cost each diocese must remit to the church’s central pension pot, already the cause of a budgetary nightmare, has risen from £4,672 per pensioned member in 2003 to £7,571 in 2008 and is set to worsen. To boot, ordinary parish priests face the unenviable role of leading the UK workforce into later, poorer, retirements. Church authorities have concluded that clergy must now work until 68 and need to have been in service for 43 years if they are to receive a full pension. Clergy can, however, “rest assured” that existing pensions are secure and will be paid, according to Jonathan Spencer, chairman of the Church of England’s pensions board.
The crisis facing the Church pension fund is only one of a litany of problems affecting public and charitable schemes around the world. Isolated from the public glare meted on the retirement funds of blue-chip companies, they long relied on unchallenged actuarial assumptions and outdated investment principles that are only now beginning to reap the whirlwind.
The Church pensions board came into being in its present form just over a decade ago, as a result of a previous scandal. Through the 1990s, the Church had been rocked by allegations about financial mismanagement….
Mr Slack’s previous guidance to the fund’s board, that the CEFPS could expect a healthy result from its 2006 triennial valuation, was turned on its head. Back-of-theenvelope calculations sent informally to Church House, the austere headquarters of the Church’s administration in Westminster, were “extremely disturbing”, a board representative reported to his superiors in the Church hierarchy. The reason this time was not poor stock market performance; rather, that the scale of liabilities grew much faster than assets following regulator demands that schemes adopt more prudent
assumptions of future investment returns.
In a spreadsheet e-mailed that November to Shaun Farrell, chief executive of the Church’s pension schemes, the numbers made clear that the scheme needed significantly higher contributions from its members – the clergy – if it were to remain afloat.
The news reverberated quickly and the archbishops themselves – Rowan Williams of Canterbury and John Sentamu of York, heads of the Church of England and leaders of the worldwide Anglican communion of 80m souls – quietly sanctioned the creation of a select taskforce to control the issue. Disclosure of the problem to the Church’s principal financial committee, and with it the numerous diocesan boards of finance, was put on hold. The clock was ticking, however. The General Synod, the church’s parliament, was soon due to convene and would have to approve whatever action had to be taken.
Finally, on February 15 2006, just a week before the Synod met, LCP sent a report on the CEFPS scheme’s triennial valuation. “Clearly the comments . . . will make depressing reading,” Mr Slack wrote. It put the deficit at £125m. To eliminate that, even with increased contribution rates from scheme members, would take 14 years. It was also clear that the plan would trigger extra scrutiny from the regulator; funding was too far short of the sums needed to buy out all promised benefits and the shortfall was to be made up too slowly.
Now the General Synod will be facing up to the crisis at its meeting next month:
Under current estimates, the weight of pre-1998 pension liabilities – those not covered by the CEFPS – will cost 40 per cent of capital in the coming years. Next month, the Synod will have an unpalatable set of proposals presented to it, including the increase in retirement age and term of service for clergy.