Holy pension hole

Justin Welby The Bishop of Durham Justin Welby is expected to be named as the next Archbishop of Canterbury

The Old Etonian apparently due to be named as the new head of the established church has a huge, unsustainable financial deficit to shrink - which is perhaps redolent of the challenge faced by another Old Etonian who became head of government in 2010.

A bit like David Cameron who inherited a gap between tax revenues and public expenditure equivalent to a horrid 10% of GDP, one of the most pressing problems to be faced by Justin Welby as the new Archbishop of Canterbury is a massive hole in the fund that pays the pensions of retired clergy.

I am told that the current Bishop of Durham, a former oil industry executive, is good with money. He will need to be.

A new report on the Clergy Pension Scheme by the Archbishops' Pensions Task Group points out that the deficit in the fund -which is liable for all clergy pensions earned after January 1998 - ballooned from £262m to a peak of £507m in November 2011.

The Task Group includes the First Church Commissioner, Andreas Whittam-Smith, an unusually saintly and numerate erstwhile hack - who gave me my big break in journalism, by recruiting me to help launch the Independent newspaper in 1986 (goodness it feels such a long time ago).

He and his two colleagues believe the deficit has "fallen back somewhat", but that the December 2012 actuarially measured deficit will be somewhat greater than it was three years ago.

How much greater? Well a research note by the pensions consultant John Ralfe calculates the hole at the end of last month as approximately £500m.

This represents quite a potential burden for parishioners. Ralfe calculates that without further reductions in pensions payable to clergy, individual dioceses would have to make contributions to the fund equivalent to a staggering 60% of the value of salaries, up from an already high 38.2% (clergy themselves don't make contributions to the cost of their pensions; the liability falls on their employer).

Now the Task Group is clear that it would be wrong to rush into draconian pension cuts or radical overhaul of pension provision. But it notes the need to "balance the financial pressures on funders with the obligation to protect the interest of future pensioners".

There are a few salient points to make. First, clergy pensions would not be seen by many as lavish and egregious. For example, the pensions of the Archbishops of York and Canterbury will be in a range from £21,000 and £28,000, according to the annual report of the Church's Pensions Board - so perhaps 2% or 3% of the pension Mr Welby might have earned if he had got to the top of one of the oil companies that employed him in days of yore.

Second, the Church is jolly unusual in retaining its faith in equities or shares.

As you will know, there has been a huge shift by most pension funds out of shares and into bonds. And as the FT points out this morning, for the first time ever UK pension funds now hold more bonds than equities: the Pensions Regulator shows that UK funds hold 43% of their assets in gilts and fixed-interest debt compared with just under 39% in equities.

But the Church did not join this herd galloping into the debt sold by governments and companies. On my calculations of the asset allocation in the Church of England Funded Pensions Scheme, 84% is held in shares, property and derivatives - or what are perceived to be riskier assets.

As it happens, the Church's unfashionable refusal to abandon the cult of the equity has not gone wholly unrewarded: over the three years to the end of December 2012, the return on the assets was 7.1% per annum, which compares quite well with some mammon-obsessed hedge funds.

'Through the roof'

The problem - characteristic of the pensions industry in general - is that liabilities have gone through the roof. And the proximate cause is the soaring price of bonds, and the collapse in the yield on those bonds.

The explanation is that the earth-bound Pensions Regulator has less faith than the vicars in equities. So the way it measures liabilities is to calculate the quantity of assets a pension fund should ideally hold to meet future pension payments if all those assets were in low-risk bonds.

What this means is that when the income generated by bonds falls, as it has been doing, any pension fund would theoretically have to hold massively more of those bonds to meet the cost of future pension payments. And the point is that for all the decent performance of the shares and property held by the Church's pension scheme, their aggregate value is several hundreds of millions of pounds less than would be needed if they were cashed in and converted into allegedly safer bonds.

There is of course a very interesting question whether the risk aversion of the regulator is more or less rational than the priesthood's apparent appetite for risk. But the problem for the new Archbishop is that on this sort of non-spiritual, fiduciary issue, his authority is rather less than that of the officers of the state.

Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this

    Comment number 24.

    "What would Martin Niemöller say I wonder?"

    Not much I suspect as I would wager that he probably wasn't a member of the CoE pension scheme (or perhaps they openly accepted Lutherans into the scheme).You never know I suppose. May be that's why the have such a startling deficit.

  • rate this

    Comment number 23.


    They'd only be doing it for the property portfolio though, I guess they'd make the usual promises about investing in the CoE brand and people only to make them all redundant. Followed by offshoring the confessionals to Mumbai and relocating the HQ to Tortola, afterall the Virgin Islands would be the ideal place for a church HQ.

  • rate this

    Comment number 22.

    "the 99%"

    Not true, they were as welcome as anyone else to enter St Paul's as long as they paid the £12 entry fee. Unfortunately they insisted that someone else should pay the charge (typical huh).

  • rate this

    Comment number 21.


    "Maybe they could borrow some money from the Vatican?"

    With the current Anglican finances, a hostile takeover is more likely, though that would be bad for competition (not that our government would be likely to block it, of course). Perhaps a merger with the new headquarters in the UK would be a resonable compromise?

  • rate this

    Comment number 20.

    I just find it a little strange that an old Etonian, former oil exec becomes head of the C of E, bit of a surreal career path?

    Maybe they could borrow some money from the Vatican?

  • rate this

    Comment number 19.

    To save money the church SHOULD reduce the massively top heavy bureaucratic structure it has and the very high stipends (sic) it pays them. It could then afford to put more priests at the 'Coal Face' and pay in more to the pension fund. The Church, like most other professions, has its own share of 'Fat Cats'. If you are called by God to serve, then you should be paid a living stipend and no more!

  • rate this

    Comment number 18.

    Can't you get an App for that?

  • rate this

    Comment number 17.

    After the 99% were turned away at St. Paul's, there seems something like a poetic justice in the fact that the Church finds itself in a similar bind to the rest of us.

    "Now the Task Group is clear that it would be wrong to rush into draconian pension cuts or radical overhaul of pension provision"

    What would Martin Niemöller say I wonder?

  • rate this

    Comment number 16.

    We have,as Prime Minister,an Old Etonian,as new Primate of All England,an Old Etonian...... oh,and the next but one King of England.The dear old school must be doing something right!!

  • rate this

    Comment number 15.

    10 DrDocter
    Factor in also 'lower investment returns' (on the one side), and 'lower numbers coming into the priesthood' (on the other - to balance things up).
    Luckily for them I feel they have plenty of family silver to sell off, which will also reduce the maintenance bill...

  • rate this

    Comment number 14.

    You hint that having Old Etonians pulling the levers of power is perhaps the underlying problem. You might be rigjht.

    Britain's mediocre ruling class has been running the country into the sand for years. A meritocratic system would be better.

  • rate this

    Comment number 13.

    Re 6 : Shouldn't we pay more to help support churches...?

    Emphatically, NO! If the churches are needed, let the people who use them pay for them. If they're empty and not needed, put them to more useful purposes. As a taxpayer I strongly resent the thought of paying for edifices erected to foster superstition.

  • rate this

    Comment number 12.

    Is it the wry British or English sense of humour that chuckles at this tale of not enough Mammon for God? It's also instructive for earthly souls who don't quite get all this. Let's see; DC or any government spends 10% of all our money on his credit card every year, can't repay it, so government securities become worth less but cost more: ergo pension gap balloons. Heaven help us - Mammon won't!

  • rate this

    Comment number 11.

    The CofE is tackling this by using more unpaid priests - NSMs or non-stipendiary ministers in the jargon (declaration of interest: I'm married to one). Many priests also train in later life for paid or unpaid ministry after doing a better paid, pensionable job. No idea what the proportion of NSMs is, or the proportion of priests with savings or a pension from a previous job, though.

  • rate this

    Comment number 10.

    Priests living longer + risky pension investments + an ever decreasing flock contributing to the plate = a disaster for the CofE.

    As a great Philosopher once said "you do the math(s)"

  • Comment number 9.

    All this user's posts have been removed.Why?

  • rate this

    Comment number 8.

    There is nothing for CofE to worry about...

    God will provide!

  • rate this

    Comment number 7.

    Another lost cause! This morning Ruth Glehill (Today programme)comments "Easier to be spiritual with money in your pockets" . And the attention stays with 'this guy's good with money'. All in the name of a man who had no money!!!!!!
    Maybe if the Church stopped betraying Christianity we would all walk a better world.

  • rate this

    Comment number 6.

    Consider this too:

    In most of Europe the state helps the church look after their buildings. In the UK the heart is ripped out of community after community by the insane property valuations of redundant churches. This is blowing a big hole in church finances - should the UK state do more to preserve the property?

    If you live in a parish shouldn't you contribute to more than the chancel! Tithes?

  • rate this

    Comment number 5.

    Just like Public Service Pensions you shouldn't make promises you can't keep. Church is a bit short of an income stream to correct the issue.


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