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 64.

    There is an obvious way out of the mess. Clergy live longer than average. They should work will they are 70. But, incredibly, clergy themselves would have to approve this. Thank you, Robert, for explaining how these incredible pension deficits are derived. It would seem to me that mis-regulation has killed off the final salary pensions schemes rather than company parsimony.

  • rate this

    Comment number 63.

    The position of a financial regulator is like a child-care social worker: you mean well, but you're damned if you do too much and you're damned if you do too little.

  • rate this

    Comment number 62.

    And what is the current value of the Anglican Church's property portfolio?!

  • rate this

    Comment number 61.


    Morality remains the same. The church as an institution has evolved. Trust only in your own faith.

  • rate this

    Comment number 60.

    Now, we all should have worked out by now that it was the actuarial tables which Jesus upset in the Temple.

    Someone, somewhere, should look at the Samsung/Apple market for mobiles, and get that ball rolling in UK. That this country could not compete is ludicrous, as is the potential return ignored.

    It isn't expensive business to set up ~ image is everything.

    White telephone to heaven, anyone?

  • rate this

    Comment number 59.

    Jesus on the sermon on the mount,if he had charged over inflated prices to his captive audience,if he choose who should and should not be fed
    if he turned the sick and disabled away,if he persecuted the arabs the gays or jews
    What would Mitt Romany stand for
    Has there would be no Christianity today

  • rate this

    Comment number 58.

    What would Jesus do?

    Will the new Archbishop remember what Jesus (assuming he existed) did to the money lenders in the Temple? He allegedly drove them out with whips! The only time the Jesus character acted violently in all the Gospels! Why would that be? Outrage at exploitation and creating money out of nothing perhaps?

  • rate this

    Comment number 57.

    Have to assume that the Trustees of the Pension Fund acted with due dillegence.Then took the best possible advice from Pension Experts.
    Will the people due to retire soon,lose a lot of money?
    Will the Pension Experts suffer any financial loss?

  • rate this

    Comment number 56.

    Haven't they heard?

    They will get their reward in Heaven ;o)

  • rate this

    Comment number 55.

    Can't they just ask God what shares to invest in ?

  • rate this

    Comment number 54.

    the lord will provide.....
    but GO has promised to guarantee a retirement pension of £140 per week at some point in the future, (although I hear the sound of feet backtracking on that promise)
    the age at which we receive the bounty of the DHSS keeps increasing.
    so no worries then the DHSS will provide?
    I can see this as the best expected model for auto enrolment.....over to you Steve Webb

  • rate this

    Comment number 53.

    I've a novel idea: why don't we fund our own pensions with our own money?

    Shock, horror ...

  • rate this

    Comment number 52.


    "People keep forgetting that the church (CofE) has huge land and property holdings".

    Too true, i remember in the 90's a charity connected to the CofE was turned down for lottery funding. The lottery told them frankly that they had too much money in the bank !!!

  • rate this

    Comment number 51.

    this reminds of the poor old Salvation Army who were conned out of millions by fraudsters...were they ever caught?
    but the day traders and fund managers have legally pocketed the life savings of the clergy.
    well they won't end up in prison, but these people obviously don't believe in hell!

  • rate this

    Comment number 50.

    Nearly a very good expose of the false crisis in pensions that is being use to degrade their value to workers for their retirement.

  • rate this

    Comment number 49.

    The problem is their customer base is shrinking as less people now believe in iron-age myths and their sales technique promising punishment/rewards after death doesn't work as well as in medieval times now few people believe in magic.
    Solution sweat their brand to sell more merchandise.
    Elegant branded bottles of 'holy' water.
    Expand their range of 'services' from weddings to exorcisms.

  • rate this

    Comment number 48.


    There are variable parameters, such as retirement age. All you need is to keep worker/pensioner ratios steady!


  • rate this

    Comment number 47.

    Regarding the £500m hole in Pension Fund.

    It may be argued that Clergy are entitled to their Pension, but whether or not they have earned it is another matter,with Pews continuing to empty .

    The Commissioners record of investing is poor &the £5.2 billion Pension fund has resorted to having some of it's cash reserves invested with Hedge Funds& goes against what's preached from the pulpit

  • rate this

    Comment number 46.

    They have no one to blame but themselves after losing £800m in property speculation in the 1980 & their Commissioners only have themselves to blame for disastrous investing.The Church per se is the congregation & any proposed savings by having less Clergy will only fan the flames of pews emptying.Once wealthy Dioceses like Sussex& Exeter are both expected to run out of cash reserves in 12 months

  • rate this

    Comment number 45.

    People keep forgetting that the church (CofE) has huge land and property holdings.
    It is over staffed, over propertied and needs to rationalise to the 21st century. I imagine much the same applies to the Roman Catholic church in Britain as well.


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