I want to address the covenant between the beneficiaries and the funders and draw out the different covenants which are implied with different groups of potential pensioners, that is the clergy. The parts of the covenant which seem to me to be clear, for existing pension scheme members, are that there should be no contribution to the scheme from the clergy, and that any scheme together with the state pension should maintain the current value of a full service pension in real terms.

The issue is who should bear the risk and why. First: the funders are actually past, present and future congregations. 39% of Church Commissioners funds are already committed to the pension scheme pre 1997. The funding risk can only be born either by the church members or the potential pensioners, the clergy.

Second: the funding risk, many are worried about having to bear the risk of a defined contribution scheme and think that a defined benefit is risk free, I would want to say the worry about this is usually overdone and that any defined benefit scheme is not risk free.
There is no logical reason why DC schemes should do worse than DB schemes (it is only that the risk is held by the pensioner); they are as likely to do better. DB schemes are not risk free which is why we again have had to revisit ours and top slice benefits and we will probably have to do so again, since DB schemes are not sustainable. Maybe, to quote Donald Rumsfelt

“The past was not certain when it started.”

As to the moral commitments, the covenant with a clergy person who, 40 years ago, was “Sell your house to pay for ordination training and we will look after you” – bad advice and entirely different from that now to a new curate who is offered, as in Gloucester Diocese, assistance to buy a house and then build up equity in the housing market during his or her ministry.

The other difference is that 40 years ago it was the norm for people to enter the ministry younger and for spouses not to work. Today the average age of ordinands is over 40, many spouses work and they have housing equity and may both have past service pensions from previous employers. The first group are far more dependent on what is provided by the church, and therefore need more certainty, than the second group. So the two groups (and there are shades of grey in the middle), are not the same from the point of view either of tolerance of risk or exposure to it. The question is, should everyone be treated for pension purposes as if they are the same, and is this fair for the funders, who have to pay for the clergy pension from their giving, and bear the risk of greater demands in the future, as has happened to them in the past?

The Southwell survey of clergy shows how things are changing: of 99 clergy surveyed, 60% own property, a further 8% intend to do so before retirement, of those who do have property 80% have no mortgage. Presumably this would have looked very different 40 years ago and the percentages owning property will probably increase in the future.

We have talked a lot about what is fair and this has concentrated largely on what is right for those who have given, and given up much, to enter the ministry. It has been good to augment the provision of pensions as happened
in the 1980?s, as an enhancement of the covenant given freely and generously.

It has been good too that the CHARM scheme has also been increased and is used by 1/3 of clergy to provide either a rented or an equity stake in retirement property up to £200k (£225k in the South East). It is good that we subsidise this and retirement homes for clergy to the tune of £3 million per annum. In the light of all this, I want to ask whether either a defined benefit or a hybrid scheme, for people entering the ministry in future, is the right answer.

We know that defined benefit schemes are increasingly closed to new entrants; only 3 Footsie 100 companies provide them. Of course the DB scheme for lay C of E employees is closed for most new central and diocesan staff. Public sector DB schemes are still open but the funders, the tax payers, face an impossible burden, it is just that no one knows how to deal with the problem so it is parked, but it is the elephant in the room.

Most of those who pay for the clergy scheme do not themselves have anything for themselves like the scheme which they are paying for in their giving; many may well earn less than the full value of the total clergy package. If they are making their own pension provision they will be paying an employee?s contribution, or fully funding a personal pension to build up a pension pot which will often provide considerably less in pension than the clergy scheme.

I therefore commend closing both the DB and the Hybrid scheme for new entrants, on the basis that it is reasonable for the future potential pensioners to bear the risk in the light of both their reasonable expectations and likely personal circumstances, and also on the basis of what is a reasonable moral covenant between the clergy and their  congregations today.

I would also suggest that all DBF?s should provide assistance to curates to purchase their own houses and the funders provide a non contributory DC scheme at a similar level which is a just balance between what is reasonable for the funders to afford and the beneficiaries to expect.

Stephen Barney