FT: Vicars' pensions under threat in UK

Vicars' pensions under threat

By Norma Cohen
Financial Times
Published: November 2 2009 22:43

Young Anglican vicars are facing the prospect of a bleaker retirement
after the Church of England's pension scheme succumbed to the "cult of
equity" and sank all of its investments into stocks towards the end of
the 1990s bull market.

The Church of England's current pension scheme for clergy is now
considering sharply curtailing the rate at which they accrue benefits.
For a young clergyman these benefits could turn out to be less than
half of what recent retirees receive.

Shaun Farrell, chief executive of the Church of England Pensions
Board, said the collapse of share prices since the scheme was created
in January 1998 had driven a "huge great hole" in its finances,
notwithstanding the recent rebound in equities. He said the scheme had
invested in equities because its pay-out date was a long way off and
"equities will give you the highest returns over the long run".

Pensions experts said the concentration in equities was unorthodox.
The average UK scheme had just over half of its assets in equities
last year and many plans are reducing that in favour of investments
such as bonds. John Ralfe, an independent pensions consultant who has
studied the accounts of all the church's pension schemes, said the
investment strategy was unusual – and highly risky – even by the
standards of UK funds, which have long been biased towards shares.

"People who are putting money into the collection basket on a Sunday
morning do not expect money to be gambled on the stock market," he
said.

At the end of December, the market value of scheme assets was £461m,
but its liabilities were £813m. Mr Ralfe noted that the date that the
bulk of the scheme's pay-outs became due was not that far off; it is
already paying out about £7.5m in benefits annually.

In a lengthy consultation document, the church set out proposals that
could see retirement benefits for a young clergyman, aged 30, cut by
roughly half of what they would have been had the terms remained
unchanged.

The church noted that factors such as rising life expectancy were also
placing financial strains on the pension scheme. But it said the main
factor for the church's scheme had been "market conditions".

"The Funded Pensions Scheme was introduced during what, with
hindsight, turned out to be the final phase of a long bull market,"
the report concluded, noting that the FTSE 100 index hit its all-time
high in 1999, a level not matched since.

The church operates other schemes for other employees, but the one for
clergy is the largest of those still open.

http://www.ft.com/cms/s/0/b1b18958-c7fe-11de-8ba8-00144feab49a.html
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