In Equities We Trust – Actuaries, Mammon and Paradise Lost

Neil Copeland

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Interesting article on FT.com re the difficulties being experienced by the Church of England in relation to funding its final salary pension liabilities.

It’s not surprising that a body such as the Church of England appears to place greater store in faith than in reason. What is surprising is that it appears to be placing its faith in equities and Mammon, the false god of riches and avarice.

Actuaries will tell you that equities provide a poor match for pension scheme liabilities and we have blogged previously on the risks for both employers and trustees on relying too heavily on equities to save the day. Clearly they can have a part to play, but for the trustees of the Church of England Scheme, unless they are satisfied that the Church will be around at all times to underwrite the Scheme (okay, so it has been around since the time of Henry VIII which suggests a greater longevity than the average employer) this is a relatively high risk strategy.

According to Professional Pensions the Church of England does also appear to be taking some steps to try and address the liability side of the equation, and isn’t relying on blind faith alone. It is proposing to:

  • Contract the Clergy Scheme into the state second pension
  • Reduce the full pension from the Clergy pension scheme from two-thirds of National Minimum Stipend (NMS) to half of NMS for future service;
  • Limit the annual increase in the pensionable stipend to price inflation (RPI);
  • Chang the pension age for future service from 65 to 68; and
  • Move, again for future service, the accrual period for full pension from 40 to 43 years.

Whilst moving things in the right direction evidence from the private sector suggests that such limited reforms rarely deliver the desired results and more fundamental change is required to address the risks posed to any employer by a final salary pension scheme.

Employers need to understand that they can be proactive in managing their schemes’ liabilities and they have a range of options available to them  in dealing with their final salary schemes – which means they don’t have to rely on divine intervention.

Neil Copeland

Post by Neil Copeland

Director, pensions consultant and adviser to trustees and employers on all aspects of work based pension schemes.

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