Pay cuts all round

Luke Pacioli is aware of the dilemma faced by the Church Commissioners, the Pensions Board and the members of General Synod, as the struggle for cash begins in earnest

I watched the General Synod debate on the Church Commissioners' great financial debacle. Two bishops seemed to sum up the Establishment attitude. Dr Jenkins, Bishop of Durham, sat outside the chamber, head in hands. One of his colleagues, his parting carefully manicured, gazed with contempt on the lay member who thought the trustees should take responsibility for the disaster which had happened on their watch. Neither spoke.

The bishops who took part in Februarys debate on the future of clergy pensions put up a better show. Their position is invidious. Bishops and senior staff receive a higher pension than parish clergy and as men close to retirement they will be less affected by the proposed pay cut. And a pay cut is what is proposed. Pensions are deferred income and under the current proposals any future rise in stipends will be more than offset by the reduced pensions package.

But the pensions debate is not just a headache for the Establishment. How much Commissioners' money is spent on pensions is part of the struggle for scarce resources - money - which will define what the church looks like for years to come.

This struggle split Synod. On one side were those who, like the Bishop of Worcester, believe that previous understandings given about the level of pensions should be honoured. The other side was led by the Archbishop's Council: their Pensions Report included a series of proposals of a type commonly used in business to mitigate the huge costs which the government has placed on pension funds.

But it is not just the governments fault. From an economic viewpoint clergy are a hybrid. They are in the private sector but do a caring/public sector job. The private sector has traditionally provided sufficient income to buy a pension. Caring/public sector jobs do not usually provide the income needed to buy a pension, which is why the state has traditionally promised public sector workers a good, state-funded pension. In the Eighties and Nineties the CofE tried to do the same for its clergy. This was both a matter of justice ('the labourer is worthy of his hire') and because when freehold for life was removed it was understood something had to be done about retirement housing. Today lack of money has led powerful voices to say the church can no longer provide a state-style pension to its low-paid caring professionals. Hence the package of three proposals put to Synod by the Archbishops' Council.

Proposal one is to decouple pensions from stipend levels. This is what the Conservative Government did when politicians began their infamous raid on the nation's pensions. At a national level it is now recognized that pensions and earnings need to rise together. So, if clergy pensions were decoupled from clergy incomes, this would be contrary to the national trend. And it would hit clergy hard because benefits such as dispensation from council tax are not included in the

stipend on which their pension is based. This means that at retirement, clergy cost of living goes up automatically without any allowance being made for this. The second major proposal is the extension of the number of years before full pension entitlement, from thirty-seven to forty. With the tightness of funds, this probably cannot be avoided.

Thirdly, it is proposed to cap the maximum annual increase in pensions to 3-5% of that year's pension. In his presentation to Synod, Sean Farrell of the Pensions Board justified the 3-5% cap by saying that, thanks to the Bank of England's Monetary Policy Committee, RPI inflation is set to be no more than 3-5%.

Synod members rightly noted that RPI is not an appropriate measure to use because it does not reflect pensioners' inflation. Just as questionable is Farrell's assumption that inflation has been tamed. We might expect that claim from Gordon Brown, but no responsible pensions trustee could make that assumption. It was precisely this kind of complacent mistake which allowed the government to chip away at pension surpluses in the Nineties.

The Pensions Board's paper prior to the presentation at Synod is also worrying. There it was claimed the 3-5% cap was not a problem because if inflation ever did rise again, the government could require the Board to make pensions keep pace with inflation. But a sudden imposed increase in pensions would hurt the Board's investment strategy - it would lose money because it would be forced to reorganize its portfolio to raise extra income. Indeed, it is an abdication of responsibility for pension trustees to rely on the government in this way. So the 3-5% cap is a long term cut in pensions.

Yet, what can be done? There are parts of the CofE which are wealthy enough to get by. Rich parishes often make pension contributions for their vicar. The staff of some of our most ancient cathedrals benefit likewise. But for anybody not working with the rich or the well-endowed, where can the money come from? Either parishes must give more, which means they must grow, or the Church Commissioners must direct more of their income to clergy pensions.

And money spent providing the clergy with a pension (102-7 million in 2005) cannot go on the Commissioners' non-pension spending. In 2005 this spending was 24-5 million on bishops, 6-6 million on cathedrals, 32-4 million on parishes (with 4-5 million on mission), 5 million on the Commissioners themselves and 1-6 million on the support of church buildings.

So who will lose out? The Synod debate focused on the threat to mission funding if the Commissioners redirected more funds to pensions. No one asked whether mission projects funded by the Commissioners had been successful. Or where the money came from in the first place. Or whether we need all the bishops. But they will do. The struggle for who gets what is on.

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