Ecclesiastical Committee Minutes of Evidence


Examination of Synod Representatives (Questions 1-19)

REVEREND DR RICHARD TURNBULL, MRS APRIL ALEXANDER, MR HOWELL HARRIS HUGHES AND MR STEPHEN SLACK

MONDAY 22 APRIL 2002

Chairman

  1. Dr Turnbull, could I start, first of all, by thanking you and your fellow members for coming to address us this afternoon. Perhaps you could introduce your fellow witnesses.

  (The Reverend Dr Turnbull) Thank you, my Lord Chairman. If I could briefly introduce who is here. On my left is Howell Harris Hughes, who is the Secretary to the Church Commissioners. On my immediate right is Mrs April Alexander, who is a member of the Steering Committee for this Measure. She is also an Executive Director of OPRA, the Occupational Pensions Regulatory Authority. Next to her is Mr Stephen Slack, who is the Head of the Legal Office of the National Church Institutions and the Chief Legal Adviser to the General Synod. My own role in this is as Chairman of the Steering Committee that guided the Measure through the Synod.

  2. Would you like to address us first on the Measure as a whole and what it is seeking to achieve and then perhaps deal with capital expenditure separately, if that seems convenient.
  (The Reverend Dr Turnbull) Thank you, my Lord Chairman. What I would like to do is make a few brief remarks setting the Measure into context and illustrating its provisions as briefly and succinctly as I possibly can. First of all, I would like to set this Measure into its wider context. The Pensions Measure builds upon the provisions for pensions for the clergy within the Church of England established under the Pensions Measure 1997. That Measure established a number of principles. First, that pension provision for future service after 1 January 1998 would be met directly by contributions from diocesan boards of finance into a funded pension scheme for the clergy. Second, that the responsibility for funding the past service liability for pensions would continue to fall upon the Church Commissioners. One consequence of this was the acknowledgement and the agreement between the Church and Parliament that the Commissioners would need to expend capital in order to meet these liabilities. That, of course, is one of the key points of this Measure that is before us and I will want to return to that in a moment. It is also worth noting in passing the range of financial challenges that the Church faces. I believe that the whole Church has responded magnificently well to the challenges before it, some of which were set in place by that Pensions Measure in 1997, but it is essential that the Church as a national institution continues to order its financial responsibilities in as careful, coherent and strategic a manner as it can. Can I turn now to two different sets of provisions that we have within this Measure before us. Let me very briefly deal with the provisions as they relate to the discretionary powers of the Church of England Pensions Board. What this Measure does in essence is to bring clarity and flexibility to various discretionary funds that the Pensions Board has at its disposal. It does this by bringing together three existing funds which were established under statute, together with a further fund, the General Purposes Fund, that was established by a resolution of the Pensions Board itself. Hence the Board will have one fund with funds totalling somewhere in the region of £70 million under one heading from which it can provide discretionary assistance. The sort of assistance it would provide would be to deal with particular cases where the income of a retired cleric is low and needs to be supported and augmented. Secondly, the Measure makes specific provision for the Board to be able to offer, at its discretion, assistance with retirement housing to the spouse of a pensioner when that couple have divorced after retirement. It is a very specific point but at the moment the Pensions Board is unable to offer assistance to the spouse of a cleric when that couple divorce after retirement. I am sure that the Committee would want to welcome that provision. Finally, in relation to the Pensions Board there is a technical provision, the details of which I do not need to go into, dealing with who pays the cost of pensions when a clerk in holy orders is dispossessed of office under various pieces of legislation. Let me turn, if I may, to the power contained in this Measure for the Church Commissioners to continue to spend capital upon their pension liabilities. This provision was included in the Pensions Measure 1997 for a period of seven years. It thus expires on 31 December 2004. This Measure before the Committee would extend that power for a further seven years. It is important for me to set out briefly for the Committee the importance of that provision. Members will be aware that the Commissioners' expenditure falls into a number of different categories. Some of these are obligatory provisions and others are discretionary. The former, the obligatory provisions, include the provision for past service pensions. The latter, the discretionary support, includes support for stipends (especially in those parts of the country and the Church most in need of additional support), support for the stipends and the working costs of bishops, and some other miscellaneous grants. The principal issue facing the Church is how best to manage those funds at its disposal in a coherent and strategic way so that the responsibility for pensions can be met, whilst leaving the Commissioners with some degree of certainty over what future funds will be available for its discretionary spending. It is planned, Chairman, that the Commissioners will expend capital over time amounting to round about 45 per cent of its total assets. That will leave sufficient assets in place to provide an on-going and continuing support in those areas of discretionary spending. That process has already begun. In the year ended 31 December 2000 the Commissioners spent just under £35 million of capital in support of its pensions liabilities. If the Commissioners were not able to renew the power to spend capital there would be two possible consequences. Firstly, the Commissioners would face the possibility of making significant reductions in those areas of discretionary spending. I would submit to you that would be particularly unhelpful to the Church's mission. Secondly, they might have to restructure their investment portfolio to give a much higher proportion of gilts in order to fund the increased income requirement. It seems to me that would be particularly unhelpful to the long-term profile of the capital fund. Chairman, I just want to draw attention to two smaller matters on the provisions that are before us. Firstly, the necessity to spend from capital will be an on-going requirement, but it is right and proper that both Synod and Parliament have the opportunity periodically to review that matter. Hence in order to simplify the procedure and avoid the need for a full Synodical Measure and the full legislative procedures of the Synod and of Parliament, it is proposed in this Measure that future renewals of this power should be made possible by Order rather than by Measure. I would wish to emphasise that any such Order could only come into effect after a full debate on the floor of the General Synod and after it was tabled before Parliament under the negative resolution procedure. Secondly, and finally Chairman, I should mention the question of transitional relief. Under the 1997 Pensions Measure the cost of pensions for future service was to fall upon diocesan boards of finance. It was accepted at the time that this was a significant challenge for DBFs and it is a challenge to which they have responded extremely well. But it was recognised that it would require some on-going transitional support from the funds of the Church Commissioners and that support is currently in place. It was, however, always intended that such financial provision would be temporary. Hence, in this Measure before the Committee there is no proposed renewal of the provisions for the Commissioners to grant transitional relief from its funds, and so that power will expire on 31 December 2004. The implication, just to be clear about it, is that from that point onwards the full cost of future service pensions will be borne by diocesan boards of finance. My Lord Chairman, that concludes my opening remarks on this Measure. I hope that has helped the members of the Committee. I together with my colleagues look forward to discussing these provisions with you and stand ready to answer any questions that you may have of us.

  3. Dr Turnbull, thank you very much. I think the Committee is very grateful for that exposition of the Measure. I wonder whether any of your colleagues would like to address us briefly now, especially on the spending of capital over the next 60 years. Is that a subject upon one or other of you (and I suspect it might be Mrs Alexander but I do not know) might like to address us?
  (Mr Harris Hughes) My Lord Chairman, I need add quite little to what has been said. We seek to renew a power which has given the Commissioners flexibility. It dictates no particular policy, it simply allows flexibility. We have since the Measure came into force been spending capital and last year the figure was about £40 million. In the process the fund has performed very well because we have been able to be flexible, and that is what we continue to protect.

  4. Thank you. Anything else from your colleagues?
  (The Reverend Dr Turnbull) No I do not think so, my Lord Chairman.

Chairman: I am sure there will be some questions for you. Who would like to start us off? Lady Wilcox?

Baroness Wilcox

  5. I am somewhat comforted, my Lord Chairman, that Mrs April Alexander is the Chairman of OPRA.
  (Mrs Alexander) I am an Executive Director.

  6. Because my first worry on the White Paper in item 9 was this wonderful statement that "we know what is going to happen over the next 60 years". I would normally only be comforted in that statement if I had an actuary in the room. I would like to know if Mrs Alexander can comfort me on the fact that we are making a statement there based on actuarial valuation. If I can have the answer to that question first it might comfort me for the second question.
  (Mr Harris Hughes) My Lord Chairman, may I answer for the Commissioners. We are required to take actuarial advice in the assessment of liabilities and year-by-year to receive their reassurance that the spending plans of the Commissioners, both in respect of pensions and in respect of the discretionary spending, is sustainable and therefore the figures that are set out are ones which flow from actuarial advice and calculation.

  7. Who are the actuaries?
  (Mr Harris Hughes) Messrs Bacer & Woodrow. The original calculation was Bacer & Woodrow, the annual ones are Watson Wyatt. Watson's are the appointed actuaries to the Commissioners today.

  8. That is helpful. I would have felt happier to have had them here, to tell you the truth, and it would have made your job easier. The second question I would like to ask also for comfort is I chair a couple of very big pension schemes myself. I was a bit nervous about the fact that if we do not let you do what you want you will not be able to invest in high investment returns of shares. To my knowledge, our problem with share investments over the last few years is that we have had to top up from capital because the share return has been so poor and, in fact, in two of the boards which I chair we have gone for bonds to get some regularity in our return. So I was a little bit confused on item 10 of the White Paper that if we do not do this, the threat is that you will not be able to continue investing in high investment returns on shares. If I may be rude, given the performance of the Church Commissioners in the past, I would like to see prudence here rather than a bit of a romp through the share market.
  (Mr Harris Hughes) My Lord Chairman, the advice we have does not in fact postulate any particular investment policy. What the actuaries would say to us is that a portfolio which is biased towards what I would call real assets—shares and various categories of property—would on the long-term evidence of the past produce a better return than the nominal return of bonds. On the basis of that actuarial advice we have since the mid-1990s shifted the balance of the fund towards securities where previously it was with property. But at no time have bonds been a major element in it. They could be if it were thought that the returns were particularly attractive on the actuarial estimate. They have not formed that view, we do not hold it at present, and to that extent our view is framed by the long-term experience and by what the actuaries think is a reasonable set of suppositions for the future.

Mr Field

  9. You are asking Parliament to give you powers which Parliament holds over the historic assets which have partly been built up from taxpayers and the Monarch but from other sources. When you set on this course of asking Parliament to expend up to 45 per cent of your capital to meet past pension pledges, you presumably had, as you replied to Lady Wilcox, actuaries' advice and you have got another set of actuaries' advice on the current position. As you are asking Parliament to give powers away which it holds on behalf of the nation, could we see the actuaries' reports.
  (Mr Harris Hughes) My Lord Chairman, yes of course.

  10. Can I say why we probably would like to see them, which is on the basis that the first set of decisions the Synod took over current pension contributions has been wrong. You are now in a period, are you not, of asking for increased contributions. What worries me about giving up the position that Parliament has over the historic assets is that if you continue to get calculations wrong and if those first calculations were wrong, for example, over how long clergy who have got past pension rights will survive, you may wish to spend much more of the historic capital than you have ever actually publicly declared. Given that we agreed in the first place that you should have this power to spend capital, why do you want to take the power away from Parliament which is, after all, another sounding board for you as to if you have got the policies right?
  (Mr Harris Hughes) If Mr Field is particularly concerned about negative resolution, then my understanding is that that would clearly be a matter for you. Our only concern, in process terms anyway, has not been to make the process especially cumbersome but there is no point of principle on that and certainly no wish to derogate from the authority of Parliament over the historic endowment of the Church of England at all.

Mr Field: If we gave away this power and depended on the negative resolution, do negative resolutions come to the Lords as well?

Chairman: I think so.

Mrs Dunwoody: They are not voted on, my Lord.

Chairman: They could be prayed against, that is the difference in the negative and affirmative.

Lord Pilkington of Oxenford: Mr Field is right, we are taking away power from Parliament in essence.

Chairman: Do you have another point?

Lord Pilkington of Oxenford

  11. I wanted to underline what Mr Field said. Traditionally the Ecclesiastical Commissioners in the 19th Century took large endowments from the parishes and the dioceses to support the Church. You can correct me on this. It seems to me that the Church is taking executive power to itself for things which the Church Commissioners and Ecclesiastical Commissioners would have said should be found from within the community of the Church. The pensions are sacred. I accept the fact that it has always been the tradition of the Church Commissioners to support parishes in deprived areas. I have doubts about bishops' expenses and I have doubts about the Archbishops' Council and I think you would have to spell out much more clearly because traditionally the Church Commissioners guarded these rights very carefully. Parliament was the ultimate guardian of this. That is why Mr Bell is sitting here. It seems to me that you are carrying out quite a revolution in this matter. Am I wrong in thinking this?
  (The Reverend Dr Turnbull) My Lord Chairman, if I may comment briefly on that point. I think we need to bear in mind the range of categories of expenditure which the Commissioners spend their funds on. One of those categories is, as the Member said, bishops' expenses. But, Chairman, I think we need to be clear that the majority of that expenditure—and the total amount is just under £16 million, I think I am correct in saying—is actually on the provision of support costs and working costs for bishops, not daily expenses. I think it is important for us as the Church to say that we do consider it a matter of quite fundamental importance that the leadership of the Church is properly resourced and funded. Howell can comment in a minute on the breakdown but the majority of Commissioners' funds currently are used for the support of the pensions of clergy. Then some £22 million is used in support of the parochial ministry in areas of need and in areas of opportunity up and down the country. That is the support for the poorer areas of ministry. Then there is an amount to which I have just referred (£16 million) which is effectively supporting the national leadership of the Church of England. It seems to me perfectly reasonable that that features. We must bear it in mind in relation to the proportion that it forms of the total.

Lord Pilkington of Oxenford: Fundamentally, the problem we are facing is your spending of capital. Whether you are spending it on pensions or bishops' expenses is irrelevant to us. Most of us in our organisation regard the spending of capital resources as a most terrifying thing to do. I was a headmaster for 20-odd years and it was written into my heart not to spend capital. You could say it is being spent to support the pensions, you could say it is being spent to support the bishops' expenses and people like that; it is being spent. Traditionally for the last 150 years the capital of the Church Commissioners has been sacred. This is a revolutionary step and all of us who have been concerned with institutions around this table get worried because we can all make, and I plead guilty myself, stupid decisions.

Mr Gummer

  12. Really I want to try and understand this more clearly. We have in front of us a Measure which relates to part of the activities of the Church Commissioners. It is perfectly possible to argue that there are on-going responsibilities which will be exhausted at the end of the period and that therefore the need for that capital to resource them in the future will also be exhausted and that therefore it is reasonable to apply the capital in this way. Surely, that is to take a very narrow view of the situation? I share the concerns. I do not know of another organisation which would treat its capital resources in this way. Indeed, historically I find it very difficult to justify because this money was not given to the Church of England centrally at all, much of it was given to the Church of England in the localities. We can argue about whether the Church should have taken the money centrally or not, but had it in those days said to those localities, "Not only are we going to take it centrally, but in fact we are not even going to keep it, we are going to spend it as if it were income", the row about taking it centrally would have been enormous. If you look back to the terms under which it was taken centrally, there were specific guarantees made by those who did it to say that it would still be the capital of the Church of England, although administered centrally. It is for that reason that I find it extremely difficult to agree to the proposition that we have here because there is, of course, a perfectly reasonable alternative and it is the alternative that everybody else has to carry through, which is to say if the cost of pensions rises above the money that we have raised in order to pay for them, we have actually got to raise some more money or we have got to reduce the other activities that we have. What I do not like about this is that it seems to me that under the guise of a Pensions Measure the Church of England is seeking to use its money in a way which no other organisation would, and were it to be presented under any other guise a Committee like this would not begin to agree to it. I think the guise is a very carefully chosen guise in order to avoid the real issue of the Church of England which is how to fund its current spending on its current income, which is what all of us have to do not only in organisations like Lady Wilcox's pension funds but in our own private life. If we individually said, "I am going to spend up to this sort of proportion of my capital on my running costs", most people would call that, even if they were not very Victorian, fool hardy. It seems to me that it would probably be rather good for the Church of England if the Ecclesiastical Committee said rather carefully that perhaps we ought to think again and that perhaps you ought to do what everybody else does. Even local authorities, who are pretty spend-thrift in this particular area, have got to raise the money in the end from the people who may unwillingly pay for them. Are we right, honestly, in saying that the treasures of the past should be spent on the present when the future will not have it? I find that very difficult to support.
  (The Reverend Dr Turnbull) I wonder if I could help the Committee. Over the next 60 years, yes, indeed, it is planned as part of the agreement under the 1997 Pensions Measure that approximately 45 per cent of the Commissioners' assets would be expended in support of pensions, but at the same time from 1 January 1998 onwards contributions have been flowing in to the Church of England funded pension scheme, so as the capital reduces in one place the capital is increasing in another, and it seems to me that, as Mr Gummer was saying, we need to look at it as a whole. It is important that we hold that in perspective and in place, that even though capital is planned to be spent on supporting pensions from the past, capital is increasing in support of pensions for the future.

Mr Drew: Could I just ask one very simple question. Did you take any cognisance whatsoever of clergy poverty in regard to the pensions situation in regard to this Measure? Does it have any impact at all on what the clergy are likely to receive, both existing clergy pensioners, let alone tomorrow's clergy pensioners? What are the dynamics of this Measure?

Chairman: I did not quite hear.

Mr Drew

  13. I am asking about clergy poverty with regard to the pensions situation and I am wondering if this Measure has any impact at all on today's clergy pensioners let alone tomorrow's.
  (The Reverend Dr Turnbull) One of the other hats I wear is as Chairman of the review group set up under the Archbishops' Council to review the level and nature of clergy stipends. As part of that review the investigation of the financial circumstances of clergy and questions of clergy poverty (to which Mr Drew referred) came under the auspices of that review. It seems to me that the Church is seeking to deal with those questions, but I do need to say that this Measure before us would have no impact at all upon the level of pension that a cleric would receive. So whereas I take very seriously the matter of clerical poverty and the need for the Church to deal adequately with that, this Measure before us would not have any implications for pension benefits.

Mr Webb

  14. Mr Gummer raised the issue of are there any parallels with this running down of capital. I would have thought the closest analogy was the closed pension scheme. It has got no new liabilities, it is a pot of money being set aside for a particular purpose and the closed pension scheme can spend the pot on the thing it was there for. It seems to me that is the exact analogy. There is nothing improper about that and I would be very alarmed if the result of our deliberations were to undermine today's ministry of the Church, either by cutting spending in urban priority areas or anywhere else, by raising contribution rates. Mr Drew referred to clergy poverty. They get little enough money as it is and then if we were to expect them to pay more. It seems to me that there is nothing improper in what we are being asked to do here and we should welcome it. I perhaps ought to put on the record just for the avoidance of doubt that my wife is a pre-1998 beneficiary of the scheme, which I do not think has influenced my comments. Might I just, so as not to come back again my Lord Chairman, raise the issue of the transitional arrangements because one of the things that concerns me is that it was agreed that there would be seven years of transitional help for the dioceses. Five years have gone by. Is it apparent that that transitional help was enough because it strikes me that there are some very poor dioceses out there who may well not yet have coped with the new pension liabilities they were going to incur? You implied it was alright. Can you reassure us that it is universally alright or is there a need for re-opening the question of transitional assistance?
  (The Reverend Dr Turnbull) My Lord Chairman, the reassurance I can offer is that the transitional support was given by the Church Commissioners on a selective basis to the dioceses so that those that were most in need received most. Over that period of seven years we are confident that all of the dioceses will be able to have completed that transition period successfully. Some will have taken the whole seven years but some have completed their transition to taking their own responsibility for future pensions more quickly than they otherwise had expected. Clearly, there are other financial questions that face the dioceses and that is an on-going discussion within the Church of which the level of remuneration of the clergy is but one, but in respect of transitional relief, the seven-year period will be completed and all dioceses will have taken that responsibility, some more quickly than others.

Mr Hughes

  15. I have two questions and the first one follows on very directly from Steve Webb's question. There is a seven-year period which we are governed by in here because it was a period set by the Pensions Measure 1997, and so the Church clearly has to anticipate the end of that period. The questions are, firstly, at the end of that seven years is there a possibility of review of the transitional arrangements which have just been alluded to so that there is scope for adjustment if adjustment is needed of the big picture? Secondly, is there a reason why we have been given a seven-year cycle? Is there any precedent for Church legislation coming back on a renewable by Order basis by negative resolution? It seems to me that that is quite an important principle. Either there could be a renewal forever or a renewal with a later possibly of reconsideration. This gives, as it were, a clock ticking procedure. Has that got any other precedent in legislation which comes to Parliament?
  (Mr Slack) My Lord Chairman, I am not aware of any precedent for precisely this sort of arrangement on the basis of the Church legislation that I have been concerned with so far. I think that the Synod probably believed that Parliament would not wish to see any more onerous procedural requirement for future extensions of the power at the end of each seven-year cycle, which replicates the existing period, if it were willing to accept the possibility of further extensions in principle.

Mr Field: Surely it is up to Parliament to decide how Parliament behaves, not the Synod, is it not? Why do you assume that it is all going to be terribly onerous for us and you want to save us time?

Lord Pilkington of Oxenford: Ten o'clock at night in the House of Lords is not too onerous.

Chairman

  16. Dr Turnbull, if I understood him, says this is a point on which there should be some flexibility as to whether it should be done by negative resolution or by starting all over again.
  (The Reverend Dr Turnbull) The matter of how future Orders are approved or not approved seems to be a matter for us to agree together. It seems not to be a matter of fundamental principle.

Lord Pilkington of Oxenford: Chairman, could I say - and I only speak for myself—with the sort of worries that have been expressed already about the expenditure of capital and also wanting to help poorer churches, if we fulfilled our responsibility as Parliament we would like to see it every seven years because getting rid of capital is a very worrying thing. If we are going to earn our money, as you might say, it would not be onerous to sit here because this is a very important matter for the Church of England. If you got it wrong and spent the 55 per cent wrongly, you would be in a terrible mess and we would like to join to help you. I know you would not be in a mess because you are wise and this would not occur, but when you start getting rid of capital it is worrying. Speaking for myself, I would like it not to be passed on Order but to come back through the whole procedure like this.

Mr Bottomley: My Lord Chairman, I think we ought to acknowledge that some of us may be paid to be here but most people on the Synod are not, so we ought to be grateful for what they have put in.

Baroness Wilcox: We are not paid to be here, Mr Bottomley.

Mr Bottomley

  17. I did say that, I am sorry my voice did not carry. I do not think we ought to give the impression of attacking the Synod for wanting to make our lives easier. If we want to make life difficult for ourselves I think we should be allowed to do so. It was five years ago that we agreed the power to expend the capital, so the point of principle was then. Am I also right in thinking that nothing particular has changed from the Synod's point of view or the responsibilities of the trustees of the fund over the last five years?
  (The Reverend Dr Turnbull) Mr Bottomley has summarised that perfectly and I think that was illustrated by when this Measure was before the General Synod it was approved at final approval with only one vote cast in the negative. I think for those very reasons that the principle had been agreed but we were looking at the periodic review which has been referred to for the continuation of an existing principle.

  18. Can I ask if the Synod has the opportunity every seven years of looking at it? They do not just go through a formality?
  (The Reverend Dr Turnbull) I would wish to be clear, my Lord Chairman, that the Synod will need to vote every seven years. If this Committee does not find this Measure expedient, it is likely that there would be preserved to the Synod and to Parliament the full legislative procedure where there are several different stages that the Synod has to go through. By putting it through on an Order it requires a full debate and vote in the Synod but then it would be referred to Parliament without further ado.

Lord Hardy of Wath

  19. My Lord Chairman, I share the anxiety about the disposal of capital at the present pace. £35 million in one relatively short period does seem to be a great deal. I was present in the Committee when we considered it before and it was a matter of decision to agree in principle but we all assumed that the very critical situation that preceded that situation would not be repeated. To some extent it has not been, although growth of capital may not have been quite as high as many of us would have wished. To some extent we are taking a gamble on the actuarial analysis. From the experience of my home parish I am very cautious about assuming that clergy will die quite so soon as many other people. We have one vicar who was in post for 64 years. His successor celebrated his golden wedding. Keble Martin wrote his Concise History of British Flora 50 years after he retired as our vicar in 1922. We have currently three former vicars who are alive and well. So let us hope the actuarial analysis is reasonable!
  (The Reverend Dr Turnbull) The Noble Lord fills me with complete horror about my own longevity if that is what the future prospect is!


 
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