Ecclesiastical Committee Minutes of Evidence

Examination of Synod Representatives (Questions 20-39)



Mrs Dunwoody

  20. I do not think there is any desire here to cause any unnecessary difficulty but the problem is I have a terrible feeling we have only got one piece of the jigsaw. If the argument about a closed pension fund is correct, the thing about closed pension funds, as many people have found to their considerable dismay, is that they do not allow, because they are not growing, for any increase in the amount that is paid out to the pensioners. We have been told today that this is only one part of the equivalent decision-making process, therefore I think there is an area of doubt. I am not clear, if this Measure goes ahead, whether there is any other provision. No one could accuse me of being an economist but it is a bit frightening the amount of money which is involved and the speed at which it appears to be being used up. I am not at all sure that Parliament would be quite happy to allow this kind of Measure to go ahead without the reserve power of ensuring they know what all the other relevant decisions are which will affect the size of the pensions, the people who are concerned or the other funds which would be used. If you could just put our minds at rest on that, it might be a little clearer. At the moment it does seem to me that this is a Measure which deals with a very limited and narrow point and many other relevant bits of information are missing. The other thing which Mr Field did remind me of is that Synod would be voting on spending somebody else's money, whereas both Houses have a nasty habit of taking decisions on spending their own.
  (The Reverend Dr Turnbull) My Lord Chairman, the length of time over which capital is going to be spent is approximately 60 years, and the reason for that is that clearly there are no new members of the pension scheme under the Church Commissioners' responsibility. So when the member refers to it being spent very quickly, I am not sure I quite follow that. It is being spent out over 60 years. Effectively the last pound is spent when the last pensioner dies; that is what determines the length of time over which that capital will be spent. So it will be gradual over those 60 years.

Mr Field

  21. And the sum is about £1½ billion?
  (The Reverend Dr Turnbull) Yes, the total sum. The total assets of the Church Commissioners are approximately £4½ billion and so it is going to be in the region, on current actuarial estimates, of about £2 billion which would be spent on that, leaving about £2½ billion to fund those on-going other matters of expenditure.

Mrs Dunwoody

  22. And the assumption is that none of the existing pensioners would be in a position to have their stipends altered?
  (The Reverend Dr Turnbull) I am sorry, could you say that again?

Mrs Dunwoody: What concerns me is that you are in effect creating a closed fund, on the assumption the number of people benefiting from it is going to decline over a period of 60 years. Are you assuming that none of them will ever get benefits beyond the extension of that particular fund? That is what concerns me. Or are you saying this is dealt with in a different way, and, if so, why is that information not available to us today?

Baroness Wilcox

  23. It is inflation-linked I think. It is linked, is it not? It goes up?
  (Mrs Alexander) Allowance has been made in the calculations for pensions in payment to increase in line with the national minimum stipend. It is an unusual feature of the pension scheme and it does mean that there is no differential across generations in the size of the pension.

Mr Field

  24. So it is actually a different closed pension fund because it is a pension fund linked to earnings and not prices?
  (Mrs Alexander) Yes.

  25. So it is linked in that sense?
  (The Reverend Dr Turnbull) That is correct.

Mr Gummer

  26. I rather like the image of the closed pension fund and I think it has been very helpful to the Committee, but in a closed pension fund in ordinary circumstances you start, if you like, with a sum of money set aside for a pension. What I would like to understand is, as far as the Church Commissioners are concerned, is it not true—and I hope I am wrong—that that was not the case? What happened was, the Church Commissioners had a large pot of money and they used it for a series of different things and pensions was one of the things they used it for. We have now got to a stage where future pensions would be funded in a different way and therefore you create in an artificial way—I use the word crudely—the amount of money which you put aside for pensions because that is the amount of money you need for the pensions. It is not that there was a special fund or pot in the first place. Is that right?
  (The Reverend Dr Turnbull) It is certainly the case that there was no funded pension scheme, that is what changed with the Pensions Measure 1997 and the discussions which took place at that time. Certainly since 1954 it has been the responsibility of the Commissioners to fund pensions but they did it on a pay-as-you-go basis until 1997 when the decisions were taken on the Pensions Measure and the funded scheme.

  27. But they expected to fund that out of income?
  (The Reverend Dr Turnbull) Yes, that was certainly the case up until 31 December 1997 but not since.

David Taylor

  28. The Commissioners have had four years now from the Pensions Measure in 1997 giving them the ability to expend capital assets in this way, and one particular year is indicated in the notes here, £34 million. Could you tell us what the aggregate expenditure of this kind is since you have had the powers so to utilise and what proportion that represents? We have heard the capital assets of the Commissioners are £4½ billion and you anticipate in 2002 about £2 billion of that will be expended in this way over the next 60 years. What proportion of that has been expended in the first four years?
  (Mr Harris Hughes) Last year, my Lord Chairman, approximately £41 million; in the preceding year £34 million; I speak from memory but in the previous year it was about £20 million and in the first year about £15 million.

  29. So that is rising at a significant rate, my Lord Chairman, is it not? There must be some other factors of which we are unaware which will pull that rate of draw-back to the figures you are talking about over a 60 year period, just 45 per cent of the capital assets being expended? On that trend, and I have not got a calculator in front of me, it would not be sustainable.
  (Mr Harris Hughes) My Lord Chairman, the pattern which is predicted by the actuaries is obviously influenced by the expected retirements. The outflows of capital from year to year will vary a bit, depending on flows of investment income, and we have begun to be squeezed by the loss of ACT relief, which has had a certain bearing on this and will continue to have a bearing in the next few years as the transition for a charity runs out. We have also seen a slight fall in other investment income partly because dividends have tended to fall in the UK and because we invest a bit more abroad. So you are, Sir, right, there are two sides to this equation but the pattern ought to be relatively stable.

Lord Campbell of Alloway

  30. This follows on really from the last question, you have spent about £130 million in the last four years. To what extent was that occasioned by erroneous calculations? That is the first question. Who made those erroneous calculations? What is being done to cure the erroneous calculations? Because I agree with other members of the Committee that I am extremely worried about giving a licence to hand out capital instead of investing for income in this situation. It does not seem to me that there is an adequate control at the centre.
  (Mr Harris Hughes) Mr Lord Chairman, the Commissioners would not accept that there had been erroneous calculations. We have a pension promise to honour in respect of those who had earned pensions prior to 1998 and the estimate of those pensions has been remarkably accurate from year to year on the advice of Watsons as we have gone forward. The shape of the portfolio itself will change in the light of investment conditions and, as this Committee will know, it has changed quite significantly since we discussed with you the 1997 Measure, because we have less in property and more in securities. So the amount of genuine income we have to dispose will vary a bit, and has tended to come down for reasons I have mentioned, but the basic pattern is not one of error, not one of miscalculation or of surprise. The only reason we seek the permission of Parliament to renew the power is to preserve the flexibility on which good performance in the last five years has been based.

Baroness Rendell of Babergh

  31. My Lord Chairman, we have talked a lot about pensions for clerks in holy orders but what about church workers? What is meant by a church worker, or should I rather say, when is a church worker not a church worker? Are there categories? You could almost say when does a church worker stop being a church worker?
  (The Reverend Dr Turnbull) The Measure before us deals only with the stipendiary clergy, Clerks in Holy Orders. The Pensions Board administers two other pension schemes, one of which is related to church administrators, those who work in the administration of the church, and one of which refers to church workers, which is another category but not the ordained clergy. That is not part at all of the Measure that is before us today, which deals only with stipendiary clergy. Those are two other specific pension schemes administered by the Church of England Pensions Board.

Baroness Rendell of Babergh: It is not very clear.

Lord Brightman: My Lord Chairman, I have three questions I would like to ask on clause 1, but it would be quite inappropriate for me to ask the questions until all matters of policy have been dealt with, so I am not certain whether I am to proceed now or later.

Chairman: I think it would be helpful probably to complete this discussion and then come back to clause 1, if we may.

Mr Pike

  32. My question is a very simple one and it follows on from the very first question which was asked. You have said you have had actuarial projections which have supported the case you are putting to us. You are asking this Committee to agree to say that the Measure is expedient, do you not think we should actually have those projections put before us to be able to come to a decision? I think you are asking us to approve something for which you have had the information, and I think it is quite evident from the questions which have been asked this afternoon we are not completely satisfied. You could be absolutely right but we should have that information.
  (Mr Harris Hughes) We are entirely willing, of course, to set the actuarial advice before you, my Lord Chairman. I would only say, Sir, that the basis of it has not changed since Parliament approved the 1997 Measure.

Mr Gummer: Would it be appropriate to talk about one other issue which was raised when we talked earlier?


  33. Yes, indeed. I have one more question to ask on this issue if everybody else has finished on this issue. To take the figure of £34.7 million which you spent out of capital in the year to 31 December 2000, what percentage is that of the total funds available to the Commissioners allocated to pensions? Just give me a rough percentage.
  (Mr Harris Hughes) If I do it in my head, my Lord, I will get it wrong. It is £34 million of, as it then was, say, £1.8 billion.

  34. Could somebody do that because I think it is quite a relevant question. Can we reach agreement on that?
  (Mr Harris Hughes) 1¾per cent.

Lord Newby

  35. The Commissioners are planning that they should expend half their capital assets on pensions, I simply wanted to ask whether any of the other outgoings which the Commissioners expect they will be required to make over the equivalent period will need to be met from capital as well or whether all the other liabilities they are going to incur will be met by income?
  (Mr Harris Hughes) My Lord, only pensions.

Chairman: I think we could now go back to Clause 1 and Lord Brightman.

Lord Brightman

  36. These are simple questions, they are not matters of policy, my Lord Chairman. The first question is this, sub-section (2) applies to gifts made, generally speaking, for the relief of poverty and for the provision of homes of residence. Does the sub-section cover gifts made both before and after the Measure comes into force?
  (The Reverend Dr Turnbull) I think that must be the case because at the moment, my Lord, the General Purposes Fund, which is referred to in sub-section (2), is an existing fund of the Board but it is not a statutory fund. So the first thing that is happening is that the General Purposes Fund as it currently exists is being established as a statutory fund, and it is then referring to any subsequent gifts in addition paid into that fund.

  37. Do you think it would be clearer to say "gifts made or to be made"?
  (The Reverend Dr Turnbull) I think, Lord Chairman, I would need to take advice from our lawyers on that matter.
  (Mr Slack) My Lord Chairman, standing counsel is not convinced that it would necessarily be clearer. I think some assistance is given perhaps by clause 2(2) which does deal with the question of sums which are, whether before or after the coming into the force of the section, given to any of the three named funds and are deemed to be donated to the General Purposes Fund and may then accordingly be applied for the purposes set out in clause 1.

  38. Are you saying that it will be less clear, in other words more ambiguous, if it said, "gifts made or to be made"? Would that be confusing?
  (Mr Slack) My Lord Chairman, I think the view is taken that it is clear as it stands.

  39. The second question is that we know from sub-section (4) of section 1 that the General Purposes Fund will be able to be used for any of the purposes in sub-section (2). One of the purposes is the relief of poverty in the case of any child of a deceased clerk or church worker, that is (2)(b). Does "child" mean progeny of any age or under 21 or 18 or 14?
  (Mr Slack) I am not aware that is a defined expression in terms of the Measure with which this has to be construed.

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