Author Archives: Elizaphanian

About Elizaphanian

Rector of West Mersea

Clergy pensions and the dangers of conventional thinking‬‪ ‬‪

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This is a guest post by Paul Lee, a senior professional in the Pensions industry and active church member. He is writing in a personal capacity.

The Church of England is facing some key and very difficult decisions. Its relatively new pension fund, the CofE Funded Pensions Scheme, which was only set up in 1998 following previous investment problems, has developed a significant deficit — its liabilities to pay pensions in the future (estimated at £813 million) far exceed the assets it has available (£461 million) — and, like many other organisations in this country, the Church is faced with the challenge of trying to fill this deficit and fulfil its obligations to the clergy, its future pensioners.‬‪ ‬‪

In significant part, this deficit has arisen through following conventional thinking: after taking advice, the scheme put all of its assets in shares, then conventionally seen as the best place for long-term investments such as these. The turmoil of recent markets — in 2000/01 as much as in the most recent couple of years — has exposed the risks embedded in that conventional thinking. There has also been increasing realisation in recent years of the impact of the increasing life expectancy‬‪, which has boosted the assessed liabilities of the scheme. ‬‪

The Church recently closed its public consultation on changes to clergy pensions to limit the liabilities which the fund and the Church itself faces. The Task Group on Clergy Pensions proposed some limited housekeeping changes which will have a useful impact on the apparent deficit. Increasing the retirement age to 68 and the expected period of service to qualify for a full pension to 43 years, and reducing the inflation protection in the scheme will cause some personal pain to individual clergy but this pain is perhaps outweighed by the overall benefit for the scheme and the financial position of the Church and its parishioners.‬‪ ‬‪

There are, however, some much more radical steps which the Task Group considered, in particular moving away from a so-called defined benefit scheme to a defined contribution one, either in whole or in part. Defined benefit (DB) schemes are also often known as final salary schemes and guarantee a portion of (usually the final year’s) salary will be paid as the pension; defined contribution (DC) schemes invest the money collected each year and each individual’s pension pot is determined by the investment performance of this money over their working life. In effect, in DB schemes the pension is guaranteed and is mathematically fixed depending on the salary and the years of service; in DC schemes nothing is guaranteed apart from the contributions. The investment risk is taken by each individual rather than by the scheme and the employer.‬‪ ‬‪

This looks like conventional thinking again: many companies have already switched from DB pension schemes to DC ones. They have felt themselves pushed to do so because of new accounting rules which have made clear the scale of their deficits as pension beneficiaries have been living longer, and because of the nervousness of their investors about the scale of those deficits. But the Church should not be prey to these short-term pressures; we as a church do not have the inherent instability built into our structure seen in the corporate construct. We should have confidence that we are sustainable and can afford the burdens we are currently facing; while they currently look severe they should diminish over time (the current projections assume filling the deficit over a period of a few years, not over the lifetime of the scheme).‬‪ ‬‪

I personally am clear that a DC structure for clergy pensions would be wholly inappropriate. The Task Group’s consultation contains a key sentence: “A wholesale transfer of risk is inevitably a more sensitive subject in relation to a group of people who, during their working lives, are paid only around £20,000 per annum and are expected to house themselves in retirement after many years of living in tied housing.”‬

I believe that this understates the case. It is not only more sensitive, it is inappropriate to transfer risk to this group of people. While the Task Group is right to state in defence of DC schemes that ‘there is no general reason why they should provide lower pensions than DB schemes, but they have gained bad media coverage because many employers have also taken the opportunity to cut contributions’, this is not the whole story. A key difference with DC schemes is that they introduce an element of lottery: one cadre of clergy would benefit disproportionately from positive financial market performance over the lifetime of their DC investment, and one cadre would suffer when the market performance over their lifetimes was less favourable. This differential treatment of clergy simply through the luck of when their investing lifetimes fall seems wholly inappropriate to me. It does not reflect the caring and nurturing organisation that the Church is, but rather introduces an unwholesome element of blind chance into the process.

Not least as a contributing parishioner I hope that performance in the scheme improves but I also hope that the Church has the confidence not to be prey to every element of conventional thinking going forwards. The Church is there to nurture the faith among its community; in order to do this it needs to nurture its clergy and care for their long-term well-being. Providing appropriate pension coverage is an important part of this.

Bradwell (1): why there is a problem

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One of the issues on Mersea at the moment is the proposed installation of a new nuclear reactor at Bradwell, just across the water from us. As you can imagine, this has raised a lot of strong emotions. What I want to do in a series of posts is explore some of the different aspects to this question before, eventually, coming off the fence on the issue myself. Part of the reason for writing is, of course, to work out exactly what I think.

So why is the government looking to build new nuclear power stations? Because it has belatedly realised that there is a looming energy crisis and, if it doesn’t build new power stations, a lot of people will be trying to function without electricity in the near future.

One of those nice colourful pictures that I like so much:

This shows the amount of nuclear generating capacity that is expected to go ‘off-line’ over the next decade or so. Simply to maintain a power supply equivalent to what we have today we need to find some 8GW of generation capacity. Of course, the ‘equivalent to what we have today’ understates the issue. I’ve talked about the gas situation here, but it is also worth mentioning that a number of coal-fired power stations are due to close by 2015 due to European legislation. Even if we ignore the problematic nature of depending on fossil fuels over the coming decades, we are facing a shortfall of generating capacity. Which is why the Government indicated in 2006 that they would look to build some new nuclear power stations, as part of the requirement to generate some 25GW of new capacity.

This is the first reason why the government is looking at expanding the number of nuclear power stations.

Parish plane crashes

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Image from here, which is highly relevant.

This was originally going to be a much longer post, but it was verging on the indiscreet, so I’ve pruned it back. The PCC might get the original version at an away day this year!

One chapter of Gladwell’s book Outliers discusses airplane crashes, specifically the way in which human communications in the cockpit directly contribute to a surprisingly high number of catastrophes. Specifically, he talks about something called the ‘Power Distance Index’ developed by Hofstede which is about the way in which less powerful members of a group accept the inequality of that power relationship. The way in which this led to plane crashes is frightening but very human: Gladwell documents cases where the assisting officers were not direct with the captain of the plane even in situations where catastrophe was imminent, eg the plane wasn’t where the captain thought it was, or where it was about to run out of fuel. Instead, the subordinate officers relied on mitigated speech, that is, they weren’t direct in telling the captain exactly what was going on, relying on hints, suggestions and euphemisms, which were catastrophically inadequate. Gladwell outlines six levels of mitigated speech, going from the most explicit to the most implicit:
1.Command – “Strategy X is going to be implemented”
2.Team Obligation Statement – “We need to try strategy X”
3.Team Suggestion – “Why don’t we try strategy X”
4.Query – “Do you think strategy X would help us in this situation?”
5.Preference – “Perhaps we should take a look at one of these Y alternatives”
6.Hint – “I wonder if we could run into any roadblocks on our current course”

What Gladwell makes clear is that communication can’t simply be analysed in terms of what is said or not said; rather it cannot be abstracted from the political context (ie hierarchy) within which communication takes place. The subordinate officers on the airplane did pass on sufficient information to the captain to make it possible for the captain to change course, if he had been actively listening. Tragically the captain – either from personality or tiredness – didn’t hear what was being said. In other words, I don’t think that the fault with the plane crashes was simply that the subordinate officers weren’t direct enough, there was an equal component where the captain was not receptive enough.

The reason why I was struck by this was because I felt it gave a lot of insight into the ‘plane crash’ that took place in the parish last year, following my decision to ask the Director of Music to retire. Without going into the messy details, I do think that the nature of communication between the various parties involved was a significant factor, not simply in terms of how explicitly various things were said or not said, but also in terms of what people were able to hear or not hear.

The Korean airline that was the principal subject for Gladwell’s analysis managed to change their culture in such a way that they were no longer vulnerable to these catastrophes. What I am pondering now is how to foster the right sort of culture within a parish whereby it is possible to genuinely ‘speak truth in love’. I think a large part of the answer has to be modelling the right sort of behaviour myself, which gives permission and space for the truth to be spoken. The two risks to avoid are ‘too much truth’ – which can become bullying – and ‘too much love’ – which means that the community simply sags into a morass of niceness.

The good news is that there is a lot of explicit Scriptural guidance on this topic, which I’m going to spend some time studying before the parish away day.

Spectacularly wrong

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I’ve been reading some reviews and 2010 predictions from various people (like Kunstler, linked to previously) and I thought it would be a useful exercise in humility to link to a post where I was quite spectacularly wrong: World War Three by Easter 2006! I pursued the thought here and elsewhere.

I suppose one of the good things about a blog is that it becomes a record of such things – which means that I have become much more circumspect, and that is healthy.

I still think we have entered into a great dislocation though 😉

PS feel free to add in any that you remember. 9/11 I covered here.

Outliers (Malcolm Gladwell)

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Picked this up late yesterday afternoon and couldn’t put it down until I had finished it. Addressed lots of concerns in various areas and full of fascinating insights. How it interacts with Nussbaum’s Fragility of Goodness is worth further thought. Highly recommended.
For more detail see the wikipedia page, although that doesn’t address the material on airplane crashes, on which I’m going to do a separate post.

Lost and a brief thought about evil

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I re-watched the last two episodes of Lost last night, prior to the new series coming back in February, and I was very struck by the way in which the ‘non-Locke’ character (viewers will understand) incarnates evil. What I mean is that, in prompting Ben to kill Jacob, he feeds Ben’s own sense of victimhood. Evil is the whisper prompting someone to believe in nothing. “What about you?”
Anyone wanting a rapid memory-refresh (that manages not to mention my favourite character Mr Echo):

Posted in TV

Tumble

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So: when I got up yesterday to take the dog to Morning Prayer there had been no snow overnight and it wasn’t snowing when I set off. It had begun to snow a little by the time I got back and at about 9am I made the more-or-less-sensible-at-the-time decision to go on my motorbike to take an HC service at East. (Should add: we have no car at the moment, as it failed the MOT.) Which went well – we had 14 people there which was pretty good and it was an enjoyable and happy service.

Of course, whilst inside it had been snowing rather heavily….

So on the way back I was very cautious – actually the worst thing was the fogging inside the helmet – and the roads were fine, albeit rather wet.

However, when I got to the very last fifty yards I realise that the road we live on is covered in fresh snow overlaid on mush – so I go cautiously, slow down using gears, come right up to my own gate and… splat, over I go, trapping and twisting my right ankle beneath the bike.

Ouch. Cue anguished cries as I lie on the floor for a minute or two…

Anyhow, manage to wrestle bike up off me and push it into drive; beloved comes out and puts it in garage and I spend the rest of the day being well looked after (and had time to read the third of the complete Inspector Morse books that I’ve been given for Christmas).

This morning – long hot soak in bath, with massaging of ankle, things are very flexible albeit still painful.

But the bike? Haven’t dared look yet. I think that the right foot rest is bent inwards a bit; what I’m most worried about is whether the handlebars need to be reset.

Oops.

Still, should be alright for the weekend. My dominant feeling – after kicking myself (not literally, obviously) all through yesterday is how grateful I am that it wasn’t so much worse. Thanks be to God.