The Church of Ireland at the recent General Synod in Armagh prioritised hope over faith. The solid belief that the retirement lifestyle of the clergy could be guaranteed by the Clergy Pension Fund (a defined benefit scheme) has been shattered by an actuarial report showing the level of its insolvency and the only way out appears to be to move to a defined contribution scheme and hope that the markets provide.
A report was placed before the Synod showing that the only way to bring solvency to the fund, which is currently showing a €45 million deficit, is to shut it to all contributions and accruals from the end of May and to move all members to a defined contribution scheme from 1st June 2013.
This is a very rapid switch by the Synod and shows the impossibility of trying to maintain a DB scheme in a time of shrinking contributions. It underlines the “ponzi” style nature of defined benefit schemes because the increasing longevity in the Western world means that all schemes are ending up in deficit. This is primarily because there are insufficient funds coming in to cover the amount going out and investment gains can’t make up the difference.
It makes you wonder whether DB schemes were ever actuarially sound. It cannot be a co-incidence that as soon as the ratio of members in receipt to members paying in increased, the vast majority of schemes slipped into deficit. It seems to point to the possibility that no employer was ever paying enough in to actually provide the scale of benefits being given out but that this fact was disguised by the constant flow of cash into the schemes.
This could be why the only truly secure DB schemes left are the government schemes because there is no limit to what the taxpayer will have taken from him or her in order to fund the public sector pension bill. Without that ability to increase the flow in, other schemes have all faltered as companies shed numbers of workers and used technology to become more streamlined.
All of which is of little comfort to the vicars and deacons of the Church of Ireland. It appears that their best bet is to pray very hard for a bull market run on the stock exchange, if they are to avoid a retirement of poverty and hardship.
What do you think? Let us know in the comments below!
— Exaxe (@Exaxe) May 15, 2013