A summary
Dan Hedley, Policy Director of New Capital Consensus
The Church of England’s clergy pension fund is being painted as a gambler in a casino by John Ralfe in the FT, “doubling or quitting” by running a growth‑oriented portfolio rather than matching its liabilities with long‑dated bonds. That caricature misunderstands both the nature of the Church as an institution and the economics of open long‑term defined benefit saving.
The Church of England Funded Pensions Scheme (CEFPS) is not a closed legacy scheme where the pensions need to be paid, but there are no more contributions coming in. If it were, there’d be some sense in considering sensible de-risking. But this scheme is very much alive and kicking. Its time horizons are immense. It is the liability side of a 500‑year‑old social institution that intends to be around in another 500. For such an entity, the central question is not “how can we ensure that our assets and liabilities align with precision every day of the week?” , but “how do we maximise sustainable real returns over decades while managing risk in the round?”
The church’s sensible approach not only protects the institution’s assets and its current and future pensioners’ security, but also nurtures the economy that its congregations and clergy live in and will retire in, with the lifeblood fuel for growth. This aligns with Scripture in promoting social cohesion and community prosperity. “Let us not become weary in doing good,” writes Paul, “for at the proper time we will reap a harvest if we do not give up” (Galatians 6:9). That is a farming metaphor, not a gilt repo metaphor.
A farmer who refuses to plant because the weather might turn is not prudent; he is failing his vocation. Likewise, a Church that refuses to invest in productive, often illiquid assets because their market value moves around is failing to use its time horizon well. Three points follow.
First, risk is not the same thing as slavishly tracking mark‑to‑market volatility. The true risk to clergy is the long‑run erosion of the scheme’s ability to pay inflation‑linked pensions, which depends on real returns from the underlying economy.
Owning equities, infrastructure and private loans that finance real activity is a rational way to earn that premium over gilts in an ecclesiastical scheme with no end in sight and a long established backer that is not going to disappear any time soon.
Second, full bond‑matching at today’s yields crystallises a large opportunity cost. “Locking in the surplus” is also locking in lower expected returns. Seeing losing huge amounts of value in assets as a win, just because notional liabilities have also fallen is a distortion of reality – losing value is always a real loss to the Church, to its clergy and to its congregation. With losses will always come a higher likelihood that future generations of parishioners must contribute more, or benefits must be cut again, If liabilities can fall, they can also rise again, bringing pain that could be avoided by retaining and building real value. Relying on matched assets like bonds and gilts shifts risk forward in time and onto people who cannot currently vote at General Synod.
Third, a duration‑aware, diversified, growth‑oriented strategy is not the same as recklessness. It can and should include robust stress testing, prudent use of leverage, liquidity buffers, and a clear plan to run risk down if the scheme subsequently matures. But to insist that every scheme must look like a closed corporate DB plan in managed run‑off is to ignore the particular vocation and horizon of the Church.
The Church of England often talks of “intergenerational justice”. In investment terms, that means using its uniquely long time horizon for the benefit of both today’s and tomorrow’s clergy, rather than outsourcing prudence to the gilt market. Sowing for a future harvest may look untidy on a funding update, but it is a far more faithful response to the responsibilities the Church carries.