Church of England scheme signs £100m buy-in deal with Prudential

The Church Workers Pension Fund (CWPF) has agreed a partial buy-in deal with the Prudential, for just over £100m (€120m).

The CWPF provides pensions for the employees of more than 250 organisations associated with the mission and ministry of the Church of England, including dioceses, cathedrals and mission agencies.

It is entirely separate from the Church of England Funded Pension Scheme, which provides pensions for clergy and others in stipendiary ministry, relating to service from 1998 onwards.

Benefits for pre-1998 service are provided by the Church Commissioners’ endowment fund.

The CWPF is a hybrid scheme covering more than 250 employers, most of which participate in the defined contribution (DC) scheme section, with smaller numbers in the defined benefit (DB) Scheme section, or in both.

It has around 2,500 active members, 3,000 deferred members and 2,900 pensioners.

Under the new arrangement, the premium will buy a bulk annuity policy committing Prudential to make payments to the fund that match 70% of the payments the fund makes to current DB scheme pensioners.

This percentage is related to the liability-matching assets backing the pensions in payment in the DB scheme section.

The CWPF’s assets are invested in the Church of England Investment Fund for Pensions, a pooled fund for some of the Church’s smaller pension funds.

The CWPF’s total assets were worth £382.4m as at 31 December 2013, of which the DB scheme section’s assets were worth £295.7m.

Over the five years to 31 December 2013, the CWPF’s growth assets returned 11.2% per annum, while index-linked Gilts and bonds returned 8.2% per annum.

A spokesperson from the Church of England Pensions Board (CEPB), the scheme’s trustee, said: “Many of the assets that were sold to buy this policy were valued at historically high levels and, as this was combined with competitive market pricing for this type of policy, it made sense to sell the underlying assets now and buy this policy instead.”

Ken Hardman, partner at Lane Clark & Peacock, lead advisers on the transaction, said: “It was the right time to carry out the transaction because the scheme was in the right place, and the market is still competitive, with attractive pricing.”

He added: “It is no secret that in the buyout market there are some significantly sized schemes looking to transact over the short to medium term, and that will drive the market over the next year.

“This could have a big impact on insurance capacity and competitiveness, so it is an interesting time.”

Mercer provided investment advice on the transaction, while legal advice was provided by Linklaters.

Meanwhile, no buy-in arrangements have previously been made for the Church of England Funded Pension Scheme (CEFPS) and none are planned for the near future, the CEPB spokesperson confirmed.

He said: “The DB scheme section of the CWPF has a high proportion of pensioners and few active members, so it is important to match a relatively high proportion of liabilities with appropriate assets such as Gilts and bonds, or an annuity policy.”

The spokesperson continued: “By contrast, the CEFPS is mostly invested in a diverse range of return-seeking assets such as equities, property and infrastructure, reflecting the fact it is both open to new members and is only paying out pensions earned since 1998.

“The scheme’s income from contributions will exceed pension outgoings for many years to come.”

But he added: “However, the board may consider options such as a buy-in as the clergy scheme matures, and the board continues with its phased de-risking programme for clergy pensions.”