The Church of Scotland pension trustees have further aligned the three schemes’ strategies as the last section not to be fully funded became so in January. They expect annual cost savings of £600,000 on investment and advice services from the simplification.

 

The Church of Scotland’s three pension schemes worth a combined £524m, which were closed to accrual in 2014, have been on a journey to full funding for some time; however, one of the schemes – the Church of Scotland Staff scheme – had not reached that point in September last year. 

 

 

At this year’s General Assembly, the trustees revealed that on 21 January, the CrossReach section of the Staff scheme became fully funded, meaning all three schemes are now self-reliant, and that they aligned its investment strategy with that of the other two as a result. 

 

“The Schemes continue to benefit from simplification work completed in recent years. This year the investment strategy was simplified further by making it the same across the three Pension Schemes. The timing was right for this next step when CrossReach joined the other sections, becoming fully funded in January,” the trustees told the Assembly. 

 

The other two schemes – one for Ministers and Overseas Missionaries funded to 117%, and one for Ministries’ Development Staff funded to 103% – had already been able to derisk previously, with the trustees moving almost all assets into UK government securities.  

 

The Staff scheme had maintained about 20% of assets in “investments designed to provide higher returns than low risk assets”, according to a statement of investment principles from September last year. 

 

Trustee chair Graeme Caughey said the scheme had held slightly more of its investments in short-dated credit and diversifying assets than the others, but all three now hold predominantly fixed interest and index-linked gilts, and are fully hedged against interest rates and inflation. They still discount at gilts + 0.3% due to the small remaining exposure to other assets, he noted. 

 

The schemes now all have the same strategy but differ in their funding levels and benefit structures. Caughey said a scheme merger was considered but added that merging is “almost an unsolvable problem... We've thought about it but have no current plan to do so”. 

 

In addition to aligning investments, the administration has also been harmonised with a single in-house team, and the trustee board’s structure and work means that overlap has been taken out of the governance. 

As a result, “a lot of the benefits of doing the merger have already been achieved. If we were to merge we’d probably have to sectionalise them and would need to have separate valuations”, Caughey noted. 

 

 

The derisking and assimilation of investments across the three schemes has meant the schemes are saving over £500,000 annually on investment management fees. 

 

As well as changing investments, the trustees carried out formal reviews of the actuary and the investment adviser, appointing XPS Pensions Group to provide both services. XPS said that “the trustees were looking to harmonise their advisers, by seeking out one firm who could advise on both actuarial and investment aspects in a joined-up way”. 

 

Caughey said the tender was issued for reasons of good governance but said the trustees did not set out to appoint a single provider. Instead this “came as part of the process”. As the schemes are now more straightforward, there were “efficiencies to be had” from having a single contract, and “the depth of what the scheme needed was less”, he explained.

 

The trustees anticipate cost savings for these services “well in excess of” £100,000 per year. 

 

Pauline Gordon