Church Commissioners Annual Report 2010 - The Church of England

Church Commissioners Annual Report 2010 Our mission is to support the Church of England’s ministry, particularly in areas of need and opportunity

Annual Report 2010 | Supporting the Church‘s ministry | 1

Church Commissioners annual report 2010

Presented to Parliament pursuant to section 12(2) of the Church Commissioners Measure 1947

2 | The Church Commissioners for England | Annual Report 2010

Contents 3

Responsibilities and public benefit

4

Introduction by the First Church Estates Commissioner

Supporting the Church’s ministry 7 9 10 10 11 11 12

Parish ministry and mission Bishops and cathedrals Spending plans in 2011-13 Supporting clergy in retirement Clergy payroll Pastoral administration Churches closed for public worship

Financial performance 15 15 16 18 19

Fund strategy Managing financial risk Fund performance Equities Investment property

Governance 23 23 23 25 25 26

Structure Organisational risk management Trustees Staff Accountability Corporate social responsibility

Financial statements 28 29 30 31 32 33 48 49 50

Statement of responsibilities of the Church Commissioners Report of the auditors to the Church Commissioners Consolidated statement of financial activities Balance sheets Consolidated cash flow statement Notes to the financial statements Stipends and Professional advisers Money available resolution and actuaries’ report Analysis between dioceses of the main elements of charitable expenditure 51 Lists of larger investments 52 e Church Commissioners and Board of Governors at 14 April 2011 e Church Commissioners for England Church House Great Smith Street London SW1P 3AZ Chief Executive A C Brown FRICS


e Church Commissioners – helping parishes and dioceses across the Church of England The Church Commissioners manage an investment fund of £5.3 billion, held mainly in property and shares. The fund and the obligations attached to it derive from the Commissioners’ parent charities of the 18th and 19th centuries, respectively Queen Anne’s Bounty and the Ecclesiastical Commissioners, which were set up to improve the incomes and housing of clergy and to extend their ministry into new urban areas. The Commissioners’ work today supports the Church of England as a Christian presence in every community. The Commissioners are a statutory body, governed by the Church Commissioners Measure 1947, and a registered charity number 1140097. Our responsibilities include: Supporting poorer dioceses with ministry costs Providing funds to support mission activities Paying for bishops’ ministry and some cathedral costs Administering the legal framework for pastoral reorganisation and settling the future of closed church buildings Paying clergy pensions for service prior to 1998 Running the national payroll for serving and retired clergy

We provide public benefit in fulfilling these responsibilities. The Church’s network of around 13,000 parishes, 16,000 churches and 20,000 ordained and lay ministers offers spiritual care for all who might wish to engage with matters of faith and community action in a Christian context. e Church provides education in the Christian faith and encourages personal spiritual growth and wellbeing for all. Its buildings are a focus for their localities and a base for Church-run activities that foster community development and social cohesion. Typically these include projects that support children, families and the elderly through clubs, social gatherings, cultural events, outreach activities and community services. e Church is also a major educator through its network of church schools. Churches and cathedrals speak of the social history of the country. ey are open for visitors who wish to find spiritual refreshment and to study them from an architectural or historical perspective.


Introduction by the First Church Estates Commissioner

A core investment holding for the Commissioners and a consistently good performer is Connaught Village, the retail heart of our Hyde Park estate. Pictured here is Cocomaya, fine chocolatier and artisan baker, which opened in 2008. Its South American-sourced cacao beans meet FairTrade standards.

‘You are only as good as your last film’ it is said in Hollywood. In the same way, the trustees of the Church Commissioners’ £5.3 billion endowment are only as good as their most recent results. This is especially true at the moment. For members of the Assets Committee, who have responsibility for the Commissioners’ investment decisions, well understand that the economic outlook is, to put it frankly, unpromising. That perception has influenced many of the decisions we took during 2010, as I shall describe.

Performance In the event our ‘last film’, which was performance of the Commissioners’ funds in 2010, was excellent. e total return in 2010 was 15.2 per cent. As always there are two questions that should be asked about investment performance. How does it relate to what the beneficiaries of the fund can reasonably expect? In 2010 we reached the target we have set for ourselves with room to spare. Our long-term goal is to exceed the rate of inflation by five percentage points per annum. e retail price index rose by 4.8 per cent so we were over ten percentage points ahead. e second method of assessing performance is to compare it with the track record of comparable funds. Have we been managing our assets with reasonable

skill? Here we can take comfort from the fact that we exceeded the industry average by more than two percentage points, a useful margin. Looking back over the years, a third desirable characteristic comes to the fore. is is consistency. Our beneficiaries require stability. For the dioceses and cathedrals to which we make distributions, for example, volatility in the sums they receive from the Commissioners would make managing their resources more difficult, particularly as regards salary costs. We attempt to achieve consistency by investing our funds on a long-term view as well as by smoothing out the level of our distributions.

Turning to the Commissioners’ investment record over the longer term (see page 17), it can be seen that we have consistently passed the second test, which is comparing our performance with that of comparable funds. As to the first test, although taking the past twenty years as a whole we have exceeded inflation plus five percentage points per annum (9.4 per cent per annum compared with 7.9 per cent), the shorter-term comparisons show that we have been falling behind since the turn of the century (6.3 per cent per annum versus 7.9 per cent). at emphasises that, although 2010 was satisfactory, we are not living in easy times for asset management.

Annual Report 2010 | Introduction by the First Church Estates Commissioner | 5

Prospects e reason we are cautious is that for some time to come the world will struggle with the consequences of the financial crisis. Many governments, including our own, are heavily in debt and are striving to reduce public spending. Consumers, too, have total borrowings that are above their comfort levels. In addition, the banks, burnt by the very crisis they themselves caused, have restricted their lending. e upshot is that the Assets Committee is working on the assumption that while 2011 may well prove to be the third year in a row when equity markets, helped by low interest rates, deliver strong gains, conditions are not in place for the development of a multi-year bull market. We are also conscious that the task of meeting our pension liabilities, albeit under a scheme that closed in 1998, becomes more onerous during the next ten years. is reduces our margin for error. Led by Tom Joy, our Director of Investments, the Assets Committee took a policy decision during 2010 to broaden the range of classes considered for investment, and also to be more flexible in distributing funds among the various asset classes through time. Our habit of maintaining a very high weighting in equities and real estate regardless of market conditions, while it had served us well, is no longer appropriate. We must now be prepared to vary our asset allocations in a dynamic fashion, albeit purposively rather than rapidly. Careful phasing can mitigate any risks from mistiming. As a result we have begun to reduce the proportions of our funds held in pure risk assets. In cutting back our holdings of equities, however, we have decided to reduce our positions in global equities rather than in UK shares. On relative valuation grounds, the British market at its current levels is one of the more attractive ones.

Plans Where, though, should we be reinvesting the funds that have been thus released? We intend to open up a new asset class by making an investment in US timberlands. Timberland has provided investors with attractive returns in relation to risk over many years. Timber is a slow growing crop with opportunities for harvesting occurring aer the first five years and for many years thereaer. e Commissioners’ staff have met with a wide range of possible managers in the United States and more recently members of the Assets Committee have crossed the Atlantic to meet the preferred managers.

We are also planning to extend our use of carefully selected hedge funds that meet our strict ethical guidelines. Many of them proved their worth during the financial crisis. We are already using one manager who runs an absolute return fund in which the Commissioners have a holding. Its results have been excellent. Absolute return funds typically pursue trading strategies that are indifferent to market direction and invest within or across asset classes, markets, regions and time horizons. ere are other types of hedge fund that focus strictly on equity investment coupled with structures that limit downside risk. Others look for particular opportunities created by particular market events including mergers, restructurings and financial distress. Our ethical guidelines mean that we take care neither to be party to pushing movements in commodity prices further than they would otherwise go nor to engage in similar movements in currencies. We must also avoid putting undue pressure on companies that may be in difficulties. We are confident we can avoid such situations. In the case of our current manager, for instance, we have been happy to increase our involvement recently. Finally there is one asset class in which we have declined to participate for the time being, UK government bonds. ey are unattractive when inflationary forces are gathering strength. For in managing risk, it is as important to say ‘no’ as it is to say ‘yes’.

Andreas Whittam Smith First Church Estates Commissioner 14 April 2011


Supporting the Church’s ministry Visitors to the Bishop’s Palace, Wells where, grant-aided by the Commissioners and the Heritage Lottery Fund, a development project will provide new facilities for the 40,000 people who visit each year, including café, outdoor theatre, education centre and exhibition space (see page 9).

Objectives i. to manage our financial commitments ii. to provide sustainable financial support to our beneficiaries iii. to target resources on areas of need iv. to identify and help to meet new needs and opportunities v. to research and share news of effective spending vi. to provide an administrative resource and skills base to the Church


Support for the Church in 2010 (£ million): 120

100

Overview e Church of England is largely self-funding. Around three-quarters of the Church’s annual £1.2 billion spending on its mission and ministry comes, via dioceses and parishes, from parishioners’ giving. e Church Commissioners’ contribution to that sum in 2010 was £202.5 million, around 17% of the Church’s overall costs. As much of our funding for the Church’s serving ministry as possible is weighted towards need and new opportunity.

80

60

40

20

0 Clergy pensions

Parish mission and ministry support

Bishops

Non-selective expenditure

The Commissioners contribute 17p in the pound to the cost of the Church of England’s mission – most of the balance comes from the generous giving of today’s parishioners

Parish ministry and mission e Commissioners’ parish-level mission and ministry funding reflects our objectives of targeting resources on areas of need, and supporting new opportunities. In 2010 direct parish mission and ministry distributions totalled £46.8 million, most of which were grants made through the Archbishops' Council. £30.4 million of this went as block grants to the 29 least resourced dioceses. 16 dioceses received grants of more than £1 million in the year. Dioceses generally use this money for clergy stipends, targeted on parishes least able to meet their ministry costs.

Cathedrals

Other costs

Targeted on financial need

Clergy pensions Parish mission and ministry support Selective grants to lower-income dioceses Additional untargeted grants Mission development funding New housing and other development areas Youth Evangelism Fund Fresh expressions Other grants Payments direct to clergy

114.0

30.4 4.4 5.2 5.9 0.1 0.1 0.1 0.6 46.8

Bishops Bishops’ ministry (office and working costs and stipends) Housing and office premises

21.4 6.1 27.5

Cathedrals Stipends Grants, mainly towards costs of other cathedral staff

4.6 3.1 7.7

e mission development funding stream began in 2002 to help dioceses promote innovative projects. It is weighted towards areas of need but all dioceses receive a share. £5.2 million was shared between dioceses in the year.

Other costs Church buildings and pastoral reorganisation Support for other Church bodies etc Administration of national Church functions

e rest of the £7.25 million allocated in 2008-2010 to 15 dioceses with significant challenges and opportunities in new housing and development areas was committed in 2010. Dioceses drew down £0.8 million in the year; the remaining amount awaits the further development of plans and bids from dioceses.

Total charitable expenditure Governance and other costs

200.5 2.0

Total

202.5

The Commissioners provide more than £40 million each year in support for parish ministry, mainly to less-resourced dioceses

3.2 0.3 1.0 4.5

Headings in italics show funding distributed on a selective basis Other expenditures included £0.6 million for clergy retirement housing costs and £0.1 million each to the Youth Evangelism Fund and Fresh Expressions, all paid via the Archbishops’ Council; and the direct expenditure of £0.6 million in time-limited payments included, for historic reasons, in the stipend of (by the year-end) 359 clergy.


The Commissioners’ support per diocese excluding clergy pensions and national costs up to £1.0 million > £1.0 - 1.5 million > £1.5 - 2.0 million > £2.0 - 2.5million > £2.5 - 3.0 million

Newcastle

> £3.0 million Support per diocese as shown in the table on page 50. The Commissioners also support the bishops’ ministry in the Diocese in Europe.

Durham Carlisle Ripon & Leeds

Sodor & Man

York Bradford Blackburn Manchester

Wakefield

Liverpool

Sheffield

Chester

Derby

Southwell & Nottingham

Lincoln

Lichfield Norwich

Leicester Birmingham Ely Hereford

Worcester

Coventry

Peterborough

St Edmundsbury & Ipswich

St Albans Gloucester

Chelmsford Oxford London

Bristol

Guildford Bath & Wells

Salisbury

Winchester Portsmouth

Exeter

Truro

Rochester Southwark

Chichester

Canterbury


Bishops and cathedrals e Commissioners fund the work of the archbishops and bishops. Stipends and associated contributions for the archbishops totalled £0.2 million and for the bishops £4.9 million. Support staff plus office and working costs were £4.4 million for the archbishops and £11.1 million for the bishops. Full details of bishops’ office and working costs will be published later in the year. In the run up to funding bishops’ working costs via block grants from 2011, we developed systems to enable diocesans to set their own budgets and to direct funding to their area, suffragan and assistant bishops. is will increase their control over spending within the framework of tax office requirements and our trustee responsibilities. e House of Bishops has agreed the aim that bishops’ funding should in future increase only in line with distributions for parish mission and ministry. We continued to ‘green’ the bishops’ car fleet by increasing fuel efficiency on replacement. e number of hybrid vehicles increased from 29 to 33 by the end of the year, giving a fleet average of 130 g/km CO2 and a combined 57 mpg.

Bishops’ houses e Commissioners reviewed the official houses at London, Gloucester and Portsmouth and deemed all three suitable. e Peterborough, Portsmouth, and Southwell houses were modernised, essential work took place at Rochester, and a new office extension was built at Chelmsford where the previous structure needed replacing. e trustees of the Bishop’s Palace at Wells reached the fundraising target that enabled them to release grants

Supported by mission development funding, Church Army Officer and mission worker Nikki Foster-Kruczek works at 'The Hythe', Colchester and is affiliated with St. Stephen’s parish church. She uses social networking media including Twitter to bring together different groups of local volunteers and increase the Christian presence in the community.

for the new development project from the Heritage Lottery Fund and from us. e Lambeth Palace Library 400th anniversary exhibition in May was a success, drawing over 24,000 visitors. Longer-term, the current buildings are not fit for purpose and new facilities are needed to secure the Church of England's library and archive collection for future generations. A working party was set up in the year to research fundraising and location options. Negotiation over terms and consultation took place in the year over the proposed sale of the series of paintings of Jacob and his twelve sons by Francisco de Zurbaran, housed at Auckland Castle, the official home of bishops of Durham. In spring this year we were pleased to announce that these portraits would be sold for £15 million to a trust funded by a private individual. ey will remain at Auckland Castle and continue to be on public display; while the money will be reinvested to generate new funds to support the Church's mission nationally.

Cathedrals We fund stipends and pension contributions for the dean and two residentiary canons at most cathedrals. ese totalled £4.6 million for 124 cathedral clergy. We also provided a total of £3.1 million in grants to cathedrals, targeted on those with the lowest unrestricted income. Cathedrals generally use this money to fund lay staff posts, ranging from the administrator and finance officer to musicians and leaders of educational and outreach programmes. We regularly ask cathedrals to make a short report to us on how they have used this money, as part of our programme of sharing best practice across the Church.

The Revd Hayley Matthews, Chaplain to MediaCityUK at Salford Quays in Greater Manchester. The Diocese of Manchester appointment, to the new media hub, has been financed by new housing and other development funding.


Spending plans 2011-13 With the Archbishops’ Council we develop three-yearly spending plans. e task group looking at spending for 2011-13 reported in spring. It urged that the following aims should underpin the use of the Commissioners’ funds: i. promoting the Church of England’s spiritual and numerical growth and service to the whole community of this country ii. re-shaping and re-imagining the Church’s ministry for the coming century iii. focusing resources where there is greatest need and opportunity iv. decisions on funds’ use to be as local as possible, supported by mutual accountability and the development of a solid information base for future planning e group recommended that, for stability, spending under each heading should broadly match earnings growth over the triennium; and that £4 million per year should be earmarked over the triennium for research and development funding. We and the Council accepted these recommendations. We have made a three-year funding commitment to dioceses and asked them to set out their strategic objectives and hoped-for outcomes for 2011-13, and to report on 2008-10 funding outcomes. e research and development programme begins in 2011.

Supporting clergy in retirement The Commissioners pay for all clergy pensions earned up to 1998 – pensions since then are paid for by dioceses, largely from money donated by parishioners e Commissioners’ largest single expenditure is in funding clergy pensions. ose earned on service from 1998 are paid from a stand-alone scheme funded by Church members; but we fund all pensions earned from service before 1998. e cost is likely to peak within the next ten to fieen years. Our total spending on pension benefits for clergy, spouses and dependants in 2010 was £114.0 million – still by far the largest proportion of the Church’s total outgoings on pensions currently in payment. is reflected a 3% increase in basic initial pension from April 2010. Pensions in payment did not increase at that point as the Retail Price Index change, to which increases are geared, was negative. ey will increase by 4.6% from April 2011. Early in the year some of our capital was committed to the Pensions Board’s scheme to help clergy buy a home for retirement, which currently provides over 2,500 properties. at commitment ceased from July and the Pensions Board has secured alternative capital via Santander. In the year we advanced £9.2 million for 63 new CHARM loans, and received £10.5 million in repayment of 75 loans.

Among beneficiaries of the Commissioners’ funding is Canon Simon Cowling, Precentor at Sheffield cathedral. In 2010, working closely with the cathedral musicians and other colleagues, he secured ongoing funding for the Sing! Project, a chorister outreach programme which works with children from schools in deprived areas of Sheffield. The work of the project in 2010 culminated with a visit by the Queen to the cathedral where 150 schoolchildren sang for her.


Clergy payroll The Commissioners manage the national payroll for serving and retired clergy

Pastoral representation cases dealt with 2006 - 2010 35

e Commissioners administer the national clergy payroll and are responsible for ensuring that stipends and pensions for the Church of England’s 18,000 serving and retired clergy are paid accurately and on time. In 2010 HM Revenue & Customs decided to close a specialist unit that had looked aer the tax records of those paid through our clergy payroll and our staff helped to deal with this major change. We continued to give talks on stipend and tax issues to final year ordinands at the eleven residential theological training courses. We maintain a web site at www.churchofengland.org/clergy-office-holders offering a wide range of resources and information.

Pastoral administration Our role in pastoral reorganisation and settling the future of church buildings closed for regular public worship helps the Church to adapt local structures and deploy resources and clergy to serve communities’ pastoral and mission needs. We also offer advice on supporting the range of traditional and innovative expressions of church that are emerging as part of the mixed-economy landscape. e dra Mission and Pastoral Measure, consolidating recent legislative changes, completed its Synodical journey in 2010. We dra and publish schemes that provide for the closure of a church for regular public worship. Schemes or orders that do not entail church closure are now handled by dioceses with an interim validation stage by us. We offered one-to-one training sessions for diocesan staff on these new procedures.

2

4

2

30

2

9

25

1 3

1 8

1 4

1 19 20

1 4

1 8

1 19

3

1 17

9

15

1 11

10

1 7 5 1 2 0 2006

2007

2008

2009

2010

Scheme to proceed

Scheme not to proceed

Representations withdrawn

Draft amended

Draft withdrawn by bishop

Draft referred back to bishop

Decision deferred

Totals

2006

2007

2008

2009

2010

27

33

33

26

25

e year’s workload included 165 new cases (125 in 2009) and 85 brought forward from the previous year. We completed 154, resulting in a net reduction of 80 benefices and 17 parishes. 17 of nearly 16,000 churches in use were closed for regular public worship. Figures for newly-opened places of worship are not collected centrally.

consideration and was later amended and issued without objection. 16 cases were resolved without adjudication. e right of appeal to the Privy Council against our decisions was unused.

22 published schemes or orders (14%) drew objections. We considered nine cases, with representors or diocesan representatives speaking to the committee under our procedure for public hearings. It decided that seven proposals should proceed and one should not. e other was referred back to the bishop for further

Transactions involving parsonages or property (glebe) held in trust for diocesan clergy stipends funds are referred to us if they draw objections or fall outside other criteria. We approved two purchases and one sale of a parsonage, two glebe sales and eleven other transactions, mainly releases of covenant.


Legislative change Staff took part in ten seminars and training sessions and prepared guidance for dioceses on the implementation of the Ecclesiastical Offices (Terms of Service) Measure 2009, which affects both pastoral reorganisation and clergy housing. We supported an amendment to provide against unintended loss of clergy freehold as a result of pastoral reorganisation. Our role as the acquiring party in transactions under the New Parishes Measure 1943 was devolved to dioceses by amending legislation in 2010, saving modest cost and administrative effort, and in line with a recommendation of the Toyne report of 2004. We have begun researching the Commissioners' landrelated chancel repair liabilities to enable their registration under the Land Registration Act 2002 (those based on tithe-ownership alone are unaffected). is will enable us to dispose of property with certainty about its freedom from liabilities or otherwise. We are helping diocesan registrars and others to identify land-based liabilities for PCCs where we hold relevant information.

Still in use, the 10th century grade 1-listed church of St Peter, Peterchurch has been well adapted to serve a range of purposes for its community. Its belfry tower houses a library, and ground floor facilities include kitchen and meeting rooms. The conversion was a winner at the 2010 Wood Awards, which celebrate creativity and craftsmanship in the use of wood in building and design.

Staff have been looking into historic files and National Archives deeds and records to pinpoint the exact boundaries of Commissioners’ land to which chancel repairing liabilities attach. The information is then digitally overlaid onto modern maps to enable registration and provide a record for the future.

Church buildings closed for regular public worship e Commissioners decide the future of closed church buildings and work with dioceses to secure suitable alternative uses. Where no such use can be found we normally have to decide, upon advice, between preservation by the Churches Conservation Trust or demolition. If demolition of a listed or conservation area-sited church is proposed and a qualifying body objects, the Department for Communities and Local Government may hold a hearing or public inquiry.

The Commissioners encourage innovative uses for churches no longer in use for Church of England worship 21 schemes were made in 2010 determining the future of closed church buildings or their sites. 16 provided for alternative uses, four for demolition and one for the use of a cleared site. We considered objections in six cases and decided in each that the scheme should proceed. Much of our work takes place before or aer the scheme-making process and there were 220 current cases at the year end (211 at the end of 2009). e diagram shows how the future of 1,848 closed churches has been settled since April 1969 when the Pastoral Measure took effect. Suitable alternative uses are found in most cases. Each year our committee, with diocesan colleagues and representatives of heritage bodies, visits an area to see churches that have closed, or face challenges, or have been well adapted for continuing use. Last year’s tour of 12 buildings in the diocese of Hereford highlighted challenges facing the rural church. We saw examples of the diocese’s pioneering role in extending buildings’ range of functions to keep them in parish use, and of the experience of a 13-parish benefice with several highly listed buildings located in small communities. £47.2 million has been raised since 1969 in proceeds from the disposal of closed churches and sites. Nearly £35 million has gone to diocesan pastoral accounts to fund the living Church, £11.6 million to the Churches Conservation Trust, and £0.9 million to the temporary maintenance account which part-funds the care of closed churches whose future is yet to be settled. Sale proceeds held up in a difficult year, at just under £2 million. Our specialist casework team was strengthened with the appointment of a new professionally qualified team manager.


Churches Conservation Trust

The future of church buildings closed since 1969 and in the last five years 1969-2010 Alternative uses Adjuncts to adjoining estates Arts and crafts Civic, cultural or community Educational Light industrial Monument Museums Music or drama Office or shopping Other Parochial or ecclesiastical Private and school chapel Residential Sports Storage Worship by other Christian bodies

Demolition and site disposal Additions to churchyards Housing associations Local authorities New places of worship Not yet decided Other community purposes Other purchasers

Preservation Churches Conservation Trust Diocesan Board of Finance Secretary of State

Grand total

2006-2010

7 20 150 35 11 147 16 15 58 5 75 22 276 15 21 160

0 5 21 5 2 10 0 0 13 0 9 1 31 4 0 35

1033

136

49 80 69 64 8 28 165

0 2 2 0 6 4 11

463

25

342 6 4

6 0 0

352

6

1848

167

Altenative uses

1033

136

Demolition and site disposal

463

25

Preservation

352

6

Grand total

1848

167

We co-sponsor the Churches Conservation Trust (70% state-funded and 30% Church-funded) which preserves outstanding closed church buildings for which no suitable new use can be found. Following the government’s spending review the Department for Culture, Media and Sport has cut its grant to the Trust by 20% in real terms in the period up to 2014-2015, following an in-year cut of 3%. is, together with cuts to heritage bodies including English Heritage, will have a significant impact on the Trust’s work. We are keeping our grant at the current £1.36 million per year until 2012 to lessen the impact of these cuts and provide some breathing space. But the Trust’s longerterm capacity to maintain its existing estate and cope with new vestings continues to give concern. While looking hard for new uses for closed churches of high heritage value, we also work with the Trust on opportunities to divest its churches for new use or to lease them so as to reduce its liability. e DCMS has indicated that its longer term aim is to seek to increase the Trust’s independence from government in both status and funding. We look forward to further discussions on the challenges ahead.

The historic 18th century church of St James in the City was returned to the diocese of Liverpool in May after 29 years being cared for by the Churches Conservation Trust. Part of a scheme for community and heritage-led regeneration of the neighbouring Toxteth area, the handover brings this nationally important building back into use with new facilities including worship space, 600-seat auditorium and exhibition rooms.


Financial performance Sometimes known as the Dancing House or Astaire & Rogers Building for its striking design, this Prague building, designed in the mid-1990s by architects Vlado Milunc and Frank Gehry, is one of the holdings of the ING Central Europe Fund in which the Commissioners are invested. Its top floor houses a restaurant; the rest of the building is home to several multinational firms (see page 21, global property funds).

Objectives i

to manage the fund so as to ensure sustainable distributions for our beneficiaries

ii. to achieve a total fund return of RPI + 5% measured over the long term iii. to meet performance benchmarks for individual asset classes iv. to manage financial risks appropriately v. to act within our ethical investment guidelines in relation to all classes of investment vi. to research and realise opportunities for new investment and diversification

Annual Report 2010 | Financial performance | 15

Fund strategy From the Commissioners’ fund, valued at some £5.3 billion at the year-end, we aim for a rate of return that will allow us to meet our pension obligations and to maintain and grow, over time, our support for the Church. Our target is RPI +5.0% p.a. averaged over the long term. Until recently, like many institutional investors, we have held most of the fund in equities and property. During the year we established a new US high-yield bonds mandate, and invested in funds specialising in emerging market debt and in a multi asset fund. We will seek out more opportunities to invest in areas with attractive long term prospects and diversify the fund further. Asset weightings at the end of 2010 are shown below.

We have legal power, subject to periodic renewal and currently in force to the end of 2018, to spend capital on pensions. is power is essential to their funding while sustaining other expenditure. Otherwise we would be under pressure either to cut other spending or to maximise short-term income at greater long-term cost to our capital base and our capacity for future distributions. Actuaries Hymans Robertson fully review the fund’s pension obligations every three years, with annual updates, taking into account factors such as likely investment returns and longevity estimates, to establish if we can safely maintain our expenditure plans. ese reviews recognise that our pension obligation is a mature one with around half of the remaining pensions cash outflow expected by 2026.

Total income (net) and expenditure over a ten year period (£ millions):

Strategic asset allocation 100%

160

90% 80%

140

70%

120

60% 100 50% 80

40% 30%

60

20%

40

10% 20 0%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Equities

Alternative securities

Fixed income & cash

Properties

0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Income used to fund ministry costs

Income used to fund clergy pensions

Transitional support

Clergy pensions funded from endowment

Managing financial risk We have a single general fund into which all investment income is paid and from which we fund expenditure, other than the part of clergy pensions expenditure which is paid from endowment capital. To manage liquidity risk, at the end of 2010 we held a reserve of £10 million on the fund to enable us to meet 2011 expenditure before income was received. We have decided to build up the reserve progressively to provide better future protection against the risk of income reduction - as was the case in 2010 (see graph, right). All other reserves are held as endowment capital.

The Commissioners’ distributions policy smooths fluctuations in the financial markets to help provide stable support to beneficiaries


e updated review as at the end of 2010 estimates the proportion of our fund needed for pensions as 31.1%, and allows us to conclude that planned distributions for 2011 remain affordable. But there remains the risk that a run of poor market returns would severely reduce our spending capacity. We manage that risk via a mechanism that smooths the impact of both strong and poor returns. is approach has allowed recent aboveinflation increases by releasing the benefit of earlier years’ outperformance. But we increase spending only if we believe we can do so without risk to our long-term objective of growing non-pensions distributions in line with forecast average earnings.

Value of Commissioners' total funds and those required to meet their clergy pension obligations (£ millions): 100%

6000 5000

80%

Fund performance 2010 saw economic growth in most major markets; but western economies, notably Greece, Portugal and Ireland, suffered the aershocks of the global financial crisis. Signs of a two speed recovery emerged: developing countries recorded strong growth and outpaced developed nations. Stock markets posted strong returns over the full year, driven by renewed investor confidence and stock market rallies in the second half of the year. Property markets also posted strong returns. Bond markets recorded weaker though still respectable returns. Over the last ten years the Commissioners’ fund has fallen short of its RPI + 5% return target, largely because equity markets have performed poorly. But it has outperformed the WM All Funds universe, averaging 6.3% per annum compared with 4.5% for WM. is equates to £26 million more each year in distributions to the Church than would have been possible on industryaverage performance.

4000 60% 3000 40% 2000 20%

1000 0

0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Total available assets

Amount required to meet future pension obligations

Percentage of total assets required for pensions

Total returns per annum against an independent comparator and target return 20%

15%

10%

5

0 15 years (1996 - 2010)

10 years (2001- 2010)

5 years (2006 - 2010)

Church Commissioners' total assets R.P.I + 5% per annum

1 year (2010) WM All Funds

The Commissioners have distributed £26 million more each year to the Church for the past 10 years than if their investments had performed only at the industry average In 2010 our fund returned 15.2% compared with 12.7% for WM All Funds. Our multi-asset mandates, global equities managers and our increased weighting in global equities all contributed positively to this outperformance, as did our investment in property and reduced weighting in bonds.


Commissioners’ fund performance since 1996 (assuming income reinvested) against performance target and comparators 400 350 300 250 200 150 100 50 0 1995

1996

1997

1998

1999

Church Commissioners’ fund

2000

R.P.I + 5%

2001

2002

2003

WM All Funds

2004

2005

2006

2007

2008

2009

2010

Global Equities (MSCI All World in GBP)

Asset returns, total and by class, 15, 10, 5 and 1-year Total returns %p.a. measured by WM (securities) or IPD (real estate)

15 years 1996-2010

10 years 2001 –2010

5 years 2006 -2010

1 year 2010

Commissioners’ total assets

9.3

6.3

5.9

15.2

WM All Funds universe

7.0

4.5

4.9

12.7

Retail price index + 5%

7.8

7.9

8.3

9.8

Average earnings

3.9

3.5

3.2

3.0

UK equities mandates

7.7

3.3

5.0

15.8

Global equities mandates

7.1

3.4

5.5

17.2

Bonds

8.5

6.5

6.6

-

Commercial

10.1

8.2

3.0

16.6

Residential

18.3

15.6

12.5

14.0

Rural let land

15.0

17.0

17.0

12.7

-

14.9

10.0

22.5

10.8

7.4

2.0

19.8

9.2

7.5

(2.9)

8.1

Commissioners’ main asset classes

Rural strategic land Global indirect Value linked loans


Equities e global stock market returned 16.8% for a sterling based investor in 2010. Gains were strong in emerging markets, less so in developed markets. Stock markets of European countries that suffered the sovereign debt crisis lagged significantly. e relative weakness of sterling against the dollar and other major currencies increased returns for UK investors.

Global equities returns since 2001 30% 20% 10% 0%

e return on our global equities portfolio was 17.2%, bolstered by some strong performances from individual portfolio managers, notably those responsible for smaller companies. Ethical exclusions slightly dampened the return as gambling and defence related stocks, which we do not hold, did well. Over the year we reduced our exposure to global equities. e return on the UK’s FTSE All Share index was 14.5%. Sectors more cyclically geared to the recovering economy performed best, as did commodity related stocks which benefited from buoyant prices for basic materials and oil. e UK equities portfolio returned 15.8%, benefiting from our exposure to smaller companies, which did well over the year, and despite the negative impact of the ethical investment policy, as restricted stocks outperformed the general market. We reduced exposure to UK equities over the year.

Alternative investments e private equity portfolio, which invests in unlisted companies, achieved a total return of 17.5% in 2010. ese holdings are spread across a range of managers and strategies and have outperformed quoted equity markets over the long term. We made further commitments totalling £13 million in the year. In January we invested in a new absolute return strategy to complement our existing exposure to this area and, over the year, it has usefully added to performance.

Fixed interest We increased our stake in fixed interest securities over 2010, as part of our strategy of diversifying asset classes and exposures within the fund. In August, we funded an allocation to emerging market debt, which invests in the sovereign debt of developing nations. At the end of the year, a new mandate investing in US high yield securities was established.

-10% -20% -30%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Church Commissioners' global equities

MSCI All World index

UK equities returns since 2001 35% 25% 15% 5% 0% -5% -15% -25% -35%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Church Commissioners' UK equities

FTSE All Share index


Total commercial property returns since 2001 compared with IPD index 25% 20% 15% 10% 5%

Currency management Non sterling-denominated assets made up 43.7% of the fund at the end of the year. We employ a specialist currency manager to actively hedge our foreign currency exposures. Over the year, sterling fell against major currencies apart from the euro. We spent a net £31.5 million settling foreign exchange contracts over the year. is figure was more than offset by increases in sterling value of assets denominated in foreign currency.

0% -5%

Investment property

-10% -15%

Commercial

-20% -25%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Church Commissioners' combined property

UK property IPD benchmark

Investment property returns by individual class since 2001 80% 70% 60% 50% 40%

Our focus in 2010 was on maximising income, in particular on letting and renewing and re-gearing leases. We completed 21 lettings and renewals and our vacancy rate was below 2% as against an IPD average of 9.8%. We continue to offer the option of monthly rental payment to those tenants able to demonstrate need. We renewed four out of five expiring leases at our office holding in rogmorton Street, London EC4, and both lease expiries at our retail holding in Clarence Street, Kingston. We completed a strategic review of our freehold interest in the Metrocentre, Gateshead as part of the regular monitoring of key assets. is dominant regional centre, managed by Capital Shopping Centres, continues to be a core holding.

30% 20% 10% 0% -10% -20% -30% -40%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Rural let land

Strategic land

Commercial

Global indirect

Residential

We are redeveloping a former brass musical instrument factory at Frederick Close, part of the Hyde Park estate, to provide eight warehouse style apartments which will be ready in December 2011 and will substantially increase the value of our holding in this soughtafter part of London.

We took advantage of a strong commercial property market to sell two industrial estates in Waltham Cross and in Avonmouth. Together these two sales generated £19.3 million. Our strategy for the year allowed for one or two selective purchases but a lack of suitable opportunities and stiff competition from a range of buyers meant we were not successful in securing any properties at acceptable prices.


Residential

Rural

Our attention across the Hyde Park estate has focused on maintaining occupancy, and delivering refurbishments on time and on budget. We concluded 65 renewals with rent increases of over 3% and 32 new lettings. At the end of the year we had two vacancies, one of which was under offer. We refurbished six flats as part of our ongoing improvements programme.

Prospects for the English agricultural industry at the start of the year were generally positive and the performance of our rural holdings reflected this. Land values have held up, reflecting the dearth of supply and continuing strong demand from farmers, investors and life style purchasers. During the year sales realised £19.8 million.

We generated proceeds of £19.6 million over the year, mainly from lease extensions or freehold sales to leaseholders with enfranchisement rights. We bought a block of ten flats on Radnor Place for £9.75 million and all were let by the year end. We continued to invest in and promote Connaught Village, the retail heart of the Hyde Park estate, with a summer festival and a Christmas shopper event. Key tenants include Jimmy Choo Couture, Cocomaya (fine chocolatier and artisan bakers), Casa Malevo, an Argentine restaurant, De Roemer (specialist cashmere jewellery and handbags) and Viola, an independent fashion boutique.

e 49 farm rent reviews agreed during the year showed a welcome 14.5% increase and prospects remain optimistic in most farming sectors. Consequently the outlook is good for the coming year’s round of rent reviews in the light of improving farm incomes. Trustees and staff shared in a programme of visits to eight of the rural estates. ese visits give an opportunity for discussion between the Commissioners and our farm tenants. e diocesan rural chaplains or advisers are invited to attend these visits and are most welcome. We are assessing opportunities for renewable energies across the portfolio, including photo voltaics and wind generated power. Our ongoing project to register all of the Commissioners’ surface and manorial minerals interests with the Land Registry is on target to be completed by 2013.

Land tenants on our Rochester estate have built a 9 million gallon irrigation reservoir which fills over the winter and holds water that would otherwise run to waste. Now fully operational, it irrigates some 230 hectares (568 acres) of land, increases the range of cropping available to the farmer and enhances returns for both him and the Commissioners.


Strategic land Depressed development land values and an uncertain planning system continued to feature in 2010. Despite this, the strategic land portfolio performed exceptionally well, with a total return of 22.5%. is was largely due to capital receipts of £42.7 million from a series of major disposals. Most notable were the sales of sites at Leighton Buzzard (for residential), Cheshire Oaks (for a Marks & Spencer flagship store) and Peterborough (for an energy from waste facility). We achieved significant project milestones with the grant of planning permission for over 800 homes at Carlisle and new allocations at Ely and Hereford.

Global property funds Aer significant write downs in value during the global financial crisis, the non-listed property funds bounced back thanks to increased demand from global real estate investors. Our funds investing in Singapore and Central Europe benefited from economic growth, and improving local markets allowed the Vietnamese fund manager to draw £7.9 million for investment in residential developments in Ho Chi Minh City. Our UK retail park and shopping centre funds saw significant growth over the first half of the year as investor and consumer confidence started to return. e global indirect portfolio, including the Pollen estate and our holding in listed real estate investments managed by ING Clarion, returned 19.8%. Both the Pollen estate and real estate funds performed strongly.

We continue to monitor potential stress situations in the non-listed funds through close dialogue with our managers. We completed a $25 million commitment to the Madison real estate fund in autumn. is fund is well positioned to acquire secondary interests in real estate funds by offering liquidity to existing investors and targets funds which hold prime assets across North America and Europe. We also completed a £10 million commitment to a senior living healthcare fund which builds and runs high quality care homes in the south east of England. During 2010 we invested a total of £22 million of previously committed capital into a number of these property funds. At the year’s end we had a total of £81.2 million of undrawn commitments to non-listed real estate funds in Vietnam, Singapore, North America and Western Europe.

Timberland We looked carefully in 2010 at sustainable timberland as a potential new investment. We plan to make an allocation to timberland over the next few years, with a focus on the United States. Our investment will be through professional timber investment managers who demand high levels of sustainability. No investments will involve harvesting timber from virgin rainforest, or plantations whose last condition was virgin rainforest.

Well-managed forests provide investors with attractive returns, driven by increases in land prices and by a range of uses which increases as trees grow, as does their profitability. As well as construction, timberland supports recreation, farming and alternative uses and is a source for biomass energy.


Governance The 10th-century grade 1-listed church of St Peter, Peterchurch (Hereford diocese), still in use as a place of worship and adapted for other community uses (see page 12).

Objectives i

to ensure the cost-effective administration of the Commissioners’ responsibilities

ii. to identify and manage organisational risk iii. to be transparent and accountable in organisational activity and internal governance iv. to ensure trustees are properly resourced for their role v. to apply ethical investment policy guidelines to all classes of investment

Annual Report 2010 | Governance | 23

Structure

Trustees

ere are 33 Church Commissioners. Six hold offices of state; the other 27 make up the Board of Governors, the Commissioners’ main policy making body. Of these, 13 are elected by houses of the General Synod; other members are appointed for other specific expertise. Supplemented by non-Commissioners, members of the Board are also organised into six committees. So far as the limits on eligibility allow, the trustee selection process includes open advertisement.

All new members are inducted into our work. ey receive documentation about their responsibilities setting out policies on procedures such as handling conflicts of interest. Trustees’ attendance at each meeting is set out overleaf.

e Board and committees are served by executive staff teams who research and develop policy recommendations for decision by the responsible trustee-level body. e Board is supported in its governance responsibilities by the Nominations and Governance Committee. During the year it commissioned a trustee and senior staff feedback exercise and has worked on building its findings into a series of governor workshops planned for 2011. e trustees’ responsibilities for safeguarding the Commissioners’ assets, keeping proper accounting records and ensuring the annual preparation of financial statements are set out on page 28 of this report. r 2011.

Risk management e Board and its committees are responsible for recognising the key business risks that face the Commissioners and ensuring they are acted upon. Major risks are regularly reviewed by the Assets Committee, by the Audit Committee every six months and the Board annually. At staff level, departmental heads are asked each quarter to review and evaluate the key risks within their area of responsibility and the steps taken to manage them. We appointed a director of risk management in 2010 to lead this work. We also place reliance on the control systems applicable to those common service departments managed by the other two main national Church institutions. Major risks under ongoing management include those around the potential impact of poor investment performance on our ability to sustain expenditure, the recruitment and retention of key staff, and the impact of possible business disruption. In 2011 we will develop the risk management and assurance framework further.

Following last year’s change of government, June 2010 saw the departure of Second Church Estates Commissioner Sir Stuart Bell MP, the longest-serving holder of that office and a tireless advocate of the Church’s cause in Parliament and in many other settings. We owe him a great debt for his work and he will be much missed. In his place the Commissioners are joined by Tony Baldry MP who spoke in Synod in July on the key role of the Second Commissioner in steering Church legislation through Parliament. He has engaged keenly with the Commissioners’ work and we look forward to all that he will bring to it. New committee members include the Reverend Mary Bide, who joined the Bishoprics and Cathedrals Committee in May; and Canon Peter Cavanagh, the Reverend Simon Talbott and John Steel who joined the Church Buildings (Uses and Disposals) Committee in November. Early in 2011 we welcomed Canon David Stanton as Synod-elected Commissioner and Pastoral Committee member, and non-Commissioner Audit Committee members Stephen East and George Lynn. We look forward to their contributions to our work. We said farewell to Commissioners Richard Powers and the Reverend Jeremy Crocker, who also served on the Assets and Pastoral committees respectively; and to committee members Chris Perrett, the Reverend John Swanton and the Venerable John Duncan (Closed Churches), Christine McMullen (Pastoral), and Peter Morriss and Hugh Shields (Audit). We are grateful for all they have done and will miss working with them.


a b c

d

until June 2010 from June 2010 exercising the Second Commissioner’s right to attend any committee meeting until November 2010

e

resigned at the end of 2010 owing to overseas work commitments f observers on behalf of the Audit Committee g from May 2010 - not a member

* additionally attended the property group meetings † additionally attended the securities group meetings

Attendance at Board and committee meetings in 2010 Board / Committee

Board

Assets

Audit

Bishoprics & Pastoral Cathedrals

Archbishop of York Mr A Whittam Smith*† Sir Stuart Bell a Mr Tony Baldry b Mr Timothy Walker Bishop of Bristol Bishop of Birmingham Bishop of London Bishop of Chester Dean of Rochester Dean of Truro Mr P Harrison Revd Canon R M Baker Revd J R Crocker d e Revd S J Trott Canon P N E Bruinvels Mrs A R Alexander Mr R Powers e * Mr B Carroll † Mr H Rees-Jones Mr G D R Oldham † Mrs E C Osborne Mr P W Parker Mr J N Sykes † Canon J A Spence Mr J P Vince Mr J Wythe *

Church Nominations Buildings and Governance (Uses and Disposals) 5 6 4 4 5 6 1 e Archbishop of Canterbury chairs the annual general meeting. By arrangement he does not attend meetings of the Board of Governors, whose chair is elected annually by the Board. 5 5 6 1 2 1c 1 3c 1c 5 4 5 5 1 3 4 4 3 5 1 3 4 4 3 1 2 5 3 4 4 4 4 4 5 2 4 1 5 5 1 2 3 0 0 5 6 2 0 3 1f 4 5 6 4 5 6 5 4 2 6 5 1f 4 0 4 6 2 6 -

Non-Commissioners Bishop of Grimsby Bishop of Oxford e Ven J F Duncan e Ven R Treweek e Revd Canon S Evans e Revd Canon J M Haselock e Revd M Bide g e Revd J J Swanton Ms S Bassham Mr C G Daykin Mrs J Flack Mrs H Hill Mrs C McMullen Mr P W Morriss Mr C J Perrett Mr H Shields Mr C A Wilson

-

1f 2f 1f -

3 3 3 -

3 3 1 3 4 -

Governors (meeting/s) Archbishop of Canterbury

3 3 3 4 4 -

6 2 5 5

-

Annual Report 2010 | Governance | 25

Staff

Accountability

e number of staff for whom we are the managing employer was 163 at the end of the year (2009: 158). rough Commissioners-managed accounting, library and records, office services and IT staff we also provide services across the national Church institutions. We employ a further 82 staff on our property estates, including porters, cleaners, and maintenance staff managed by agents. Overall, 42% of the staff we manage are women and 16% are from a black/minority ethnic background.

e Commissioners are accountable to the Church’s General Synod, to Parliament and, as a registered charity from January 2011, to the Charity Commission.

HR work on our behalf included completing a development programme for middle managers, starting a new leadership development programme for senior staff, and hosting drop-in sessions to discuss matters ranging from staff situations, recruitment and diversity issues to performance management. Two of the Commissioners’ staff were attached to HR for development during the year. e chief executives held further staff forums to share strategic objectives, hopes and challenges. e year’s discussions have been around pay and pension terms and the impact of the abolition of a statutory retirement age.

Synod debates our annual report each year at its July group of sessions. It regularly puts questions to the Commissioners – 11 in 2010 – and its members engage with our trustees and staff at fringe events and on other informal occasions. Topics at parliamentary question time in 2010 have ranged widely, including: land management and development, clergy deployment and retirements, Church attendance figures, support for persecuted Christians abroad, VAT relief on repairs to listed places of worship, church music, the appointment of bishops, gi aid income, ethical investment, hospital chaplaincies and the NHS funding environment, Churches Conservation Trust finance, the Church’s role in rural communities, marriages in church, and Lambeth Palace running costs. ere are no signs of any lessening of interest in topics for the new Second Commissioner to deal with in 2011.

The Commissioners’ revised policy on investment in the defence industry, on recommendation by the EIAG, includes a complete ban on investment in companies involved in the production of indiscriminate weapons from landmines and cluster munitions to nuclear weapons; or in the processing, supply or storage of weapons-grade nuclear fissile material.


Corporate social responsibility Ethical investment policy e Commissioners are advised by the Church of England’s Ethical Investment Advisory Group (EIAG). Its members bring expertise in theology, ethics, investment and business. ey are nominated by the General Synod, the Archbishops’ Council, and the national investing bodies who fund it. It also co-opts members with additional expertise when needed. It has a permanent staff of two.

The Commissioners manage their investments within ethical guidelines, advised by the Church’s Ethical Investment Advisory Group We adopted in 2010 the revised policy on investment in the defence industry recommended by the EIAG. Drawing on Christian ‘just war’ thinking, whose criteria include minimising harm to non-combatants and proportionality in the means of warfare, the policy bans investment in companies producing indiscriminate weapons, from landmines and cluster munitions to nuclear. It also excludes companies whose main business is in conventional weapons. Other areas that we exclude from investment are companies substantially involved in making or supplying tobacco products or alcoholic drinks, in gambling or pornography, in weekly collected home credit (‘doorstep lending’), or in human embryonic cloning. Work in the pipeline for 2011 will take in the alcoholic drinks ethical investment policy, high interest rate lending, and excessive executive pay.

Engagement and partnerships Engaging with companies and the investing community is at least as important as investment exclusions in helping to get the Church’s voice and concerns heard and to make a constructive case for change. e EIAG’s main engagement activity on our behalf in 2010 was with BP in the wake of the Gulf of Mexico oil spill. Meetings took place with the company in the fourth quarter, and the EIAG is looking for robust assurance that BP is systematically addressing operational safety and strategic risks by the first anniversary of the appointment of Bob Dudley as chief executive. Following the Commissioners’ disinvestment from Vedanta Resources on ethical grounds in February, the EIAG has noted that Vedanta was denied permission to go ahead with its planned mine in rural east India, that the company has appointed a chief sustainability officer, and that it has accepted the recommendations of an independent sustainability review. In 2010 we became signatories to a number of initiatives that express our commitment, with the wider investing and business community, to aligning investment practice with broader environmental, social and governance objectives. ese initiatives include the UN Principles for Responsible Investment; the investor statement of the European Institutional Investors Group on Climate Change; and the Carbon Disclosure Project questionnaire, sent every year to over 3,500 global companies. We are also members of the ecumenical Church Investors Group, a forum for collaboration across the British Isles on ethical investment policy, engagement and proxy voting. Among the Commissioners’ own sustainability-focused investments, our segregated mandate with the specialist firm Generation was worth £235.6 million, and our stake in the Impax Environmental Markets trust £13.6 million, at the end of the year. We are looking at opportunities for renewable energy schemes on our rural land estates, including land-based photovoltaic arrays (solar farms), wind turbines and anaerobic digestion.

Annual Report 2010 | Financial statements | 27

Financial statements

Financial statements For the year ended 31 December 2010

28 | Financial statements | Annual Report 2010

Statement of responsibilities of the Church Commissioners e trustees are responsible for keeping proper accounting records that disclose with reasonable accuracy, at any time, the financial position of the Commissioners and its group and enable the trustees to ensure that the financial statements comply in all material respects with the Charities Act 1993 and applicable regulations. e trustees are also responsible for safeguarding the Commissioners’ assets and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Financial statements are prepared for each financial year to give a true and fair view of the state of affairs of the Commissioners and its group at the end of the financial year, and of the incoming resources and the application of resources, and the cash flow during the year. In preparing the financial statements, the trustees confirm that: • suitable accounting policies have been selected and applied consistently; • reasonable and prudent judgements and accounting estimates have been made; • the financial statements follow applicable United Kingdom accounting standards and Statements of Recommended Practice without material departure; and • the financial statements have been prepared on the going concern basis, which is appropriate.

e trustees confirm that the guidance contained in the Charity Commission’s general guidance on public benefit has been referred to when reviewing the Commissioners’ objectives and in planning future activities and spending plans. e trustees are responsible for the maintenance and integrity of the organisational and financial information included on the Commissioners’ section of the Church of England website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Annual Report 2010 | Independent auditor’s report | 29

Independent auditor’s report to the Church Commissioners We have audited the financial statements of the Church Commissioners for England (“the Commissioners”) for the year ended 31 December 2010 which comprise the consolidated statement of financial activities, the consolidated balance sheet, the balance sheet of the Commissioners, the consolidated cash flow statement and the related notes 1 to 15. e financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). e accounting policy in respect of the clergy pension obligation, and the reasons why the Commissioners do not make provision for this obligation, are explained in note 1(a). is report is made solely to the Commissioners in accordance with the Church Commissioners Measure 1947 (as amended) and section 43 of the Charities Act 1993 and the regulations made under section 44 of the Act. Our audit work has been undertaken so that we might state to the Commissioners those matters we are required to state in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Commissioners as a body, for our audit work, for this report, or for the opinion we have formed. Respective responsibilities of the Board of Governors and auditor As explained more fully in the Statement of responsibilities of the Church Commissioners, the Board of Governors is responsible for the preparation of financial statements which give a true and fair view. We have been appointed as auditor under section 43 of the Charities Act 1993 and report in accordance with regulations made under section 44 of that Act. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). ose standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. is includes an assessment of: whether the accounting policies are appropriate to the group’s and the parent charity’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the trustees; and the overall presentation of the financial statements.

Opinion on financial statements In our opinion the financial statements: • give a true and fair view of the state of the group’s and the parent charity’s affairs as at 31 December 2010 and of the group’s incoming resources and application of resources for the year then ended; • have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and • have been properly prepared in accordance with the requirements of the Charities Act 1993 and the Church Commissioners Measure 1947 (as amended). Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Charities Act 1993 requires us to report to you if, in our opinion: • the information given in the Trustees’ Annual Report is inconsistent in any material respect with the financial statements; or • sufficient accounting records have not been kept by the parent charity; or • the parent charity’s financial statements are not in agreement with the accounting records and returns; or • we have not received all the information and explanations we require for our audit.

Deloitte LLP Chartered Accountants and Statutory Auditor London, United Kingdom 14 April 2011 Deloitte LLP is eligible to act as an auditor in terms of section 1212 of the Companies Act 2006


Consolidated statement of financial activities for the year ended 31 December 2010

2010

Notes

2009

General fund

Endowment capital

Total

£m

£m

£m

£m

Incoming resources Investment income

135.9

-

135.9

145.5

135.9

-

135.9

145.5

(31.3)

-

(31.3)

(29.0)

104.6

-

104.6

116.5

4, 5

(96.8)

(103.7)

(200.5)

(190.8)

Governance costs and other resources expended

6

(2.0)

-

(2.0)

(1.8)

Staff pension scheme - interest on provision

9

(5.8)

-

(5.8)

(5.3)

2

Total incoming resources

Resources expended Cost of generating funds

3

Net incoming resources available for charitable application

Charitable activities

Total resources expended Net outgoing resources before other recognised gains and losses

(135.9)

(103.7)

(239.6)

(226.9)

-

(103.7)

(103.7)

(81.4)

Other recognised gains and losses Gains/(Losses) on non investment fixed assets

10

-

0.7

0.7

Gains/(Losses) on investment assets

11

-

607.4

607.4

Gains/(Losses) on foreign currency

(19.0) 562.2

-

(6.9)

(6.9)

4.7

-

7.0

7.0

(15.8)

Transfers out of Church of England Pensions Scheme

-

(0.2)

(0.2)

-

Total other recognised gains and losses

-

608.0

608.0

532.1

Net increase in funds for the year

-

504.3

504.3

450.7

Gains/(Losses) on defined benefit pension schemes (staff)

9

Total funds brought forward

10.0

4,805.2

4,815.2

4,364.5

Total funds carried forward

10.0

5,309.5

5,319.5

4,815.2

e incoming resources, resources expended and other recognised gains and losses all relate to continuing operations, none of which were acquired during the year.

Annual Report 2010 | Notes to the financial statements | 31

Balance sheets

as at 31 December 2010 Notes

Consolidated

Commissioners

2010 £m

2009 £m

2010 £m

2009 £m

105.4

110.5

105.4

110.5

Fixed assets Non investment fixed assets

10

Investment assets

11

5,134.2

4,632.9

5,130.9

4,635.1

5,239.6

4,743.4

5,236.3

4,745.6

50.4

33.9

87.5

80.3

10.0

-

10.0

-

Cash at bank and in hand

161.5

174.3

161.2

174.0

Total current assets

221.9

208.2

258.7

254.3

(41.7)

(29.8)

(75.2)

(78.1)

180.2

178.4

183.5

176.2

5,419.8

4,921.8

5,419.8

4,921.8

(100.3)

(106.6)

Total fixed assets

Current assets Debtors

12

Short term deposits

Liabilities Creditors: amounts falling due within one year

13

Net current assets

Net assets excluding staff pension liability Defined benefit pension scheme liability (staff) Net assets including staff pension liability

9

(100.3)

(106.6)

5,319.5

4,815.2

5,319.5

4,815.2

5,309.5

4,805.2

5,309.5

4,805.2

Funds of the charity Endowment capital General fund Total funds carried forward

By order of the Board Andreas Whittam Smith First Church Estates Commissioner 14 April 2011

10.0

10.0

10.0

10.0

5,319.5

4,815.2

5,319.5

4,815.2


Consolidated cash flow statement for the year ended 31 December 2010

Notes

2010 £m

2009 £m

(103.7) 0.5 (16.5) 11.9 103.7 (5.1) 5.8 (3.4)

(81.4) 0.4 1.7 3.7 81.4 (4.9) 5.3 6.2

Reconciliation of net outgoing resources before other gains and losses to net cash (outflow)/inflow from operating activities Net resources expended before other gains and losses Depreciation of non investment fixed assets (Increase)/Decrease in debtors Increase in creditors Charitable expenditure paid from endowment capital Staff pensions and lump sums paid Staff pensions - interest charge on provision Net cash (outflow)/inflow from operating activities

5 9 9

Cash flow statement (3.4)

Net cash inflow/(outflow) from operating activities Capital expenditure and financial investment Non investment fixed assets: additions Non investment fixed assets: sale proceeds Investment assets: additions Investment assets: sale proceeds Net cash inflow relating to capital expenditure and financial investment Cash inflow before management of liquid resources and financing

(0.2) 0.5 (1,445.4) 1,556.5 111.4 108.0

Management of liquid resources Cash out to short term deposits Cash in from short term deposits Net change in short term deposits Financing Transfers out of Church of England Pensions Scheme Charitable expenditure paid from endowment capital Net cash outflow from financing Decrease in cash

5 9

6.2

(0.6) 2.3 (1,587.7) 1,612.3 26.3 32.5

(10.0) (10.0)

47.5 47.5

(0.2) (103.7) (103.9) (5.9)

(81.4) (81.4) (1.4)

(5.9) (6.9) 10.0 (2.8) 174.3 171.5

(1.4) 4.7 (47.5) (44.2) 218.5 174.3

Reconciliation of net cash flow to movement in cash and short term deposits Decrease in cash in the year (Loss)/Gain on foreign currency Cash movement from change in short term deposits Decrease in net funds in the year Net cash and short term deposits at 1 January Net cash and short term deposits at 31 December

Analysis of movements in cash and short term deposits Cash at bank and in hand Sterling Foreign Total currency

At 1 January Movement in cash Foreign currency loss At 31 December

£m 153.9 (61.0) 92.9

Cash at bank includes funds held in interest bearing accounts repayable on demand.

£m 20.4 55.1 (6.9) 68.6

£m 174.3 (5.9) (6.9) 161.5

Short term deposits

£m 10.0 10.0

Total cash and short term deposits £m 174.3 4.1 (6.9) 171.5


Notes to the financial statements for the year ended 31 December 2010 1. Accounting policies

b) Basis of consolidation and subsidiary undertakings

a) Principal accounting policies

e consolidated statement of financial activities and balance sheet include the financial statements of the Commissioners and all their subsidiary undertakings made up to 31 December each year. Intragroup transactions are eliminated on consolidation.

e Church Commissioners for England are a statutory body established by the Church Commissioners Measure 1947 (as amended) and have been regulated by the Charity Commission since registration on 27 January 2011. e Measure requires the Commissioners, as an endowed charity, to separate their capital and revenue transactions. Legal advice has confirmed that this separation should be in accordance with the principles of trust law. e Commissioners have taken and followed, as appropriate at the time, legal advice on the practical application of trust law to the accounting treatment of their transactions. e Pensions Measure 1997 (as amended) gives the Commissioners power to spend capital on certain pension commitments. Payments made to clergy pensioners under the Church of England Pensions Scheme are charged partly against the general fund and partly to endowment capital. Consistent with the Commissioners’ status, and their powers under the Pensions Measure 1997, the financial statements do not make provision in the balance sheets for the obligation to pay clergy pensions which fall due aer the balance sheet date. Information on this obligation is provided in note 5. e financial statements are prepared in accordance with the Charities Statement of Recommended Practice. e statement of financial activities is presented in columns for the general fund and endowment capital, showing the income, charitable and administrative expenditure, and all other recognised gains and losses in the appropriate column. e financial statements are also prepared in accordance with the historical cost convention modified by the revaluation of investments and properties on a basis materially consistent with the preceding year. ey comply with all applicable United Kingdom law and accounting standards. Aer considering the Commissioners’ role in funding the Church’s mission, described on pages 6-13 of the annual report, the policy on reserves, spending strategy and legislation to allow endowment capital to be spent, the Board has reasonable expectation that the Commissioners have adequate resources and cash flows to meet their spending commitments for the foreseeable future and that as described in note 5 to the financial statements, the obligation for clergy pensions is 31.1% of net assets. Accordingly, they continue to adopt the going concern basis of accounting in preparing the annual report and accounts.

e Commissioners do not present their non-consolidated statements of financial activities in these financial statements.

c) Income Securities Income is recognised on the accruals basis. Dividends, including any recoverable tax, are credited to income on the ex dividend date of the underlying shares. Properties Income is recognised on the accruals basis. e cost of concessions given to tenants as an incentive to sign a lease is spread on a straight line basis over the shorter of the period to the first break clause or the period to the first rent review. Mortgages and loans Interest on mortgages and loans is recognised on the accruals basis. Legacies Legacies are recognised when the conditions for entitlement, certainty of receipt and measurability have been met.

d) Expenditure Charitable expenditure on behalf of the Church is described in note 4. Grants payable in respect of particular periods out of income for that period (being the grants for parish mission and ministry support and section 23 grants to cathedrals shown in note 4) are recognised when a firm commitment to pay the grant is made. Cars for the use of bishops are normally obtained under four year leases, the full cost of which is paid at commencement. e cost of such leases is spread on a straight line basis over the period of the lease. e balance of the lease payments not yet charged to expenditure is included in prepayments (note 12). Support costs are apportioned directly to the activity which they relate. Overheads are apportioned according to an activity based time split.


Notes to the financial statements for the year ended 31 December 2010 e) Pensions

f) Fixed assets

Staff As described in note 9, pension benefits arising from service up to 31 December 1999 are accounted for in accordance with FRS 17: Retirement Benefits. e Commissioners’ liability is provided for in the balance sheet and movements during the year charged to the statement of financial activities. e liability is calculated on an annual basis by an independent qualified actuary. ere are no separately held assets. e interest charge on the provision is charged to resources expended in the general fund. e actuarial gains or losses are charged to the other gains and losses in endowment capital. Benefits paid out are charged to the provision.

Capitalisation of expenditure Costs incurred on acquiring, improving or adding to assets are capitalised. Other expenditure is charged to the statement of financial activities in the year in which it is incurred.

Pension benefits arising from service aer 31 December 1999 for staff in service as at 30 June 2006 are provided for by a defined benefit scheme administered by the Church of England Pensions Board (note 9). e scheme is considered to be a multi-employer scheme as described in FRS 17 paragraph 9(b) and consequently the amounts charged in the statement of financial activities represent the contributions payable in the year. e Commissioners are unable to identify their share of the underlying assets and liabilities. A defined contribution scheme, administered by the Church of England Pensions Board, provides pension benefits for those commencing service aer 30 June 2006. Consequently the amounts charged in the statement of financial activities in respect of staff pension costs are the contributions payable in the year. Clergy As described in note 5, the Commissioners are obliged to pay clergy pensions as they fall due in respect of service up to 31 December 1997. Consistent with the Commissioners’ status, and their powers under the Pensions Measure 1997, no provision is made in the balance sheet for the obligation to pay clergy pensions which fall due aer the balance sheet date. Pensions payable in the year are charged to the statement of financial activities and as permitted by the Pensions Measure 1997, as amended, a proportion is charged to the general fund and to endowment capital. Pension benefits arising from service aer 31 December 1997 are mainly provided by a defined benefit scheme administered by the Church of England Pensions Board, the Church of England Funded Pensions Scheme. is scheme is considered to be a multi-employer scheme and consequently the amounts charged in the statement of financial activities represent the contributions payable in the year. e Commissioners are unable to identify their share of the underlying assets and liabilities. Where pensions are provided by a defined contribution scheme, the contributions payable in the year are charged to the statement of financial activities.

Unless its market value is material, expenditure on household and office furniture, fixtures and fittings and office equipment, with the exception of historic items within the contents of see houses, is charged in the statement of financial activities in the year in which it is incurred. Depreciation Depreciation is charged on a straight line basis over the estimated useful life of the asset, calculated on the opening balance sheet value, on the following fixed assets: Fixed asset Administrative office

Estimated useful life 50 years

Leasehold office improvements

10 years

IT systems

5 years

In accordance with Statement of Standard Accounting Practice 19, no depreciation is charged on investment properties as the effect of depreciation is reflected in the annual valuations and cannot be quantified separately. Revaluation and realisation Investment assets are valued as follows: Listed investments: valued at market values using bid price in accordance with the practice of the appropriate stock exchange. Unlisted investments: valued by reference to latest dealing prices, valuations from reliable sources or net asset values. Investment properties: annually valued individually at market value in accordance with the Appraisal & Valuation Manual issued by the Royal Institution of Chartered Surveyors. With regard to strategic land, the valuer has noted in the valuation report, in accordance with Guidance Note 5 of the RICS Standards, if appropriate, that the primary source of evidence for valuations should be recent, comparable market transactions on arms length terms. e current economic environment means that there have been few comparable transactions for the type of land in the strategic land portfolio owned by the Commissioners. Because of this and the uncertain economic environment, there is a greater degree of uncertainty in respect of the figure reported by our valuer. Until the number and consistency of comparable transactions increases, this situation is likely to remain. Shared and partnership property interests and subsidiary undertakings: annually valued at the Commissioners’ share of the underlying net assets which are valued on the same bases as those held directly.


Value linked loans: annually valued individually taking into account current vacant possession values of the properties, estimated future house prices growth and income flows and the anticipated dates of repayment. Non investment assets are valued as follows: Lambeth Palace: Lambeth Palace is valued at £1 as the Charities SORP, paragraph 293, recognises that certain unique buildings that are integral to the activities of the charity may present difficulties in ascertaining a current cost of construction of an asset that has both the same service potential and replicates the uniqueness of the original. In such cases, the Charities SORP recognises that conventional valuation techniques may not be applicable to previously non-capitalised assets. Other see houses: stated at their market value as at 31 December 2008 increased in line with the relevant regional Nationwide housing price index. A full market valuation is carried out every five years in accordance with the Appraisal & Valuation Manual issued by the Royal Institution of Chartered Surveyors. Contents of Lambeth Palace and see houses: A full valuation of the historic contents such as works of art and furniture is carried out every ten years by Gurr Johns. e last full revaluation was at 31 December 2007. e most valuable historic items are held at the trustees’ valuation. Gains or losses on the disposal and revaluation of investment assets, including the gains or losses on any related foreign currency transactions, are shown in other gains and losses in endowment capital in the statement of financial activities.

g) Stock lending programme e Commissioners’ global custodian is authorised to enter into stock lending arrangements, whereby securities are loaned to external counterparties for a set period of time. e Commissioners receive collateral of greater value than the securities loaned from each counterparty for the duration of the loan period. Interest is received on the collateral assets held and is disclosed in note 2. Where securities are loaned at the balance sheet date, the securities loaned are included in the balance sheet as the Commissioners retain the risks and rewards of ownership of the securities and also retain the contractual rights to any cash flows relating to the securities. e value of the securities on loan at the balance sheet date is disclosed in note 11(a).

h) Derivatives e Commissioners use forward foreign currency and option contracts as part of their investment portfolio risk management, to reduce the impact of changes in foreign currency exchange rates in relation to their investment in overseas securities and shared and partnership property interests. In accordance with their investment policy, forward foreign currency and option contracts are not entered into for investment gain or trading purposes and no other derivatives are used. Contracts relating to hedged assets outstanding at the balance sheet date are translated at the forward contract rate. Option contracts are valued using a pricing model where inputs are based on market data at the balance sheet date. Realised and unrealised gains and losses arising from these contracts are charged to endowment capital in the statement of financial activities. Contracts relating to future commitments are not included on the balance sheet.

i) Foreign currencies Assets and liabilities denominated in foreign currencies are translated into sterling at the rates of exchange ruling at the balance sheet date. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at the balance sheet date or, if appropriate, at the forward contract rate. Profits and losses on sales of overseas investments are translated at the rate ruling on the date of the transaction. Unrealised gains and losses on overseas investments arising on translation are included in the net gains and losses on realisation and revaluation in endowment capital in other gains and losses in the statement of financial activities. Income received in foreign currencies and converted into sterling is recorded at the rate ruling on the date of the conversion. If retained in foreign currencies, amounts are translated at the rate ruling on the date of the transaction. Subsequent gains or losses on conversion into sterling are included in other gains and losses in the statement of financial activities.

j) Taxation e Commissioners, as a registered charity, are exempt from taxation on their income and gains to the extent that they are applied to their charitable purposes. Provision is made for any tax payable by the Commissioners and their subsidiary undertakings.

k) Related parties e Church of England is governed by a large number of legally independent bodies in its parishes, cathedrals and dioceses as well as at national level. ese bodies are not related parties as defined in the Charities SORP or FRS 8. Transactions and balances with these bodies are accounted for in the same way as other transactions and, where material, are separately identified in the notes to the financial statements.


Notes to the financial statements for the year ended 31 December 2010 2. Income 2010 £m

2009 £m

43.4

44.0

UK shared and partnership property interests

9.1

8.0

Overseas shared and partnership property interests

1.4

1.2

53.9

53.2

Listed UK equities

40.7

46.9

Listed overseas equities

32.6

31.0

UK fixed interest securities

0.5

2.0

Overseas fixed interest securities

1.1

4.3

Interest on investment managers' cash

0.3

1.0

Stock lending income

0.4

0.5

75.6

85.7

Bank interest

0.1

0.1

Interest on short term deposits

-

0.1

Total income from cash portfolio

0.1

0.2

Loans to provide and improve Church property

1.3

1.4

Loans to Church of England Pensions Board

4.7

4.7

Loans for other purposes

0.3

0.3

Total income from loan portfolio

6.3

6.4

135.9

145.5

Investment income Property portfolio UK directly held properties

Total income from property portfolio Securities portfolio

Total income from securities portfolio Cash portfolio

Loan portfolio

Total investment income

3. Cost of generating funds 2010 External Internal management management costs costs

Property portfolio Securities portfolio Loan portfolio Total cost of generating income

2009 Other property costs

Total

Total

£m

£m

£m

£m

£m

4.7

4.0

9.2

17.9

17.2

11.8

1.6

-

13.4

11.7

-

-

-

-

0.1

5.6

9.2

31.3

29.0

16.5


4. Charitable expenditure

Activities undertaken £m

Clergy pensions Clergy pensions paid from general fund Clergy pensions paid from endowment capital Total clergy pensions Parish mission and ministry support Ministry support to low income dioceses Mission development funding Extra mission and ministry support New housing and other development areas Payments direct to parish clergy Other grants Total parish mission and ministry support Bishops' ministry in the dioceses Stipends Housing and office premises Office and working costs Total bishops' ministry in the dioceses Archbishops including Lambeth Palace Stipends Housing and office premises Office and working costs Lambeth Palace Library Total archbishops including Lambeth Palace Cathedrals' ministry Stipends Grants towards staff and other costs Total cathedrals' ministry Church buildings Grant to Churches Conservation Trust - statutory grant Grant to Churches Conservation Trust - funded from proceeds of closed churches Net grant to Churches Conservation Trust Chancel repair liability Support costs for Church buildings and pastoral reorganisation

2010 Support costs £m

Total

2009 Total

£m

£m

10.3

-

10.3

29.6

103.7

-

103.7

81.4

114.0

-

114.0

111.0

30.4

-

30.4

29.4

5.2

-

5.2

5.0

4.4

-

4.4

5.5

5.9

-

5.9

1.1

0.6

-

0.6

0.3

0.3

-

0.3

0.7

46.8

-

46.8

42.0

4.9

-

4.9

5.0

3.7

0.3

4.0

3.8

11.1

0.8

11.9

11.5

19.7

1.1

20.8

20.3

0.2

-

0.2

0.1

1.4

-

1.4

1.4

4.4

-

4.4

4.1

0.7

-

0.7

0.7

6.7

-

6.7

6.3

4.6

-

4.6

4.5

3.1

-

3.1

2.9

7.7

-

7.7

7.4

1.4

-

1.4

1.4

(0.5)

-

(0.5)

(0.7)

0.9

-

0.9

0.7

0.4

-

0.4

0.1

-

1.9

1.9

1.8

Total Church buildings

1.3

1.9

3.2

2.6

Other charitable expenditure (including national clergy payroll costs)

0.3

1.0

1.3

1.2

196.5

4.0

200.5

190.8

Total charitable expenditure


Notes to the financial statements for the year ended 31 December 2010 Clergy pensions Note 5 describes clergy pensions in detail. Parish mission and ministry support Parish mission and ministry support grants were distributed to dioceses and other beneficiaries under the direction of e Archbishops’ Council, in accordance with the National Institutions Measure 1998. Details of the amounts allocated to dioceses are shown on page 50. Bishops' ministry in the dioceses and archbishops including Lambeth Palace Details of the grants made to individual bishops and archbishops towards their office and working costs, and of how those amounts were spent, will be contained in the publication "Bishops' Office and Working Costs for the year ended 31 December 2010" to be issued by the House of Bishops later in 2011. Cathedrals' ministry e Cathedrals Measure 1999 enables the Commissioners to make grants to cathedrals: section 23 grants are made towards the stipend of any clerk other than a dean or residentiary canon whose stipend is paid by the Commissioners and the salary of any lay person employed in connection with the cathedral; section 25 grants are made towards the repair of any chancel, other than that of the cathedral, which the cathedral is wholly or partly liable to repair.

5. Clergy pensions On retirement clergy are entitled to pension benefits based on the national minimum stipend of those in active service in the preceding March. In respect of the Commissioners’ obligation, post retirement increases are in line with the retail prices index, subject to a maximum of 5% in any one year, plus any further discretionary increases determined by the Commissioners. e Church of England Pensions Scheme e Commissioners are obliged to pay pension benefits to members of the Church of England Pensions Scheme relating to years of service until 31 December 1997. As described in note 1(a), the past service obligation at 31 December 2010 is not provided for in the Commissioners’ balance sheets. e obligation has been estimated by Hymans Robertson LLP, independent qualified actuaries, in their annual review, using the projected unit method, at £1,622.8m (2009: £1,571.7m) if all benefits including post retirement increases continue to be paid in accordance with current practice. A full valuation of the obligation was carried out as at 31 December 2009 and has been rolled forward in estimating the obligation at 31 December 2010. e amount of the obligation represents 31.1% (2009: 33.4%) of the market value of the Commissioners' assets, excluding non investment fixed assets, of £5,214.1m (2009: £4,704.7m).

Church buildings e Payments to the Churches Conservation Trust Order 2008 provide for a statutory grant to be made to the Churches Conservation Trust to support the Trust's work in preserving church buildings closed for regular worship which are of historic and archaeological interest and architectural quality. e grant is paid from a share of the proceeds arising from the sale of closed churches with the balance of the grant payable by the Commissioners.

e principal assumptions were:

e Commissioners' liability for chancel repairs arises from their former and current ownership of rectorial property. Support costs Support costs are costs incurred by the Commissioners for administering their charitable activities. ese costs include salaries, other running costs and a share of overheads. Overheads are apportioned according to an activity based time split.

2010

2009

Prospective annual rate of return on investments

7.0%

7.3%

Rate of future stipend and increases in the starting pension

4.5%

4.5%

Rate of post retirement pension increases

3.0%

2.9%

Retail price inflation

3.0%

3.0%

e assumptions were made on a best estimate basis over a time period for a typical UK pension scheme which did not include the margins of prudence which would normally be included in similar calculations for determining technical provisions for an occupational pension scheme. is is because of the level of asset cover provided by the endowment funds and the need to maintain intergenerational equity in the rate in which non-pension related distributions can be made. In their assessments of the pensions obligation, Hymans Robertson LLP have used the standard tables AM92 and AF92 for mortality before retirement. In respect of mortality in retirement the standard tables PNMA00 and PNFA00 have been used but referring to an age two years younger than a person's actual age as clergy have experienced lighter mortality rates than the UK population as a whole. In respect of future improvements in mortality rates the long cohort assumption, lagged by ten years and scaled (85% for males and 75% for females) with a minimum improvement of 1.5% p.a. for males and 1.0% p.a. for females has been used. is assumes that the accelerated improvements in mortality that have been experienced by the generation of the UK population currently in their 70s will continue until 2040.


e cost of pensions and benefits funded by the Commissioners during the year was: 2010 £m

6. Governance and other costs

2009 £m

Benefits under the Church of England Pensions Scheme Pensions to clergy Lump sum payments on retirement Pensions to clergy widows and children Total benefits under the Church of England Pensions Scheme

Total clergy pensions

2009 £m

1.7

1.6

Restructuring costs

0.3

0.2

Total other resources expended

2.0

1.8

Governance costs Other resources expended 77.9

77.4

9.2

6.4

26.5

26.8

113.6

110.6

Benefits under the Deaconesses and Layworkers (Pensions) Measure 1980 Pensions to deaconesses and licensed lay workers

2010 £m

Governance costs comprise staff and non-staff costs relating to the general running of the Commissioners including supporting the work of their Board and Committees and audit costs. Analysis of audit and non-audit fees to Deloitte LLP:

0.4 114.0

0.4 2010 £000

2009 £000

Subsidiary undertakings

35

43

Church Commissioners

120

139

Total audit costs

155

182

92

-

Planning services (Drivers Jonas Deloitte)

150

-

Total non-audit services

242

-

111.0 Audit costs

Transfers out of the Scheme amounted to £0.2m (2009: £nil) during the year. e Church of England Funded Pensions Scheme. Pensions in respect of service aer 1997 are provided by the Church of England Funded Pensions Scheme, administered by the Church of England Pensions Board, who publish the Scheme’s financial statements. e assets of the Scheme are held separately from those of the Commissioners. Following an interim valuation as at 31 December 2008, the contribution rate, comprising contributions to meet the Scheme deficit as well as contributions in respect of future accrual of pension benefits, increased from 39.7% to 45.0% of pensionable stipends with effect from 1 January 2010. e last full valuation of the Scheme, as at 31 December 2009, showed an overall deficit of £262m. As a result of benefit changes in respect of future accrual of pension benefits agreed by the General Synod in July 2010, the contribution rate will be 38.2% of pensionable stipends with effect from 1 January 2011. Each responsible body in the Scheme, including dioceses, pays a common contribution rate. e contributions to the Scheme are assessed by an independent qualified actuary using the projected unit method of valuation. e Commissioners’ contributions payable to the Scheme totalled £2.8m (2009: £2.4m) in respect of those bishops, cathedral clergy and bishops' chaplains for whose stipends they are responsible and in respect of clergy receiving payments under the Ordination of Women (Financial Provisions) Measure 1993. Application of endowment capital to meet certain pension payments e Pensions Measure 1997, as amended, enables the Commissioners to spend endowment capital until 31 December 2018 to meet the costs of paying clergy pensions in respect of service before 1998. Clergy pensions of £103.7m (2009: £81.4m) were paid from endowment capital, being the overall excess of the Commissioners’ expenditure over their income for the year.

Non-audit services Taxation advice

Following a competitive tender exercise during 2010, Deloitte was re-appointed as auditor and appointed as tax adviser for a period of 5 years.


Notes to the financial statements for the year ended 31 December 2010 7. Staff numbers and remuneration e Commissioners are joint employer, together with the other National Church Institutions (the NCIs), of most of the staff of the NCIs. e cost of staff for whom the Commissioners are the managing employer was: Asset management and Church functions

Local property management

2010

2010

2009

2009

Number Number Number Number

Average number employed

158

162

73

73

£m

£m

£m

£m

Salaries

6.4

6.2

1.2

1.3

National Insurance costs

0.6

0.6

0.1

0.1

Pension contributions

1.4

1.2

-

-

8.4

8.0

1.3

1.4

(1.9)

(1.7)

(1.3)

(1.4)

6.5

6.3

-

-

Recoverable from third parties Total cost of staff

e Commissioners are responsible for managing the following shared service departments: finance and resources, information technology, records and office services. e cost recovered for providing shared services to the NCIs was £1.8m (2009: £1.6m). e numbers of staff whose emoluments for the year fell in the following bands were: 2010 Number

2009 Number

£60,001 to £70,000

7

5

£70,001 to £80,000

3

5

£80,001 to £90,000

1

1

£90,001 to £100,000

1

1

£100,001 to £110,000

-

1

£110,001 to £120,000

1

-

£120,001 to £130,000

-

2

£130,001 to £140,000

2

-

£140,001 to £150,000

1

1

£300,001 to £310,000

1

-

All 17 staff above are members of the Church Administrators Pension Fund (note 9). Of these, 4 (2009: 4) accrue benefits under a defined contribution scheme for which contributions for the year were £61,000 (2009: £40,000). e remaining 13 staff accrue benefits under a defined benefit scheme.

Shared service costs e Commissioners share the costs of the shared services departments managed by e Archbishops’ Council and the Church of England Pensions Board on behalf of the NCIs. ose departments provide communications, human resources, legal and internal audit services to the NCIs and, in some areas, to bishops and their offices. e average number of staff employed in shared service departments managed by e Archbishops’ Council and the Church of England Pensions Board was 41 (2009: 40) and the Commissioners’ share of these departments’ costs was £0.9m – 36.4% (2009: £0.9m – 39.3%). is cost is included in the Commissioners’ asset management costs (note 3), support costs (note 4) and the Commissioners’ costs (note 6). Asset management and national Church functions e net cost of the planning and management of the Commissioners' assets is included in asset management costs (note 3) and for the administration of national Church functions is included in support costs (note 4). Local property management e net cost of on site management and servicing of residential blocks of flats is included in other property expenses (note 3). Staff loans In addition to the amounts shown above, the Commissioners provide loans under the staff house mortgage scheme which are currently valued at £0.4m (2009: £0.5m). e scheme, which was closed to new business in 2004, has 16 (2009: 19) loans outstanding to 14 (2009: 16) members of staff. Interest free loans are made for travel season tickets and green travel loans for the purchase of bicycles and electric scooters.


8. Commissioners’ emoluments and expenses 2010 £000

2009 £000

e First Church Estates Commissioner has waived any entitlement to pension.

First Church Estates Commissioner 55

54

6

6

49

48

National Insurance costs

6

6

Pension contributions (note 9)

7

9

123

123

Salary National Insurance costs ird Church Estates Commissioner Salary

Total Church Estates Commissioners' costs

Under the terms of the Church Commissioners Measure 1947 (as amended), salaries are paid to the First and ird Church Estates Commissioners, both of whom are also entitled to pension contributions.

Commissioners, other than the First and ird Church Estates Commissioners, have no entitlement to salary or pension in their capacity as Commissioners. Pensions paid to former First and ird Church Estates Commissioners of £84,000 (2009: £83,000) were charged to the staff pension provision (note 9). Expenses incurred in attending Board and committee meetings and on other business of the Commissioners were reimbursed to 14 Commissioners (2009: 16). Claims amounting to £6,000 (2009: £11,000) were submitted in respect of travel and subsistence.

9. Staff pensions Staff of the Commissioners, bishops and the Church of England Pensions Board who commenced service before 1 July 2006 are entitled to pension benefits based on final pensionable pay. Increases of pensions in payment and preserved pensions are linked to the consumer and retail prices indexes. ere are no other post retirement benefits.

e movements on the provision during the year were:

e ird Church Estates Commissioner and others who commenced service aer 30 June 2006 are entitled to pensions earned from the contributions paid into a personal pension scheme by their employers and by themselves. e contribution rate payable by the Commissioners is between 8% and 18%. None of the figures below relate to these arrangements.

Interest on provision - charged to general fund

Service before 2000 Benefits based on years of service until 31 December 1999 for staff and benefits in respect of former First and ird Church Estates Commissioners are not separately funded but are provided for in the balance sheet in accordance with FRS 17: Retirement Benefits. A full valuation of the provision was carried out as at 31 December 2009 and has been rolled forward in estimating the liability at 31 December 2010. is provision is calculated annually using the projected unit method by Hymans Robertson LLP, independent qualified actuaries.

At 1 January Pensions and lump sums paid

Actuarial (gain)/loss charged to endowment capital At 31 December

2010 £m

2009 £m

106.6

90.4

(5.1)

(4.9)

5.8

5.3

(7.0)

15.8

100.3

106.6

Analysis of actuarial (gain)/loss credited to endowment capital: 2010 £m

2009 £m

(Gain)/Loss due to effect of change in financial assumptions

(7.0)

15.8

Actuarial (gain)/loss

(7.0)

15.8


Notes to the financial statements for the year ended 31 December 2010

e principal assumptions used in estimating the provision were: 2010 %

2009 %

2008 %

2007 %

2006 %

Discount rate (annual rate of return on AA rated corporate bonds)

5.5

5.7

6.0

5.8

5.1

Rate of salary increases

5.1

5.3

4.5

5.0

4.6

for service before 1 April 1997

3.1

-

-

-

-

for service since 1 April 1997

3.6

-

-

-

-

-

3.8

3.0

3.5

3.1

3.6

3.8

3.0

3.5

3.1

Rate of increase of pensions in payment

for service before and aer 1 April 1997 Retail price inflation

In their assessments of the pensions liability, Hymans Robertson LLP used the standard mortality tables AMN00 and AFN00 for mortality before retirement and 95% of the standard tables S1NMA and S1NFA for mortality in retirement. In respect of future improvements in mortality rates the medium cohort assumption, subject to a

minimum of 1.5%, has been used. e standard medium cohort assumption is that the accelerated improvements in mortality that have been experienced by the generation of the UK population currently in their 70s will continue until 2020.

History of experience gains and losses:

Actuarial (gain)/loss

Service from 2000 Benefits for staff arising from service from 1 January 2000 are provided by the Church Administrators Pension Fund, administered by the Church of England Pensions Board, who publish the Fund’s financial statements. e assets of the Fund are held separately from those of the Commissioners. e contributions to the Fund are assessed by an independent qualified actuary using the projected unit method of valuation. e last full valuation of the Fund, as at 31 December 2008, showed an overall deficit of £30.2m (2005: £8.7m). Following the 2005 review additional contributions starting at £250,000 per annum were being made by the participating employers for fieen years from 1 January

2010 £m

2009 £m

2008 £m

2007 £m

2006 £m

(7.0)

15.8

(9.2)

(3.8)

(5.3)

2007 to 31 December 2021, increasing annually in line with general salary inflation. Due to the increased deficit revealed by the 31 December 2008 valuation, the level of additional contributions to be made by the employers has been increased to £2,050,000 per annum from 1 July 2010 to 30 June 2025, increasing annually in line with general salary inflation of which the Commissioners’ share is £410,000 (2009: £120,000) and the rate at which members accrue benefits prospectively has been reduced. In addition the employers will be responsible for making contributions towards the administration costs of the scheme, estimated at £200,000 p.a. and the cost of Pension Protection Fund levies.


10. Non investment fixed assets Consolidated and Commissioners

IT systems

Administrative offices

Lambeth Palace and see houses

Total

Freehold property

Leasehold improvements

Freehold property

Leasehold property

Contents

£m

£m

£m

£m

£m

£m

£m

Balance at 1 January

1.2

2.9

2.1

81.3

3.4

20.3

111.2

Transfers (note 11)

-

-

-

(5.4)

0.4

-

(5.0)

Additions

-

-

-

0.2

-

-

0.2

Proceeds from disposals

-

-

-

(0.5)

-

-

(0.5)

Realised gains

-

-

-

0.2

-

-

0.2

Unrealised gains

-

-

-

0.4

0.1

-

0.5

Balance at 31 December

1.2

2.9

2.1

76.2

3.9

20.3

Cost or valuation

106.6

Accumulated depreciation Balance at 1 January

(0.2)

-

(0.5)

-

-

-

(0.7)

Charge for the year

(0.2)

(0.1)

(0.2)

-

-

-

(0.5)


(0.4)

(0.1)

(0.7)

-

-

-

(1.2)

Balance at 1 January

1.0

2.9

1.6

81.3

3.4

20.3

110.5


0.8

2.8

1.4

76.2

3.9

20.3

105.4

Net book value

e original cost of non-investment fixed assets is not disclosed given the historic nature of many of the assets owned. Lambeth Palace is valued at £1 as explained in note 1(f). Other see houses were valued by Carter Jonas as at 31 December 2008 and are increased from this date in line with the relevant regional Nationwide housing price index. e contents of the see houses were valued by Gurr Johns as at 31 December 2007. e most valuable historic items are held at the trustees’ valuation. All non investment assets are located in the United Kingdom.


Notes to the financial statements for the year ended 31 December 2010 11. Investment assets Notes At 1 January

£m

Transfers (note 10)

Additions

Proceeds from disposals

Realised gains

Unrealised gains/ (losses)

Realised and unrealised deficit on forward foreign currency contracts

At 31 Deccember

£m

£m

£m

£m

£m

£m

£m

Consolidated Securities portfolio

11(a)

3,167.4

(64.6)

Investment properties

11(b)

1,038.2

Global shared and indirect property interests

11(c)

Loans portfolio

11(e)

Total investment assets

1,347.8

(1,385.4)

309.1

137.4

(25.9)

3,485.8

5.0

23.9

(104.6)

25.8

95.2

-

1,083.5

270.0

64.6

62.2

(48.4)

5.3

58.8

(3.1)

409.4

157.3

-

11.5

(18.1)

4.6

0.2

-

155.5

4,632.9

5.0

1,445.4

(1,556.5)

344.8

291.6

(29.0)

5,134.2

(64.6)

1,347.8

(1,385.4)

309.1

137.4

(25.9)

3,485.8 1,014.5

Commissioners Securities portfolio

11(a)

3,167.4

Investment properties

11(b)

955.6

5.0

13.0

(69.1)

19.3

90.7

-

Global shared and indirect

11(c)

267.6

64.6

50.5

(48.4)

5.3

59.6

(3.1)

396.1


11(d)

87.2

-

-

-

-

(8.2)

-

79.0

Loans portfolio

11(e)

157.3

-

11.5

(18.1)

4.6

0.2

-

155.5

1,422.8

(1,521.0)

338.3

279.7

Total investment assets

4,635.1

5.0

e original cost of investments is not disclosed given the historic nature of many of the property investments. Future commitments are disclosed in note 14. e Commissioners have investments denominated in foreign currencies and are impacted by changes in foreign currency exchange rates. Non-sterling assets exposed to currency risk represented 43.7% (2009: 40.9%) of the investment portfolio.

(29.0)

5,130.9

Forward foreign currency contracts are used to hedge the risk of changes in exchange rates which might adversely affect the value of some of these non-sterling assets. is currency hedging programme covers 95% (2009: 95%) of developed currency exposures. Forward contracts are also used by some fund managers to manage the risk of not achieving overall performance benchmarks.

Outstanding contracts are included in the value of the assets covered by the currency management programme: Consolidated and Commissioners 2010

Securities portfolio Global shared and indirect property interests Total non-sterling investments

2009

Non-sterling assets

Outstanding contracts

Total

Non-sterling assets

Outstanding contracts

Total

£m

£m

£m

£m

£m

£m

2,070.9

0.6

2,071.5

1,816.2

(2.4)

1,813.8

170.5

77.9

(0.1)

77.8

2,242.0

1,894.1

(2.5)

1,891.6

170.8 2,241.7

(0.3) 0.3

e cost of operating the hedging programme was £33.2m (2009: £7.7m), including fees of £1.5m (2009: £1.3m).


11(a) Securities portfolio

Consolidated and Commissioners 2010 £m

2009 £m

Quoted UK equities

1,342.3

1,304.4

Quoted overseas equities

1,778.8

1,702.6

33.2

12.3

Unquoted overseas equities

181.1

78.2

UK fixed interest securities

39.4

34.5

Quoted overseas fixed interest securities

96.7

31.3

Unquoted overseas fixed interest securities

14.3

4.1

3,485.8

3,167.4

Unquoted UK equities

Total securities

e market value of listed investments includes stock on loan of £4.6m (2009: £5.1m).

11(b) Investment properties Consolidated

Freehold interests Leasehold properties with more than 50 years to run Total carrying value Adjustment for concessions to tenants (see note 12) Total investment properties

Commissioners

2010 £m

2009 £m

2010 £m

2009 £m

1,062.5

1,021.4

993.5

938.8

22.2

17.6

22.2

17.6

1,084.7

1,039.0

1,015.7

956.4

(1.2)

(0.8)

(1.2)

(0.8)

1,083.5

1,038.2

1,014.5

955.6

e valuers of the properties were: Let and strategic land properties: Savills Urban commercial and residential properties: DTZ Debenham Tie Leung. All investment properties are located in the United Kingdom.

11(c) Global shared and indirect property interests Consolidated

Commissioners

Shared interests

2010 £m

2009 £m

2010 £m

2009 £m

Properties

187.2

166.6

187.2

166.6

Borrowings

(41.3)

(41.5)

(41.3)

(41.5)

5.3

(0.2)

5.3

(0.2)

Other net assets/(liabilities) Total shared interests

151.2

124.9

151.2

124.9

304.3

259.0

289.4

259.0

Partnership interests Properties Debt

8.8

-

7.4

-

Borrowings

(160.3)

(154.8)

(156.2)

(154.7)

Other assets

105.4

40.9

104.2

38.4

Total partnership interests

258.2

145.1

244.9

142.7

Total shared and partnership interests

409.4

270.0

396.1

267.6

Shared and partnership property interests are valued independently by valuers appointed by the partnerships and shared interest holders. All the interests were held in the United Kingdom other than the partnership interests valued at £170.8m (2009: £77.8m).


Notes to the financial statements for the year ended 31 December 2010 11(d) Subsidiary undertakings e Commissioners' principal subsidiary undertakings, all of which are 100% owned and registered in England and Wales, held to undertake property purchase, development and management and certain indirect investments are:

e Ashford Great Park Partnership, held through intermediate companies, has its principal offices at 29 Great Smith Street, London SW1P 3PS. e Commissioners have no associated undertakings.

CC Trading Ltd, CC Lincoln Ltd, CC Projects, Cedarvale, CC Licensing and Quivercourt.

11(e) Loans portfolio

Consolidated and Commissioners 2010 £m

2009 £m

31.8

35.4

Loans to Church of England Pensions Board

111.5

108.2

Total value linked loans

143.3

143.6

12.0

13.5

0.2

0.2

12.2

13.7

155.5

157.3

Value linked loans Loans to provide and improve Church property and for other purposes

Other loans Mortgages and other loans Loans to Church of England Pensions Board Total other loans Total loans

12. Debtors

Consolidated

Value linked loans are granted for the purchase of residential properties. On disposal of the property, the Commissioners are entitled to a share of the proceeds corresponding to the proportion of the original purchase price which was financed by the loan. All value linked loans are valued externally once every three years: the last external valuation was carried out as at 31 December 2009 by DTZ Debenham Tie Leung. As at 31 December 2010 the loans were valued by RICS qualified in-house professionals. Car loans to clergy of £4.7m (2009: £5.1m) on which interest is charged at 5% per annum are included in mortgages and other loans. All loans and mortgages are for properties located in the United Kingdom.

Commissioners

2010 £m

2009 £m

2010 £m

2009 £m

33.1

15.6

10.0

15.4


-

-

56.0

46.9

Dioceses (Clergy Stipends and Diocesan Debtors Accounts)

1.5

2.8

1.5

2.8

Other debtors

4.2

3.3

8.4

3.1

Prepayments and accrued income

11.6

12.2

11.6

12.1

Total debtors

50.4

33.9

87.5

80.3

Trade debtors

Consolidated trade debtors includes £23.1m of deferred receipts relating to land sales. Other debtors include £1.2m (2009: £0.8m) relating to concessions to tenants which are amortised over the period to the next open market rent review. Accordingly, the independent valuation of investment properties is reduced by this amount. Other debtors also includes loans to third parties that do not fall into the investment portfolio.


13. Creditors

Consolidated

Commissioners

2010 £m

2009 £m

2010 £m

2009 £m

Trade creditors

5.9

10.2

5.7

9.9


-

-

42.6

49.2

Dioceses and other Church bodies

3.2

2.7

3.2

2.7

2.2

1.2

1.8

Other creditors

1.6

Taxation and National Insurance contributions

10.9

5.7

7.0

5.7

Accruals and deferred income

20.1

9.0

15.5

8.8

Total creditors

41.7

29.8

75.2

78.1

e Commissioners have commitments to invest in private equity funds and real estate funds. e timing of draw downs on both types of commitments is dependent on the fund managers acquiring underlying assets during the investment periods of the funds.

14. Capital commitments and contingent liabilities Capital commitments

Notes

2010 £m

2009 £m

Securities portfolio

11(a)

126.5

146.6

Global shared and indirect property interests

11(c)

79.8

70.5

206.3

217.1

Total capital commitments

Contingent liabilities e Commissioners, dioceses and other Church bodies are the bodies responsible for the contributions to the Church of England Funded Pensions Scheme for clergy. In the event of defaults by any of the responsible bodies, the remaining responsible bodies, including the Commissioners, would continue to be responsible for the entire liabilities of the Scheme. e Commissioners are joint employer, together with the other National Church Institutions, of most of the staff of the NCIs and, as such, have a contingent liability for salaries and other employment costs in the event of a default by any of the other joint employers. It is not practicable to reliably estimate the quantum of the above contingent liabilities.

e Commissioners hold monies on behalf of others. e sums are not included in the Commissioners' balance sheets.

15. Funds held on behalf of others

Residential service charges, sinking funds and tenants' deposits Trust funds Total funds held on behalf of others

2010 £m

2009 £m

11.2

10.3

5.2

4.6

16.4

14.9

Residential service charges, sinking funds and tenants’ deposits e services charges and sinking funds are paid in advance by tenants in order that property repairs and maintenance works can be carried out. Trust funds e Commissioners are trustees of 40 funds, mainly restricted permanent endowment funds. eir income, £0.2m (2009: £0.2m), is applied in accordance with the terms of the trusts, to church repair and other purposes. Certain other trustees are directed to pay some or all of their income to the Commissioners for specified purposes. e total amount received was £0.1m (2009: £0.1m).


Stipends and Professional advisers National clergy payroll e Commissioners administer the national clergy payroll on behalf of the Church. is payroll covers the majority of clergy. Exceptions include chaplains working in the Forces, hospitals, prisons and schools. e table shows the total stipends and National Insurance administered by the Commissioners. Payments funded by dioceses, cathedrals, trusts & other bodies

Diocesan bishops, suffragan & assistant bishops Cathedral clergy Parochial clergy Other clergy, deaconesses & licensed lay workers Employers' National Insurance Total Stipends and National Insurance

2010 £m 0.7 170.2 11.5 10.5 192.9

e Commissioners also use the national payroll to pay pensions to clergy. Apart from the amounts disclosed in note 5 to the financial statements, they also paid pensions under the Church of England Funded Pensions Scheme on behalf of the Church of England Pensions Board. ese amounted to £10.1m (2009: £8.6m) and were reimbursed by the scheme.

Professional advisers Bankers:

National Westminster Bank plc

Custodians:

JP Morgan Chase Bank

Solicitors:

Official Solicitor to the Church Commissioners, Charles Russell, Farrer & Co, Radcliffes Le Brasseur

Auditors:

Deloitte LLP

Actuaries:

Hymans Robertson LLP

2009 £m 0.6 169.8 12.1 10.4 192.9

Statutory and discretionary payments by the Church Commissioners 2010 £m 3.6 3.2 0.3 0.7 0.5 8.3

2009 £m 3.7 3.3 0.4 0.8 0.5 8.7

Total

2010 £m 3.6 3.9 170.5 12.2 11.0 201.2

2009 £m 3.7 3.9 170.2 12.9 10.9 201.6

Annual Report 2010 | Money available, actuaries’ report | 49

Money available resolution and actuaries’ report Money available resolution As required by the Church Commissioners Measure 1947 (as amended), at the Annual General Meeting of the Commissioners to be held on 15 June 2011, the Board of Governors will recommend that the meeting (i) receives the Annual Report and Financial Statements; and (ii) notes an update on the spending plans 2011-2013.

At its meeting in March 2011 the Assets Committee, having received updated advice from its actuarial advisers Hymans Robertson LLP (as required by the Pensions Measure 1997) which is summarised below, resolved to inform the Board that the Commissioners’ expenditure plans for 2011 could be made firm.

Independent actuaries’ report e Commissioners hold assets from which they pay pensions to retired clergy, other licensed ministers and staff and provide money to support the mission and ministry of bishops, cathedrals and parishes and for other purposes. e sums available for nonpensions support are significantly affected by the extent of their pension obligation. In order to assist the Commissioners in formulating their distribution policy, we carried out a detailed review of the Commissioners’ fund and pensions obligations as at 31 December 2009. e main purposes of our review were to (i) place a value on the Commissioners’ obligations to pay pensions to clergy; (ii) determine a sustainable level of annual discretionary distribution that can be paid by the Commissioners from their funds aer taking into account their pension obligations; and (iii) recommend maximum distribution levels to the Commissioners’ Assets Committee. We recently carried out an interim review of the fund as at 31 December 2010 in order to update our assessment of the fund’s capacity for distributions for purposes other than pensions. Many occupational pension schemes have actuarial valuations performed using significant margins for prudence. is is done so that the scheme has a funding buffer should future events prove unfavourable, in particular if the scheme’s sponsoring employer becomes insolvent. In contrast, our calculations for the Commissioners were made on a ‘best estimate basis’ and did not include such margins of prudence. We consider that margins are not required, as the Commissioners’ assets are already significantly larger than their obligation to pay pensions, and no further margin is necessary. Moreover, if margins were to be included, current non-pension distributions would be reduced, with the expectation that they could be increased in the future by more than the planned increases in line with earnings. is would lead to intergenerational inequity, with the future recipients of distributions receiving more at the expense of current recipients. It should be noted that the sums which the Commissioners’ assets are able to support by way of sustainable non-pensions distributions are extremely sensitive to a number of factors. ese include the Commissioners’ actual investment performance, the assumed average future investment return, actual increases in the national minimum stipend (on which the starting level of pension is based) and pensions and the actual and prospective longevity of pensioners.

e main results of our calculations were that: • As at 31 December 2010, £1,623m of the Commissioners’ assets were required to meet their pension obligation. • Having regard to the Commissioners’ long term objective to increase the level of their support for purposes other than pensions in line with the general level of earnings, we advise that no more than £283.8m should be distributed for these purposes in 2011-2013. In the light of the most recent review as at 31 December 2010, we have no objection to the Commissioners continuing with the planned distributions for 2011-2013 as they are. We consider that distributions at this level are not likely to lead to an adverse consequence for the Commissioners’ long term financial position. • We recommend that the Commissioners should continue to pay some of their non-pensions distributions, say at least between 5% and 10%, in a form that will automatically cease, or can be stopped at relatively short notice, say within a year or two. is will put the Commissioners in a better position to cut back distributions more easily in the future if this becomes necessary because future experience turns out to be unfavourable. We have been provided with details of the Commissioners’ actual distributions in 2010 and a forecast of proposed distributions in 2011. e proposals are in line with the results of our review set out above. We recommend that the Commissioners’ situation be reviewed at least annually with a detailed re-assessment of the position at three-yearly intervals. We recommend that the next detailed reassessment should take place in early 2013.

Charles Young Hymans Robertson LLP 7 March 2011

50 | Analysis between dioceses | Annual Report 2010

Analysis between dioceses of the main elements of charitable expenditure (excluding clergy pensions) Parish mission and ministry support (3)

Bishops' ministry (4)

Cathedrals' ministry

Total

2010 2009

2010 2009

2010 2009

2010 2009

£m

£m

Bath & Wells 0.2 0.2 Birmingham 1.9 1.9 Blackburn 1.0 1.1 Bradford 1.2 1.2 Bristol 0.8 0.3 Canterbury 1.0 0.9 Carlisle 0.8 0.8 Chelmsford 3.4 3.2 Chester 0.3 0.3 Chichester 0.3 0.4 Coventry 0.2 0.3 Derby 1.3 1.2 Durham 2.7 2.6 Ely 0.6 0.1 Exeter 2.1 1.7 Gloucester 0.1 0.1 Guildford 0.1 0.2 Hereford 0.4 0.5 Leicester 1.3 1.3 Lichfield 2.1 2.2 Lincoln 0.6 0.5 Liverpool 2.3 1.9 London 1.1 0.7 Manchester 3.0 2.4 Newcastle 1.8 1.9 Norwich 1.5 1.4 Oxford (1) 0.8 0.4 Peterborough 0.8 0.4 Portsmouth 0.4 0.3 Ripon & Leeds 1.3 0.8 Rochester 0.7 0.4 St Albans 0.8 0.4 St Edmundsbury & Ipswich 0.2 0.3 Salisbury 0.1 0.2 Sheffield 2.1 2.0 Sodor & Man (2) Southwark 0.5 1.0 Southwell & Nottingham 1.3 1.3 Truro 0.8 0.8 Wakefield 1.5 1.6 Winchester 0.2 0.3 Worcester 0.5 0.5 York 2.0 2.0 Europe National support 0.6 Total 46.8 42.0

£m

£m

1.3 0.7 0.3 0.3 0.4 0.5 0.2 0.3 0.3 0.4 0.2 0.2 0.4 0.3 0.7 0.5 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.6 0.5 0.4 0.4 0.6 0.5 0.3 0.3 0.3 0.4 0.4 0.4 0.3 0.3 0.5 0.5 0.4 0.4 0.4 0.4 0.9 0.8 0.4 0.5 0.3 0.3 0.5 0.5 0.5 0.5 0.5 0.3 0.4 0.2 0.3 0.4 0.4 0.3 0.4 0.7 0.3 0.3 0.4 0.4 0.4 0.7 0.2 0.1 0.5 0.6 0.5 0.3 0.3 0.4 0.4 0.5 0.4 0.4 0.4 0.8 0.3 0.2 0.4 0.5 7.7 7.1 26.4 25.9

£m

£m

0.1 0.2 0.3 0.3 0.2 0.1 0.2 0.2 0.1 0.1 0.2 0.2 0.1 0.1 0.2 0.2 0.2 0.2 0.3 0.2 0.1 0.1 0.1 0.2 0.2 0.1 0.2 0.2 0.2 0.2 0.2 0.2 0.1 0.2 0.2 0.2 0.2 0.3 0.1 0.2 0.1 0.1 7.7

0.1 0.2 0.3 0.3 0.2 0.1 0.2 0.2 0.2 0.1 0.2 0.3 0.1 0.2 0.2 0.2 0.2 0.2 0.3 0.2 0.1 0.1 0.1 0.2 0.2 0.1 0.2 0.2 0.2 0.2 0.2 0.2 0.1 0.2 0.2 0.2 0.2 0.3 0.1 0.2 0.1 7.4

£m

£m

1.6 1.1 2.4 2.5 1.7 1.8 1.7 1.8 1.4 0.9 1.4 1.2 1.4 1.3 4.3 4.0 0.9 0.9 0.9 1.0 0.8 0.9 1.9 1.8 3.3 3.3 1.2 0.7 2.8 2.3 0.6 0.6 0.6 0.7 1.0 1.0 1.9 1.9 2.8 2.9 1.1 1.0 2.8 2.4 2.1 1.6 3.6 3.1 2.3 2.4 2.1 2.0 1.3 0.9 1.5 0.9 0.9 0.8 1.8 1.5 1.4 0.9 1.3 1.3 0.7 0.8 0.7 0.7 2.6 2.9 0.2 0.1 1.1 1.7 2.1 1.9 1.3 1.4 2.2 2.3 0.7 0.8 1.1 1.5 2.4 2.4 0.4 0.5 8.4 7.1 80.9 75.3

Due to roundings, column and row totals may appear not to equal the sums of the individual figures. Notes: (1) Oxford received support for cathedral ministry but the amount was less than £50,000. (2) Sodor & Man received parish mission and ministry support but the amount was less than £50,000. (3) Parish mission and ministry support comprises grants to dioceses by e Archbishops’ Council, payments direct to clergy, national support (insurance subsidies and minor grant payments). (4) Bishops’ ministry includes under national support, housing and office premises costs for Lambeth Palace, Lambeth Palace Library and ancillary properties in all sees, and the office and working costs for the two archbishops, their advisers and the Provincial Episcopal Visitors.

Annual Report 2010 | Lists of larger investments | 51

Lists of larger investments as at 31 December 2010

Direct stock exchange and fixed interest holdings over £10m Royal Dutch Shell HSBC Vodafone BP Rio Tinto GlaxoSmithKline BHP Billiton Standard Chartered Unilever Anglo American AstraZeneca BG Tesco Xstrata Barclays US Treasury Variable 2015 Prudential Treasury Variable Rate Index Linked 2017 Lloyds Banking Nestle Reckitt Benckiser Exxon Mobil BT Impax Environmental Markets National Grid Apple Microso US Treasury Variable 2018 Johnson & Johnson Centrica Pfizer Treasury Variable 2055 Cisco Systems Northern Trust Treasury Variable Rate Index Linked 2016 Roche Brambles

Twenty most valuable property holdings £m 89.9 82.2 67.5 64.7 46.0 45.5 38.0 31.3 29.9 29.8 29.5 29.5 26.6 25.8 23.0 19.3 18.6 18.5 17.8 17.3 17.0 16.2 14.7 13.6 12.9 12.3 12.2 12.1 11.7 11.5 11.0 10.6 10.6 10.3 10.3 10.2 10.0

Aberdeen Property UK Retail Parks Partnership (partnership interest) Future Development Phases, Ashford Carlisle Estate Chichester Estate Ely Estate Halsall Estate e Hyde Park Estate Imperial House, 15-19 Kingsway, London, WC2 ING Clarion REIT ING Property Fund Central Europe (partnership interest) ING Nordic Property Fund (partnership interest) e Lendlease Retail Partnership (partnership interest) 19-26 Long Acre, Covent Garden, London, WC2 MetroCentre (10% interest and associated land) MGPA Asia III (partnership interest) e Pollen Estate (shared interest) Reedswood Retail Park, Walsall Rochester Estate Royal Lancaster Hotel, London, W2 South Lincolnshire Estate

Notes: e aggregate values of the holdings shown in the two sectors above are respectively 27% and 66% of the total values in each sector. ese lists record the Commissioners’ most valuable stock exchange and property holdings. Requests for further information should be made to the Secretariat – see back cover for contact details.

52 | Board and Governors | Annual Report 2010

The Church Commissioners and Board of Governors at 14 April 2011

e Board of Governors transacts the functions and business of the Commissioners except where, by statute or through delegation by the Board, these are exercised by Committees. Except State office holders, all Church Commissioners are members of the Board of Governors. e Most Reverend and Right Honourable Dr R D Williams Archbishop of Canterbury, Chairman e Most Reverend and Right Honourable Dr J T M Sentamu Archbishop of York Church Estates Commissioners appointed by HER MAJESTY A Whittam Smith CBE First Church Estates Commissioner T Baldry MP Second Church Estates Commissioner* THE ARCHBISHOP OF CANTERBURY T E H Walker CB Third Church Estates Commissioner Elected by the General Synod HOUSE OF BISHOPS e Right Reverend and Right Honourable Dr R J C Chartres KCVO Bishop of London e Right Reverend D A Urquhart Bishop of Birmingham e Right Reverend M Hill Bishop of Bristol e Right Reverend Dr P R Forster Bishop of Chester HOUSE OF CLERGY e Reverend Canon R M Baker e Reverend Canon D Stanton e Reverend S J Trott HOUSE OF LAITY Mrs A R Alexander Canon P N E Bruinvels G D R Oldham FCSI J P Vince MRICS Elected by the deans e Very Reverend A Newman Dean of Rochester e Very Reverend Dr C G Hardwick Dean of Truro Nominated by HER MAJESTY H Hart Canon Dr J A Spence OBE DL J Wythe FRICS THE ARCHBISHOPS OF CANTERBURY AND YORK P Harrison QC P W Parker TD FIA J N Sykes

THE ARCHBISHOPS OF CANTERBURY AND YORK Aer consultation with others including the Lord Mayors of the Cities of London and York and the Vice-Chancellors of Oxford and Cambridge Universities B Carroll H Rees-Jones Mrs E C Osborne State office holders e First Lord of the Treasury e Lord President of the Council e Secretary of State for the Home Department e Secretary of State for Culture, Media and Sport e Speaker of the House of Commons e Speaker of the House of Lords Secretary to the Church Commissioners and Board of Governors A C Brown FRICS Assets Committee Subject to any general rules made by the Board, has an exclusive power and duty to act in all matters relating to the management of the Commissioners’ assets A Whittam Smith CBE Chairman J N Sykes Deputy Chairman e Bishop of Bristol e Reverend Canon R M Baker B Carroll H Hart G D R Oldham FCSI Mrs E C Osborne J Wythe FRICS Committee Secretary A C Brown FRICS Audit Committee Acts in matters relating to the external auditors, the annual accounts and internal control systems Canon Dr J A Spence OBE DL Chairman Mrs A R Alexander C G Daykin CB FIA† S East† G Lynn† H Rees-Jones Committee Secretary M Cole Bishoprics and Cathedrals Committee Acts for the Board in matters relating to episcopal and cathedral support T E H Walker CB Chairman e Dean of Truro Deputy Chairman e Bishop of Birmingham e Bishop of Grimsby†§ e Dean of Rochester§ e Reverend Canon J M Haselock†§ e Reverend M Bide† Ms S Bassham†§ P W Parker TD FIA Mrs H Hill Representative of Bishops’ Wives†‡ Committee Secretary P Lewis MRTPI

Nominations and Governance Committee Advises the Board on appointments, use of trustees’ skills and best practice in governance B Carroll Chairman Canon P N E Bruinvels Deputy Chairman A Whittam Smith CBE T E H Walker CB e Bishop of London e Reverend S J Trott Canon Dr J A Spence OBE DL Committee Secretary A C Brown FRICS Pastoral Committee Acts for the Board in matters relating to pastoral reorganisation, parsonages and diocesan glebe T E H Walker CB Chairman e Bishop of Chester Deputy Chairman e Bishop of Oxford† e Venerable R Treweek† e Reverend Canon D Stanton e Reverend Canon S J Evans† e Reverend S J Trott Canon P N E Bruinvels Mrs J Flack† P Harrison QC Mrs C McMullen†§ Committee Secretary P Lewis MRTPI Church Buildings (Uses and Disposals) Committee Acts for the Board in matters relating to the future of church buildings closed for regular public worship T E H Walker CB Chairman e Reverend S J Trott Deputy Chairman e Reverend Canon R M Baker e Revd Canon P Cavanagh† e Reverend S Talbott† B Carroll Mrs E C Osborne J Steel† J P Vince MRICS C A Wilson† Committee Secretary P Lewis MRTPI * Entitled to attend and speak at any Committee ‡ Consultant or Observer † Non-Commissioner § Nominated by the Archbishops’ Council e Church Commissioners’ Annual Report & Accounts for the year to 31 December 2010 have been prepared by the Board of Governors and will be presented to the Commissioners’ Annual General Meeting in June 2011. ey will be sent to the Lord Chancellor and to the Secretary General of the General Synod in accordance with the Church Commissioners Measure 1947.

Further copies of this report may be obtained free of charge from: The Secretariat Church Commissioners Church House Great Smith Street London SW1P 3AZ tel: fax: e-mail: website:

020-7898 1135/1619/1623 020-7898 1131 [email protected] www.churchofengland.org/about-us/structure/churchcommissioners/

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