An article in today’s FT considers a proposed reduction in the rate of pension accrual for Church of England clergy, referring to the poor performance of the pension scheme’s assets due to the heavy investment in equities. There are a couple of problems with the argument. First, the performance of the investments has resulted in a deficit. This will be there whatever happens to future rates of accrual, and these two issues should be considered separately. This is not to say that the rate of accrual should not fall – rises in longevity and falls in long-term interest rates will affect the Church of England’s pension scheme just as much as any other arrangement – but it is important to recognise this issue as distinct from the presence of any deficit. This point was recognised by John Ralfe (who is quoted in the FT) when he was interviewed on Radio 4 this morning. However, John Ralfe questioned the risk taken by investing in equities by the Church of England. This criticism is perhaps more questionable. There are strong academic arguments that listed companies should invest in bonds rather than equities in their pension schemes. This is because the investment strategy of a pension scheme affects the leverage of a company, and it is more tax efficient for firms to de-risk their pension schemes and manage leverage more directly (through debt and equity issuance and buy-back). The same is not true for charities such as the Church of England. Assuming they want (and need) to take some investment risk, the pension scheme is as good a place to do this as any. Criticism of charities for following the “cult of the equity” ignores the fact that equities are still expected to give higher returns than bonds in the long run due to the additional risk taken on, and if charities can cope with some volatility, equity investment is often a risk worth taking.