NB. This is archived material from Assembly 2004

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Church Property Trustees

 

2.2 Beneficiary Fund

Key points:

• Provides retirement and other benefits for the ministers of the church.
• Is a mature fund, where more money is being paid out than paid in.
• The investment markets have been depressed for a significant part of the two-year reporting period, but they improved in the 2004 year.
• The actuarial review highlighted the medical benefit and administration costs as areas of concern. The medical benefit was withdrawn from 30 June 2004.Aon Consulting has been appointed as administrator from 1 October 2004.

2.2.1 Report

Two years ago, the equity markets bottomed in the aftermath of the events of September 11th 2001. The subsequent recovery has taken longer than in previous financial downturns largely because of uncertainties surrounding terrorism, the Iraqi War and growth and jobs in the global and especially the American economies. Whereas some signs of a modest improvement have been seen in the last year, there are growing concerns over high-energy prices, world wide political issues and imbalances in the global economies.

When assessing the position of the Beneficiary Fund it should be noted that this fund is now a "mature" fund. This means that it has more members who are retired than are pre-retirement and this has impact for the future.The total assets of the fund will tend to shrink each year because the benefits paid to retired and retiring members is greater than the contributions made, although periods of good investment income are obviously beneficial as demonstrated by this year’s results.

The fund allows retiring members to commute a significant portion of their pension for a lump sum. Since many contributing members are in the 55 to 65-age range we are forecasting a significant collective outflow of funds when they retire.

A table setting out the age profile of the fund follows:

Age Profile	No of Contributors	%
Under 35 Years	3	<1
Between 35 and 40 years	15	5
Between 40 and 45 years	43	13
Between 45 and 50 years	49	15
Between 50 and 55 years	71	22
Between 55 and 60 years	60	19
Between 60 and 65 years	67	21
Over 65 years	12	4
TOTAL	320	100

 

 

Even with this in mind, the focus of the investments in the Beneficiary Fund is to maximize the return to the Fund over a 10 to 15 year period. Accordingly, the Fund is invested in shares and other assets, which while they have the risk of fluctuation in value in the short term, are the assets that are most likely to give the best long-term returns.

During the year a major review of the investment strategy was undertaken with the assistance of professional advice and some adjustments were made to the various benchmarks. While the overall allocation to Growth assets is unchanged, the exposure to shares was reduced and two new asset classes were introduced - property and absolute funds. In the past the Trustees had invested in one property in Wellington that was sold in September 1999. However, future investment in property will be made through a dedicated property fund with a range of different types of property in different NZ cities under the direct management of Trust Investments Limited, Auckland. Other property managers may be appointed. Absolute Return funds are a relatively new type of investment. The absolute fund that we have invested in has over 40 different managers each with specialised investment strategies with the express object of earning a return greater than cash in both rising and falling markets.

A table showing a comparative breakdown of investments by asset type follows:

 

'000 omitted	2004	2003	2002
Call Money Market	14,805	13,687	5,856
Fixed Interest - New Zealand	11,594	15,390	15,468
Fixed Interest - Overseas	2,585	8,011	8,211
Australasian Shares	11,888	10,111	10,862
Overseas Shares	23,488	16,921	34,002
Commercial Property	3.528	Nil	Nil
Hedges and Currency Deposits	(14)	181	(287)
TOTAL	67,874	64,301	74,112

 

The Trustees do not have the expertise nor the time to invest the money directly themselves and have appointed professional investment managers who monitor the funds on a daily basis. BNZ, ING and Tyndall Asset Management (previously trading as Guardian Trust Funds Management) and Trust Investments are the Fund’s current managers. The managers invest either directly in funds set up specifically for the Trustees, or in pooled funds designed for tax-free investors.

A small amount of the Fund is lent, as mortgages to Ministers who purchase a home shortly prior to their retirement, on the basis that the amount advanced will be fully covered by their retirement entitlements from the Fund.

The Beneficiary Fund has tax-free status. There is currently a case before the Court of Appeal regarding the tax status of another church’s fund. The case has not yet been decided and it is unclear what impact, if any, it will have. We have arranged for a specialist tax lawyer to advise us about the case.

A summary of investment performance follows.

	This Year per annum	Last Year per annum
One year	11.43%	-4.69%
Three year average	-3.21%	-7.99%
Five year average	-0.76%	-1.76%
Ten year average	5.24%	4.73%

 

2.2.2 Accounts for the period

The draft financial statements for the year ended 30 June 2004 and the audited financial statements for the year ended 30 June 2003 are attached as an appendix. A summary of the accounts over the last three years follows:

 

	2004	2003	2002
Net Assets at start of Period	$62,959,927	$70,558,225	$87,582,998
Investment Revenue (net of fees)	$7,361,633	$(3,362,488)	$(12,766,443)
Contributions & Other Revenues	$1,464,965	$1,412,709	$1,418,815
Total Revenue	$8,826,598	$(1,949,779)	$(11,347,628)
Less Expenses	$379,043	$379,721	$348,590
Benefits Paid to Members	$4,757,234	$5,268,798	$5,328,555
Total Expenses & Benefits	$5,136,277	$5,648,519	$5,677,145
Change in Assets	$3,690,321	$(7,598,298)	$(17,024,773)
Net Assets at End of Period	$66,650,248	$62,959,927	$70,558,225
Members as at 30 June	320	336	336
Annuitants and Widows as at 30 June	460	459	458

 

2.2.3 Administration of the Beneficiary Fund

When the Trustees received the last Actuarial valuation of the Beneficiary Fund, the report showed a significant deficit if all existing arrangements as at 30 June 2003 continued unchanged. While this was to a large part due to the significant share market falls that followed the September 11 2001 terrorism attack, there were some administrative issues that required attention. The first was the significant increase that had occurred in the cost of the discretionary medical benefit under the scheme. The Trustees and the Beneficiary Fund Committee jointly investigated the options available, but in the end it was agreed that the benefit was unsustainable. The six months notice required to end the benefit expired on 30 June 2004.

The second issue raised by the valuation was the cost of administration. After investigating options, a joint committee of the Trustees and the Beneficiary Fund committee recommended that administration of the fund be put out to tender. The Assembly Office recognized the benefits of using a professional administrator and decided not to participate in the tender process. During August 2004 a contract was signed with Aon Consulting for the administration of the fund with effect from 1st October 2004.

Because they are specialists in the area, and their staff and computer systems are geared towards superannuation work, they can do the work more efficiently than the church office. Outsourcing administration is not unusual. Most New Zealand companies outsource their superannuation administration.

3. Burnett Loans

Key points:

• Provides loans for the assistance of ministers.
• New criteria to ensure loans are more widely available.

3.1 Purpose

The Burnett Loan Fund was established by the late Mrs Olive May Burnett "to provide assistance by way of financial loans to Ministers of the Presbyterian Church of Aotearoa New Zealand upon such terms and conditions as the Trustees in their absolute discretion may determine".

3.2 Report

During the last year the Trustees have reviewed the terms and conditions upon which loans will be granted. The review highlighted that a small group of ministers were using the facility rather like a revolving overdraft. The intention of the facility is to provide loans to overcome unusual short-term financial difficulties and in future new loans will be discouraged until existing loans are fully repaid.

Details in respect of loans granted form part of the financial statements of the General Assembly Fund. At 30 June 2004 loans totalling $449,041 were recorded across 71 ministers with a balance of $239,538 invested in the AIF. Interest is charged on loans at 0.5% pa below the BNZ Home Mortgage Floating rate and this interest, together with the interest earned by the balance of the fund on deposit with the AIF, is added to the principal each year. There is a small administration charge.

4. Samuel & Mary McNutt Trust – Glen Innis Station

Key points:

• Provides free holiday accommodation for ministers.
• $280,448 was granted to projects assisting children and young people.

The Trustees are responsible for Glen Innis Station, generously left to the Church by the late James and Maud McNutt. The farm is of some 600 hectares, situated east of Waipukurau and runs in excess of 6,000 head of sheep and 100 units of beef stock. Wool production in the last year was in excess of 38,000kgs.

The bequest was to provide a holiday home for ministers and their families and is widely used. Ministers living in the South Island are provided with assistance to cover their costs of travelling to Glen Innis. Any surplus after the provision of the holiday home is to be used for the support of children/young persons. During the period the Trustees made grants totalling $280,448 in support of a wide range of activities each designed to assist children. These grants were made in response to applications following an advertisement in sPanz.

Although the 2003 year produced a very significant surplus, the 2004 was savagely affected by the storms at the time of lambing with loses in the order of 1,000 lambs. This has had the effect of reducing income by about $70,000 in the past year. In all other respects the financial outcome was satisfactory.

The farm is very competently managed by Graeme Black. His wife, Margaret Black manages the Farmstays available to ministers. All who have used the facilities of the Farm appreciate their work and the success of the farm is in no small measure due to their interest and commitment.

The audited financial statements for the year ended 30 June 2004 follow as an appendix to this report.

5. Est CA Clark – Flaxburn

Key points:

• Extensive improvements to the property have improved financial performance.
• Provided $120,000 for Home and Global Mission work.

The Trustees are beneficial owners of a dairy farm situated in the South Wairarapa generously left to the Church by the late Christina Anne Clark.

In our report to last Assembly we recorded a new sharemilking agreement had just been entered into. The Trustees are pleased to record that Keith & Jo Dennis have worked tirelessly to improve the farm and the results of their efforts have been most pleasing. The farm has been transformed by the application of sound management practices and the stock size increased. The acquisition of an adjoining lease has added significantly to the carrying capacity. The quantity of milk solids produced has risen from just over 100,000 kgs two years ago to 172,000 kgs in the last season from a milking herd that had been increased to just on 500 cows. The farm is now amongst the top producing farms in the area.

However, the increased production comes with a requirement to increase investment in the processing company Fonterra. At the end of this year the investment in Fonterra was valued at just on $1 million. Even with this drain on the cash flow, distributions to the Church amounted to $120,000 during the period. In terms of the will these are shared between Home and Global Missions work.

The financial statements for the year ended 30 June 2004 follow as an appendix to this report. As this report is printed the audit is being completed but is not expected to alter the statements.

6. Property Transactions

Key points:

• All property transactions north of the Waitaki River come before the Trustees.
• Property handbook has been published to help parishes with property transactions.

Under the terms of the Act, the Trustees are required to hold title to all theproperty of the church north of the Waitaki River. (South of the river the Otago Foundation Trust Board holds property). The Trustees hold each property in trust for the ongoing congregation or organisation concerned and their role is to ensure the property is handled in accordance with the rules established by the Act and by the Book of Order.

Most parishes only buy or sell property occasionally. To them the regulations surrounding these transactions can seem daunting. For this reason the Trustees have this year produced "The Property Handbook", a step-by-step manual to guide parishes through the process in simple, straightforward language. A copy of the Handbook is available from the Trustees Secretary, and it is on the Presbyterian Church website. Ref: www.presbyterian.org.nz

The church has extensive property throughout the country. The nearest we have to a valuation of the buildings belonging to Parishes is the $560 million for which it is insured but this is, of course, exclusive of the value of the land. All property transactions such as sales, purchases, mortgages, and long-term leases (for more than a year) north of the Waitaki River must come before the Trustees. In the past two years we have given the following approvals:

 

	2004		2003
	No.	Value	No.	Value
Sales of Property	20	$2,435,830	30	$4,790,070
Purchases of Property	3	$1,440,000	7	$2,078,000
Mortgages on Property	4	$1,240,000	6	$1,485,500
Leases and other property activity	20		24

 

It should be noted that these are the figures for the approvals and in some cases the proposal did not proceed.

In the past the Trustees have not charged for the work involved with these property transactions, other than to recover our lawyers’ costs. There are other costs associated with all property transactions that are currently met from the charges levied on the Amalgamated Investment Fund. We believe that we cannot continue with this situation and from next year and in the interests of equity we will need to impose a charge of approximately $400 per transaction to cover these other costs

7. Legacies and Gifts

The Trustees acknowledge with gratitude the generosity of those who have left a bequest to the Church. During the past two years the following bequests have been received:

• Estate Maude Botille Vereker-Bindon - $1,000 for Overseas Mission work
• Estate David Ernest Mitchell - $10,000 for general purposes of the Crookston Church
• Estate Harriet Florence Sedcole - $2,000 for general purposes of St Andrews, Ashburton
• Estate Lesley F Cleghorn - $10,000 for general purposes of Assembly
• Estate Davina J A Gray - $24,000 for general purposes of the Mornington Church
• Estate Claude H Holyoake - $16,033.94 for general purposes of St Albans, Palmerston North
• Estate Jean S Kozenof - $20,000 for general purposes of St Cuthberts, Browns Bay
• Estate William J Smith - $665.58 to the Church for Home Mission and Global Mission equally

8. Charities Bill 2004

The Trustees have maintained a watching brief on the introduction of the Charities Bill.

The Government foreshadowed the establishment of a Charities Commission to manage all non-profit and other tax-exempt organisations some two years ago. A Bill to establish the Commission was introduced into the House of Representatives earlier this year. The InterChurch Working Party on Taxation commissioned an extensive submission to be presented to the Select Committee. It is hoped that the Select Committee hearings will result in a significant re-write of the proposals. The underlying concern with the present proposals is that they will impose very significant compliance obligations on all Parishes.

9. Auditors

Ernst & Young, Chartered Accountants, Wellington have been the auditors of the reporting entities of the Church and have signified their willingness to remain in office.

10. Appreciation

The Trustees have appreciated the continuing contribution of each Trustee and their associates over the period under review. We record appreciation also to those individual Trustees who, for various reasons, have been unable to continue to serve the Church in this capacity. Those who have resigned or retired during the period under review are Stewart Littlejohn, Charles Stewart and Fuimaono Tuiasau. The Trustees have been pleased that Mrs Margaret Shailer, Foxton and the Rev Perema Leasi, Wellington has each agreed to be nominated as Trustees.

Margaret N Galt
Chairman

E Douglas Langford
Secretary

End of this Report - Appendices to this Report Follow

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