Vatican pension deficit estimated at 1.4 billion euros — 10 years ago

Vatican officials warned the fund would be 'unmanagable' in a decade, ten years before Pope Francis warned of 'difficult decisions' to come.

Signage outside the Holy See’s Secretariat for the Economy. Pillar image.

The Holy See pension fund had an unfunded liability of almost 1.5 billion euros a decade ago, according to internal Vatican financial reports obtained by The Pillar.

The same documents show that Vatican financial authorities proposed measures to address the pension problem in 2015, while sources say that “virtually nothing” was done to implement those measures in the intervening years.

Meanwhile, the fund has continued into the red, in line with the Holy See’s broad financial crisis, raising serious doubts about the Vatican’s ability to pay the pensions of lay and clerical employees.

The Vatican has not confirmed the size of the current unfunded liability, but Vatican financial officials warn that the situation has only deteriorated in recent years.

The magnitude of unfunded liability — dating back years sheds — new light on Pope Francis’ decision in November last year to appoint Cardinal Kevin Farrell to oversee the fund as sole director, and to warn that the pension fund would be unable to meet its obligations “in the medium term.”

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On November 21 last year, Pope Francis sent a letter to the College of Cardinals warning that “a serious prospective imbalance” had been detected in the Vatican’s pension fund.

“The latest in-depth analyses carried out by independent experts … indicates a serious prospective imbalance of the fund, whose dimension tends to widen over time in the absence of interventions,” Francis wrote.

“This means that the current system is not able to guarantee in the medium term the fulfillment of the pension obligation for future generations,” the pope warned.

“Difficult decisions that … require a particular sensitivity, generosity and willingness to sacrifice on the part of all,” he cautioned.

But while the pope said that “recent” analysis had brought the pension fund issue to light, he did not outline the size of the financial black hole it faces.

Nor did Francis allude to previous efforts by Vatican financial authorities to flag the issue of the pension fund as urgent early in his pontificate.

While the pope noted that “imbalances” in the fund had widened “over time in the absence of interventions,” internal Vatican reports obtained by The Pillar show that specific interventions were proposed as early as 2015 but apparently not acted upon.

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In a November 2015 briefing paper prepared by the Secretariat for the Economy, then led by Cardinal George Pell, the department flagged a previous finding by COSEA, the Organization of the Economic-Administrative Structure of the Holy See, which had been created by Pope Francis in 2013.

COSEA reported that a “funding gap of at least EUR 700-800m was identified (on the basis of 2013 interest rates)” in the Vatican pension fund, and that in the Holy See’s health fund “expenses [are] expected to increase to a non-sustainable level; expenses per capita are more than 50 percent higher than at comparable Italian health funds.”

The issues were flagged by the Secretariat for the Economy within the context of “an alarming trend in Holy See finances,” according to the briefing paper which was prepared by a working party set up to address systemic problems in asset management and income shortfalls, and to propose “short, medium, and long term plans” to increase revenue and cut costs.

The briefing listed the Vatican pension fund as “a major area of liability” in need of significant financial and structural reform, including “improved governance and established oversight by the Council [for the Economy] and the Secretariat [for the Economy]” and “greater clarity around criteria for investment of assets and selection of asset managers.”

But a second briefing document, also prepared in November 2015 by the Secretariat for the Economy, found that the state of the pension fund had worsened considerably since COSEA’s initial analysis.

“A serious financing gap in the Pension Fund was discovered and confirmed through means of an actuarial analysis of long-term liabilities,” the briefing warned.

While COSEA had identified a 900m euro unfunded liability in 2014, “more recent analysis has indicated the unfunded liability is now estimated to be 1.4 billion EUR.”

The same document also sounded a note of caution around the pension fund and the financial health of the Vatican city state: “It is important to note that while the Holy See is in deficit, the Governatorato [of the city state] is generating and retaining profits,” the briefing said.

Still, such apparently solid financial returns “do not include necessary contributions to balance the Pension Fund deficit,” the report noted.

A detailed report on the state of the fund, including the nearly 1.5 billion euro unfunded liability, was presented in May 2016 to the Council for the Economy, the body created by Pope Francis in 2014 to oversee the economic, administrative, and financial structures of the Holy See, according to minutes of the meeting obtained by The Pillar.

Speaking to The Pillar this week, senior sources close to the Secretariat for the Economy and the Vatican’s Office of the Auditor General confirmed the working group’s presentations and conclusions, and told The Pillar that “virtually nothing” had been done to address the shortfall in the intervening years.

“The Holy Father spoke about ‘the absence of interventions’ over time and what this has done to the state of [the pension fund], but this is sadly not a new discovery. All this was known years ago, the same conclusions were reached, and the same problems seen,” said one senior official.

“The question which ought to be asked is: ‘Why have there been no interventions for a decade?’ The situation is now only worse.”

Asked if and by how much the unfunded liability had grown since the 1.4 billion euro estimate, the official declined to comment. “I’m not going to give a number for that,” he said, “but it would be shocking.”

After Cardinal Farrell was placed in charge of the pension fund last November, the Association of Vatican Lay Workers — the Vatican City trade union which represents around 1,000 lay employees — expressed concern in an open letter.

“Pensions are above all a guarantee for future generations, in a matter of fairness and justice, who are entitled to a worthy future with an adequate pension check,” the union wrote. “Who certifies a possible liability?”

“We have no knowledge of the fund’s budget either,” the group said, complaining that the status of the fund was effectively hidden from its beneficiaries.

“The data are not public. Yet when one contributes to a financial or pension scheme, since we pay with our contributions, the accounts should be available for all to see,” the letter said.

“If one now wants to intervene on pensions, then what results has the financial reform initiated four years ago had?” said the association.

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Another senior figure in Vatican finances told The Pillar that the lack of meaningful reform in Vatican finances in the last several years was “an opera that is both a comedy and tragedy.”

“There have been regulatory reforms, laws, norms, freezes on staff, redundancies, and salary cuts,” he said, “but these are little things. It is trying to empty the lake with coffee cups.”

In the course of its briefing notes and presentations to the Council for the Economy, the Secretariat for the Economy’s working group made a number of detailed proposals for addressing both the pension fund shortfall and the wider Vatican financial crisis.

The 2015 documents highlighted especially “poor controls in real estate administration,” and found that “indicative market valuation – which was not available before – showed an aggregate market value which is 4 times as large as book value” for the Holy See’s property portfolio, which showed a “lack of any return-to-equity management.”

“Options and potential from the redevelopment of Santa Maria in Galeria,” a 1,000 acre site on the outskirts of Rome, were highlighted as a particular project.

According to the 2015 proposals, a decision on proposed site development options was due to be completed within 18 months, and development set to begin within 36 months.

In 2024, the Holy See announced that Pope Francis had designated the 1,000 acre site for the erection of solar panels.

“That was not the sort of plan identified for increasing revenue,” the official told The Pillar. “We had other ideas more directly focused on addressing the budget crisis, rather than the climate.”

One source with knowledge of the proposals told The Pillar that the site was recognized as an asset that could be repurposed and re-developed to better serve the community, and to generate funds that could offset the deficit, especially in the pension fund.

“A committee was formed, with the support of the Holy Father, to start assessing options, but it only met a few times,” the source said. “Self-interest and fear slowed the project down.”

“As the land was well located and could be well served by [public] transport, an option of a residential development along with a high tech business park was an early favored possibility,” he recalled.”

“It was bold and would have taken some years to develop, but it was anticipated the timing — around 10 years — would align perfectly with the deficits becoming unmanageable, especially in the pension fund. Unfortunately this did not proceed.”

Ten years later, the deficits have become “unmanageable” as predicted, but without any new revenue streams coming online, he noted.

The Secretariat for the Economy’s 2015 briefing also flagged serious deficiencies in Vatican fundraising. Key areas to be addressed to better maximize potential revenue included the “quality of calls for donations,” the “mitigation of reputational risks” by the Vatican, and increasing the “quality of donors management.”

The working group found a “lack of a strategic fundraising approach and donor management,” across the Holy See, it said, while warning about a “culture to think of donations as the confidential business of individual entities; [and] reluctance against transparency and accounting.”

Shortly before Pope Francis was admitted to hospital in February of this year, the Vatican announced that he had created a new commission for promoting donations to the Holy See.

In a preface to the donation commission’s statutes, the pope said he had decided to establish the new body “to support the service of the Apostolic See and in view of the current economic situation.” He noted that it would be a permanent institution “dedicated to the collection of donations and offerings for the Apostolic See.”

The major mechanism by which the Holy See receives donations for its work is via Peter’s Pence, the annual collection to support the pope’s work, which reported an uptick in donations for 2023, but allocated nearly 90% of revenue to Vatican operating expenses.

Although voluntary donations climbed after 2022, total revenue to Peter’s Pence in 2023 nearly halved, after the fund disposed of millions of euros in real estate assets to help cover the operations of the Roman curia the previous year.

It is unclear what percentage of the annual Vatican operational budget was made up by the 90 million euros (about $95 million) it received from Peter’s Pence. The Vatican’s Secretariat for the Economy formerly published an annual mission budget presentation, but has not done so since 2022.

The Holy See, the legal person of the Catholic Church’s central government, encompassing both the Roman curia and the operations of the Vatican City State, is facing a budget black hole, with its expenses believed to exceed its income by tens of millions of dollars annually.

Pope Francis announced in November a sweeping overhaul of the Vatican’s pension fund with the overall goal of achieving “zero deficit.”