The Church of England has published a second report on the impact of the credit crunch and recession on the financial position of the Funded Clergy Pension Scheme.

The report puts forward various options relating to the future of the scheme and reveals that the last actuarial valuation of the scheme, carried out as at 31 December 2006, exposed a deficit of £141m.

The report says the deficit is currently being eliminated by way of extra contributions paid by the ‘employers’ participating in the scheme, in addition to the contributions required to pay for future benefits. Some modifications were also made to the scheme in 2007 to help contain costs.

An annual update on the financial position of the scheme reveals that the deficit on the scheme has risen to £352m as a consequence of the general fall in share prices in 2008 and the fall in the yields on government securities which are used to calculate pension scheme liabilities.

The update also reveals that if conditions remain unchanged at the end of 2009, when the next formal valuation of the scheme takes place, there would need to be a significant increase in the pension contribution rate.

The scheme trustees, the Church of England Pensions Board, has been monitoring the situation closely and in April concluded that the deterioration in the funding position necessitated an interim increase in the contribution rate from 39.7 per cent to 45 per cent of the pensionable stipend with effect from 1 January 2010 pending the results of the next triennial valuation which will become available later in 2010.

The report published on Tuesday has been prepared by a task group commissioned by the two Archbishops and comprises the Chairman of the Pensions Board Dr Jonathan Spencer, the First Church Estates Commissioner Andreas Whittam Smith, and the Chairman of the Archbishops’ Council’s Finance Committee Andrew Britton assisted by the Chief Officers of the three organisations and the Chief of Staff at Lambeth Palace.

The task group believes that further changes to the scheme will be necessary to return it to affordability, and the report sets out a number of proposals for achieving this which include limiting the annual increase in the pensionable stipend, moving for future service the accrual period for a full pension from 40 to 43 years, changing the pension age from 65 to 68 and contracting back into the Second State Pension.

The report also sets out options for the future structure of the scheme including retaining the existing defined benefit arrangement, moving onto a defined contribution basis and introducing a hybrid arrangement.

Mr Britton, who chairs the task group said: “It is regrettable that the Church is having to consider further changes to the scheme, but unless there is a dramatic improvement in the value of the pension fund in the second half of this year, further action is unavoidable.

"We believe that we have identified some options that will deliver a good pension within the limits of what the Church as a whole can afford.”

The report has been issued to all the organisations participating in the scheme, including the 44 diocesan boards of finance, and responses are due by the end of October. The task group will then make its final recommendations to the Archbishops’ Council which will decide the proposals to be put to the General Synod for ultimate approval any changes to the scheme rules.