Anglican clergy are to be asked to work until the age of 68 to rescue the Church of England from a multimillion-pound pensions shortfall after the credit crunch left a “huge great hole” in a scheme created in 1998.

The increased longevity of the clergy, combined with greater regulation and the credit crunch, has left the Church’s new pension scheme with liabilities of £813 million, nearly almost double the £461 million market value of its assets.

The scheme, created in 1998 and part-funded by churchgoers who are being asked to put more in the collection pot than ever before to pay clergy pensions, has been especially hard hit because all its investments were placed in the stock market at the end of the 1990s. But in putting all its cash into equity, the Church was following established financial norms. Before that, the Church Commissioners, who manage the assets of the Church, had been criticised for losing millions of pounds in speculative property investments.

Clergy are in one of the few jobs that still enjoy fixed-benefit schemes. However, they are especially vulnerable to a pensions crisis because they live in tied accommodation owned by the Church and their meagre stipend of £20,000 leaves little surplus to invest in a retirement home or private pension scheme. Their pension works out at about two thirds of their stipend plus a lump sum, and they are entitled to work until the age of 70, although at present they can retire at 65 if they wish.

As the number of stipendiary clergy falls in line with cost-cutting and declining membership, the Church is becoming increasingly dependent on retired and non-stipendiary clergy to maintain its tradition of a ministry in every parish in the land.

In February the General Synod will debate a proposal to raise the clergy retirement age and to increase from 40 to 43 the length of service that must be given before a full pension can be claimed. The pensionable element of the clergy stipend will also increase at a lower rate than at present to help to ease the financial pressures on the Church.

At the end of last year there were 9,115 members of the new 1998 pension scheme, including most of the 8,700 active stipendiary clergy. There are currently a total of 8,700 active stipendiary clergy plus about 1,500 chaplains, numbering about 1,500.

Until 1997 all clergy pensions were funded by the Church Commissioners and so all service accrued by clergy before that point is deemed to be “banked” and cannot be affected. The current proposals related only to future service, although all clergy who are still accruing a pension are part of the new scheme.

Moving away from a fixed-benefit scheme could damage clergy morale, according to a briefing note from a task force set up by the Archbishops of Canterbury and York, Dr Rowan Williams and Dr John Sentamu, to examine the problem. The task force said: “For them, a guaranteed pension and access to affordable retirement housing have come to be seen as important ingredients of the compact between the Church and those who devote their working lives to full-time ministry.” the task force says.

“Setting any defined contribution or hybrid scheme at a relatively generous level would be one way of easing the pain for clergy involved in any change but it would have to be at a significantly lower rate than the existing defined benefit scheme, if an overall cost saving was to be achieved.”

Even if it puts an end to the present rate of benefit, the Church will still have to fund the present deficit. Dioceses are at present being asked to contribute 45 per cent of clergy stipends into the scheme. In reality it is people in the pews who are paying this. To meet the deficit this would need to increase to nearly 60 per cent, representing a hike in demands for donations from worshippers, many of whom are already giving as much as they can afford.

At present, the Church’s one million worshippers each give about £70 a year towards clergy pensions, amounting to £7,800 a year for each clergyman or woman. To make ends meet, this would have to increase to £110 per worshipper, or £11,000 for each stipendiary cleric. A diocesan consultation has concluded that worshippers are already giving as much as they can afford and that any increase along these lines is unsustainable.

“The view is that we are at the limit of affordability,” a Church pensions insider said.

Dr Jonathan Spencer, the chairman of the Church of England pensions board, said that the board’s professional advisers had “consistently” recommended placing the scheme’s assets in equities, “which have historically produced the best returns”.

Dr Spencer said: “The scheme concerned is responsible for paying pensions in respect of clergy service after 1 January, 1998. The fact of the matter is that this scheme remains quite “immature” in pensions terms, with approximately £70 million coming in each year to fund future pensions, and only about £12 million going out. So the scheme’s main liabilities are some way in the future. With this in mind, we have acted at all times in accordance with mainstream actuarial and investment advice given by the board’s professional advisers. This advice has consistently been that the board should place the scheme’s investments in equities and equity type investments, which have historically produced the best returns.

“Even taking into account the sharp fall in share prices as a result of the credit crunch last year, over the 30-year period up to the end of 2008 investments in UK shares returned an average of 7.1 per cent per annum compared with gilts [government bonds], which returned an average of 5.6 per cent.”

He said that it was “totally incorrect” to suggest that the policy of investing in the highest-performing long-term assets was contrary to widely shared practice in relation to “immature” pension schemes.

Dr Spencer added: “While we are realistic about the challenges facing the clergy pension scheme, we have already taken a range of actions to manage these with a programme of diversifying our investments to include holdings in property unit trusts, corporate bonds and currency management. Other alternative investments are being examined as a way of spreading risk.

“The consultation on proposed changes to the clergy pension scheme concluded at the end of October, and in light of that recommendations will come forward to the General Synod in February 2010 so that the wider Church can be involved in discerning how best we handle the consequences of major market downturns, increased longevity of our members and increased regulation.

“We have every confidence that all our future commitments can be met.”

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