Pension deficit of London’s government passes £10bn

The combined deficit in the pension funds of the 32 boroughs, the City of London Corporation, the Greater ­London Authority and Transport for London climbed from £7.63 billion to £10.23 billion in the 12 months to the end of March.

The biggest single shortfall was at Transport for London, where it rose by almost 50 per cent to £1.15 billion.

The biggest council deficit was at Brent with a shortfall approaching half a billion pounds, according to the research carried out by consultant Anthony Kimber on behalf of the Standard.

Experts said councils are failing to put enough money aside to pay the guaranteed retirement benefit of tens of thousands of former workers — from cleaners to chief executives — in future years.

Independent pension consultant John Ralfe said: "If you look at the pensions promises made to employees today you have to ask, How much will they cost?' and Is there enough money going in now to pay for them?' No there isn't.

"If it costs 30 per cent of salary to fund a local government pension, exactly who is writing the cheque for 30 per cent? Show me the cheque."

The black hole has grown since the Standard first exposed the shortfall last March, in part because of the performance of the stock market.

About three-quarters of local authority pension fund assets are invested in shares, which fell steeply in value in the run-up to the financial year end on 31 March, when the valuations were made.

The deficits will be smaller now because of the dramatic rise in the FTSE 100. But, with life expectancy continuing to rise, experts feel there is little chance of the gap closing.

Council finances are also expected to come under increasing strain in the coming years as the Treasury looks to cut public-sector spending.

A formal triennial valuation of all local authority pension funds has to take place on 31 March this year.

Employees have already been told they will not get a pay rise this year and any attempt to reduce pension benefits will be bitterly resisted by the unions.

Communities Secretary John Denham has said highly paid staff will have to contribute more to their pensions from their own pocket.

A spokesman said: "There are rules to ensure schemes remain fair, and affordable to the taxpayer, and any deficits cannot be passed on directly to council taxpayers."

But Mr Ralfe added: "There are only two ways to close the gap — more cash contributions or betting on the stock market and getting lucky. But relying on the casino is probably not a good way of running local government finances."

Case study: How Brent's pot is divided

Pension Fund Assets £306.8 million
Pension Fund Liabilities £785.7 million
Pension Deficit £478.9 million
Chief executive Gareth Daniel. Started his local government career as a social worker with Ealing council in 1976. Began working for Brent council in 1986 and became chief executive in 1998.
Age 55
Salary £170,000 to £179,000
Years of service in local government 34
Likely pension at 65 circa £130,000 (if no lump sum taken)
Council cleaner average salary circa £15,000
Typical pension at 65 £5,000