LOCAL authority workers could face steep rises in pension contributions as councils count the cost of huge deficits in retirement schemes.

Falls in the stock market have wiped hundreds of millions of pounds from the pension pots of local authorities, which will have either to raise council taxes further or seek a change in pension rules so that they can charge their staff more.

Local authority statements of accounts, due to be issued on Wednesday, will contain stark estimates of the widening gap between pension schemes’ assets and liabilities. A valuation of local authority pension schemes, to be done next March, is expected to confirm the funding crisis.

The last pension scheme valuations, in 2001, revealed a total deficit of £10 billion. This is expected to rise to £30 billion next year — nearly double the £17.8 billion income expected from council tax — because of falls in the stock market. About 70 per cent of council pension funds are invested in equities.

Kent County Council, the biggest county council, has the largest local authority pension scheme deficit in Britain. In 2002 Kent’s scheme had a deficit of £296 million. Its 2003 figures are still being audited, but the deficit is expected to be significantly larger.

Sir Sandy Bruce-Lockhart, leader of Kent County Council, has written to Nick Raynsford, Minister for Local Government and the Regions, asking for changes to the scheme rules to let councils increase employee contributions from 6 per cent to 8 per cent.

Taxpayers have already been hit by a leap in council tax of 12.9 per cent, on average, this year and are widely seen to be near to breaking point.

Sir Sandy said: “The issue with us and most local authorities is the fact that the scheme was devised quite a long time ago. Now people start work later, retire at 60, then live for a long time. That’s splendid, but it puts different needs on the scheme than when it was set up.”

Sir Sandy said that most local authorities were already making contributions of between 16 and 21 per cent into their schemes in an attempt to make up the shortfall, but employee contributions were stuck at 6 per cent under current rules. “There needs to be a rebalancing of the burden,” he said.

Surrey County Council’s pension scheme has a deficit of £356 million this year, up from £237 million in 2002. A spokeswoman said that the council would not make any decision on how to deal with the deficit until its valuation next year, but it expected the figures to be “painful”.

She said: “The Government has been consulting about the future of the scheme and one of the things we suggested was that employee rates, which haven’t changed since about 1929, go up.”

The London Borough of Wandsworth has already decided on council tax increases as the solution to its pension problem. A pension deficit of £153 million this year, up from £5 million in 2002, has contributed to producing a record 45 per cent rise in council tax in 2003.

A Wandsworth council spokesman expressed surprise that more London boroughs had not done the same, but admitted that most were afraid of making further rises in council tax.

He said: “Twenty-six of the 33 London boroughs have a council tax of more than £1,000 a year (for Band D properties) and they’re frightened to death to put it up.”