A Detroit-style pension scheme catastrophe could potentially happen in the UK, a consultant has warned.

Broadstone said that the bankruptcy of the US city of Detroit exposed a very significant deficit in its pension scheme and that a similar catastrophe could happen in the UK.

John Broome Saunders, a Broadstone actuary, said: "Received wisdom in the UK is that local authorities don't go bust – and therefore it follows that robust funding of their pension obligations doesn't really matter.

"Events in Detroit provide a cautionary tale highlighting the naivety of such an attitude."

Broome Saunders pointed out that UK local government pension liabilities are around £200bn, spread across around 100 different regional schemes and said that pretty much every single scheme is in deficit.

He added that most of these schemes have adopted higher-risk investment strategies and that none of them is protected by the Pension Protection Fund (PPF).

Broome Saunders said: "UK central government has made clear efforts to improve the security of private sector pension schemes over the last few years – perhaps it should now turn its attention to local government schemes, before a Detroit-style insolvency leaves an entire region with tens of thousands of impoverished pensioners."

First published 25.07.2013

monique_simpson@wilmington.co.uk