Freedom of Information requests made to pension fund managers in charge of the pensions of county, unitary, district and borough councils in England and Wales show that 83 out of 87 were in deficit at their last official valuation in 2007.
Since then, one in ten funds have conducted their own valuations, with deficits up more than 280 per cent on average.
Assuming this trend is replicated across all local government schemes, the Lib Dems say next year’s official valuation stands to uncover a deficit of more than £60bn.
The party says under current rules, councils would be forced to plug the gap of any increase in the deficit, which could mean a combination of service cuts and council tax hikes.
It says in response, the Government has “quietly” launched an informal consultation on removing the obligation on the funds to be 100 per cent funded.
Lib Dem Shadow Work and Pensions Secretary Steve Webb says: “The Government has failed to grasp the nettle of local government pensions funding.
“A failure to set aside enough money and run the scheme responsibly means millions of people could be faced with cuts to vital services and council tax hikes, hitting pensioners especially hard.
“Thanks to ministers sticking their heads in the sand many vulnerable people will suffer.”