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Local authority pension schemes are still a "ticking time bomb", despite their financial health improving over the past year, a report has warned.

UK council schemes had a £54bn deficit in 2010-2011, research by the campaign group Taxpayers' Alliance suggested.

The combined shortfall is lower than in 2009-10, when it totalled £94bn, but remains higher than in 2008-09.

The group said the schemes needed major reform but councils said they had taken steps to ensure they were affordable.

The Taxpayers' Alliance campaigns for lower taxes and greater efficiency within public-funded bodies. It has published research into the state of all 101 local government pension schemes in England, Scotland, Wales and Northern Ireland.

It said it obtained the information from local authorities' annual statements of accounts in 2010-11 and used actuarial estimates for assets held by councils and their liabilities to calculate their overall funding situation.

It said Birmingham had the biggest deficit, measured in terms of the balance of its assets compared to its liabilities, of £1.3bn, while Glasgow was among 14 local authorities to have a deficit in excess of £500m.

The combined deficit narrowed by £40bn due to an improvement in the performance of the stock market - where many pension fund assets are invested.

But it remains higher than in 2008-9, when the estimated deficit totalled £51bn.

'Inflexible'

The organisation said local government final salary schemes - where entitlements are calculated on the basis of people's salaries at retirement - were "inflexible, too expensive" and needed urgent reform.

"The deficit in the local government pension scheme remains a ticking time bomb," said its director Matthew Sinclair.

"Councils should not take false comfort in the improvement in the stock market. Their pension liabilities continue to far outweigh their assets and the situation remains worse than two years ago."

More than 4.5 million workers are enrolled in the Local Government Pension Scheme, about 1.8 million of whom are still active contributors.

Ministers say the cost to the taxpayer of funding the scheme has spiralled in the last decade as people live longer and it is not longer fair to ask taxpayers to continue to foot the bill without reform.

The government is looking to save billions of pounds from the bill for public pensions, including £900m from the council pension scheme by 2014-15.

Ministers and unions are currently negotiating over long-term changes to the scheme's structure, with the government proposing to increase the amount workers contribute, raise the retirement age and make changes to the accrual rate - the rate at which annual benefits are earned.

Viability

The Local Government Association, which represents more than 400 councils in England and Wales, said the Taxpayers' Alliance figures were out of date and not "relevant" to the actual cost of pension schemes.

"Councils have taken steps to ensure the schemes, which are significantly funded by contributions from employees, are affordable for taxpayers, fair to workers and viable in the long-term," said Sir Steve Bullock, chair of the organisation's workforce board.

"The fact the nominal deficit fell by £37bn in just a year shows that we are getting it right and that the supposed ticking time bomb is already being defused.

"We will continue to work to ensure the ongoing viability of local government pensions."