A £60 million deficit has been identified in Brighton and Hove City Council's pension fund.

The scheme has a shortfall equating to £10,576 for each of the 5,658 employees, who will rely on the payments when they retire.

Council tax payers will have to help fund a two per cent increase in the council's contribution to pensions because employees' payments will not rise.

The extent of the crisis became clear at a meeting of the full council last week, when members also voted to increase their allowances by two per cent and confirmed chief executive Alan McCarthy would receive £145,000 a year.

Council officials have blamed a slump in world markets for the shortfall and say they have already budgeted for the amounts needed to bridge the gap.

Tony Watson, of public sector union Unison, said: "Figures like this clearly sound alarming and I am concerned enough to ask the council what the implications are.

"Brighton and Hove is part of a big pension fund and, if this has dropped, we would have to be worried about it."

It remained unclear last night how much a two per cent increase in employees' contributions would cost individual taxpayers but it is thought to add up to a total of about £1.6 million next year.

Public and private bodies across Britain are facing financial difficulties because of stock market falls.

The £1.1 billion East Sussex pension fund is one of the largest in the country.

Its members include East Sussex County Council, Brighton and Hove City Council, the University of Brighton and all five district and borough councils in East Sussex.

The £60 million shortfall relates only to Brighton and Hove City Council's share of the fund.

In all, the fund has 50 members, among them Brighton, Hove and Sussex Sixth Form College and City College Brighton and Hove, more than a dozen town and parish councils, Brighton and Hove Citizens' Advice Bureau, a handful of housing associations and public and voluntary sector organisations.

Their money is invested in property, safe Government bonds and high-yield shares.

Councillor Jack Hazelgrove, who represents the city council on the pension fund board, said: "I would say there is no need for staff at present to have worries about whether their pensions will be paid.

"This fund is one of the best performing of the local authority pension funds but we have not been sheltered from the decline of the equities market."

Council staff across Britain have been warned by the Government they will have to work five extra years or face cuts in their pensions because of underperforming investments.

Councillor Bill Randall, whose Green Party colleagues have campaigned for ethical investments, told a meeting of the full council last week: "This is a huge deficit and a question of deep concern for all city hall staff."

A city council spokeswoman said: "Poor performance of the stock market over recent years and the increased lifespan of pensioners and their spouses who receive a pension from the fund have contributed to the shortfall.

"The council is required under pension fund regulations to eliminate the deficit over time by increasing its annual contribution rate.

"The budget estimates for the next three years already allow for stepped increases in the pension fund contribution rate of two per cent per annum for each year to meet the anticipated deficit."

Council staff pay six per cent of their own wage towards the pension but the council has promised this will not increase.

A spokesperson for East Sussex County Council said: "Our pension fund has been in the top ten per cent of pension funds nationally over the past three years.

"However, with changes in the market we are expecting a deficit but we have taken this into account in our medium-term financial planning."