UK - Norwich City Council has confirmed the financial crisis has resulted in an unexpected pension liability of £19m, relating to staff employed by a contractor, which was not included in the annual financial statements.

In a draft update of the external audit of the council's 2007/08 financial statements, the Audit Commission revealed "officers have recently been made aware of a highly material increase in the pension liability in connection with employees transferred to a contractor in 2000. No provision was included in the financial statements approved by members."

Norwich City Council has retained responsibility for the pension liability of staff transferred to CityCare in 2000, with the payment of the liability scheduled to come into effect when the contract ends on 31 March 2010.

The council said in a statement as recently in March 2008, "the council's actuarial advice was that its pension liability was £1.8m and we allowed for this in our 2008/09 budget", but following an updated valuation, as part of the audit process, the deficit is estimated to have increased to £19m  "as a result of collapsing financial markets".

Norwich City Council stated: "This would come into effect on 31 March 2010 when the contract ends. Although the financial climate may be very different by that time, the council needs to make contingency plans as to how it will meet this obligation."

It suggested one option might be to "settle the liability through the Norfolk Pension Scheme" - the £203.5m local government pension scheme that had its own deficit of £40m at the end of March 2008 - but admitted "the position on this will become clearer over the coming weeks".

In its update, the Audit Commission said: "We are awaiting a proposal from the head of finance in respect of the proposed accounting entries, and there are currently some uncertainties regarding whether the liability can be settled through the Norfolk Pension Scheme' overall FRS 17 pension 'pot' smoothing out process."

"This position is likely to be clearer by mid December. Until this is resolved any provision would have a highly material impact on the Council's general fund balance," it added.

Meanwhile, Network Rail has confirmed the credit crisis had also affected its defined benefit (DB) scheme, as the negative impact of the current economic circumstances had seen the valuations of its pension assets fall by 9%.

As a result the company, which is part of the Railway Pension Scheme, confirmed the effect of weakening equity valuations had caused the pension deficit to increase from £370m in March 2008 to £617m at the end of September. 

Elsewhere, the latest meeting of Suffolk County Council's pension fund revealed the scheme has lost almost £200m between March and September 2008, as the financial turmoil has seen the value of assets drop from £1.305bn to £1.176bn in six months, with over £100m lost in the third quarter, as the fund fell from £1.283bn in June.

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com