A pension shortfall has climbed by £48m, posing a threat to local government services.

An investigation into finances shows how Sutton Council’s pension fund deficit soared from £127.8m to £175.4m in the 12 months to the end of March.

A council spokesman said the black hole had grown since March, in part because of the performance of the stock market.

About 70 per cent of the authority’s pension fund assets are invested in shares, which fell steeply in value in the run-up to the end of the financial year on March 31.

The financial situation has since improved, because of the rise in the FTSE 100, but some experts are warning there is little chance of the gap closing, because of life expectancy continuing to rise, and it could make sharp increases in council tax or cuts in services inevitable.

But a Sutton Council spokeswoman said the authority would be able to meet the deficit by increasing the employer contribution rate “if necessary over a long period”.

She said: “Local government employers are currently advocating a pay freeze for 2010-11.

“Nationally the [pension] scheme was reviewed in 2008, resulting in reduced benefits in the longer term and an increase in the contributions that employees pay.

“Nationally, further work is in hand to look at ways of limiting costs of future pension benefits, with possible legislative changes following the general election.”

All 33 local authorities in London have deficits in their staff pension funds.

The biggest black holes are at the Olympic borough of Newham, which has a deficit of £428.3m, and Croydon, which has a £411.8m gap.

At least seven chief executives are heading for final salary pensions of at least £100,000 a year.

Sutton’s chief executive Paul Martin is 48 years old and will not be able to retire with a full pension for another 17 years.

A spokeswoman said it was “unlikely that the scheme entitlements will change substantially over that period”.

Executive member for resources Councillor John Drage said: “Although there is a current increased deficit in local government pensions due to recent fluctuations in the investment market, it does not need to be met immediately.

“We will be able to meet the shortfall in Sutton over a long-term basis to see that every staff member’s contributions are protected.”