Baroness Eaton, the outgoing chair of the LGA, has warned the Treasury's insistence on applying increased pension contributions in local government risks triggering a stock market collapse.

Lady Eaton, who will be replaced as chair by Merrick Cockell at the LGA annual conference in Birmingham next week, said a mass exodus from the 83 separate schemes controlling around £140bn of investments on the stock market ‘would be a major catastrophe for government'.

Although research by the GMB union claims increased contributions could lead to up to half of middle-earning managers exiting pensions, Eaton believes there would be dire financial consequences were 10% of the estimated 3.5 million members to leave the pension scheme.

The result of such a mass opt-out would potentially force councils to pull out of stock market, sending investment funds into negative cash flows.

In her remarks to The Guardian, Eaton, echoed pensions reform architect Lord Hutton's call earlier this week that ministers should seek alternative solutions for the local government pension scheme (LGPS).  Unlike the majority of exchequer reliant government pensions for civil servants and NHS staff  LGPS is self-funded and self-contained.

Click here for Lord Hutton's IPPR speech - Pension reform in the public services 23 June