The Government Actuary’s Department (GAD) has completed its review of the 2019 actuarial valuations of the Local Government Pension Scheme (LGPS) in England and Wales.
We found that the plan’s financial position has strengthened since our previous review in 2016 and that LGPS funds have progressed against our 2016 review recommendations. However, we also made other comments and recommendations. before the next round of actuarial valuations in 2022.
Pension plan overview
LGPS is made up of 88 local pension funds that provide pensions to more than 5 million current and former local government employees.
It is one of the largest pension schemes in the world with £ 291 billion in assets as of the 2019 valuation date. LGPS pension funds are valued by their local actuary every 3 years. These assessments set the contribution rates for the thousands of UK employers participating in the scheme and ensure that each fund has sufficient assets to meet its commitments. GAD then reviews these assessments.
Review of results
In our 2019 review, we saw an overall improvement in the plan’s funding position thanks to sustained investment returns between 2016 and 2019.
GAD assessed fund valuations against 4 criteria set out in the Civil Service Pensions Act 2013. We worked with LGPS pension funds, their actuaries and broader stakeholders. The main conclusions were around:
- Compliance – fund valuations complied with relevant regulations.
- Consistency – the funds have implemented our 2016 recommendation to provide a standard scorecard to help readers when comparing results from different funds. However, the differences in methodology and assumptions mean that a comparable comparison is not straightforward.
- Solvency – the size of pension funds has grown considerably more than local government budgets since 2016, so there is an increased risk of pressure on employers from any future changes in funding.
- Long-term profitability – we noted that, where applicable, the funds had generally acted on our 2016 recommendations on operating plans to close any funding gaps (gaps). We have highlighted 4 funds for which we are concerned about the level or trajectory of employer contributions (and the implications for taxpayers).
The next assessments of the financial health of the plan are the local assessments in 2022. GAD’s recommendations regarding the funds or the plan’s advisory board to consider during these exercises include:
- improve consistency in the approach to assessing key emerging and existing issues (such as recent legal judgments and setting employer dues for new academies)
- ensure that deficit recovery plans can be demonstrated as a continuation of the previous plan
- pursue continuous improvements in transparency through an expanded evaluation dashboard
- review governance around local authority asset transfer agreements
Government actuary Martin Clarke said, “This is a large and complex project. By clearly setting out the status of LGPS funds, this review of evaluations recognizes many areas of success and some improvement. GAD has partnered well with our customers and many stakeholders to bring this work to fruition.