GAD reviews local authority pension valuations
In our review of the actuarial valuations of the Local Government Pension Scheme in England and Wales, we found the scheme's financial position had strengthened.
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 the scheme’s financial position had strengthened since our previous review in 2016 and LGPS funds have made progress against our 2016 review recommendations. However, we’ve also made further comments and recommendations ahead of the next set of actuarial valuations in 2022.
Pension scheme overview
The LGPS is made up of 88 local pension funds which provide pensions for more than 5 million current and former local government employees.
It’s one of the largest pension schemes in the world with £291 billion in assets at the date of the 2019 valuations. LGPS pension funds are assessed by their local actuary every 3 years. These assessments set contribution rates for the thousands of UK employers participating in the scheme and ensure each fund has sufficient assets to meet its liabilities. GAD then reviews these assessments.
Review findings
In our 2019 review we found an overall improved funding position of the scheme on the back of buoyant investment returns between 2016 and 2019.
GAD assessed the fund valuations against 4 criteria set out in the 2013 Public Service Pensions Act. We worked with LGPS pension funds, their actuaries, and wider stakeholders. Main findings were around:
- Compliance - fund valuations were compliant with relevant regulations.
- Consistency - funds implemented our 2016 recommendation to provide a standard dashboard to aid readers when comparing of results for different funds. However, differences in methodology and assumptions do mean that a like for like comparison is not straightforward.
- Solvency - the size of pension funds has grown considerably more than local authority budgets since 2016, so there’s an increased risk of strain on employers from any future funding changes.
- Long-term cost efficiency - we noted that, where relevant, funds had generally acted on our 2016 recommendations on operating plans to close any funding gaps (deficits). We highlighted 4 funds where we are concerned about the level or trajectory of employer contributions (and the implications for taxpayers).
Next steps
The next assessments of the financial health of the scheme are the local valuations are in 2022. GAD’s recommendations for funds or the Scheme Advisory Board to consider during these exercises include:
- improve consistency in the approach to assessing emerging and existing key issues (such as recent legal judgements and setting employer contributions for new academies)
- ensuring that deficit recovery plans can be demonstrated to be a continuation of the previous plan
- continue with ongoing improvements on transparency through an expanded valuation dashboard
- review the governance around asset transfer arrangements from local authorities
The Government Actuary, Martin Clarke said: “This has been an important and complex project. In setting out clearly the status of the LGPS funds, this review of the valuations recognises many areas of success and some for improvement. GAD has partnered well with our clients and with many stakeholders to complete this work successfully.”