The total funding level of the 87 funds participating in the Local Government Pension Scheme (LGPS) in England and Wales stood at 101 per cent as of December 31, 2023., according to Isio’s Low-Risk Funding Index.
This represents a decline from the 108 per cent recorded on October 31, 2023. The decrease can be attributed to decreases in the yields on UK government bonds and an increase in inflation rates, both of which increase the value of liabilities with minimal risk but rising asset values somewhat countered this decline.
Furthermore, the estimated 6.7 per cent increase in LGPS benefits linked to the Consumer Price Index (CPI), commencing April 1, 2024, has been factored into the Low-Risk Funding Index.
Of the 87 participating funds, 44 had funding levels ranging from 67 per cent to 148 per cent financed, with 44 having funding levels of 100 per cent or more.
These results highlight the fact that employers and LGPS funds have funding levels that are substantially higher than those that were documented on March 31, 2022. This date held great significance as it shaped funding and investment strategies that, in light of the evolving financial situation, may now need to be adjusted. Funding was 67 per cent as of March 2022, and none of the 87 funds had funding levels of 100 per cent or more.
Isio partner and public services leader Steve Simkins says: “Despite recent uncertainty in global bond markets, our Index shows that the significantly improved funding levels for LGPS funds and their participating employers remain relatively stable at these new, much higher levels compared to 31 March 2022.
“Employers participating in the LGPS continue to struggle to meet ongoing costs and their pensions contributions, which now look excessive, often represent a large proportion of their cost base. It was therefore positive to see the Scheme Advisory Board’s recent note on LGPS surpluses, including inter-valuation contribution rate reviews and de-risking matters, addressing what was already a healthy LGPS funding position at 31 March 2022.
“However, we are concerned that there is not sufficient recognition of the significant improvements for all LGPS funds since then. This is particularly relevant for Local Authorities who face serious financial pressures and for whom a reduction in pension contributions could make a significant difference.
“We encourage employers, particularly Local Authorities, to engage with their respective LGPS fund to consider their challenges and individual circumstances to make a case for short-term reductions to contributions, enabling delivery of essential public services to local communities and retention of local jobs.”
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