The total funding level for 87 Local Government Pension Scheme (LGPS) funds in England and Wales increased from 101 per cent in December 2023 to 104 per cent in January 2024, representing a £13 billion improvement, according to Isio’s Low-Risk Funding Index.
Higher UK government bond yields and modest gains in asset values are responsible for this increase, which is slightly mitigated by a small rise in inflation. Of the 87 funds, 54 have funding levels of 100 per cent or higher, with levels from 66 per cent to 154 per cent. This is a notable improvement compared to funding levels in March 2022, which were at 67 per cent and none of the 87 funds had a funding level of 100 per cent or higher on a low-risk basis.
According to Isio’s analysis of the 2023 annual reports, by March 2023, about £10 billion in LGPS assets had changed from growth to non-growing assets.
Isio partner and public services leader Steve Simkins says: “Our Index shows that funding levels for LGPS funds and their participating employers remain consistently strong, particularly as we approach the two year mark since the last actuarial valuations were carried out.
“It is positive to see that the LGPS as a whole has started to respond to these improved funding positions, by reducing the total amount of assets invested in higher risk growth assets. However, the estimated £10bn shift in assets is only a small proportion of the whole. We expect to see this pattern continue from March 2023, and potentially accelerate, while market conditions remain extremely favourable.
“While the modest de-risking at fund level is welcome, it is not sufficient for some employers in surplus who might want to move all of their assets into bonds. We would like to see more funds provide their participating employers with the opportunity to better manage their own assets, through the implementation of employer-specific investment strategies or other alternatives.
“We continue to 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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