Government Actuarys Department
We have completed an analysis of the 2022 actuarial valuations of the funds in the Local Government Pension Scheme England and Wales (LGPS).
The Government Actuary was appointed by the Ministry of Housing, Communities and Local Government (formerly the Department for Levelling Up, Housing and Communities) to undertake the review. It was carried out under section 13 of the Public Service Pensions Act 2013 and examined whether the fund valuations have achieved the following aims:
- compliance
- consistency
- solvency
- long-term cost efficiency
The LGPS is one of the largest pension schemes in the UK with over 6 million members. It comprises 87 different funds. Periodic actuarial valuations assess whether each fund has sufficient assets to meet its liabilities.
This report from the Government Actuarys Department (GAD) reviews the actuarial valuations of the funds. We also analysed other data provided by the funds and their actuaries and undertook engagement exercises with relevant funds.
Funding position
GAD reports that in aggregate, the funding position of the LGPS has improved since 31 March 2019.
The scheme appears to be in a strong financial position with most funds in surplus at 31 March 2022. However, material funding risks remain and 26 out of the 87 funds were in deficit.
Total assets have grown from 290 billion in 2019 to 366 billion in 2022 (taking the value used in the local fund valuations.)
LGPS funding position has improved since 2019. Credit: Shutterstock
Findings
Our review indicated that fund valuations were compliant with relevant regulations. We were also pleased to note that funds have continued to provide information in the format of a standard dashboard.
This has been developed following recommendations in previous GAD reviews. We consider this important to aid stakeholders understanding of the valuations because information is presented in a consistent way across funds.
We recognise the significant progress made by funds and actuarial advisors in the presentation of climate risk analysis as part of the actuarial valuation process. The agreement of climate risk analysis principles ahead of the 2022 valuation helped to improve consistency across the scheme.
The improvement in the funding position of the scheme has reduced immediate solvency concerns. However, risks clearly remain which are important for funds to consider, particularly in the context of competing pressures on employer budgets. Funding levels remain sensitive to future experience, especially investment market conditions.
Under long-term cost efficiency, we have set out the approach we intend to use at future reviews to assess how funds have utilised surpluses. This reflects the improved funding position and the number of funds now in surplus.
Looking ahead
GAD has drawn up 3 recommendations for the Scheme Advisory Board to consider.
These include whether greater consistency should be achieved to allow easier comparison between funds and better understanding of risks. GAD also recommends that work continues to refine the climate change principles document in advance of the 2025 fund valuations.
Actuary Aidan Smith said: Overall our analysis found the LGPS is in a strong financial position, and we examined each of the required areas in detail.
We are committed to preparing a section 13 report that makes practical recommendations to advance the aims listed in legislation. We are grateful to the funds and their actuaries, and other stakeholders, for their assi