The Government Actuary's Department (GAD) has published four recommendations for Local Government Pension Schemes (LGPS) in its second Section 13 statutory review of the system.

The report confirmed that the aggregate funding position of the LGPS has improved since 31 March 2016, when Section 13 was applied for the first time, and that the scheme “appears to be in a strong position”.

In particular, it found that total assets have grown in market value from £217bn to £291bn, while the aggregate funding level on prudent local bases has improved from 85 per cent to 98 per cent, as of 2019.

In addition to this, GAD outlined four recommendations, including proposing that the Scheme Advisory Board consider the impact of inconsistency on funds, participating employers and other stakeholders.

GAD also said that this should specifically consider whether a consistent approach needs to be adopted for conversions to academies, and for assessing the impact of emerging issues including McCloud.

This was highlighted by Barnett Waddingham principal, Melanie Durrant, as perhaps the most most controversial recommendation, suggesting that this doesn't fall under the remit of section 13.

"However, we appreciate the desire to find some consistency in the treatment of academies in the LGPS and we are working with GAD to explore the various options to try and achieve this," she clarified.

"Similarly, there was insufficient information regarding McCloud at the time of the 2019 valuations to ensure a consistent approach.

"We are engaging with GAD in advance of the 2022 valuations to understand their views on McCloud, however in the absence of new regulations and the Universal Data Extract not able to output the data we need.”

More broadly, however, Durrant suggested that the recommendations were not too surprising for funds and should largely achievable.

“The quiet release is hardly surprising now that it has been 991 days since the 2019 LGPS valuations in England and Wales," she said. "Fortunately, there isn’t anything too surprising in there as GAD have engaged with funds as appropriate as well as the four actuarial firms in advance."

Other recommendations from GAD included the suggestion that the Scheme Advisory Board consider how all funds ensure that the deficit recovery plan can be demonstrated to be a continuation of the previous plan, after allowing for actual fund experience.

In addition to this, GAD recommended that fund actuaries provide additional information about total contributions, discount rates and reconciling deficit recovery plans in the dashboard.

It also suggested that the Scheme Advisory Board review asset transfer arrangements from local authorities to ensure that appropriate governance is in place around any such transfers to achieve long term cost efficiency.

Commenting on this recommendation, Durrant added: “Although we do not agree with some of the terminology and references made by GAD regarding asset transfers, we appreciate the overriding desire to ensure that appropriate governance and paperwork is in place when additional contributions are made.

"This is an action that is becoming more prevalent in LGPS Funds and therefore having a clear reporting process in place is welcomed.”

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