Improved funding levels in the Local Government Pension Scheme (LGPS) should not, on their own, be used to trigger interim valuations to review employer contribution rates, South Yorkshire Local Pension Board chair, Riaz Nurennabi, has warned.

Speaking at the Pensions UK Local Authority Conference, Nurennabi said he was hearing from participating employers that they may want to explore whether interim valuations could be used to review contribution rates where funding positions have improved.

"I don't necessarily think it is the right thing to do, but it is certainly something employers are discussing and considering. What employers may be looking for is some form of respite through contribution reductions, particularly where funding levels have strengthened,” he explained.

“If markets improve, employers may seek lower contributions, but equally, if there is a significant deterioration in an employer's covenant or funding position, there could be calls for action in the opposite direction.

"The current rules are designed to prevent short-term market movements from becoming the sole driver of contribution reviews, and there is a strong rationale for maintaining that approach,” Nurennabi added.

Fellow panellist, South Yorkshire Pensions Authority assistant director for pensions, Debbie Sharp, acknowledged that “at the moment we're in a position that we haven't been in for a long, long time, with the funding as good as it is, but we can't just have a knee-jerk reaction to this”.

She highlighted how the LGPS fund has to protect the funding position and therefore “we can't just completely reduce contribution rates and give everybody a contribution holiday straight away… It's got to be fair to the fund. How do we protect this in a way that the fund isn't going to be in a position where three years' time we're going back and asking for more money?"

"I've been in pensions far too long not to remember when people did very strange things and made decisions that came back to bite them,” Sharp added.

Looking ahead to the 2028 valuation was also mentioned by Sharp, noting “my actuary was a bit stunned when I started talking about the 2028 valuation and we hadn't actually got through the 2025 valuation, or were only just starting it”.

“I wanted to ensure that we were embedding the right things and getting the processes in place on the ground so that we could enter the 2028 valuation in a better position than we were entering the 2025 valuation,” she explained.

"Looking into the next valuation, if we continue in the same position, or even improve our surplus, we may have bigger challenges, we might have bigger decisions, and there may be lower contribution rates to consider."

According to Isio’s latest Low-Risk Funding Index in March, the aggregate funding level for the 87 LGPS funds in England and Wales fell marginally from 147 per cent on 30 September 2025 to 145 per cent, as at 31 December 2025.

Despite the decrease, funding levels remained historically high, standing around 20 per cent higher than at the 31 March 2025 actuarial valuation date.

The total surplus also reached a new quarter-end high of £148bn, up from £147bn in the previous quarter.

Of the 87 LGPS funds, 86 were now fully funded on a low-risk basis, with only the Environment Agency’s closed fund remaining below 100 per cent funding.

This marked a significant improvement compared to the previous actuarial valuation as of 31 March 2022, when the aggregate low-risk funding level stood at 67 per cent, and no funds were fully funded on this basis.

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