The aggregate funding position for the 87 funds in the Local Government Pension Scheme (LGPS) in England and Wales rose from 103 per cent as at 31 August 2023 to 107 per cent at 30 September 2023, analysis from Isio has revealed.

The latest release of Isio’s Low-Risk Funding Index showed that the aggregate funding level had grown by over £11bn, following an increase in UK government bond yields, which reduced the value of low-risk liabilities, partially offset by small reductions to asset values.

Of the 87 participating funds, 55 have funding levels of 100 per cent or higher, an increase of four since the previous month. The levels range from 67 per cent to 156 per cent funded.

Isio noted that the 30 September 2023 results are an "important milestone", representing the mid-point of triennial valuations, the last of which was undertaken in March 2022 and which determined contribution levels until 31 March 2026.

However, given the significant funding improvements, Isio argued that there is an opportunity for LGPS funds to review contribution rates to avoid pension over-funding at the expense of their employers’ needs.

Indeed, the tracker showed that the funding level for LGPS funds and their employers remains consistently "much higher" than 31 March 2022 levels, which were used to set funding and investment strategies that may no longer be appropriate under current conditions.

At that time, funding was estimated to be 67 per cent on the same low risk basis, with a corresponding deficit of over £180bn, and none of the 87 funds had a funding level of 100 per cent or higher.

Isio also pointed out that initial indications from the triennial valuations for funds and their employers participating in the LGPS (for Scotland), which are one year later than in England & Wales and are currently underway, suggest that much better market conditions will enable contribution rate reductions for employers.

Isio partner and public services leader, Steve Simkins, stated: “The 30 September 2023 results from our Low-Risk Funding Index show that funding levels for LGPS funds and employers have significantly improved up to the mid-point of the triennial valuations.

“Positive action is being taken by funds participating in the LGPS for Scotland, where recognition of the significant improvement in market conditions will translate into lower employer contributions from 1 April 2024, due to the actuarial valuation being one year later.

"It does not feel fair for employers in England and Wales to have to wait for an extra two years to see the benefits of current market improvements. This can be resolved with an urgent review of employer contributions from 1 April 2024.

“Within local government, excessive pension contributions constitute unnecessary spend and should be challenged. Reductions to contribution levels could have a significant and positive financial benefit for councils, many of whom are struggling to deliver core services.

"We reiterate the points made in our previous releases, that we expect the Department for Levelling Up, Housing and Communities and the LGPS Scheme Advisory Board to urgently engage with these changes.”

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