The Local Government Pension Scheme (LGPS) has improved its already strong funding position, according to Hymans Robertson in its LGPS 2022 Valuation: The Big Picture report.

Basing its assessment on 73 of the 86 local fund valuation reports for 2022 that are currently publicly available, the consultancy found that LGPS funds saw an increase in their overall funding level from 98.5 per cent at 31 March 2019 to 107 per cent at 31 March 2022.

Hymans Roberston said the average increase in fund asset value between 31 March 2019 and 31 March 2022 was 27.5 per cent, although this varies at individual fund level, with observed increases ranging from 17 per cent to 43 per cent.

The numbers cited in the report are a straight sum of each fund’s reported funding position using their own assumptions.

Hymans Robertson noted that when moving the results onto a consistent actuarial basis — set by the E&W LGPS Scheme Advisory Board — and as reported in the dashboard in each fund’s valuation report, the increase is similar.

Many administering authorities have been able to offer contribution rate relief to employers, given the strong funding position.

LGPS funds have, on average, reduced contributions from 21.9 per cent in 2019 to 20.8 per cent of pay in 2022.

"Similar to the funding position, the national picture for contribution rates is very positive," said the report.

"To be able to reduce contribution rates at a time of high inflation and significant pressure on employer budgets is again testament to the effectiveness of individual funds.

"These headline results are even starker when considered against the other (unfunded) public sector pension schemes, where significant contribution rate increases are expected as a result of lower GDP growth expectations."

Following the Covid-19 crisis, the valuation reports have also found that life expectancy is broadly static compared to 2019, when looking at the weighted average life expectancy for the LGPS as a whole.

Normally, life expectancy improves by around two years over a decade, roughly three LGPS valuation cycles.

Over one valuation cycle, therefore, it may be assumed that life expectancies increase by some 0.5-0.6 years.

Hymans Robertson showed that life expectancy for male LGPS members at age 65 was 21.5 years in 2022 (compared with 21.7 years in 2019) and for female members it was 24.1 years (compared with 24 in 2019).

“The 2022 LGPS valuations conclude in a very different environment from which they started with inflation, a worldwide pandemic and a cost-of-living crisis all featuring within this triennial period," commented Hymans Robertson head of LGPS valuations, Robert Bilton.

"Prior to valuation, there was an expectation that the funding position of the LGPS would improve, which has proved to be correct. Higher short-term inflation has been more than offset by better than expected investment returns. Our analysis indicates that the average increase in fund asset values was 27.5 per cent, with some individual funds well over 30 per cent.

“For funds, the delicate balance between security, affordability and stability remains a constant consideration when setting contribution rates. Overall, the average employer contribution rate has reduced at 2022, down by 1.1 per cent of pay to 20.8 per cent of pay.

"Our analysis gives cause for optimism that the outlook for the long-term funding sustainability of the LGPS is robust, not least due to the hard work that has taken place across all funds over the last decade and longer.

"Whilst the good news is welcome, the hard work doesn’t stop, and it is important that funds use the next two years to continue to systematically review their risks to keep them in the best place possible ahead of the valuations in 2025.”

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