The Local Government Pension Scheme (LGPS) in England and Wales experienced a 2.6 per cent reduction in assets to £354bn in 2022/23, its annual report has revealed.

The report, produced by the Scheme Advisory Board (SAB) and presented at the Pensions and Lifetime Savings Association (PLSA) Local Authority Conference, showed that the LGPS returned -1.8 per cent on investments during a “challenging year for markets”.

It noted that 2022/23 was a difficult year for investments largely due to the economic shocks of Russia’s invasion of Ukraine and the Liz Truss/Kwasi Kwarteng ‘mini Budget’ in September 2022.

Addressing conference attendees, England and Wales SAB chair, Roger Phillips, highlighted that the report was for 2022/23 and the scheme was “in a very different place today to where we were then”.

The scheme’s contribution income decreased by £500m and was £900m lower than its benefit outgoings in 2022/23.

Including investment income and charges, the scheme had a positive cashflow position of £2.07bn.

The asset class with largest year-on-year percentage points change relative to the total value of assets was bonds, which decreased by 2.2 per cent to £44.1bn in 2022/23, while infrastructure assets rose by 1.5 per cent to £22.7bn.

Assets in private debt increased by 1.3 per cent, the third largest percentage point change, which the SAB said reflected the ongoing diversification of the scheme and investment in unlisted assets.

The value of assets held in bonds and equities fell by 17 per cent (£9.1bn) and by 3 per cent (£6.3bn) respectively in 2022/23.

The LGPS had 51 per cent of its investment portfolio allocated to equities, followed by bonds (12 per cent), property (8 per cent), infrastructure (6 per cent), and private equity (6 per cent), with the remaining 17 per cent in other asset classes.

Total membership of the LGPS in England and Wales increased by 1.6 per cent year-on-year to 6.49 million members in 2022/23.

The SAB’s report included data from 83 of the 86 LGPS funds in England and Wales, with the remaining three (Camden, Croydon, and Islington) not having full data available.

“We know that a lot has happened since [2022/23],” said Phillips. “We are in the middle of a general election campaign. We do not anticipate that will radically change the direction of policies of any new government.

“Given the financial conditions that any new government will inherit, they will look quite interestingly at the money we hold and the way we use it.

“It is very important to me to engage those who are in leadership of the individual 86 funds in to how we understand the momentum of change that is taking place; that we understand it, we start to own it, and influence it, rather than letting others do it.

“We will do that by using good evidence and good data, and that it why I’m very keen that the board engaging directly with the chairs of all the 86 funds.”

The PLSA session also included an update on the LGPS funds in Scotland and Northern Ireland, although both schemes had more up-to-date information than England and Wales.

In Scotland, the LGPS funds returned 9.9 per cent on investments in 2023/24 and had total assets of £30.5bn, with a funding level of 147 per cent.

Meanwhile, in Northern Ireland, the return was 9.4 per cent in 2023/24, with total assets of £10.4bn and a funding level of around 114 per cent.

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