Upcoming Local Government Pension Scheme valuation – 31 March

The next Local Government Pension Scheme (LGPS) valuation takes place at the end of this month, 31 March 2022, with changes to employer contribution rates implemented from 1 April 2023.

Understanding your risks and options

The LGPS regulations and guidance apply to all Funds, but every Fund and their Fund actuary is different in the way they apply these. Where transparency and consistency are lacking, understanding these four key elements is crucial when it comes to understanding your risks and options:

Funding strategy statement (“FSS”)

The FSS is specific to the individual LGPS Fund and it focuses on how employer liabilities are measured and the pace at which these liabilities are funded i.e. the contributions that are ultimately payable. The FSS is revisited at each valuation and sometimes in between. Once the FSS is final, the Actuary is bound by it.

Consultation

Each Fund should hold a formal employer consultation on changes to its funding approach proposed in the draft FSS, which should be “clear and transparent”. Housing associations should look to understand whether to engage before the consultation and whether the proposed approach by the Fund is meaningful.

Key risks

Housing associations should seek to understand their current funding position, identify and quantify key risks, and understand how they can mitigate those risks and set their objectives.  

Options for flexibility

Some Funds are more flexible than others. Funds might be open to negotiation. There are a range of parameters that determine the outcome, from guarantees, security, pooling, covenant strength and employer classification by Funds.  Most housing associations offer a very strong covenant which may not be allowed for unless dialogue is entered into.

Know your fund – immediate actions

Isio has worked with  the NHF and CIPFA to develop immediate actions for employers:

1. Understand your Fund’s timetable, when they are planning to consult and how this fits with results. Make contact with your Fund and identify the key relationships during the valuation process.
2. Understand your current funding position based on the existing methodology to determine the contributions required if a valuation was carried out now.
3. Assess how risks such as market conditions, investment strategy, actuarial approach, covenant, the political landscape, data quality, and changes in regulations could potentially change this position.
4. Understand your options for negotiating with, and taking advantage of, any flexibility offered by your Fund. This could include negotiating a position that has not been considered before and leveraging your strengths.

To help all stakeholders achieve the best outcome, Isio and CIPFA will be issuing a series of four bulletins together over the next eight months.  Below is a link to the first in the series which covers the valuation process and the expected timeframe of events.