The overall funding level for the 87 funds participating in the Local Government Pension Scheme (LGPS) in England and Wales increased from 110 per cent in May to 112 per cent by June this year, according to Isio.
According to Isio’s Low-Risk Funding Index, the improvement is related to rises in asset values, mostly equities, and slight reductions in future inflation predictions.
Of the 87 participating funds, 69 receive 100 per cent or more financing, with amounts ranging from 71 per cent to 169 per cent. The total low-risk funding position for LGPS funds was 67 per cent, with none fully funded as of March 31, 2022.
Meanwhile, Isio says funding levels are predicted to improve by the next valuation in March 2025, resulting in even higher surpluses.
According to Isio, strong equities markets and high gilt yields point to flexible strategies, such as contribution reductions and safer investments.
Isio partner and public services leader Steve Simkins says: “The LGPS is a hot topic at the moment, as the UK Government sets out its plans to boost UK investment. With LGPS assets across England and Wales currently estimated to be in excess of £400bn, the attractiveness of the LGPS to the new Chancellor is obvious.
“So far we have heard of plans to increase pooling to enable further investment in a wider range of UK assets, whilst at the same time reducing the £2bn of investment expenses. But there is a natural tension here – how can investment expenses be reduced whilst there is an expectation to invest in more complicated and risky assets?
“Instead of focussing on the assets in isolation, more attention could be given to the surplus within the LGPS and how this can be used more directly to influence the UK economy.
“For local authorities, surplus could be used to reduce current contributions and support essential services provided to local communities. A very small reduction in assets will make a very big short-term difference for local authorities. This could create the best long-term returns for the local government.
“For other employers, such as housing associations and universities, surplus could be to enable further investment in housing and skills, key aspects of the new government policy agenda.
“The LGPS is currently so unexpectedly well-funded that there are wider opportunities to utilise the assets whilst maintaining benefits security and long-term contribution stability. Give the size of the assets involved we would encourage a broad and joined-up debate.”
