The Government Actuary’s Department has made four recommendations for the Local Government Pension Scheme, more than two-and-a-half years after the 2019 valuation, including on deficit recovery plans and asset transfers from councils to pension funds. 

 

The recommendations are made in GAD’s ‘section 13’ report as at March 2019, when the last LGPS triennial valuations started in England and Wales. Section 13 of the Public Service Pensions Act 2013  requires GAD to report on whether the LGPS has achieved compliance, consistency, solvency and long-term cost efficiency. 

 

The aggregate funding level on prudent local bases has improved from 85% to 98% between 2016 and 2019, GAD found, attributing this “in large part to strong asset returns” over that period, mainly from equities. Continued substantial financial contributions from most LGPS employers have also contributed to the better funding level. 

 

However, LGPS employers’ ability to increase contributions has not kept up with the greater size of LGPS pension funds, GAD notes. “This could be a risk if, for example, there was to be a severe shock to return seeking asset classes,” it said. 

 

 

GAD made four recommendations in the report, including that the LGP Scheme Advisory Board should consider the impact of inconsistency on the funds, participating employers and other stakeholders and “specifically consider whether a consistent approach needs to be adopted for conversions to academies, and for assessing the impact of emerging issues including McCloud”. It had already recommended finding a common basis for academy conversions three years earlier, in its 2016 report. 

 

Page BreakA consistent approach for schools to convert to academies remains the most controversial recommendation, said principal at Barnett Waddingham, Melanie Durrant, arguing that this recommendation is not in the remit of s13. “However, we appreciate the desire to find some consistency in the treatment of academies in the LGPS and we are working with GAD to explore the various options to try and achieve this,” she said. 

 

Similarly, there was insufficient information regarding McCloud at the time of the 2019 valuations to ensure a consistent approach, she said, with firms trying to understand GAD’s view on McCloud, but pointed to the absence of new regulations and the Universal Data Extract not being able to output the data that would be needed. 

 

GAD also recommends that the SAB consider how all funds ensure that the deficit recovery plan can be demonstrated to be a continuation of the previous plan, after allowing for actual fund experience; and that fund actuaries provide additional information about total contributions, discount rates and reconciling deficit recovery plans in the dashboard. 

 

GAD’s last recommendation was that SAB should review asset transfer arrangements from local authorities to ensure that appropriate governance is in place around any such transfers to achieve long-term cost efficiency, after noting that “a number of councils have or may be considering an asset 'gift' to their pension funds”. 

 

Durrant said she did not agree with some of the terminology and references made by GAD regarding asset transfers, but said she appreciated the overriding desire to ensure that appropriate governance and paperwork is in place when additional contributions are made. “This is an action that is becoming more prevalent in LGPS funds and therefore having a clear reporting process in place is welcomed,” she added.