Triennial valuations in the LGPS (England & Wales)



  1. How much in pension liabilities the fund is responsible for.

  2. How much in assets the pension fund has under its control to meet those liabilities.

  3. The corresponding funding level (the value of assets held by a fund expressed as a proportion of its liabilities).

  4. An appropriate level of contributions for employers to pay going forward.

KEY MESSAGE

The LGPS is a funded scheme and periodic assessments of the individual LGPS funds' liabilities are needed to compare the assets held in the fund with the assets expected to be needed to pay current and future pensions already promised to members. Employer contribution levels are set by these “local” valuations. Scheme regulations set out when these valuations are to be carried out by the individual LGPS funds.


  1. Asset performance (the performance of fund assets in investment markets)

  2. Pension and deferred increases lower than expected

  3. Membership experience

  4. Deficit contributions paid

  1. Lower discount rates relative to inflation

  2. Lower than expected salary increase assumptions

  3. Changes in demographic assumptions (in some cases)

Index linked gilt yields have in recent years been at historic low levels as a result of the Government's policy of quantitative easing and these low yields have had the effect of increasing the current value of liabilities calculated during the March 2016 fund valuations.

  1. Different membership profile (e.g. older than average workforce)

  2. Different membership experience than for the fund (e.g. fewer leavers, more deaths, etc)

KEY MESSAGE

The 2016 valuations have generally produced broadly higher funding levels to the 2013 valuation, with decreases in deficits in cash terms. However the overall picture is not always reflected at individual employer level which has seen significant variations in funding levels and costs.


KEY MESSAGE

Employer rates vary for a number of factors. Differences in membership profiles can cause fluctuations, and funds may choose to vary factors such as deficit recovery periods between employers based on indicators such as perceived risk. From fund to fund, employer rates may vary because of investment performance, and variations in actuarial assumptions.


The assumptions used in each valuation will be agreed between the fund's pensions committee and the fund actuary based on recommendations made by the actuary.

Employers have two elements to their contribution rates - the future service rate and the past service element. The future service rate meets the future service cost, whilst the past service element deals with any difference between the past service cost and the assets of the employer (i.e. any surplus or deficit). Contributions in respect of the past service element are often payable in cash, whereas the future service rate is typically payable in percentage of pay terms.

KEY MESSAGE

Each individual LGPS pension fund is required to appoint a fund actuary, who carries outs the fund's local valuation. The fund actuary uses a number of assumptions to value the liabilities of the fund. Liabilities are split between those that relate to the past (the past service cost), and those that relate to the future (the future service cost). The results of this local valuation set the employer contribution rates, which may go up or down.


KEY MESSAGE

Under the new cost management process, the costs of the LGPS will be reviewed every three years from 31st March 2016 to ensure that they remain in line with agreed targets. The process includes additional valuations that will be carried out at national level. The purpose, assumptions and output from these cost management valuations are all different from the local valuations carried out by LGPS funds. This cost management process can only lead to changes in benefit levels and/or employee contribution rates that will be made at national level.


The 2010, 2013 and 2016 valuation reports of individual LGPS funds in England & Wales have now been published on this website by the Scheme Advisory Board:

2010 fund valuation reports

2013 fund valuation reports

2016 fund valuation reports