LGPS s13 review proposals 'largely achievable'

The Government Actuary is required to review the actuarial valuations of LGPS funds under section 12 of the Public Service Pensions Act 2013 - reporting on whether the aims of compliance, consistency, solvency and long-term cost efficiency have been met.

This is the second formal section 13 report and follows the first report, on the 2016 LGPS valuations, which was published in 2018.

GAD's report said LGPS funds had made "good progress" with relation to most of the recommendations it made in its first report but noted further work was needed on the clarity and consistency of actuarial assumptions as well as finding a common basis for academy conversions.

It also noted that the LGPS appeared to be in "a strong financial position" with assets of £291bn against liabilities of £296bn - a funding position that has improved markedly, from 85% to 98%, since the 2016 valuation, due in large part to strong asset returns.

But it did make four recommendations to improve consistency and long-term cost efficiency among LGPS funds.

The GAD report recommended:

1. The LGPS Scheme Advisory Board for England and Wales should consider the impact of inconsistency on the funds, participating employers and other stakeholders. It said it should specifically consider whether a consistent approach needs to be adopted for conversions to academies, and for assessing the impact of emerging issues including McCloud.
2. It recommended the advisory board 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.
3. GAD also recommended fund actuaries provide additional information about total contributions, discount rates and reconciling deficit recovery plans in the dashboard.
4. Finally, it recommended the scheme advisory board 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.

Barnett Waddingham principal Melanie Durrant said: "There isn't anything too surprising in there as GAD has engaged with funds as appropriate as well as the four actuarial firms in advance. The number of flags have reduced, and they have introduced a ‘white flag' this time, which is simply an advisory flag to highlight general issues but where no action is needed. There were no ‘red flags' (i.e. material issue) and only two ‘amber flags' (i.e. potential material issue) which is all positive for the LGPS after a very turbulent period."

Durrant said the four recommendations that GAD made are also "largely achievable" for the imminent 2022 valuations - noting the most controversial area was around a consistent approach for conversions to academies.

She said: "A consistent approach for schools to convert to academies remains the most controversial recommendation as, in our view, this recommendation doesn't fall under the remit of section 13.

"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. Similarly, there was insufficient information regarding McCloud at the time of the 2019 valuations to ensure a consistent approach.

"We are engaging with GAD in advance of the 2022 valuations to understand their views on McCloud, however in the absence of new regulations and the universal data extract not able to output the data we need."