There are only 9 months to go the next actuarial valuation of the Local Government Pension Schemes (LGPS) – the key date being 31 March 2016.
We know that the scheme actuaries have already started their preparation towards the 2016 valuation as some funds have, for the first time, issued covenant questionnaires to employers (admitted bodies) who are not providing any additional security in the form of bonds or guarantees. With governance of the LGPS being tightened, the likelihood is that many funds will base their treatment for admitted bodies on the results of such questionnaires. For those admitted bodies without additional security, accelerated funding may be called for. Due care and attention should be paid if such questionnaires are received.
So, what will the costs look like? The chart below sets out the approximate progression of the deficit from 31 March 2013 to 22 June 2015 for the whole of the LGPS for England & Wales. It shows that as at 31 March 2015, the deficit had increased to around £60bn from £47bn as at the last valuation. Since then market conditions have improved and the deficit is now in line with that at the last valuation.
From an employer’s perspective, despite having paid in 3 years of deficit contributions, there is not likely to be any material improvement in the overall funding position. Clearly this will differ from fund to fund and will be dependent on the investment performance of each LGPS fund. The key message for employers is to start to budget for the costs that will come through from 1 April 2017 and to allow for the cessation of contracting out and resulting increased National Insurance costs from 1 April 2016. Market conditions over the next year will be important and we will continue to provide updates.
If you have any questions please get in touch with your usual KPMG pensions contact or Steve Simkins.
This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.