Local Government Pension Scheme (LPGS) valuations – Triennial Valuation
Posted on: June 23rd 2022 · read
31 March 2022 marked the valuation date for LGPS valuations in England & Wales. Initial results will be available by Autumn 2022 and new contributions need to be agreed by 31 March 2023.
A large number of charities have some exposure to LGPS pension liabilities and for many the liabilities are material. So what can you expect? And what should you look out for? These are the questions we posed to Adam Poulson, a Partner from pension specialists Barnet Waddingham, and this is what he had to say:
"We expect most LGPS funds will have had volatile but strong investment performance over the 3 years since the last valuation which should improve the funding position. Conversely higher price inflation expectations are likely to increase liabilities which may reduce the funding position.
Overall for many funds we expect an improved funding position, which may reduce secondary contributions (sometimes also referred to as deficit reduction payments). However, we expect primary contributions will increase for many employers especially those that have recently stopped accepting new entrants."
Issues to watch out for:
- Data – Is your data right? Check with your LGPS Fund. If your data is wrong then your costs will be wrong. For example a typo of 10 years on a date of birth could change the liability value by 10%.
- McCloud – Now that the implications are clearer LGPS Funds should be allowing for the impact.
- Longevity – Covid has no clear long-term impact. Life expectancy could decrease due to 'long-Covid' or pressure on the NHS. Alternatively, it could increase due to improved health of post-Covid population and medical advancements. At fund level, experience over the period is likely to only have a small impact on funding levels, however actual experience of your membership could be material.
For many employers the membership of the LGPS is a ring-fenced population. In this case the number of employed members will decrease over time as employees retire or leave employment. For ring-fenced populations many LGPS Funds will seek a higher funding target in order to ensure the section is better funded on an exit basis when the last member leaves. This increases cost of both primary and secondary contributions relative to open employers.
Budgeting for the impact of the exit debt is prudent and is likely to be reflected in the secondary contribution rate.
However, should the exit debt fall due quicker than expected there are a few actions you can consider:
- Deferred debt arrangement - the employer remains in the Fund without active members and are deemed a deferred employer. The employer continues to pay secondary contributions for the term of the arrangement and may exit the Fund when they are fully funded on the cessation basis. Under this arrangement as the employer remains in the Fund they are still exposed to investment, longevity and inflation risks which could reduce or increase the final cessation debt
- Debt spreading arrangement - the exit debt is crystallised at the cessation date and the employer agrees with the administering authority a schedule to pay off the deficit over a period of time.
- Review the terms of the admission agreement when first joining the LGPS as it may require the administering authority to cover any exit debt.
A new valuation is always a good time to review the pension funding plans and the options of your educational establishment.
Find out more
Should you wish to discuss any of the points raise in this article please contact Adam Poulson, Partner Barnett Waddingham
E: [email protected]
T : 0113 394 3748