Local Government Pension Scheme deficit shrinks by nearly £10bn

THE LOCAL GOVERNMENT Pension Scheme deficit fell by £9.6bn between 2013 and 2016 to £37.2bn, according to its latest valuation report.

The scheme, which is the largest direct benefit (DB) pension scheme in England and Wales with over 14,000 employers and 5.3m members, had a deficit of £47.8bn at its last valuation in 2013.

Assets were worth £216.4bn as of 31 March 2016, up from £180.5bn in 2013.

However, the net investment return on these assets was 0.1%, compared with 12.1% in 2015. The board said this reflected “less favourable financial market conditions”.

The main areas of investment were pooled investment vehicles (43.7%), public equities (34.7%), fixed interest/index linked (7.5%) and property (7.8%).

Liabilities had grown from £227.3bn to £253.6bn over the same period. The scheme’s overall funding level was 85%. By comparison, the funding level of the 5,945 DB occupational pension schemes in the Pension Protection Fund index was 81% and the University Superannuation Scheme’s funding level 83% as of 31 March 2016.

Membership of the LGPS grew by 134,000 (2.5%) in 2016 and the number of employers rose by 2,635 (22%) to 14,435.

Over 1.5m pensioners were paid over the year.

The scheme maintained a positive cash-flow position overall. Income was lower than outgoings by £279m, although this figure excludes investment income.

Cllr Roger Phillips, chair of the Scheme Advisory Board, said a number of LGPS pension fund “health indicators” first piloted in 2014 will be rolled out in conjunction with the latest valuation.

“This will enable us to assess and benchmark the overall health of the scheme relative to other large public or private pension schemes, as well as between individual LGPS funds,” he added.

“During 2016, the board has been actively developing proposals to further tackle the estimated funding deficit of £37bn to improve the sustainability of the LGPS and its future funding levels.”

The next triennial valuation of the LGPS will be as at 31 March 2019.