In our first digital deli of 2022, Barry McKay and Melanie Durrant met virtually with some of our LGPS clients to discuss current issues and get some insights from Jeff Houston, Head of Pensions at LGA (who we are delighted to say will soon be joining us at Barnett Waddingham). 

We spent a significant amount of time discussing actions that funds are taking around the 2022 valuation in England and Wales. As well as speaking to employers and planning the process, this includes data work and funding strategy reviews. Self-insurance, pooling and approach to employer covenant are some of the key areas of funding strategy that we discussed and are being reviewed.

We also touched on the assumptions that are likely to be used, in particular focussing on the current high levels of inflation and what this could mean for the LGPS. High inflation can affect the LGPS in four different ways:

  • Benefits will increase as there is no cap on inflation in the LGPS;
  • Where discount rates are linked to inflation in some way, then investment returns will need to keep up if discount rates increase;
  • Salary increase assumption is generally linked to inflation but will actual salaries keep up?; and
  • Actual salary increases in excess of inflation over a prolonged period could ultimately lead to more members where the McCloud underpin bites.

The other topical assumption is longevity and we recommended that all funds carry out a bespoke analysis for their fund as part of the valuation process. We are anticipating seeing even more of a difference by location at this valuation so we are comfortable (and expect GAD will be too) with variation in assumptions. The financial impact of the pandemic will be low in general, but individual employers may be impacted more. 

Funds shared their experiences so far of managing climate risk. It is clear that funds are at different stages and that the main focus so far has been the investment strategy. As the Fund Actuary to many LGPS funds, we stressed the importance of thinking about the liabilities too and not just the assets. This would form part of the 2022 valuation discussions, for example how it might affect the assumptions and how it could be incorporated into employer covenant reviews. 

Jeff shared some initial thoughts on the McCloud amendments for the LGPS and it looks like there will be at least three key changes that funds should be aware of which will result in additional members being in scope: 

  1. Aggregation – there will be another opportunity for members to aggregate for McCloud purposes;
  2. Excess Teachers Pension Service – this relates to service that TPS members couldn’t count in TPS but they can use it in the LGPS; and
  3. Extension of scope – previously scope was if you are in Scheme “on” 31 March 2012 will change to “in or before” 31 March 2012. In addition, if you were put into a broadly comparable scheme equivalent then that will not be counted as a disqualifying break. Problem is, how do you know where someone went?

There is still a lot of uncertainty out there with delays on McCloud, TCFD for the public sector and the outcome of the SCAPE rate consultation to name just a few. We will also wait and see how the levelling up white paper will affect the LGPS. 

Look out for the invitation to our next deli.

Press and media enquiries

For further information, please contact our press team on +44 149 478 8813 or via email.

Email us

About us

We are proud to be a leading independent UK professional services consultancy at the forefront of risk, pensions, investment and insurance.

Find out more