Local Government Pension Scheme (LGPS) funding levels are expected to increase by between 7% and 12%, according to early 2022 valuation insights by pension and financial services consultancy, Hymans Robertson.
The analysis suggested that the expected funding increase is due to strong investment returns since the previous valuation in 2019.
Robert Bilton, Hymans Robertson’s head of LGPS valuations, said that the “strong improvement” in the funding level was “great news for the LGPS”.
He added: “Our analysis indicates that strong three-year investment returns of 27-28% have been the driver behind the improvement, more than offsetting higher future inflation expectations.”
The research found that one fund in the Hymans Robertson sample had reported investment returns in excess of 30%.
“These excellent levels of returns have improved the funding level by around 15%. For one county council fund in our analysis, higher-than-expected investment returns improved the funding position by more than £500m,” Bilton continued.
According to the analysis, other factors such as salary increases and life expectancy post-Covid have had a minimal impact on the funding position.
The research predicted that inflation will have the biggest impact on the future funding position of the LGPS, with an average annual increase of around 0.4% across the duration of the liabilities to reflect the current high inflationary environment. This increase alone could reduce the funding level by around 7-8%.
“For funds, we would urge cautious optimism as experience tells us that the funding position does not directly drive employer contribution rates – these will start to be reported in the next few weeks,” he said.
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