Higher bond yields have helped improved the funded status of the Local Government Pension Scheme (LGPS), according to new data from consultancy group Isio.

The yield on 10-year Gilts rose by 8% in January from 3.61% to 3.9%, reducing scheme liabilities.

Across 87 LGPS funds assessed by Isio, the aggregate funded status improved from 101% at the end of December 2023 to 104% at the end of January, using the firm’s Low-Risk Funding index. This represented a £13 billion improvement in funding.

The data reflects a similar improvement in the private sector, as recently shown by Pension Protection Fund data.

Isio also reported that 54 of the LGPS funds in its database were now more than 100% funded, which had prompted some to begin to de-risk their asset allocations.

The data were also markedly different from March 2022, the date of the most recent LGPS scheme valuations used to set funding and investment strategies. This meant that these approaches “may no longer be appropriate under current conditions”.

Steve Simkins, partner and public services leader at Isio, said he expected de-risking activity to continue “and potentially accelerate, while market conditions remain extremely favourable”.

“While the modest de-risking at fund level is welcome, it is not sufficient for some employers in surplus who might want to move all of their assets into bonds,” Simkins added.

“We would like to see more funds provide their participating employers with the opportunity to better manage their own assets, through the implementation of employer-specific investment strategies or other alternatives.”

Isio said it was encouraging local authority employers to engage with LGPS funds on contribution levels and investment strategies to facilitate the delivery of “essential public services to local communities and retention of local jobs”.

In December, the LGPS Scheme Advisory Board acknowledged “increased appetite” among employers for engaging with funds to try to influence investment strategies as more funds have moved into surplus. However, the board emphasised that “expectations may need to be managed” due to additional resources required from LGPS funds.

“Funds should consider how the costs of tailored approaches might be met and how they fit with their overall risk management approach,” the board said. “They are more likely to be appropriate where there is a critical mass of employers targeting a particular strategy (e.g. admitted bodies looking to de-risk a path to exit the fund).

“Funds will need to consider their own circumstances, those of their employers and their members – and be ready to provide a clear justification for their approach.”


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Published: February 27, 2024
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