UK Councils’ local government pension scheme (LGPS) cash payments could be halved to £3bn a year if contributions were recalculated to reflect current market conditions, LCP has suggested.

LCP has stated that councils across England and Wales are currently paying a total of more than £6bn pa into the LGPS for new benefits being built up, based on the last valuation position as at 31 March 2022.

This is despite the total surplus across all LGPS funds in England and Wales having increased to more than £100bn, LCP partner, Tim Gilbert, estimated in LCP’s latest blog.

According to LCP, the updated contributions that came into effect from April 2023 made minimal changes, “despite the high surplus levels”.

“If contributions were recalculated based on current market conditions this could reduce the cash requirement from councils by more than £3bn each year, which is the equivalent of 2 per cent of the total local authority budget in England and Wales in 2023-24. This could therefore make a material difference to council funding,” Gilbert stated.

According to LCP, a review of contributions now could help to protect councils’ financial positions and give greater certainty to council taxpayers and central government ahead of any review of local government funding arrangements.

Whilst the contribution rates are currently set for three years at a time, with the next due at 31 March 2025 with any changes in contributions coming into effect from 1 April 2026, the LGPS Scheme Advisory Board suggests a review of contributions is possible on a fund-by-fund basis. Therefore, LCP has urged employers who participate in an LGPS fund to review their current position, engage with the fund to understand the options and act on the option that is best for them.

“It is clear from our analysis that many LGPS funds are in a significantly stronger position than expected when the contributions were set in 2022. We know that national finances are tight, so the government should be prioritising clear guidance stating such a review of contributions is reasonable, and that they can be reduced as soon as possible where appropriate,” Gilbert commented.

This article was originally published on our sister website, Pensions Age.

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