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LGPS (England & Wales) – Low-Risk Funding Index

In September 2023, we issued the initial release of our monthly ‘LGPS (E&W) – Low-Risk Funding Index’, or “the Index”, containing results as at 31 July 2023.

The Index has been developed to monitor funding positions for each of the 87 funds participating in the Local Government Pension Scheme (LGPS) in England & Wales as well as the aggregate funding position for the LGPS (E&W) as a whole. It will be updated and published on a monthly basis based on market conditions at the close of the previous month.

In estimating the funding positions referred to above, liabilities have been estimated on a ‘low-risk’ basis whereby the discount rate has been set with reference to UK Government gilt yields, enabling:

  • Greater consistency in the actuarial approach to be taken in respect of each fund, irrespective of the Fund Actuary and each fund’s approach
  • Comparison to a standard low-risk funding reference point, used across the pensions industry i.e. the valuation of liabilities with reference to assets which can be used to match pension payments (UK Government gilts)

What is the purpose of the Index?

Although the results of the 2022 triennial valuation exercise for LGPS (E&W) funds were only finalised earlier this year, much has happened to the funding levels of the 87 participating funds as a result of the changes in market conditions since the effective date of the valuation on 31 March 2022.

The very significant improvement in funding levels present a new funding and investment landscape for the LGPS and so we have developed the Index to help LGPS stakeholders understand the evolving positions and impact of changes in market conditions on a month-by-month basis.

At launch the Index is based on publicly available information as at 31 March 2022, which means that assumptions and estimates have had to be made over quite long periods of time. We hope that funds will be prepared to share more up to date information with us to enable our estimates to be refined. We may also update our calculations for new information that comes into the public domain.

Initial launch – September 2023 (based on 31 July 2023 market conditions)

The initial launch will include:

  • The overall funding position for the LGPS (E&W) in aggregate
  • The individual funding positions for each of the 87 participating funds, provided on an anonymised basis

Later developments

The initial launch will be updated to include:

  • The individual funding positions for each of the 87 participating funds on a named basis
  • Commentary on how funds are responding to current market conditions through their funding and investment strategies and employer engagement
  • A similar index for the LGPS in Scotland

If you would like to speak to the Isio team about this the Index or any of the issues raised, please contact us using the details below.

Steve Simkins

Mobile Number: 07739 812691
Direct Dial: 0113 512 5599

Mitchell Johnstone

Mobile Number: 07827 593271
Direct Dial: 0141 270 7609