LGPS Prudence Watch – February 2026 results

Prudence Watch is a benchmarking service designed to help employers and pension funds understand and compare the prudence embedded in their new LGPS (E&W) contribution rates.

With contribution levels influenced by a wide range of actuarial assumptions and stabilisation mechanisms, it can be difficult to assess how conservative or optimistic different rates really are. Prudence Watch cuts through this complexity by providing an objective, transparent comparison of prudence levels across funds and employers, supporting clearer decision‑making and better funding insight.

Employer contribution rates – 5 February 2026

The chart below shows employer contribution rates from 1 April 2026 as a % of pay.

Source: Isio analysis based on 54 employer results

The chart is based on a snapshot of 54 employers included in the launch of Prudence Watch on 5 February 2026.

This shows a range of new contributions with some being asked to pay nothing ranging up to a total contribution at the top end of 27% of pay.

The average contribution rate for the sample is 15% of pay, which is an average 5% of pay reduction versus contributions in the year to 31 March 2026.

Low -risk contribution rate

For each employer contribution rate from 1 April 2026 we estimate what the contribution rate would be if it was calculated on a ‘low-risk’ basis. We then compare the two. The difference illustrates the level of prudence in the new contribution rates in a way which allows comparison with other employer contribution rates.

The low-risk contribution rate is estimated based on the following approach:

• Using a low-risk basis with a discount rate set with reference to long dated UK Government bond yields.
• Calculating the cost of new benefits building up with an adjustment for the low-risk surplus/deficit spread over 20 years.

Further details can be found in the Appendix linked below.

For each employer the chart below shows the difference between the low-risk contribution rate and what they are being asked to pay.

Low-risk contributions – how to requested contribution rates compare?

Source: Isio analysis based on 54 employers

At the point of launching in February 2026, the average low-risk contribution rate across the group is 5%.

This compares to the average employer rate of 15%, meaning employers are being asked to pay on 10% more on average than their low-risk rate.

Prudence Watch score

The Prudence Watch score for each employer contribution rate considers the proposed employer contribution rate from 1 April 2026 and estimates what level of investment return assumption is required to calculate that level of contribution. It then compares this level of return with low-risk long-dated government bond yields to give a score which is an indication of the level of prudence.

• If the Prudence Watch score is zero, the assumed investment returns is in line with the yield on long-dated government bonds.
• If the score is negative, it means that the investments are assumed to perform less well than long-dated government bonds (a score of -0.5 indicates that investments are assumed to return 0.5% a year below gilts)

Further details can be found in the Appendix linked below.

Prudence score

Source: Isio analysis based on 54 employers

At 5 February 2026 the average prudence score is -0.6%, meaning that investment returns are assumed to be 0.6% a year below UK government bond yields on average.

Please note that the numerical information set out within the results has been calculated using approximate methods, based on individual employer results and information available within the public domain (not necessarily the most recent), and has been provided for information purposes only. The information set out should not be considered as advice nor be relied upon in making any financial decisions. Further information is available in the Appendix linked below.

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Appendix

This Appendix sets out further information on the data used and methodologies adopted in preparing Prudence Watch.

Data

The calculations are based on the employer valuation results reports shared with each employer by their Fund as well as publicly available information in the employer’s latest annual report and accounts.

Methodology

In calculating the Prudence measure a number of calculations are needed.

Standardised ‘low-risk’ funding position:

Based on the ongoing funding position shared in the employer results we calculate the employer’s funding position on a standardised low-risk basis:

The ‘low-risk’ funding basis adopted is based on the following assumptions:

• A discount rate used to value liabilities in line with fixed interest government bond yields at the valuation date 31 March 2025 (at an appropriate duration).
• Pension increases based on break-even Retail Price Inflation rates at the valuation date 31 March 2025 (at an appropriate duration) with an appropriate deduction for an inflation risk premium to reflect distortions in bond markets, and a deduction to reflect the differences in construction between Retail Price inflation, and Consumer Price Inflation (CPI) which drives pension increases in the LGPS.
• Salary increases are set based on an average premium relative to CPI as seen across LGPS funds for the 2025 valuation.
• The longevity and other demographic assumptions remain the same as those adopted by the Fund for the ongoing (or in some cases accounting) valuations as the impact of any difference between employer is considered less material.
• Duration information is taken from information included in the employers’ annual report and accounts.

• There are other views of what a “low-risk” basis may be. The basis we have adopted is used as an illustration of a set of assumptions where an investment strategy could be designed such that if fully funded there is a very low likelihood any future deficit would arise for past service liabilities. The aim is for a standardised approach across the Funds.
• Where fund-specific or employer-specific details are unavailable within the information received, reasonable assumptions have been made.
• The asset value remains in line with that used for the ongoing valuation results. For employers in Funds advised by Barnett Waddingham we note that assets values are smoothed over the six month period around the valuation date for the purpose of the ongoing valuation. This has generally led to an adjustment to the assets based on market value at the valuation date of around 2% and so we do not believe this will be material to the estimates shown.

Standardised ‘low-risk’ primary contribution rate:

A low-risk primary rate is calculated adopting the same low-risk basis outlined above.

• For Funds where Aon, Barnett Waddingham or Mercer are the scheme actuary, the calculation is based on the primary rate proposed from 1 April 2026 in the valuation results and this is switched onto the low-risk set of assumptions.
• For Funds where Hymans Robertson are the scheme actuary, given we are unable to replicate the approach used to calculate the primary contribution rate an alternative approach has been adopted. Here we take the service cost from the latest publicly available accounts as the starting point and switch this onto the low-risk set of assumptions.

Standardised ‘low-risk’ total primary contribution rate:

The total low-risk contribution rate is calculated as the low-risk primary rate plus any adjustment to allow for the low-risk surplus / deficit to be spread over 20 years.

Prudence score

The prudence score determines how much additional investment return is needed above the government bond yield used for the low-risk basis to replicate the total contribution rate requested by the Fund for that employer. It is the contribution rate for the year starting 1 April 2026 that is considered and doesn’t reflect how this may change over the three-year period.

To do this we calculate the adjusted funding position and adjusted primary rate from the low-risk positions calculated above to allow for this additional level of investment return in the discount rate assumption.

The level of additional return is then calculated such that the total contribution on this basis is in line with the total employer contribution rate requested. This reflects both the primary rate on this basis, plus any adjustment for the surplus/deficit on this basis spread over 20 years.

Reliances and limitations

The numerical information has been calculated using approximate methods and has been provided for information purposes only. It should not be considered as advice or be relied upon in making any financial decisions.

This work is compliant with the Technical Actuarial Standard TAS 100 published by the Financial Reporting Council, so far as their requirements are material for this.