Isio’s Low-Risk Funding Index reveals the LGPS funding level improved from 125% to 126% in Q1 2025, with a low-risk surplus of £87bn. Despite market volatility in April, including equity market declines, the funding level remained broadly stable month-end. With LGPS low-risk funding over 100% for over two and half years, participating employers should expect to see positive outcomes as part of the 2025 actuarial valuation. Reviews of funding strategies, alongside proactive engagement from employers, could result in large reductions to current contribution levels and/or risk levels.
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The latest release of Isio’s Low-Risk Funding Index reveals the aggregate funding level for the 87 funds participating in the Local Government Pension Scheme (LGPS) in England and Wales increased from 125% as of 31 December 2024 to a record high of 126% as of 31 March 2025, the official actuarial valuation date.
Over the period, higher gilt yields and easing inflation reduced liability values. Total LGPS assets remained strong, exceeding £415bn, resulting in a low-risk surplus of £87bn.Of the 87 participating funds, 83 have funding levels of 100% or higher, with levels ranging from 75% to 190% funded.
At the previous actuarial valuation date, 31 March 2022, the aggregate low-risk funding position was 67% and none of the 87 funds had a funding level of 100% or higher on a low-risk basis.
Despite the long-term nature of the LGPS, there has been speculation over whether April’s equity market volatility had a significant impact on LGPS funding. Isio’s Low-Risk Funding Index dropped to a recent low of 117%, but then recovered to 123% at the end of April. The diversification of the assets held by the LGPS, combined with increasing long-dated gilt yields, contributed to a relatively stable and still very strong funding position. This further demonstrates the durability of the funding improvements observed since the mini-budget in October 2022.
With the funding level peaking at the valuation date of 31 March 2025, it is clear that ongoing funding levels for LGPS funds and their participating employers are likely to be much higher than on 31 March 2022. In addition to funding level improvements, the cost of future service benefits has also fallen significantly.
As employers participating in the LGPS (largely Local Authorities, Universities, Academies and Housing Associations) continue to operate under financial struggles, the 2025 actuarial valuation provides a unique opportunity to “reset” contribution levels and review levels of risk exposure, maintaining security within the funds whilst also providing value for money.
Steve Simkins, Partner and Public Services Leader at Isio, says: “The funding level peaking at 126% on the 31 March 2025 is excellent news for public sector employers participating in the LGPS. This is especially welcome given the timing aligns with the actuarial valuations. There is natural concern around the market volatility, particularly with equities, in April caused by Liberation Day tariffs. Our Low-Risk Index suggests that the LGPS funding level dropped to 117% at its April low point but then returned to 123% at the end of April. Despite the global turmoil, the funding level for the LGPS remained remarkably resilient and the significant surplus that arose following the October 2022 mini-Budget continues to hold well.
“This leaves the LGPS in a surprisingly strong position for the 2025 actuarial valuation –stable in the short-term despite the volatility, and very well-funded over the long-term. We expect this to result in positive outcomes for employers on the whole, but there is a risk that some funds and their advisers may take an overly cautious approach. We encourage participating employers to proactively engage with their funds on an informed basis to make a clear case for lower contributions and lower risk exposure, depending on the needs of their organisation.”
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