The latest release of Isio’s Low-Risk Funding Index shows that the aggregate funding level for the 87 Local Government Pension Scheme (LGPS) funds in England and Wales decreased slightly from 147% as at 30 September 2025 to 145% as at 31 December 2025.
Despite this modest fall, funding levels remain historically high. The Index highlights:
A funding level of 145% - around 20% higher than at the 31 March 2025 actuarial valuation date.
A total surplus of £148bn - a new quarter-end high.
Over the period, lower gilt yields and rising inflation increased liability values, but this was largely offset by growth in asset values. Of the 87 LGPS funds, 86 are now fully funded (100% or higher) on a low-risk basis, with only the Environment Agency’s closed fund below this level.
This marks a significant improvement from the previous actuarial valuation at 31 March 2022, when the aggregate low-risk funding level stood at just 67%, and no funds were fully funded on this basis.
As LGPS employers - including local authorities, police and fire authorities, academies, universities and housing associations - continue to face financial pressure, the 2025 actuarial valuation presented a key opportunity to reset contribution levels and reassess risk. Strong funding positions at 31 Match 2025 supported a case for lower contributions, helping to ease pressure on employer budgets while maintaining long-term sustainability.
But with the actuarial valuation due to conclude on 31 March 2026, Isio expects employer contributions to only reduce by around 5% to 16% on average. 16% is a lot higher than a low-risk contribution approach that utilises surplus over 20 years, suggesting that many employers will continue to pay more than necessary over the next three years without further intervention.
Despite significant global events in early 2026, Isio does not expect funding levels to have deteriorated materially since 31 December 2025 and expects them to remain well above the valuation date position.
Steve Simkins, Partner and Public Services Leader at Isio, said: “At 31 December 2025, our Low-Risk Funding Index shows a funding level of 145% - an increase of nearly 20% since the March 2025 actuarial valuation. This provides strong support for reducing employer contributions at a time when many LGPS employers are under significant financial strain.
“Whilst the actuarial valuation is subject to review under Section 13 of the LGPS Regulations, it can take around 18 months for the Government Actuary’s Department to publish its findings. Given the even stronger current funding positions and the increased risk of overpayment, there is a clear case for a more urgent and challenging review process, with independent input and alignment to wider pensions industry perspectives.
“The LGPS is clearly in a strong solvency position. The key question now is whether the current valuation approach delivers long-term cost efficiency, particularly when employers could be deploying excess contributions more effectively within their organisations.”
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