Pensions - Articles - Local Government Pension Scheme deficit lower than predicted

 KPMG anticipated a deficit of around £70bn based on a like-for-like basis with the 2013 valuation, but the LGPS scheme actuaries have updated thei approach to setting discount rates in light of very low long-term gilt yields. Their decision to increase the discount rate, by around 0.25 per cent a year relative to gilt yields, significantly reduces the deficit but increases the amount of risk being taken by LGPS employers.

 KPMG’s initial assessment of valuation results found that there is a wide range of assumptions and approaches being used by different fund actuaries. For local authorities the assumptions and approaches generally lead to similar results, creating a case for a single approach. For other employers the different approaches lead to wide ranging and unpredictable results, with similar employers seeing very different outcomes.

 Commenting, Steve Simkins, Pensions Partner at KPMG, said: “The actuarial valuation indicates that employers in the LGPS collectively need to find around £35bn to plug the funding gap. The fact that the deficit fell in such difficult market conditions highlights the increasing reliance of the LGPS on the future performance of its assets and this puts employers in a higher risk position.

 “Despite very different assumptions and approaches, outcomes for local authorities are largely consistent but our analysis suggests that other employers are increasingly exposed to a postcode lottery according to the fund they are in and the scheme actuary involved.”