By Roisin McGuire, Principal and Senior Consulting Actuary, Barnett Waddingham
The new guidance replaces the previous CIPFA guidance which was in force since 2016. It’s a statutory requirement that administering authorities (funds) have an FSS and keep it under review. Funds must adhere to the relevant guidance in force when revising their FSSs, and the publication of the new guidance means FSSs are set to see an overhaul this valuation cycle.
The role of the FFS
The FSS sets out the strategy the fund will follow to ensure that the LGPS benefits can be paid out to the members as they arise now and in the future. The FSS acts like a handbook for employers - it should be a clear and transparent document, which employers can use to understand how their employer contributions are calculated between actuarial valuations, or on joining or leaving the fund.
Funds will need to revise their existing FSS in light of the new guidance, so what are the anticipated changes?
Changes we can expect to see
A revamped structure
The structure of the FSS will likely have a revamp as new guidance recommends a common structure for all FSSs and suggests the headings and subheadings to include. The goal here is to achieve consistency, so that those who work across multiple LGPS funds will know where to find information within the document. A lot of the detail contained in the current FSS will still be included in the revised version, albeit likely in a different order.
More detailed funding information for employers
A big difference for some funds will be the increased level of funding detail for employers, which is now required to be documented in the FSS. The FSS should enable an employer to clearly understand how they will be treated for funding purposes at key events such as:
joining the fund;
leaving the fund; or
during an actuarial valuation.
The FSS should also document how employers are categorised for funding purposes and for each category, how employer contributions are calculated. This should include the recovery plan length (used to recover any deficit or surplus during an actuarial valuation) and the actuarial method and assumptions used.
The fund does not have to treat all employers the same, but it should treat alike employers the same and the FSS should be transparent in documenting the relevant details.
Bringing policies together
The new guidance requires the FSS to contain all relevant funding information for a fund. Funds may currently have multiple policies which contain various information, such as contribution reviews, employer flexibility options on leaving the fund (deferred debt agreements or debt spreading agreements), or admission agreements/pass-through agreements.
The new guidance says that these additional policies should either be:
included as annexes in the FSS; or
their hyperlinks should be included.
This ensures that all relevant funding information is in one place for the reader. It would also be best practice for funds to review their additional funding policies to ensure they are consistent with the revised FSS.
Introducing the Engagement plan
It has always been a regulatory requirement for funds to consult on any changes made to their FSS, but the new guidance now requires that funds produce a new document called an Engagement plan.
In the plan, funds must create a timetable which outlines how they will engage in meaningful consultation with employers and any other bodies they consider relevant. It should specify details such as:
who the funds will consult with;
how long funds will allow for consultation responses;
where responses should be sent; and
and how funds will communicate the outcome.
Funds should set out how they will appropriately engage with employers and other bodies, for example through employer forums, and the Department for Education has also asked to see all FSS drafts. It should also be clear which parts of the FSS are fixed and which parts are being consulted on. The FSS needs to be approved by the Pensions Committee and a fund needs to be able to explain to the Committee how any responses have been considered. They must then publish the FSS on their website and consider what other methods of publication would be appropriate.
It’s time to act
With a revamped structure, more funding detail, inclusion or referencing of all additional funding policies in the FSS, alignment of these policies with the FSS, and increased requirements around consultation - there is plenty to discuss with your fund actuary. Funds should certainly be adding the FSS and Engagement plan onto their meeting agendas to kick start this key area of the 2025 actuarial valuation.
Guidance for Preparing and maintaining a Funding Strategy Statement (FSS)
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