LGPS valuation results expected soon – what should housing associations be considering now?

The results of the Local Government Pension Scheme’s (LGPS) latest funding valuations will soon be released, setting employer contributions in England and Wales for the three years from 1 April 2026.

Overall, the funding position of the LGPS has materially improved since the last assessment on 31 March 2022. This should mean that, all else being equal, LGPS funds will reduce both the primary contributions (which relate to benefits currently being built up) as well as any deficit contributions that employers are required to pay.

Some employers have taken steps already to reduce the level of contributions that are payable outside of the valuation cycle. Kensington & Chelsea Council took the extraordinary step earlier this year of reducing their employer contributions to nil, reflecting the very strong funding position of their fund.

What could affect the results?

As always with the LGPS, the devil is in the detail, and different funds will take different approaches. It is therefore difficult to say what the impact will be for individual employers.

Some funds are consulting on revised “Funding Strategy Statements” which set out how they will assess the position and the principles used to set different employers’ contribution rates.

LGPS funds have generally used stability mechanisms to manage increases to contributions in the past. This has provided greater certainty for employers and helped to ease affordability issues for some. Many funds may well look to employ similar stability mechanisms as contributions fall.

Lessons from the north

In Scotland, the LGPS valuations fall one year earlier than in England and Wales, meaning the most recent funding valuation was completed on 31 March 2024. The Government Actuary’s Department (GAD) recently published its Section 13 report assessing these valuations.

Some of the key takeaways from that review were:

• Funding levels have improved substantially across all LGPS Scotland funds.
• Employer contributions were generally reduced, but the approach varies by funds. Many are employing stability mechanisms to reduce contribution levels more gradually.

Perhaps most striking was the following: “As the funds’ financial strength improves and they continue to hold surplus assets, how these surpluses are utilised has become critical for intergenerational fairness. It is important that today’s surpluses don’t unfairly benefit future taxpayers at the expense of current ones, or vice versa.”

This could suggest that stability mechanisms should not be used for their own sake, and funds in surplus should now consider whether contributions (ultimately funded by taxpayers) are required.

Indeed, the next steps suggest than ministers should “consider guidance on surplus usage, balancing solvency and intergenerational fairness”.

What options are available to employers?

Employers are able to engage with funds on the valuation results – both looking at the Funding Strategy Statement and individual employer’s results.

If your results show a relatively modest change, some of the points to look out for are:

• Explicit stability adjustments to contribution rates.
• A change in the ‘probability of reaching full funding’ – which could mean a more prudent funding target has been employed.
• Other changes to the assumptions that change the target relative to the market conditions.

It is important to note that the results are not fixed when they are first shared, and engaging early with LGPS funds can deliver significant benefits to cashflows or help you better manage risks.

Next steps

Ahead of receiving results, housing associations should consider their objectives and review their wider LGPS strategy, including whether to continue to offer LGPS benefits, whether they have any influence over how their LGPS assets are invested, and how their pensions exposure fits within their wider business objectives.

When housing associations receive their results, they should consider the balance between:

• Affordability of contributions against the wider pressures on finances.
• Stability, and reducing the risk of future increases to contribution rates.

For many employers these results will be positive, with reductions in contributions expected for most.

However, if that’s not the case for you, or even if it is but the reduction in contributions is more modest than you might expect, there are options to challenge the results.

LCP has a specialist team that regularly advise housing associations on these matters, so please don’t hesitate to get in touch if you’d like to discuss this further.