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isio’s new index reveals LGPS is fully funded on a ‘low-risk’ basis
13 September 2023
A new index from Isio benchmarks the aggregate funding position for the 87 funds that participate in the Local Government Pension Scheme (LGPS) in England and Wales, revealing that the LGPS is fully funded on a ‘low-risk’ basis.
Isio’s ‘LGPS Low-Risk Funding Index’ estimates the funding position for the LGPS using the pensions industry standard approach to low-risk funding for past service liabilities, namely using a discount rate based on government bond yields. The Index reveals, as at 31 July 2023, that overall the LGPS in England and Wales is 102% funded.
The funding level has improved dramatically since the most recent LGPS England and Wales triennial valuations were carried out as at 31 March 2022, when funding was estimated to be 67% on the same low risk basis (with a corresponding deficit of over £180 billion) and none of the 87 funds had a funding level of 100% or higher. The improved funding level is primarily due to the significant increase in UK government bond yields, which has resulted in the value of liabilities assessed with reference to bond yields falling dramatically.
- Isio’s inaugural LGPS (England and Wales) Low-Risk Funding Index reveals an aggregate funding position of 102%
- This marks a transformational funding swing of approximately £190 billion since 31 March 2022, following a significant rise in gilt yields
- However, substantial funding differences remain between the participating funds, with some still significantly underfunded
- The Index suggests that the majority of LGPS funds have scope to reduce employer contributions or shift to lower risk investment strategies
- Future developments of the Index will reveal funding levels for each individual LGPS fund and track the LGPS’s response to these new market conditions
- An equivalent Index is under development for the Scottish LGPS funds
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