PLSA makes recommendations to future-proof local government pension scheme following comprehensive research

15 June 2022

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While the financial resilience and operational stability of the Local Government Pension Scheme (LGPS) is unquestionably strong, an independent research report by the Pensions and Lifetime Savings Association (PLSA) has made recommendations to fortify the scheme’s long-term sustainability.

For more than a decade the LGPS has undergone rapid change. Against a backdrop of financial crisis, austerity and pay freezes for local authorities, and – more recently – the global pandemic, the LGPS has had to contend with a rolling series of reforms including becoming a Career Average Revalued Earnings (CARE) Scheme for future accrual, transitioning to investment pooling, incoming responsible investment regulations and the impending implementation of the McCloud Judgment.

Despite these challenges, the LGPS remains in a strong position. It is the largest defined benefit (DB) pension scheme in the UK, and one of the biggest in the world, with assets totalling more than £332 billion. It provides pension benefits to 6.9 million members, across more than 17,000 employers in a diverse range of essential fields.

Research findings: Challenges and recommendations

The research project – ‘LGPS: Today’s Challenges, Tomorrow’s Opportunities’ – has been carried out independently by the PLSA but informed by dialogue from those who work within the LGPS. This work is intended to provide PLSA members and those with an interest in the LGPS, additional information to aid and inform ongoing debates about the scheme’s purpose and on how to prioritise the opportunities available. It also aims to suggest practical next steps to some of the challenges highlighted.

The research builds on some of the experiences senior LGPS officers have on a day-to-day basis, including with implementation of regulatory change. Additionally, the observations and recommendations from the England and Wales Scheme Advisory Board (SAB)’s Good Governance Project, as well as from its 2018 Tier 3 Employers report, were found in aspects of this research as well, signalling evidence of a need to take action on various fronts.

The report outlines 14 underlying challenges to the LGPS and 24 recommendations across four different themes. Challenges range from the difficulty in navigating intricate regulation; to issues related to systems and people, such as staff retention and competition for talent.

The key findings and recommendations of the report are:

• The LGPS Regulatory and Operating Environment – The LGPS operates within a government and regulatory landscape which is complex, while the pace of change it has had to react to and comply with has accelerated in the last few years. There should be a significant push to ensure the existing regulatory framework works in a more joined-up and coherent way. The benefits of a more centralised approach, which could involve creating a new regulatory body, or giving an existing body greater powers, should be examined.
• LGPS Employers – While the relationship between funds and employers is reported as being overall very positive, the diverse range of employers in the scheme – all with varying needs – has increased administrative complexity. Among a range of recommendations within this theme, the PLSA calls for additional work to explore and share best practice in both assessing and proactively communicating employer risk and employer responsibilities early on. This work could also help to manage employer exits where appropriate, building on what is already available.
• LGPS and Scheme Members –The LGPS helps provide an adequate retirement income for workers, many of whom are lower paid and provide essential services that allow local communities to thrive. The LGPS is committed to continuing to promote how valuable the scheme is to those members. The PLSA recommends obtaining a robust and granular understanding of the LGPS membership profiles, and for LGPS savers’ voices to be represented at a more macro level on regulatory, policy and political discussions relating to pensions.
• Operational Sustainability: Systems and People – Amid ongoing cost constraints on local authorities, competition for talent is fierce. Recruitment, retention and resourcing remain top priorities to ensure that the LGPS continues to have the right skills to navigate through the regulatory and operational environment. The PLSA recommends a review of its 2018 Talent Management Guide and sharing best practice in people management.

Source: PSLA