LGPS Annual Report 2017: highlights for fund actuaries

Estimated reading time: 3 minutes

The Local Government Pension Scheme (LGPS) Scheme Advisory Board (SAB) released the fifth Annual Report for the LGPS in England and Wales on 22 May 2018. The report provides a wealth of useful information on the status of the LGPS for its members, employers and any other bodies who may have regular involvement with the Scheme as at 31 March 2017.

We’ve shared the three key things that funds and fund actuaries need to know in the lead up to the 2019 valuation. 

1. Membership

Total membership of the LGPS grew again by 0.4 million during 2017 to 5.6 million. The numbers of each membership type increased, with deferred membership experiencing the biggest growth of 10.5%.  We believe that this increase is primarily due to the reporting of undecided leavers, which is a point of interest to us having experienced high numbers of unprocessed leavers during the 2016 valuation.  We are working hard with our funds to reduce these numbers in advance of the 2019 valuation and in line with the Pension Regulator’s requirements for clean data.

It was not surprising to also see a significant increase in the number of employers within the LGPS of 8.4% over 2017, bringing the count to over 14,000.  This is largely due to the number of academy conversions taking place across the country and is set to continue during 2018.  SAB is aware of the increasing administrative burden this places on administering authorities and two working parties have been set up focussing on funding and administration in order to consider these issues – more news on that to come later in the year.

2. Investment performance

The average Local Authority pension fund has returned an impressive 21.4% over the last twelve months, which surpasses previous expectations of 8.7% p.a. for a 30 year average.  This past year’s investment performance has proved an exception to many previous years, where it was noted that most funds underperformed their benchmarks.  Favourable market returns over the period is the main reason for this improved performance. 

On the other hand, some funds may see an increase in the future cost of accruing benefits as demand for assets pushes down yields and therefore causes a decrease in future expected investment returns.  We are happy to provide updates on the funding position and the cost of future benefits as we approach the 2019 valuation and would be happy to demonstrate our online funding tracker – Illuminate.

3. Longevity

Long term improvements in mortality rates have slowed down quite significantly. As a result, we are not seeing the same high levels of mortality improvements as was the case in recent years, although there are still small improvements.  Overall, the typical period in retirement has only increased by 0.6 years since 2011 whereas over the previous decade, life expectancy was seen to increase by 2.5 years for males and 1.8 years for females.

This is a good reminder to LGPS funds and their actuaries that they should continue to monitor and analyse longevity trends, and furthermore, seek to better understand the drivers of changes in life expectancy.  Similarly to the 2016 valuation, as part of the 2019 valuation Barnett Waddingham will be offering a full longevity review of individual funds’ membership to feed into the mortality assumptions to be used.