Isio has launched a framework aimed at helping Local Government Pension Scheme (LGPS) funds and employers understand and compare prudence in contribution setting, warning that LGPS employers were paying higher contributions than needed.

The consultancy’s Prudence Watch builds on its LGPS Low-Risk Funding Index, and its launch follows the 2025 actuarial valuation of the LGPS in England and Wales.

Since the previous valuation, LGPS funding levels have improved, with Isio’s LGPS Low-Risk Funding Index showing the aggregate position remained well above 100 per cent for much of the inter-valuation period, and further improvements have been made since.

The framework has been developed to explore how the improved funding has been reflected in contribution setting, with analysis comparing each fund’s contribution rate against Isio’s standardised low-risk contribution measure.

The average total contribution rates among the 86 open LGPS funds from April 2026 was expected to be 16 per cent of payroll, ranging from 1 per cent to 24 per cent.

However, Isio estimated that the average low-risk contribution rate was 9 per cent, which meant that contribution rates were 7 percentage points higher than the consultancy’s low-risk measure, on average.

Prudence Watch also calculates a ‘prudence score’ for each fund, which assesses the level of long-term expected investment return against long-dated government bond yields implied by the fund’s contribution rate.

The average Prudence Watch score was -0.6 per cent, suggesting that funds were setting an average contribution rate that implied investment returns of 0.6 percentage points below long-dated government bond yields.

Isio said this reflected a highly cautious position, especially as LGPS funds typically continue to hold long-term growth assets.

The consultancy’s analysis also highlighted a disconnect between the discount rates assumptions and overall level of prudence, and a wide variation of prudence levels between funds.

“LGPS funding levels have improved substantially since the 2022 valuation, but contributions only reduced by 5 per cent of pay on average to 16 per cent,” said Isio director, public services, Katy Taylor.

“Prudence remains an essential part of responsible pension funding. It helps protect members, employers and taxpayers from future uncertainty.

“But our analysis shows that, even after recent reductions, contribution rates for most funds remain materially above the low-risk benchmark we have calculated for each fund.

“The 2025 valuation has taken place in a very different environment from recent cycles. For many employers, budgets remain under intense pressure, so the question is not whether prudence matters, but whether the right balance is being struck between long-term stability and short-term affordability.

“Prudence Watch is designed to support more transparent and informed discussions between funds, their employers and wider stakeholders.

“It does not suggest that every fund should take the same approach, but helps show on a like-for like basis how much caution is being built into contribution rates and whether that remains appropriate given stronger funding positions."

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