Employer contribution rates for Local Government Pension Scheme (LGPS) funds have fallen by around 22 per cent since 2022, according to new analysis from Pensions UK.

The research, based on 2025 valuation reports published by all 86 LGPS funds in England and Wales, found that the average employer contribution rate fell from 21.3 per cent in 2022 to 16.6 per cent in 2025 - a reduction of 4.7 percentage points.

According to the analysis, 85 funds recorded lower contribution rates in 2025, while only one reported a marginal increase.

The findings also showed a significant improvement in funding levels across the scheme.

Average funding rose from 105 per cent in 2022 to 122 per cent in 2025 across 87 LGPS funds in England and Wales, while the number of funds above full funding increased from 61 to 79 over the period.

By 2025, just eight funds remained below 100 per cent funding, with 79 funds improving their funding position since 2022.

Pensions UK said valuation reports attributed the stronger funding position primarily to lower liability valuations as discount rates rose, reflecting higher gilt yields and updated long-term return assumptions, alongside resilient asset performance.

In addition, the analysis found that employer contribution ranges narrowed considerably between 2022 and 2025.

In 2022, employer contributions ranged from 10.5 per cent to 32.1 per cent, while by 2025, the range had narrowed to 8 per cent to 24.2 per cent.

Pensions UK said that as deficits reduced - and in some cases surpluses emerged - funds had been able to reduce the “secondary” element of employer contributions used for deficit recovery, while maintaining relatively stable future service costs.

This, it suggested, had created “meaningful budget headroom” for participating employers.

Pensions UK policy lead for the LGPS, Maria Espadinha, said the figures “underline the long-term health” of the scheme.

“Funding levels have strengthened significantly since 2022, with the vast majority of funds now above full funding, and employer contribution rates, on average, materially lower than they were three years ago,” she noted.

Espadinha added that the improved funding position was now “feeding through into lower employer contribution requirements”.

“Funds have had greater flexibility to reduce overall rates - particularly deficit recovery contributions - while keeping future service costs broadly stable, demonstrating the LGPS’s ability to deliver sustainable outcomes for employers over the long term," she concluded.

---