Local Government Pension Scheme (LGPS) funding remains robust, despite a slight dip in the final quarter of 2025, according to the latest Low-Risk Funding Index from Isio, which has suggested that the government should accelerate its actuarial review process.

The index showed that the aggregate funding level for the 87 LGPS funds in England and Wales fell marginally from 147 per cent on 30 September 2025 to 145 per cent, as at 31 December 2025.

Despite the decrease, funding levels remained historically high, standing around 20 per cent higher than at the 31 March 2025 actuarial valuation date.

The total surplus also reached a new quarter-end high of £148bn, up from £147bn in the previous quarter.

The report indicated that lower gilt yields and rising inflation increased liability values over the period, although this was largely offset by growth in asset values.

Of the 87 LGPS funds, 86 were now fully funded on a low-risk basis, with only the Environment Agency’s closed fund remaining below 100 per cent funding.

This marked a significant improvement compared to the previous actuarial valuation as of 31 March 2022, when the aggregate low-risk funding level stood at 67 per cent, and no funds were fully funded on this basis.

The findings come as LGPS employers, including local authorities, police and fire authorities, academies, universities and housing associations, continue to face financial pressures, with the 2025 actuarial valuation seen as an opportunity to reset contribution levels and reassess risk.

While strong funding positions at 31 March 2025 have supported the case for lower employer contributions, Isio suggested that reductions may be more limited than expected, with contributions anticipated to fall by between 5 per cent and 16 per cent on average.

It warned that this remained significantly higher than a low-risk contribution approach that utilises surplus over 20 years, raising concerns that some employers could continue to pay more than necessary over the next three years without further intervention.

Isio also noted that, despite global market volatility in early 2026, it did not expect funding levels to have deteriorated materially since 31 December 2025 and expected them to remain well above the valuation date position.

Isio partner and public services leader, Steve Simkins, noted that the improved funding levels provided "strong support for reducing employer contributions at a time when many LGPS employers are under significant financial strain".

“Whilst the actuarial valuation is subject to review under Section 13 of the LGPS regulations, it can take around 18 months for the government actuary’s department to publish its findings," he continued.

"Given the even stronger current funding positions and the increased risk of overpayment, there is a clear case for a more urgent and challenging review process, with independent input and alignment to wider pensions industry perspectives.

“The LGPS is clearly in a strong solvency position. The key question now is whether the current valuation approach delivers long-term cost efficiency, particularly when employers could be deploying excess contributions more effectively within their organisations.”

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