LGPS funds weathering pandemic better than expected - Aon

The impact of the Covid-19 pandemic on Local Government Pension Scheme (LGPS) funds has not been as bad as initially feared, according to Aon.

Speaking at the PLSA Local Authority Conference 2021, Aon partner, Jonathan Teasdale, said some sectors with employers who contribute to LGPS had struggled, but added that there had been “very few cases” of funds being approached by employers about difficulties with paying contributions.

He noted that some sectors presented more risk but recommended that funds get to know their own employer base, as different types of funds were built from different groups of employers, adding that “there is real benefit to reviewing your list of employers just to identify which ones could merit a further look and possibly some action”.

For example, Teasdale pointed out that some employers, such as colleges, may have been low risk in the past but would have a reasonable size compared to that of the fund and so failure would be a material issue.

Looking at specific cases, he commented: “One example I am aware of is where a care home hasn’t been able to pay contributions due to a lack of income relating to its day centre facility. During lockdown the day centre was closed and then it had reduced capacity.

“So there were a few months where the employer was not paying, but it did pay up once the day centre was open again, so hopefully that will have just been a short-term cashflow issue.”

Teasdale also examined the effect of the pandemic on mortality, stating that, across LGPS funds as a whole, financial impact of deaths to date had been low.

However, he conceded that the possible effects of Covid-19 on future death rates was “difficult to call”, noting that the most obvious risk was that the virus could become “endemic” and the world could be unable to shake coronavirus and its newly emerging variants.

However, he added that the dial could move the other way, with the pandemic increasing spending in health and social care and therefore leading to an increase in life expectancy over time, such as the effect seen between 2000 and 2010.

Teasdale commented: “My personal conclusion for LGPS at the moment is that there has been a short-term impact on deaths, but I am not currently advising clients to budget for higher death rates long term. The picture will carry on evolving, but just at the moment I would be advising employers not to be optimistic about a knock-on effect to contribution reductions.

“Many actuaries who specialise in the field of mortality are taking that same view at the moment.”

He concluded: “I think the evidence to date is that, in terms of the short-term picture, there has not been much impact relative to what you might expect. What is less clear is the longer term. I think it is less a case of ‘not much to see here’ as it is not quite clear which direction things are going in at the moment with long Covid, new variants and so forth.”

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