The 2025 valuation for the Local Government Pension Scheme (LGPS) is expected to provide a “unique opportunity" to reset contribution levels, Isio has said, after its latest update revealed that the LGPS remains in a “surprisingly strong position".

Isio acknowledged that April’s equity market volatility has impacted LGPS funding levels, as its Low-Risk Funding Index dropped to a recent low of 117 per cent before recovering to 123 per cent at the end of April.

However, the firm clarified that the diversification of the assets held by the LGPS, combined with increasing long-dated gilt yields, contributed to a relatively stable and still very strong funding position.

“Despite the global turmoil, the funding level for the LGPS remained remarkably resilient and the significant surplus that arose following the October 2022 mini-Budget continues to hold well,” Isio partner and public services leader, Steve Simkins, said.

“This leaves the LGPS in a surprisingly strong position for the 2025 actuarial valuation –stable in the short-term despite the volatility, and very well-funded over the long-term.”

The firm also pointed out that the funding position as of the official actuarial valuation date, 31 March 2025, was even stronger, as its index showed that the aggregate funding level for the 87 funds in the LGPS in England and Wales rose from 125 per cent at the end of 2024 to a record high of 126 per cent as of the end of March.

This was partly due to a reduction in liability values amid higher gilt yields and easing inflation, whilst total LGPS assets also remained strong, exceeding £415bn, resulting in a low-risk surplus of £87bn.

The index also revealed that, of the 87 participating funds, 83 have funding levels of 100 per cent or higher, with levels ranging from 75 per cent to 190 per cent funded.

This is in contrast with the previous actuarial valuation date, 31 March 2022, when the aggregate low-risk funding position was 67 per cent and none of the 87 funds had a funding level of 100 per cent or higher on a low-risk basis.

In addition to funding level improvements, Isio argued that the cost of future service benefits has also fallen significantly.

Given this, Isio argued that it is “clear” that ongoing funding levels for LGPS funds and their participating employers are likely to be much higher than in 2022, suggesting that employers should expect to see positive outcomes as part of the 2025 actuarial valuation.

Indeed, with employers participating in the LGPS continuing to operate under financial struggles, Isio said that the 2025 actuarial valuation provides a "unique opportunity" to review contribution levels and levels of risk exposure, maintaining security within the funds whilst also providing value for money.

“We expect this to result in positive outcomes for employers on the whole, but there is a risk that some funds and their advisers may take an overly cautious approach,” Simkins said.

“We encourage participating employers to proactively engage with their funds on an informed basis to make a clear case for lower contributions and lower risk exposure, depending on the needs of their organisation.”

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