Local Government Pension Schemes (LGPS) should be working to demonstrate the value they offer to members and reinforce the benefits of public service pension schemes to prevent member opt-outs, according to Aon.

The firm highlighted the Pensions and Lifetime Savings Association’s recent report, LGPS: Today’s Challenges, Tomorrow’s Opportunities, as evidence of the issues that face LGPS, particularly amid the current economic uncertainty.

In particular, Aon Wealth Solutions partner and head of public sector UK, Alison Murray, stressed that the benefits these schemes offer are not sufficiently valued by members, and that staffing issues seem to be "an unending difficulty".

However, Murray said that one thing that is "very clear" amid the recent volatility, is that membership of the scheme will offer a "largely predictable, inflation-proof income in retirement, the value of which cannot be over-estimated – even if it might be currently under-appreciated".

In light of this, Murray argued that “timely and clearly understandable communications” to members and employers are needed to reinforce the “real benefits” of public service pension schemes, and to prevent members opting-out amid the cost-of-living (CofL) crisis.

She also noted that many LGPS funds are reviewing their communication strategy in the light of greater use of digital media, suggesting that this is therefore “an ideal opportunity” to assess how best to engage with stakeholders throughout their pensions journey.

Murray stated: “Currently, even those who understand the benefits may not value them sufficiently to stay in their public sector job.

"LGPS funds are struggling to recruit and retain staff - often because the skills required for roles aren’t properly recognised within the local authority pay/grading structure.

“More can be done to build a resilient workforce by improving job roles and descriptions, and also by optimising the resourcing structure.

"But there should be greater freedom to offer more attractive pay and career opportunities that are commensurate with the requirements of administration, governance and investment roles in LGPS funds. These are specialist positions and need to be recognised as such.”

Adding to this, Aon associate partner, Catherine Pearce, suggested that there also needs to be a “significant shift” of mindset away from ‘lowest cost’ being the standard by which many funds assess themselves.

“Value for money is of course a core aim for public services, but under-resourcing pensions administration and governance not only tends to lead to worsening outcomes for members but is likely to prove to be a false economy when additional work is required to address backlogs or correct long-running issues,” she explained.

“There is a constant flow of additional work for administering authorities, with key projects such as McCloud, pensions dashboards, compliance with the new code of practice from The Pensions Regulator as well as the expected new Task Force on Climate-related Financial Disclosures (TCFD) requirements.

"And that’s not to mention ‘Good Governance’ changes, all of which demand additional resource. This could be a critical time for LGPS funds to ensure they can be sustainably managed into the future.”

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