Increasing numbers of local authority pension funds are expected to reduce their contributions in light of funding surpluses, Financial Times contributing editor, Toby Nangle, has predicted.

Speaking at the PLSA Local Authority Conference, Nangle pointed out that “we have already seen some councils with very strong funding choose to reduce their secondary [pension] contribution rates after the last triennial evaluation”.

He gave the example of the Kensington and Chelsea Pension Fund reducing its contribution rates to zero in February for 2025/6, suggesting that "I'd expect many more to be in a position to do same sort of thing”.

“You see council services under pressure. You see competition for different things. And if there's a possibility, without blowing up the pension scheme, to reduce the amount that goes into it, and everyone's happy, that sounds quite compelling,” he continued.

Nangle also highlighted the “enormous diversity of asset allocations”.

“By my reckoning, Local Government Pension Scheme (LGPS) funds have, on average, around three-fifths in private and public equity, about a fifth in infrastructure, property, private debt, and a fifth in bonds and cash,” he explained.

“Now, the LGPS has been very well served in not reducing the riskiness of its asset base today, and with the funds that I've spoken to so far, there seems to be pretty limited appetite to reduce riskiness of assets today, and that's not really what the central government's trying to go for."

"But I'd say that in the Fit for the Future government consultation, it does seem to be some interest in maybe reducing the diversity of asset allocation among funds,” Nangle added.

Despite the increased government interest in higher LGPS allocations to infrastructure and private assets, and in LGPS investment pooling, Nangle stated that he does “not think that the government has any really strong views that [LGPS] investments are being badly managed today".

"And if you look at the results, you'd say, well, they don't look like they've been bad. They're pretty good results," he added.

“But the big reason, I think, is a proper appreciation that [the government] has got for the costs of private market investment … [therefore it thinks that pooling] would not penalize taxpayers or members,” he added.

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