PLSA LA 24: No LGPS benefit changes following 2020 valuation; cost mechanisms in a ‘standoff’

There will be no changes to benefit levels in the Local Government Pension Scheme (LGPS) as a result of the 2020 valuation carried out by the Government Actuary’s Department, with the cost control mechanisms in a “standoff position”.

Speaking at the Pensions and Lifetime Savings Association’s (PLSA) Local Authority Conference, GAD actuary, Garth Foster, presented statistics that highlighted the ‘core mechanism’ for the LGPS showing a reduction in costs.

However, this was being offset by the ‘economic check’ cost control mechanism showing an increase in costs, resulting in there being no requirement to alter benefits.

“The key force which is bringing down the core mechanism results are the changes in life expectancy since we originally set the cost of the scheme back when the schemes were being developed,” Foster explained.

“That reflects both the mortality trends and the impact of Covid, so that brings down the cost.”

Whereas, the economic check, which allows for the wider economic picture and the affordability challenges to government through the setting of HM Treasury’s financial assumptions, showed an rise in cost.

“We are almost in a ‘standoff position’ that one mechanism is going down and one is going up,” Foster said. “Until we get a movement of one of those in the same direction, then the position will be that benefits won’t change.”

Foster added that the same pressures affecting the LGPS mechanisms were also affecting all the other 20 public service pension schemes in the UK, meaning that there were no benefit changes from any of GAD’s 2020 valuations.

“Across the board, what we are seeing is an increase in costs of public service pension schemes,” he continued. “The key driver for that is the financial parameters set by HM Treasury as part of the valuation process. Those are set primarily to reflect the affordability to government and the wider economy of sustaining these schemes.

“While some of the numbers do look stark and certainly do cause issues, it is important to realise some of them are being affected by legal remedies.

“The GAD has done a lot of work over the past few years on valuations. In terms of what that means for the LGPS, no benefit changes will be feeding through as a result of the 2020 valuations, but there are big impacts across the public service pension schemes that took effect from April.”

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