The Local Government Pension Scheme (LGPS) should consider whether its current position is sustainable as more employers are added to its different funds, according to Greater Manchester Pension Fund assistant director, Euan Miller.

Speaking at the PLSA Local Authority Conference 2021 during the LGPS Landscape: Future Challenges discussion, Miller stated that, if the situation was not deemed to be sustainable, the LGPS might need to ensure that employers, auditors and regulators gain a better understanding of how the scheme operates.

Alternatively, he suggested that that “perhaps we need to look at the LGPS regulations in order to reduce the administrative complexity”, although he conceded that this might require members having “some of their options restricted”.

Miller cited the growth of employer numbers as a “key factor” behind the growing challenge of running LGPS funds, stating that finding the exact number of contributing employers was “not as simple as it may first sound”.

He continued: “From my reading of the 2019 annual report it was around 13,000. This compares with about 9,000 in the 2014 annual report. The number of active members has grown over that same period, albeit more slowly, so we are seeing a gradual downward trend in the number of active members per employer. I think it might have fallen from about 200 five years ago to around 150 now.

“Most upper tier local authorities will still have several thousand active members but at the other end of the scale I imagine there are probably several thousand employers in the LGPS that now have less than 10 active members.”

He pointed out that LGPS membership allowed workers at these smaller employers to enjoy pensions which were invested with more diversity than might otherwise be possible and stated that administrative costs were low for employers.

Employer-related challenges highlighted by Miller included the fact that increasing numbers of employers were requesting annual pension accounting reports which, due to the non-sectionalised structure of the scheme, were difficult to supply given the challenge of stating what an employer’s assets and liabilities were at a given point in time.

He added that LGPS regulations did not require funds to notionally segregate assets and liabilities among employers on an ongoing basis.

Miller stated: “Unfortunately, our employers’ auditors are under increasing scrutiny from their regulators who don’t seem to appreciate the fairly unique nature of how the LGPS operates and each year seem to have a decreasing tolerance of estimates being used.

“This results in the audit process being difficult for both employers and LGPS funds.”

As a further issue, he noted that new employer flexibility powers potentially make it easier for employers to exit the scheme, with those wishing to take advantage of these powers likely to want visibility of their funding position on a more regular basis, which he noted was “surprisingly difficult too”.

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