Latest figures* show that the Local Government Pension Scheme (LGPS) deficit has fallen from £47bn to around £35bn, despite the significant challenges faced by UK defined benefit schemes
KPMG anticipated a deficit of around £70bn based on a like-for-like basis with the 2013 valuation, but the LGPS scheme actuaries have updated their approach to setting discount rates in light of very low long-term gilt yields. Their decision to increase the discount rate, by around 0.25 per cent a year relative to gilt yields, significantly reduces the deficit but increases the amount of risk being taken by LGPS employers.
KPMG’s initial assessment of valuation results found that there is a wide range of assumptions and approaches being used by different fund actuaries. For local authorities the assumptions and approaches generally lead to similar results, creating a case for a single approach. For other employers the different approaches lead to wide ranging and unpredictable results, with similar employers seeing very different outcomes.
Commenting, Steve Simkins, Pensions Partner at KPMG, said:
“The actuarial valuation indicates that employers in the LGPS collectively need to find around £35bn to plug the funding gap. The fact that the deficit fell in such difficult market conditions highlights the increasing reliance of the LGPS on the future performance of its assets and this puts employers in a higher risk position.
“Despite very different assumptions and approaches, outcomes for local authorities are largely consistent but our analysis suggests that other employers are increasingly exposed to a postcode lottery according to the fund they are in and the scheme actuary involved.”
*According to an estimate conducted by KPMG based on all LGPS funds in England and Wales and an analysis of discount rates being used.
For further information, contact:
Christina Bridge, KPMG UK
T: 07789 504905
About KPMG UK
KPMG LLP, a UK limited liability partnership, operates from 22 offices across the UK with approximately 13,500 partners and staff. The UK firm recorded a revenue of £2.07 billion in the year ended 30 September 2016. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 152 countries and has 189,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.