Autumn Statement could blow icy winds for LGPS

The “cries of local authorities will increase tenfold when the financial settlement comes out next month”, Jeff Houston, head of pensions at the Local Government Association, told delegates at the Local Government Pension Investment Forum held in London this week.

In the Autumn Statement due to be announced on November 25, George Osborne will lay out the government’s spending plan for 2016-2020.

Osborne has already voiced an intention to phase out current revenue support grants for local authorities, alongside plans for devolution of power on business rates to local authorities. 

The LGPS needs to prepare for tough times, as local authorities are increasingly being squeezed and are reluctant to pay into their pension funds when they are struggling to fund frontline services, Houston said. 

Houston said: “We will be getting local authorities next year saying, ‘I'm sorry, I'm not paying that’.”

The scheme deficit and the assumptions on which it is based have become a contentious issue and an additional source of pressure on LGPS funding.

The 2013 deficit figure was calculated on a different basis to that used in 2010, to increase the level of prudence.

We will be getting local authorities next year saying, ‘I'm sorry, I'm not paying that’.

Jeff Houston, LGA

Houston said: “That's a very interesting and useful example of where the politics of the LGPS crashes into the reality of good governance and prudent management.

“When running a political pension scheme which the government sees as one scheme, not 89 funds, they [say], ‘Your deficit has just doubled, you must be really bad at this’. You’re already on the back foot by that point.”

Valuation challenge

A panel of representatives from Cumbria, Surrey and Greater Manchester pension funds joined Houston to discuss the impact of growing pressure from local authority administering bodies and employers on next year’s valuation, and the wider LGPS effort to tackle rising deficits.

Fiona Miller, head of pensions and financial services at Cumbria County Council, said reaching a consensus on the valuation assumptions across the fund’s employer members would be extremely difficult, but it was crucial for the LGPS to engage employer members on this issue.

“The actuary sets the assumptions in consultation with the administering authority, and that should be consulted on with your employers,” she said. “Where we are going, you can't afford to ignore the employer’s views on this.”

However, Miller said around 60 of Cumbria’s employer members do not understand what effect the assumptions have.

Miller said Cumbria had already held a forum with employers to discuss next year’s process, where employers asked more questions than she had expected.

But the results of March 2016 should not come as a shock for Cumbria's contributing employers, she said. “They know what’s coming down the track.”

Pressure on prudence

Peter Morris, director of pensions at Greater Manchester Pension Fund, anticipated a lot of pressure on prudence around next year’s assumptions.

“I guess what will happen in our fund, where there is scope to be a touch less prudent… there will be a lot of pressure to [give that],” he said.

Phil Triggs, strategic finance manager at Surrey County Council Pension Fund, said it was down to the actuary to negotiate on the assumptions.

“This is his black box – or transparent box – all of those assumptions are known and can be negotiated,” he said.

Looking ahead to next year’s valuation, Triggs said low inflation and low salary growth would reduce the pressures experienced in the past, while longevity presented challenges for the longer term.

“Where the pressure will rise is the discount rate and also the assumption for the investment strategy performance,” he said.