The role of the scheme actuary in the governance of local authority pension funds could become confused without changes to regulation, according to law firm Burges Salmon.
Ed Curtis, senior associate, and Serena Kutty, solicitor, outlined in a blog post that there was currently “ambiguity” regarding the role of the scheme actuary under existing Local Government Pension Scheme (LGPS) regulations.
It follows the decision by the Royal Borough of Kensington and Chelsea’s investment committee to cut its employer contribution to the borough’s pension fund to zero for the 2025-26 financial year, citing the scheme’s 207% funding level.
This was despite warnings from the scheme actuary – Steven Scott of Hymans Robertson – and pension fund officers that the move could lead to legal action from the Ministry of Housing, Communities and Local Government (MHCLG) and the Pensions Regulator.
The MHCLG has since announced plans to review rules around changes to contribution rates within the LGPS.
The Burges Salmon lawyers explained that, while the LGPS regulations allow administering authorities to revise contribution rates under Regulation 64(A), they also give the actuary power to set rates following triennial valuations.
“Therefore, there is some uncertainty whether the actuary’s certification is required to set a new contribution rate between formal valuations under Regulation 64(A),” Curtis and Kutty said. “On balance, the power is probably with the administering authority, and this appears to be the approach taken by Kensington and Chelsea.
“What is clearly stated under Regulation 64(A) is that, when considering any revision of contribution rates, administering authorities must have regard to the ‘views of an actuary’.
“When focusing on this aspect, the Kensington and Chelsea case then raises some interesting questions about precisely on what issues actuaries should opine.”
Kensington and Chelsea’s actuary declined to support the decision to cut the rate to zero in part because governance issues rather than actuarial reasons. These included managing future employer expectations, the impacts on other LGPS contributors, and the potential for pushback from the MHCLG.
This raised questions about where an actuary’s influence ends – whether they are limited to actuarial advice only or if they can advise on wider governance issues.
Curtis and Kutty said: “In our view, where there is a statutory requirement to take advice from the actuary, the policy intention is likely to be that it is actuarial advice to which the administering authority must legally have regard.
“Other advice may be helpful to inform decision making, but, under the legislation as it is now, it would be arguably incorrect for an actuary to withhold certification of an employer contributions revision merely on non-actuarial grounds, particularly where an administering authority takes legal advice on the wider governance issues – as appears to be the case with Kensington and Chelsea.”
Actuarial firms offering additional services to LGPS funds “gives rise to the risk that the statutory function of the actuary under the LGPS regulations might sometimes become blurred” they said.
