The pensions minister has promised a review of contribution rules within the Local Government Pension Scheme (LGPS), even as MPs rejected proposals to amend the Pension Schemes Bill.
Yesterday, MPs in the House of Commons voted against amendments from the House of Lords that would have brought in changes to how triennial valuations in the LGPS are handled, and allowed interim reviews of contribution rates.
In recommending the rejection, pensions minister Torsten Bell acknowledged the Lords’ concerns about “excessive prudence” in LGPS valuations and the effect this has on employer contribution rates.
He highlighted that LGPS funds in England and Wales are likely to reduce the average employer contribution rate by “slightly less than 5% on average” following the latest valuation cycle, using data from 31 March 2025.
One of the Lords’ amendments would have introduced specific benchmarking methods in time for the next valuation cycle as of 31 March 2028, but Bell argued that “the right way to learn lessons from this valuation is via the statutory review by the Government Actuary’s Department, which will begin shortly”.
Peers had also called for employers to be given more flexibility to request contribution rate changes outside of the triennial valuation cycle, but Bell said the government was already looking at this.
He explained: “The government has already committed to consulting on regulations governing interim contribution reviews, reflecting the requirement in the Public Service Pensions Act 2013 to consult on changes to regulations – something that this Lords amendment would breach.”
Employer contribution rates have been in the spotlight for the past couple of years, as data has shown LGPS funds’ funding levels improving in line with the wider defined benefit sector.
Last year, the Ministry of Housing, Communities and Local Government said it would review contribution rules after the Royal Borough of Kensington and Chelsea’s investment committee voted to reduce the employer contribution rate to zero for the 2025-26 financial year – against the advice of the fund’s actuary.
Kensington and Chelsea’s official valuation reported a funding level of 175%, the highest within the LGPS, and it has subsequently opted to set the borough council’s contribution rate to zero for three years.
The vast majority of LGPS funds have reported their funding levels following their latest actuarial valuations, with more than nine in 10 reporting a funding level of more than 100%. Pensions Expert’s sister title LAPF Investments has published a list of 87 funds and their valuation data.
