Following our Local Authority Update event, Tiffany Tsang looks back at the LGPS in 2020, and identifies the coming challenges.
As we near the end of 2020, it is crucial to reflect on the successes of the LGPS and how well it has coped in this last year with such seismic shifts in global economic stability, as well as to steel ourselves for the new suite of challenges and changes still to come, including:
- The effects of Covid-19
- Implementing the McCloud Judgement
- Administering the £95K cap on exit payments
- Responsible Investment
- Employer contribution rates and employer exit payments
- The Good Governance Project
Covid-19 and the LGPS: the overall picture
The global pandemic has – among other things – wreaked havoc on employers across all industries, stitching itself into all aspects of life. While the effects of the virus will vary for administering authorities across the country, the overall financial and operational picture on how the LGPS is faring under such difficult global and domestic financial circumstances – is encouraging and to be celebrated:
The PLSA’s Spring survey results gave us a snapshot view of how well the LGPS is doing. There was confidence about employer strength as well as in the ability to continue paying pension benefits to members – both optimistic views that have been proven to be well judged.
Overall, the England and Wales Scheme Advisory Board’s (SAB’s) annual report confirmed that the LGPS entered into the global pandemic in a strong financial footing, which undoubtedly helped to hold the scheme in good stead during the initial hit of Covid-19. LGPS deficits were down to £6bn in 2019 from £37bn in 2016, with the LGPS remarkably trimming its funding deficit by over £31bn in just three years. Total assets also increased 6% from the previous year, reaching £291bn.
Any risks from the continuing uncertainty around the impact of Covid-19 on fund employers should hopefully be mitigated by the new regulatory amendments that the Ministry of Housing, Communities and Local Government (MHCLG) put in place in September 2020, to allow for greater flexibilities in employer contribution rates and employer exit payments. Though, this remains to be seen, as there are still implementation hurdles to get over.
At the start of the lockdown in March, PLSA produced a Top Tips for DB Schemes and LGPS Funds, to help navigate through the actions governance bodies should consider during significant economic disruptions. The PLSA will continue to monitor the landscape and will provide the requisite support to our membership as the needs arise.
The importance of administration
In the economic downturn, difficult decisions will likely have to be made about cuts to public services. The PLSA would urge that pensions teams within all administrating authorities be given the resources needed to continue to effectively deliver member benefits, especially as there are important administrative changes not far down the track. This includes data assessment work for implementing the McCloud Judgment, GMP Equalisation and the Dashboard. These policy areas will affect millions of savers and there are billions of benefits at stake. As such, the LGPS will need its best and brightest leading the charge with properly resourced teams behind them.
Key developments to watch
While most of us anticipated the difficulties in administration to implement the McCloud Judgement, as well as potential challenges from Covid-19’s impact on fund employers, the legal complexities of the £95K cap on exit payments is this year’s LGPS dark horse. A common theme amongst much of the emerging regulatory and policy work this year is how important official guidance from MHCLG and the Scheme Advisory Boards will be to ensure seamless adoption of much of the new regulation from 2020.
Read more in our bi-annual LA newsletter.