Building the future of the LGPS
24 May 2023
The Local Government Pension Scheme (LGPS) is the largest defined benefit (DB) pension scheme in the UK, and one of the biggest in the world. It has assets totalling more than £332 billion, and provides pension benefits to 6.9 million members across more than 17,000 employers.
For more than a decade, the LGPS has undergone continuous, rapid change. Against a backdrop of the world financial crisis, austerity and pay freezes for local authorities – and, more recently, the global pandemic – it has had to contend with a rolling series of reforms. These include becoming a Career Average Revalued Earnings (CARE) Scheme for future accrual, transitioning to investment pooling, incoming responsible investment regulations and the impending implementation of the McCloud Judgment.
In 2022, we published our independent in-depth report, The LGPS: Today’s Challenges, Tomorrow’s Opportunities. The report provides information for PLSA members and those with an interest in the LGPS that can inform ongoing debates about the scheme’s purpose and how to prioritise its challenges and opportunities available. It also includes practical action points and next steps.
In the report, we identified four key themes:
The LGPS regulatory and operating environment – The LGPS operates within a complex government and regulatory landscape. The pace of change it has had to react to and comply with has accelerated in the last few years. There should be a significant push to ensure the existing regulatory framework works in a more joined-up and coherent way. The benefits of a more centralised approach, which could involve creating a new regulatory body, or giving an existing body greater powers, should be examined.
LGPS employers – While the relationship between funds and employers is reported as being overall very positive, the diverse range of employers in the scheme – all with varying needs – has increased administrative complexity. Among a range of recommendations within this theme, the PLSA calls for additional work to explore and share best practice in both assessing and proactively communicating employer risk and employer responsibilities early on. This work could also help to manage employer exits where appropriate, building on what is already available.
LGPS and scheme members –The LGPS helps provide an adequate retirement income for workers, many of whom are lower paid and provide essential services that allow local communities to thrive. It is committed to continuing to promote how valuable the scheme is to those members. The PLSA recommends obtaining a robust and granular understanding of the LGPS membership profiles, and for LGPS savers’ voices to be represented at a more macro level on regulatory, policy and political discussions relating to pensions.
Operational sustainability: systems and people - Amid ongoing cost constraints on local authorities, competition for talent is fierce. Recruitment, retention and resourcing remain top priorities to ensure that the LGPS continues to have the right skills to navigate through the regulatory and operational environment. The PLSA recommends a review of its 2018 Talent Management Guide and sharing best practice in people management.
What happens next?
A year on from publication, the PLSA is reacting to the report’s recommendations by implementing a series of short to medium term projects and events. Some key examples of the actions we’ve already taken and our proposed next steps, for both funds and the PLSA, include:
|Regulatory & Operating Environment
||Carry out regulatory mapping to help highlight to external stakeholders the complexities in which the LGPS operates.
The mapping will be published in June.
Once the map is completed, we will set out a lobbying plan within the PLSA Executive for longer term plans that will seek to open dialogue with government and regulators about utilising a more joined-up, centralised approach.
||Funds should proactively provide information and assistance to existing and prospective employers to help them understand their responsibilities and risks when joining the LGPS. Employer risk guidance should be accessed and managed, to share best practice within the LGPS. Funds should actively and regularly explain LGPS benefits to employers.
PLSA Employer Guide 2017 update to be published in June 2023.
In the medium term we will explore creating best practice case studies on how to work with employers on entrance and exits, and case studies on employer engagement.
|LGPS and Scheme Members
||Understand what tools from the Money and Pensions Services (MaPS) could be used to support the needs of LGPS scheme members.
We held a webinar with MaPS in Feb 2023 on how to communicate with savers during the cost-of-living crisis.
We’ll be extending this theme at the Local Authority Conference with a session on the Cost-of-Living Conundrum: Communicating with Employers and Savers.
||Carry out a best-practice case studies project on recruitment and retention.
The PLSA carried out a webinar at the end of 2022 with ‘case study’ funds sharing how they have successfully attracted and retained younger talent.
We’ll aim to produce a best-practice case studies document, based in part on some of the approaches we heard at the webinar.
Local Authority Conference preview
Join us for the PLSA's Local Authority Conference 2023 - the largest event of its kind dedicated to the LGPS. Over the course of three days in the Gloucestershire countryside, the event will cover practical challenges and future opportunities in the ever-evolving landscape of local authority pensions. We’ll be taking the temperature of the LGPS and explore how macroeconomic uncertainties, the cost-of-living crisis and levelling up will dominate future work of the scheme.
Katy Balls, political editor at The Spectator will give us the inside scoop on the impact of The UK political scene, and Adam Rutherford, scientist, writer and broadcaster, will be our after-dinner speaker at the conference Gala Dinner.
The issues we’ll be exploring include:
- What’s the investment outlook for funds amid recent market turmoil and the continued threat of recession?
- How can we ensure operational sustainability of the LGPS when funds are continually pushed to do more with less?
- How should funds communicate with employers and savers during the cost-of-living crisis?
- What’s next on ESG, pensions dashboards and the levelling up debate?
Come to the conference to find out more and take part in thought-provoking discussion, best practice debates and networking with your LGPS peers.