19/03/2025
Eagle-eyed observers of all things pensions may have seen the recent decision by a London council to sets its contribution rate to the Local Government Pension Scheme to 0% for 2025-26, effectively taking a contribution holiday. This was despite the contribution rate originally being scheduled to increase substantially over this period, and despite the fund’s actuary being unable to certify the zero rate.
The material surplus position of this fund, with assets valued at over the twice the amount of the liabilities at its most recent valuation, was clearly a key factor in this decision, and we think it is only potentially relevant for participants who have a similarly healthy funding position. They will be watching the outcome and consequences of this decision closely. The decision also raises significant procedural and substantive questions - in our view it is not a decision which could not be taken lightly and without a detailed consideration of the risks. In this case, however, it appears that the cost savings which the council will now be benefitting from are sufficiently attractive to outweigh the risks and make it worthwhile.
Key issues in this matter included the fact that the fund’s actuary declined to approve the decision, as it ignored the need for long-term affordability and stability within the fund. The actuary also raised concerns that the reduction in contributions from 7.5% to 0% outside the regular valuation period could cause budgeting problems and create the false impression that zero contributions could be maintained in the future. They also warned of potential legal action from both the Ministry of Housing, Communities and Local Government and the Pensions Regulator. Despite this, the 207% funding position meant that the council’s investment committee resolved to approve the reduction.
We have long-standing experience in providing extensive advice to LGPS participants, so if you would like to discuss this decision in more detail, please contact Nigel Bolton or Joel Eytle.
