Building the future of the LGPS

It’s a year since the publication of the PLSA’s report into the challenges and opportunities facing the LGPS. Tiffany Tsang explores what’s changed and what still needs attention to ensure the operational sustainability of the scheme.

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 to inform ongoing debates about the scheme’s purpose and how to prioritise its challenges and opportunities. 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 among the lower paid, and provide essential services that allow local communities to thrive. It is committed to continuing to promote how valuable it is to those members. The PLSA recommends obtaining a robust and granular understanding of LGPS membership profiles, and for LGPS savers’ voices to be represented at a more macro level in 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 changing regulatory and operational environment. The PLSA recommends a review of its 2018 Talent Management Guide, and to share best practice in people management.