Hymans Robertson shares insights from emerging LGPS valuation results

There have been funding level improvements between 2022 and 2025 according to Hymans Robertson’s initial valuation results for 35 English & Welsh (E&W) LGPS funds. The analysis shows, however, that changes in funding levels within the LGPS will be varied at the 2025 valuation. This is because of differences in actual experience since 2022 such as investment performance and beliefs about the future, in particular the level of assumed future investment returns. Therefore, funds should avoid making strategic decisions based solely on these headline funding positions as they are just a snapshot view, warns the leading pensions and financial services consultancy. 

Commenting on the factors that have had the most impact on LGPS funds and why, Tom Hoare, Head of LGPS Valuations, Hymans Robertson, says: 

“Different investment strategies have resulted in differing levels of returns amongst funds since 2022, however I would urge caution before leaping to any conclusions. Three years is a short period for long-term investors, and the fact each fund has a tailored strategy to match its beliefs and risk appetite is a sign of strong governance and diversity within the LGPS.

“High inflation since 2022 has impacted all funds, with significant increases in inflation-linked benefits. However, these spikes in inflation were largely predicted and baked into assumptions at the 2022 valuation, so the actual impact on funding positions has been less pronounced."

Commenting on what LGPS funds should take from these initial results, Tom adds:

“There has been a significant change to the economic environment since 2022 typified by rising global interest rates – which has contributed to improvements in funding. However, it is important to remain level-headed about what this means for the LGPS and funds’ long-term strategies. 

“Firstly, these improvements are largely based on higher assumed levels of future investment returns which haven’t yet been earned. Furthermore, the LGPS is a long-term, open scheme that continues to grow and accrue benefits meaning that longer-term strategy should be a more important focus than funding levels on any given day.

“Clearly it is good news where any funds or employers are in a strong position today. However, there is still a need for caution and contribution outcomes at this valuation are likely to focus on longer-term principles such as stability and inter-generational fairness.

“From the conversations with various LGPS stakeholders to date, this appears to be the prevailing sentiment which is reassuring and a testament to the strength of governance within the scheme.”

A copy of the briefing note can be found here.

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