KPMG analysis: LGPS deficit falls by more than expected

23 Mar 17

The Local Government Pension Scheme deficit has fallen £47bn to around £35bn, around half the level previously predicted, latest estimates from KPMG show.

The firm released research earlier this week showing a larger-than-expected fall in the LGPS deficit, despite significant challenges faced by UK defined benefit schemes.

KPMG had anticipated a deficit of around £70bn based on a like-for-like basis with the 2013 valuation, but the LGPS scheme actuaries have updated their approach to setting discount rates in light of very low long-term gilt yields.

Their decision to increase the discount rate, by around 0.25% a year relative to gilt yields, significantly reduces the deficit but increases the amount of risk being taken by LGPS employers.

Steve Simkins, pensions partner at KPMG, said: “The actuarial valuation indicates that employers in the LGPS collectively need to find around £35bn to plug the funding gap. The fact that the deficit fell in such difficult market conditions highlights the increasing reliance of the LGPS on the future performance of its assets and this puts employers in a higher risk position.

“Despite very different assumptions and approaches, outcomes for local authorities are largely consistent but our analysis suggests that other employers are increasingly exposed to a postcode lottery according to the fund they are in and the scheme actuary involved.”

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