Local Government Pension Scheme (LGPS) update
It has been a busy year for the LGPS with the results of the 31 March 2025 valuation emerging over the latter part of 2025. Significant funding improvements are expected with the hope that this will also mean that the cost to employers of ongoing membership of the LGPS will reduce.
In addition to this, the government has set out a number of proposals in different consultations which will affect the benefits payable and the assets under management in the LGPS.
New consultation launched
On 15 May 2025 the UK government launched a consultation titled “Local Government Pension Scheme in England and Wales: Access and Fairness”. The aim of the consultation is to enhance equity, transparency, and administrative efficiency within the LGPS and it seeks to address longstanding disparities and modernize the scheme to better serve its members.
The consultation included a number of proposals relating to pension benefits and we set out a high-level review of these below.
Proposal Area |
Summar Proposals |
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Survivor benefits |
A number of proposals aiming to update benefits to treat survivors equally and extend benefit coverage. 1) Modify Regulations to ensure that pensions payable to the survivor of a marriage or civil partnership with a member is calculated in the same way, regardless of the sex or sexual orientation of the member or survivor. 2) Modify Regulations to remove the requirement for a signed nomination form for cohabitee survivors 3) Remove the age 75 cut-off on eligibility for death grants. |
|
Gender pension gap |
The average pension accrued in the LGPS is around 30-40% lower for a woman than a man. The government is looking to address this in four specific areas: 1) Making authorised unpaid absences automatically pensionable. 2) Aligning the cost of buying back unpaid leave over 30 days with standard member contribution rates and increasing the time-limit on buying back this leave. 3) Making any parental leave during which no pay is received automatically pensionable, with the cost to be met by the employer. 4) Making gender pension gap reporting mandatory in the LGPS |
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Opt-outs |
The government proposes to make it mandatory for administering authorities to collect and report data on the rate of members opting out of the scheme. |
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Forfeiture |
In certain circumstances a member’s accrued LGPS pension rights may be forfeited. The government has four proposals, intended to make the forfeiture process work better: 1) Removing the requirement that a member must have left employment because of an offence for forfeiture to be possible. 2) Abolishing the current three-month time limit of the conviction for an application to be made. 3) Removing the current regulations around interim payment directions. 4) Publishing guidance on making a forfeiture application |
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McCloud remedy |
It has been identified that there are issues with the operation of the underpin to benefits resulting from implementing the findings of the McCloud case covering a number of areas such as divorce credits and death grants and the government is proposing a number of actions to address these. |
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Other regulations |
The government is proposing several technical changes to the LGPS Regulations, the majority of which do not reflect new or changed policy, but are intended to fix known issues. |
The government is aware that the combination of the above proposals in addition to ongoing work on McCloud remedy calculations could represent a significant burden on LGPS administrators and is also seeking views on staggering the introduction of any changes.
Finally, the government did not propose to cover any additional cost generated by the proposals and they would be chargeable to the LGPS pension funds and are not in scope of the New Burdens Doctrine.
The consultation closed on 7 August 2025 and all members of the public were invited to respond. The government has yet to publish its response.
LGPS Advisory Board asks to meet with government
In November 2024, the government opened its ‘Fit for the Future’ consultation and in response to this the LGPS Advisory Board has written to the pensions and local government ministers asking for meeting to "discuss the proposed course of action set out in the recent letters sent to the eight LGPS investment pools as part of the Government’s flagship Pensions Review."
One of the more ambitious proposals in the consultation was to accelerate the pace at which assets managed in the LGPS funds were pooled and it is this that the Advisory Board wishes to discuss as they believe "that more time will be needed to realistically implement the government’s proposals and not put the Scheme at risk."
The government’s response to this consultation was published at the end of May 2025 and although many respondents raised concerns about feasibility the original proposals were largely upheld and the deadline for authorities to pool their assets has been confirmed as 31 March 2026 although phased implementations will be acceptable subject to the demonstration of a clear transition plan.
The draft Pension Schemes Bill was published on 5 June 2024 and sets out draft provisions to put in a place a framework for the reforms set out in the consultations. However, much of the detail is still to come and will follow in various regulations.
The Pension Schemes Bill is currently working its way through Parliament and is expected to receive Royal Assent in 2026.
31 March 2025 valuation results
Although the 2025 valuation results have yet to be published in full, large improvements in funding levels are expected across most, if not all, LGPS funds and employers. This has been driven largely by strong investment returns coupled with the considerable rise in the yields on government bonds since the 2022 valuation.
As a result, most local authorities are expected to see reductions in contribution rates. However, funds are likely to be cautious about reducing rates too quickly and the fall in rates may not be as dramatic as some hope.
With the advent of surpluses for many employers both on an ongoing and low-risk exit basis, many funds are reviewing their policies on surplus and exit of employers to ensure they are fit for purpose and offer adequate protection to both the exiting and remaining employers. Any employers interested in exiting the LGPS would be well placed to start engaging with their fund now to find out the current requirements and implications of exiting.