The UK government will review contribution rules within the Local Government Pension Scheme (LGPS) after MPs rejected proposed changes from the House of Lords.
Members of Parliament voted down amendments that would have altered how triennial valuations are conducted in the LGPS and allowed interim reviews of contribution rates. Pensions minister Torsten Bell acknowledged concerns about excessive caution in the scheme’s valuations but opposed the Lords’ proposals during the debate.
Government pushes back on Lords’ amendments
One rejected amendment aimed to introduce benchmarking methods for the next valuation cycle, due on 31 March 2028. Bell argued that a planned review by the Government Actuary’s Department would address the same issues more effectively.
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Another proposal sought to give employers more flexibility to request contribution rate changes outside the standard three-year cycle. The minister stated that the government was already looking at this, adding that any changes would require consultation under the Public Service Pensions Act 2013, a process the Lords’ amendment would have bypassed.
As LGPS funds in England and Wales prepare to lower average employer contribution rates by slightly less than 5%, Bell pointed to improving funding levels as a key factor in the decision.
Funding levels rise, but concerns persist
Employer contribution rates have faced scrutiny as LGPS funding levels improved alongside the broader defined benefit pension sector. Over 90% of funds now report levels above 100%, with some significantly higher.
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The Royal Borough of Kensington and Chelsea drew attention last year after its investment committee reduced its employer contribution rate to zero for the 2025-26 financial year. This decision came despite the fund’s actuary advising against it. The borough’s latest valuation showed a funding level of 175%, the highest in the scheme, and it has since extended the zero rate for three years.
The move led the Ministry of Housing, Communities and Local Government to announce a broader review of the rules. The government has committed to consulting on regulations governing interim contribution reviews.
The upcoming review by the Government Actuary’s Department is set to begin soon. Its findings will guide any future changes to the scheme’s regulations.
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