Contribution
Where was I? I was simply going to say that I of course defer to the noble Lord, Lord Palmer of Childs Hill, who was very much my senior partner in local government service. For the Committee’s information, I did not represent a neighbouring ward, but we are in neighbouring wards, although in different local authorities. It is good to know that north-west London—NW6 or NW2—is well represented in Committee this afternoon.
Before we look at the amendments relating to the triennial valuation of funds, it might be helpful to explain some of the basic principles relating to the valuation. The central principle and pride of the Local Government Pension Scheme is that it is a locally managed scheme. Administering authorities are responsible and accountable for meeting pension promises to members over their lifetimes. Striking the right balance between the cost to employers, risk management, intergenerational fairness and the needs of an open scheme is a matter for authorities.
This takes place through the fund valuation process, which is robust and well established, with strong safeguards. Administering authorities can work with their actuaries to develop assumptions and then carry out a valuation of the fund. Contribution rates are set for each employer, and administering authorities consult their employers as part of the rate-setting process. It is right that employers understand and are able to challenge their contribution rates and factor them into their medium-term financial planning. Valuations and rates are published and made available to all employers.
The valuations are reviewed by the Government Actuary’s Department, under Section 13 of the Public Service Pensions Act, which assesses whether compliance, consistency, solvency and long-term cost efficiency in the scheme have been achieved. Each fund and each employer is different. Valuations and rates will vary, depending on both the performance of investments and the make-up of each employer.
As we have heard from many noble Lords—including very forcibly from my noble friend Lord Davies—the 2025 valuation will conclude in a few weeks, setting rates for 2026-27 onwards. We should acknowledge the importance of that timing in our consideration of these amendments.
If I may, I will respond to Amendments 14 and 15 together. I am grateful to the noble Baroness, Lady Stedman-Scott, and the noble Viscount, Lord Younger of Leckie, for tabling them. Amendment 14 would require a review into the affordability of the scheme. I recognise the concern that we have heard to ensure that the scheme remains affordable for employers, including local authorities and admitted bodies such as housing associations. But, to everyone’s credit—I will perhaps single out my noble friend Lord Davies but, to be fair, I include the noble Lord, Lord Fuller, and the noble Baroness, Lady Altmann—the LGPS is a success story. It has gone from deficit to surplus and currently has returns of 7% to 9%. It is in a strong financial position, with the majority of funds expected to show a surplus following the latest valuation. As a result, employer contributions are expected to reduce from April. Some reductions will be bigger than others, and that is part of the nature of the process that is in train. We should not pre-empt the result of that valuation.
The statutory cost control mechanism, which applies to all public sector schemes including the LGPS—which my noble friend Lord Davies referred to—ensures that the cost of benefits remains sustainable for employers. This mechanism operates on a four-year cycle, following the scheme-level valuation conducted by the Government Actuary’s Department. As we have heard, the most recent valuation was in 2024. An additional cost management process for the LGPS is operated by the scheme advisory board, with the aim of controlling the contributions paid by employers, which are set locally.
In addition, the Government Actuary’s Department, under Section 13 of the Public Service Pensions Act 2013, will undertake a review of all fund valuations for the Secretary of State and on whether compliance, consistency, solvency and long-term cost efficiency have been achieved across the scheme. An additional review into the affordability of the scheme would therefore simply replicate the existing processes built into the scheme. The Section 13 report will be based on the 2025 local valuations, which will conclude in a few weeks, and will deliver recommendations on the long-term cost effectiveness of the scheme, which the Government will consider carefully. We are very much not sweeping this issue under the carpet.