LGPS - how safe is it / are the regional funds?

[Sunday Drive]

Evening all,

Does anyone know how safe the LGPS is? Can any of the 86 regional funds fail? And if they did, would pensioners lose their pensions?

Extensive googling can’t find any evidence of the scheme being backed or guaranteed by the government, so my understanding is a regional scheme(s) could fail and savers would lose their pensions.

I don’t have any defined benefit knowledge so advice from anyone in the know would be much appreciated.

Cheers

[Countdown]

Sunday Drive said:

Evening all,

Does anyone know how safe the LGPS is? Can any of the 86 regional funds fail? And if they did, would pensioners lose their pensions?

Extensive googling can’t find any evidence of the scheme being backed or guaranteed by the government, so my understanding is a regional scheme(s) could fail and savers would lose their pensions.

I don’t have any defined benefit knowledge so advice from anyone in the know would be much appreciated.

Cheers

One of my former pensions is with the Greater Manchester LGPS. I think they're reasonably safe overall. Following the recent increase in bond yields I think most LGPS schemes may actually be in surplus for the first time in decades. Also in 2014 they moved from Final Salary to CARE schemes which (theoretically) means that they should be lower cost. Also (IMHO) the Actuaries doing the valuations tend to be quite conservative in their calculations of assets and liabilities.

In the worst case I think pensioners already in payment will be protected, deferred members and active members would have their pensions frozen and the schemes closed to future accrual. So you wouldn't lose everything that you had put in but if the Scheme is in deficit when they take the decision to close it you probably won't get as much pension as you had hoped.

[Sunday Drive]

Thanks Countdown. Understood.

[Pillskii]

I work in the pensions industry. While not all LGPS are equal (some are better funded than others and some have better run local authorities backing them) as a general comment I’d consider your pension to be safer than most and not something you should worry about.

As noted above, recent rises in gilt yields have helped funding positions by deflating the present value of the liabilities, although some caution is needed here as rising gilt yields doesn’t mean the £ cost of the pensions due is any cheaper.

LGPS are not eligible for the Pensions Protection Fund (PPF). This is the ‘lifeboat’ vehicle that would protect a large proportion of members’ pensions if a private company supporting a defined benefit scheme failed and the scheme wasn’t sufficiently well enough funded to secure the pensions with an insurance company.

[Sunday Drive]

Pillskii said:

LGPS are not eligible for the Pensions Protection Fund (PPF). This is the ‘lifeboat’ vehicle that would protect a large proportion of members’ pensions if a private company supporting a defined benefit scheme failed and the scheme wasn’t sufficiently well enough funded to secure the pensions with an insurance company.

Thanks Pillskii. This is what I read too and was the driver behind researching the risk and back up plan.

[Inspire]

Pillskii said:

I work in the pensions industry. While not all LGPS are equal (some are better funded than others and some have better run local authorities backing them) as a general comment I’d consider your pension to be safer than most and not something you should worry about.

As noted above, recent rises in gilt yields have helped funding positions by deflating the present value of the liabilities, although some caution is needed here as rising gilt yields doesn’t mean the £ cost of the pensions due is any cheaper.

LGPS are not eligible for the Pensions Protection Fund (PPF). This is the ‘lifeboat’ vehicle that would protect a large proportion of members’ pensions if a private company supporting a defined benefit scheme failed and the scheme wasn’t sufficiently well enough funded to secure the pensions with an insurance company.

This. I’d add that ultimately Council’s can put up Council tax to deal with any funding issues (whether that is a good idea is a separate question). The LGPS’s funds have a generally strong covenant given this.

There is a real push from Government to merge the various LGPS funds to deliver better economies of scale. The Govt are also pushing the various funds to invest in the UK which, from a purely pension fund perspective, is not a good idea although this is a complex area.

Thanks

Rob

[Defcon5]

I hope they are as secure as can be as they need to fund my retirement in the Algarve