The DCLG has issued standard statistics for the LGPS in England and Wales.http://www.communities.gov.uk/localgovernment/localregional/localgovernmentfinance/statistics/pensionscheme/ These show the following on income and expenditure. UNISONActive provides a commentary and analysis under each heading.
Local Government Pension Scheme expenditure on benefits in 2008-09 was £5.6 billion, compared with £5.2 billion in 2007-08, an increase of 7%
Comment: The LGPS is strongly cash positive, while benefits paid out in 2008-09 were £5.6bn, this should be measured against a gross income of £10.2bn. The LGPS is strongly cash positive. For the last three years, the England LGPS has had an income in excess of its costs of more than £4bn a year. The scheme is clearly at no immediate risk of failing to meet its annual liabilities.
Income from employees’ contributions to the Local Government Pension Scheme in 2008-09 was £1.9 billion, an increase of 15% on 2007-08. Income from employers’ contributions to the scheme rose by 8% to £5.4 billion in the same period.
Comment: The steady upward growth of Member contributions reflects increases in scheme membership and, to a small degree, increases in pay. Employer contributions started at a low level in the mid 1990s due to an adequate level of investment income, and the Conservative Government decision to allow funding levels to decline to 75%. The growth in employer contributions is due to the poor performance of investments, and the reintroduction of the 100% funding target under the Labour Government.
Income from investments fell by 9% on 2007-08 to £2.9 billion
Comment: Annual investment income has remained relatively flat despite the purchase over the last 13 years of an additional £42bn in assets, nearly double the original asset value of the funds in 1996. Gross rates of return have fallen from 4.28% pa to 2.39% pa between 1996 and 2009. The data we have analysed indicate a crisis in investment returns, stemming in part from poor broad economic conditions, and possibly also from inappropriate investment practice. For the year 2008-09, individual English funds had net rates of return between a loss of –4.8% (Shropshire) and a gain of +8.0% (Hillingdon). This high degree of variation between individual fund performance reflects on asset classes and investment strategies pursued by individual funds. Broad economic policy, which has witnessed the continued decline of UK manufacturing employment, is not helping.
The market value of the funds at end of March 2009 was £97 billion, a decrease of 19% on March 2008
The high volatility of stock market prices strongly influences actuarial valuations and subsequent target setting (allowing holidays during peaks and imposing threats during downturns). Current measures of funding deficits are highly susceptible to stock and bond market volatility – funds were 75% funded in the 2004 valuation, rising to 83.5% in 2007 almost entirely due to the rising stock market. Although LGPS funds saw a 19% fall in market value in 2008-09, US and UK stock markets have risen by 26% since the 2009 LGPS accounts were closed on March 31, which is likely to improve asset values by about 13% at the time of writing. [Around 50% of assets are equities]
Fund management costs
LGPS fund management costs have increased significantly in recent years, absorbing an average of 8.5% of investment income in 2008-09 (range 1% to 30%). Since 2004, overall annual fund management costs (now averaging £250m per annum) have risen from 0.17% of asset values to 0.25%, and have drawn an increasing share of investment income (rising from 6.4% to 8.5%) over the same period. Smaller schemes have typically higher administration and investment management per capita costs
