Report examines the financial health of the Local Government Pension Scheme (Scotland), after a review of the actuarial valuations across its constituent funds.
The Government Actuary's Department (GAD) has published its report on the 2023 actuarial valuations of the Local Government Pension Scheme (LGPS) (Scotland). This reviews constituent funds' valuations to support the continued financial sustainability of pensions for around 600,000 council workers and employees of other participating bodies across Scotland.
Why this is important
Whether you're a scheme member, council taxpayer, or participating employer, this regular review, required under Section 13 of the Public Service Pensions Act 2013, provides crucial insights into one of Scotland's largest pension arrangements.
All 12 constituent funds reported a surplus at March 2023, with total assets of £60bn and an aggregate funding level of 141%. This indicates that, under the assumptions used, the scheme had more assets than are expected to be needed to pay the promised benefits.
GAD's oversight
Individual constituent funds appoint a fund actuary to carry out regular actuarial valuations which report on the fund's financial position. GAD is uniquely positioned to provide oversight across all the funds.
We assess consistency, identify systemic risks and promote public accountability. This whole-scheme perspective enables us to identify cross-fund patterns and issues that are outside the scope of individual funds' analyses.
Key findings
The scheme's reported financial position has strengthened since 2020, when 4 funds were in deficit. This improvement reflects strong scheme performance. However, it is also important to view the reported financial position in the context of considerable uncertainties regarding future pension costs.
Our cross-fund analysis reveals that similar funds can reach different conclusions about their financial strength. This reflects the flexibility built into the valuation framework, including how funds balance factors such as prudence and stability.
The variation in approaches demonstrates both the strengths and challenges of a decentralised model. There is opportunity to reflect fund-specific circumstances and pioneer new approaches to emerging developments, but this can add complexity to understanding and comparing funds' positions.
As the funds' financial strength improves and they continue to hold surplus assets, how these surpluses are utilised has become critical for intergenerational fairness. It is important that today's surpluses don't unfairly benefit future taxpayers at the expense of current ones, or vice versa.
We found variation in funds' approaches, without clear explanation of the factors leading to these differences. We believe there would be benefit from further disclosure of decision-making rationales.
We also noted positive progress on consistency and climate risk analysis reporting since the previous exercise.
Recommendations
We recommend that Scottish Ministers, through the Scottish Public Pensions Agency:
- continue stakeholder engagement to assess whether further consistency would be beneficial
- consider guidance on surplus usage, balancing solvency and intergenerational fairness
- monitor emerging issues and review the climate analysis principles ahead of 2026 valuations
Garth Foster, GAD actuary, said: "Our review demonstrates the real value of taking a whole-scheme perspective. We provide stakeholders with the transparency and insights they need to understand this vital scheme's strong performance."
