How Academy Trusts can benefit from the rising fortunes of the Local Government Pension Scheme

There has been a remarkable change in the fortunes of the Local Government Pension scheme ("LGPS") in the last three years. Following a long period of contribution increases, the position stabilised at the 31 March 2022 actuarial valuation. And then, mainly due to political turmoil in the Autumn of 2022 and the wider economic outlook since, pension costs plummeted and asset values increased, putting most LGPS funds and their employers into a very healthy surplus.

All Academy Trusts participate in the LGPS, which is made up of many local funds around the country. Whilst the LGPS is provided to a minority of non-teaching staff who are generally less well paid than teachers, it still represents a significant payroll cost and sits uncomfortably on accounting balance sheets as an uncontrollable item, or is it?

The latest actuarial valuation date is 31 March 2025. The process is already underway and will be concluded by 31 March 2026. There is a hugely anticipated opportunity to significantly reduce contributions, but to make the most of it as Academy Trusts you should engage with their LGPS funds sooner rather than later.

Isio has a team of independent LGPS actuaries and, in their view, an actuarial case can be made for most employers to pay nothing for at least the next three years. However, this might not be the right answer for all Trusts. All things being equal, the sector and the pension funds would both opt for stability and so finding the right balance between not storing up too much for the future and not exposing the Trust to future risks is what this valuation is all about.

However, what is clear is that the pension funding position has improved so much that continuing to pay the same amount will only lead to contribution reductions in future. This is not long-stability and neither does it meet value for money principles. In these difficult times for the schools sector, the outcomes that can be achieved for pupils and staff and the local communities may be much better than the investment returns on extra pension contributions. We would suggest that Academy Trusts need to be placing pressure on their fund's managers to reduce contribution rates to appropriate levels taking into account the much improved financial position.

To get the good outcomes, clear and timely engagement is required with funds. Clear, so funds can see that they can support local communities and growth through investment of revenue savings, in line with government objectives. Timely, because there will come a time in this twelve-month valuation process when it is too late for changes to be made.

During the summer LGPS managers will start to communicate and consult with employers, including Academy Trusts. It would be prudent for Trusts to act quickly to make sure they are not too late to make changes, but this depends on the clarity of the approach. Better results may be achieved by working together with other like-minded Trusts in the fund (or funds) Trusts are in.

LGPS funds have been used to operating without much employer engagement. This means that it is not easy for them or Trusts to work through the big decisions required to deliver lower pension contributions this time round. But the size of the available reductions could be very significant for the largest Trusts and significant even for the smaller ones.

With the right legal support, combined with the specialist actuarial input from Isio, Trusts can frame their representations in the right way, to apply the necessary pressure to ensure that they get the best outcome for their schools and local communities.

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If you would like to find out more please contact us here at Stone King, or Steve Simkins who is the Isio Partner who leads on Academy Trusts. Isio have a recorded webinar on making the most out of the 2025 valuation which is available online if you would like to consider the issues in more detail.