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![]() Following the publication of the Government’s white paper on 16 December 2024, local government reorganisation (LGR) is proposed for two-tier areas and potentially some existing unitary councils. Devolution proposals include new powers and responsibilities for mayors, including responsibility for Police and Crime Commissioners (PCC), the Fire and Rescue Authority service, and the establishment of new mayoral strategic authorities. In this article, we explore the potential impact of reorganisation on the 2025 valuations, in terms of funding approach and contribution setting. |
By Melanie Durrant FIA CERA, Partner and Public Sector Consulting Actuary at Barnett Waddingham Should we still set contribution rates for the authorities, even if we know they won’t exist at the time of the next valuation? There are of course other wider governance and structural implications of devolution and LGR on LGPS funds, which we will explore further in due course. What does the white paper cover?
The Government’s white paper proposes:
decentralising power and fostering local growth across England, with new powers and budgets for Mayors;
reconfiguring national agencies; and facilitating local government reorganisation.
LGR is aimed at areas where there are two tiers of local authority – smaller district and larger county councils – creating new unitary councils with a population of 500,000 or more. The goal is to “achieve efficiencies, improve capacity and withstand financial shocks”, as stated by the Government.
As ever, when there are potential changes to scheme employers, the proposals will present some challenges for the 2025 valuation in how the Fund Actuary sets the contribution rates. Contribution rate implications
If existing councils are abolished and replaced by new unitary council(s), there are a number of approaches which could be considered when setting contribution rates as part of the 2025 valuation, including:
Calculating a harmonised contribution rate from 1 April 2026, based on the employers that will form the unitary council(s). It would then need to be decided whether to report separate funding levels. If the direction of travel is to have a single employer, then we could instead calculate a total or pooled funding level.
Agreeing on a target harmonised contribution rate, where initial contribution rates are based on the individual funding positions, then gradually adjusted (‘stepped’) to align with the agreed harmonised contribution rate from the date of the unitary, once known. Continuing to treat them separately and base their contributions on their individual funding levels, then do a contribution review using the employer flexibilities when more is known.
As the Fund Actuary, we can be relatively flexible in terms of the calculations, and can build in options if it’s likely that more information will be available later in the valuation timetable (and before 31 March 2026). Of course, any changes to rates will need to be flagged in advance to the affected employers for budgeting purposes.
Engaging with employers Discussions should include district councils too where appropriate. Members of the Pensions Committee should also be encouraged to emphasise the importance of including pension fund representatives in discussions. Early engagement should start as soon as possible and before contributions are calculated to avoid unnecessary changes and additional work. This would help to agree a contribution plan that works for them (and the LGPS fund) with this significant change.
How we can help
Funding implications
Legacy liabilities for former councils/employers
New academies
New contractors
Historic contractors
Unfunded liabilities
Cross fund activity
Exit credits This isn’t necessarily a terrible idea, depending on the membership profile and funding position of the council. However, there are material risks - particularly regarding investment risks for potentially material orphan liabilities - that need careful consideration. As this is a significant change, there may also be other knock-on effects such as an increase in leavers (deferred members) due to redundancies and the number of ceasing employers. |
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