Guidance

Local Government Pension Scheme (LGPS)

Updated 24 April 2024

Applies to England

This content was last updated in April 2024.

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1. Introduction to the Local Government Pension Scheme

1.1 Membership

The Local Government Pension Scheme (LGPS) is one of the 2 main pension schemes within the academy sector.

Teachers are entitled to be members of the Teachers’ Pension Scheme (TPS). All other members of staff are legally entitled to be members of LGPS.

The entitlement to membership of both schemes is contained in:

• legislation
• the requirement to allow membership contained in the academy funding agreement

LGPS is a public sector pension scheme. Membership is open to all employees under the age of 75 working in the academy sector if they are not entitled to be members of the TPS.

Academy trusts must offer access to the LGPS to all non-teaching employees.

The proprietor of an academy, commonly referred to as an academy trust, or a multi-academy trust (MAT), automatically becomes a scheme employer in the LGPS under the Local Government Pension Scheme Regulations 2013. This means that all non-teaching staff employed by academy trusts on conversion or afterwards are entitled to membership of the scheme.

This guidance is not a substitute for the LGPS regulations, but some key points to be aware of are that:

• not allowing access to the LGPS for eligible employees is a breach of the 2013 LGPS regulations, and the Funding Agreement
• employees that opt out of the LGPS must be automatically enrolled at the next anniversary of their employer’s staging date, and then every 3 years after that if the employee continues to opt out - this is required under the auto-enrolment regulations and is known as re-enrolment

1.2 Overview of the pension scheme

LGPS is a ‘defined benefit’ pension scheme. This means that members are assured of a certain level of pension benefits when they retire, based on the number of years of membership and the salary they received over that period.

LGPS members can find information on how their pensions are calculated on the LGPS website.

The LGPS is a ‘funded’ scheme. This means that the scheme aims to achieve solvency, that is, they are required to hold assets to cover the cost of the benefits (liabilities). It is also worth noting that LGPS is funded at local and employer level.

For the LGPS, the employer is responsible for any shortfall in funding. The level of contributions paid makes no difference to the benefits the employee will receive.

1.3 LGPS funds

The LGPS is a national public sector pension scheme managed locally by more than 80 administering authorities (funds) in England and Wales.

The funds operate in line with the LGPS Regulations which are owned by the Department for Levelling Up, Housing and Communities (DLUHC).

Each fund is autonomous and managed locally by an administering authority, which is responsible for ensuring that there is, or will be, sufficient income to meet their pension fund’s current and projected future financial obligations.

The appropriate LGPS fund for an academy trust is determined by its geographical location. Contact details for the fund can be found on the LGPS website. Typically, the LGPS fund is the same fund that the school participated in when it was a local authority-maintained school.

Trusts with academies located across different geographical areas will likely have LGPS arrangements with a number of different funds.  

1.4 Employee contributions

For reference, LGPS members fall into 3 categories:

• active members - individuals who are currently employed by a scheme employer (the academy trust) and are contributing to their LGPS pensions
• deferred members - individuals who are no longer active members of the scheme but have yet to claim their LGPS pension benefits
• pensioner members - individuals who are claiming their LGPS pension

Active members of the scheme (employees) pay the rate of contributions set out in Regulation 9 of the Local Government Pension Scheme Regulations 2013. The employee rate paid is the same in every fund.

Members can view information about their contributions on the LGPS website.

1.5 Employer contributions

A formal valuation of each LGPS fund takes place every 3 years, during which LGPS funds will review employer contribution rates and inform academy trusts of any changes in their contribution rate. Employer contribution rates can differ between academies within the same fund and across different funds. The updated employer contribution rate then comes into payment 12 months after the valuation date.

The valuation is carried out by a fund actuary appointed by each fund. As of the date this guidance was published, the latest triennial formal valuation was 31 March 2022. This valuation set employer contributions from 1 April 2023 to 31 March 2026.

See the triennial valuation section for more details.

Employer contribution rates reflect a number of factors including the:

• employer’s membership profile and its own funding position in the fund
• funding and investment strategy of the particular LGPS fund

The employer contribution rates are set to ensure the fund’s long-term solvency (so there are sufficient monies to pay benefits when they fall due) and to ensure long-term cost efficiency.

Each LGPS fund publishes a funding strategy statement (FSS) which outlines how employer contribution rates are set. Each FSS is set in line with guidance from the Chartered Institute of Public Finance and Accountancy (CIPFA). More information on FSS is available in the triennial valuation section. The fund and their actuary will inform employers on the contribution rates payable. This communication usually occurs in the autumn of the valuation year (for example, for the 31 March 2022 valuation, communication typically occurred in October to December 2022).  

Employer contributions are split into a primary rate and secondary rate.

The primary rate is what is required to meet the future benefits earned by active members (that is, current employees). The primary rate is usually expressed as a percentage of pay.

This is then adjusted by the secondary rate to arrive at the overall rate the employer is required to pay. The secondary rate may be in respect of costs associated with the funding of active and inactive members’ benefits earned up to the valuation date, although there can be other factors which affect this rate. The secondary rate may be expressed as a lump sum payment or as a percentage of payroll.

Employer contribution rates in each LGPS fund are set out in a Rates and Adjustments Certificate. This certificate is usually an appendix to a fund’s formal valuation report, which is typically published on their website. However, all the valuations reports are also collated on the LGPS Scheme Advisory Board’s website.

1.6 Queries on employer contributions

If an academy trust has questions or concerns regarding their set contribution rates, then they should contact the relevant pension fund in the first instance.

If the trust still has questions, then they can contact the Education and Skills Funding Agency (ESFA) for assistance using the customer help portal.

If a trust wishes to lodge a complaint against the pension fund, they should follow the fund’s own complaints procedure. This is typically referred to as an Internal Dispute Resolution Procedure (IDRP).

1.7 Factors affecting the employer contribution rate

When setting employer contribution rates at a triennial valuation, pension funds consider the following factors:

• predictions of future inflation, pay increases, longevity, and events such as rate of ill-health retirement
• the profile of the employer’s active and inactive membership
• the employer’s current funding position, which can be affected by:
  • historic investment returns
  • membership experience such as level of pay awards, redundancy exercises, pension to lump sum conversion and ill-health retirements
  • the funding position on conversion to an academy
  • the amount of contributions that have been paid
• expected return on investments going forward
• prudence margins in the funding strategy (LGPS funds need to have a better than 50/50 chance that there will be enough money in the long-term to pay members’ benefits)
• significant insourcing or outsourcing, to include reduction or growth (expansion of academy trusts)
• the accuracy of member records

LGPS funds will also consider the risk of an employer ceasing to operate where there is a chance that pension liabilities will not be paid. The Department for Education (DfE) Academy LGPS Guarantee eliminates this risk by ensuring that outstanding liabilities for the academy will not revert to the fund. ESFA expects pension funds to recognise the Guarantee when setting employer contribution rates for academies. See The DfE Academy LGPS Guarantee section for more information.

1.8 Employer contribution rates for multi-academy trusts

Where a multi-academy trust is in place, it is legally the scheme employer for staff in all of its academies. However, it is common practice for LGPS funds to treat each academy in a trust as a separate employer because each academy has its own staffing profile. Employer contribution rates can therefore differ between academies within the same trust and within the same fund.

Some trusts may want to request that the LGPS fund treats them as a single employer for relevant staff in all its academies for the purpose of setting employer contribution rates. This is known as ‘employer pooling’. See the employer pooling section for more information .

1.9 Employer deficit

Administering authorities have a responsibility to ensure employers in the local fund are not exposed to unnecessary risk by another employer. This is an important factor considered when the fund’s funding strategy and employer contribution rates are determined. It is also an important factor when allocating assets and liabilities upon academy conversion.

Each LGPS fund has their own method for allocating assets and liabilities upon academy conversion, which are published as part of the funding strategy statement, held on the fund’s website.   

On conversion from a local authority-maintained school to an academy, the fund actuary calculates the assets and liabilities for the active members of the fund that will transfer. There is guidance on academy conversions available on the Scheme Advisory Board website.

1.10 LGPS funding

There are 3 sources of funding for LGPS pension funds to pay member benefits:

• employees who pay a set percentage of salary ranging from 5.5% to 12.5%, these percentages are set out in LGPS Regulations
• returns on investments from a mix of short, medium and long-term investments determined by the administering authority - further details of these are set out in each fund’s Investment Strategy Statement which is usually available on the fund’s website
• employers who pay a contribution rate based on known and anticipated income or outgoings these rates are reviewed at each triennial valuation

Individual LGPS funds may be in a funding surplus or funding deficit dependent on multiple factors. Triennial valuation reports and the pension fund annual reports can be found on the Scheme Advisory Board website.

1.11 Keeping the fund informed

In line with the 2013 LGPS Regulations, scheme employers (academy trusts in this instance) are responsible for providing pension contributions and member data to their LGPS fund by certain deadlines.

Dates and expectations may differ per pension fund, therefore, academy trusts should consult the HR and payroll guidance from LGPS.

LGPS funds will supply academy trusts with the relevant contact details. Trusts can also find the contact details for the fund on the LGPS website.

1.12 Opting out of the LGPS

Before taking the decision to opt out of the LGPS, members should be made aware of the 50/50 scheme, which allows them to contribute half of what they normally would and receive half of the normal benefit. Details are available on the paying less page on the LGPS website.

Employees can opt out of LGPS, however, employers cannot, because they have a legal duty to allow access.

Even if an employee opts out of the LGPS, they retain the right to re-join at any time whilst in the employment of the trust. Note that employees are automatically re-enrolled into the LGPS every 3 years.

2. Regular valuations

2.1 Introduction

As mentioned in the employer contributions section, LGPS funds are required to carry out valuations of their assets and liabilities every 3 years and these exercises can result in a change to the employer’s contributions (that is, the academy trust’s contribution rate), which has a direct effect on staff costs and performance against budgets. These valuations are typically referred to as triennial valuations, formal valuations or funding valuations.

Valuations are also carried out each year for the annual accounts (typically called FRS 102 accounting valuations). FRS 102 is the Financial Reporting Standard applicable in the UK and Republic of Ireland. These valuations can affect the pension provision and reserves disclosures but normally have little bearing on budgetary performance. Both valuations are carried out by the LGPS fund’s actuary and academy trusts should engage with both exercises to ensure they are as accurate as possible.

2.2 The triennial valuation

The triennial valuation could be regarded as the most important of the 2 regular valuations because it affects the academy trust’s staff costs. The triennial valuation runs between the valuation date and the following 31 March when the valuation must be completed by law. The updated employer contribution rates come into payment at the start of April following the completion of the scheme valuation period. For example, the valuation runs from 31 March 2022 through to 31 March 2023, then trusts start paying the updated employer contribution rates from 1 April 2023.

Initial results are normally available in the autumn or winter following the valuation date, when the LGPS fund consults with employers on the updated funding strategy statement, which sets out how the fund or each employer/pool will meet its future liabilities and updated employer contribution rate and funding position. When trusts are consulted it is important to check that the movement in any funding level looks correct and that the fund is holding the correct membership information in respect of the trust’s staff who are members of the fund. 

For LGPS funds that are in deficit, the funding strategy statement (provided to employers by the pension fund) will outline the number of years required for the fund to return to balance. The number of years allowed for academy trusts typically matches the number of years allowed for the local authority. Academy trusts may wish to review the funding strategy statement to understand how their funding strategy compares to local authority-maintained schools. If there are differences, the trust can discuss the reasons for these differences with the pension fund and ask how the DfE Guarantee is being taken into account.

For funds that are in surplus or where the deficit has reduced by more than expected, employer contributions may be reduced. Academy trusts should review the approach taken by the actuary to understand how the fund has calculated the contribution rate. Each LGPS fund will have their own policy on surpluses available on their website.   

Employer affordability is a factor typically considered when reviewing employer contribution rates at the triennial valuation. If a trust finds the set contribution rate unaffordable, they should contact the pension fund directly to discuss.

If the matter of contribution rates cannot be resolved between the trust and the pension fund, then the trust can contact ESFA using the customer help portal. The trust’s query will then be delegated to the ESFA LGPS team for review.

After the triennial valuation, the Government Actuary’s Department reviews the outcome of the valuation and produces a Section 13 Report. This document includes a commentary on:

• compliance with regulations
• consistency in approach
• solvency
• long-term cost efficiency

It may also include recommendations. Note that the report is published 2 years after the valuation date.

If a trust has concerns about the outcome of their fund’s triennial valuation, then they may find it helpful to review the latest published Section 13 report when raising questions with the fund manager and actuary. The Section 13 report would indicate whether the fund featured as an outlier and how the fund’s previous valuation compared with a valuation based on standard assumptions.

2.3 Example triennial valuation cycle

1 April 2023: New employer contributions rates begin.

1 September 2024: Pre-scheme valuation planning. 

2025: Scheme valuation process.

1 April 2026: New employer contribution rates begin.

2.4 The FRS 102 accounting valuation

Each year the trust is required to produce financial statements in accordance with FRS 102. This includes a disclosure of LGPS assets and liabilities as at 31 August. To produce this report a disclosure note is required. This is usually produced by the fund actuary.

The trust may receive a letter of engagement to sign. The actuary will then produce the valuation report and accompanying notes and explanations between September and November, in time to be included in the trust’s financial statements. Note that there are usually options of which report is required. The ‘standard’ report will usually suffice for the accounts and is usually the lower cost option.

The FRS 102 valuation report should be produced in line with the Academies Accounts Direction and the academy model accounts (sometimes known as the ‘Coketown model’). If academy trusts have queries regarding the report, then they should contact the relevant pension fund to discuss.

The FRS 102 valuation has a different purpose to the triennial valuation and can produce different results. To ensure financial statements for different entities are comparable, the FRS 102 valuation uses market related assumptions as prescribed by the accounting standard. The triennial valuation is not constrained in the same way.

For example, for the FRS 102 valuation the discount rate is required to be based on the yield on high quality corporate bonds of a similar duration to the pension liabilities. The lower the discount rate the higher the value placed on the liabilities, so if the prescribed discount rate is lower than that used for the triennial valuation at the time of the FRS 102 valuation then it will probably result in a larger deficit or smaller surplus. A large deficit shown for an FRS 102 valuation does not necessarily mean that contributions will need to go up or that this is the amount that would need to be paid if an academy transfers from one trust to another.

If the outcome of either the FRS 102 valuation or the triennial valuation creates challenges for the trust, then the trust may wish to seek independent actuarial advice.

3. The DfE Academy LGPS Guarantee

3.1 Introduction

The DfE Academy LGPS Guarantee (the Guarantee) is a crown guarantee which ensures that all outstanding LGPS costs are paid to the pension funds in the event of an academy trust closure.

The Guarantee was introduced in July 2013 to provide an assurance to LGPS pension fund managers that academies are not ‘high-risk’ employers. ESFA expects LGPS funds to recognise the strength of the Guarantee and treat academies equitably with local authority-maintained schools when setting both primary and secondary contribution rates.

In July 2022, the DfE re-affirmed its commitment to the Guarantee following a value for money review with HM Treasury. The Secretary of State for Education wrote to all LGPS Pension fund managers in England. The letter confirmed that in providing a Guarantee, ESFA expects LGPS funds to ensure that it is reflected in the scheme valuation and funding strategy statements.

Guidance on the DfE Academy LGPS Guarantee is available on GOV.UK.

Note that individual employer contribution rates are based on each employer’s fund and their membership. The Guarantee does not ensure that academies are set the same contribution rates as local authority maintained schools in the same pension fund. Rather, the Guarantee allows funds to apply the same funding strategies to academies that are applied to maintained schools. 

If an academy closes, but the trust continues to operate, the trust remains responsible for any LGPS deficit liabilities in respect of that academy. In that scenario, there are multiple payment options available for the trust.

3.2 Outsourcing services under the Guarantee

The term ‘outsourcing’ refers to when a business seeks to obtain goods or services from an external supplier. In the academy sector, outsourcing is where an academy enters into a contract with a third-party provider to deliver services, such as catering and cleaning, to the academy trust.

The Guarantee provides pension liability cover where academy trust employees, who are eligible to be members of the LGPS, are transferred under Transfer of Undertakings Protection of Employment (TUPE) Regulations 2006 from the public sector to the contracting employer. For example, the trust has 5 catering staff and then decides to outsource catering services to a contracting provider. In this instance, those 5 staff would transfer under TUPE to the contracting employer and thereby retain their access to the LGPS. The contracting employer then becomes responsible for the LGPS employer contributions.

For the Guarantee to apply as outlined above, academy trusts must enter into a ‘pass -through’ arrangement for all employees who remain eligible to access the LGPS.

A pass-through arrangement is a contractual agreement between an academy trust and their chosen service provider in which the academy and the contractor will agree the allocation of LGPS costs between both parties. In all pass-through arrangements, the trust must remain responsible for the pension liabilities of the LGPS members in the arrangement.

Whilst the funding risks will remain with the academy trust, allocation of some costs may vary. For example, a typical case would see the contractor responsible for agreed monthly contributions, and other costs that they directly control, such as early retirement on redundancy, and higher than assumed pay increases.

The DfE LGPS Academy Guarantee covers academy trust pass-through arrangements.

DfE Academy LGPS Guarantee policy covers 3 distinct groups for academy trusts outsourcing services.

As long as a pass-through arrangement meets one or more of the criteria outlined in the linked policy above, then academy trusts may proceed without ESFA approval. If the circumstances of a pass-through arrangement do not match the criteria outlined above, then the trust will need to contact ESFA using the customer help portal and provide further information regarding the proposed arrangement.

Academy trusts should engage with their LGPS fund at the start of any tendering process which involves TUPE transfer of employees with protected entitlement to LGPS.

Under a pass-through arrangement, the Guarantee provides complete cover for all outstanding LGPS deficits upon trust closure. Therefore, bonds or indemnities are deemed unnecessary. Furthermore, ESFA will not permit an academy trust to provide a bond for LGPS liabilities as they are treated as a contingent liability rather than a fixed amount.

4. Pooling

4.1 Introduction

There are a number of potential mechanisms available to multi-academy trusts to combine either within the trust itself, or more widely, to manage risk and reduce administration.

4.2 Employer pooling

An LGPS pension fund may allow a multi-academy trust to combine all constituent academies located within that fund into a single employer pool. This has the administrative benefit of a single employer contribution rate and allows academies within the same trust and fund to share risk. Where a trust chooses this approach, it may need to manage significant increases or decreases in the employer contribution rate in individual academies during the transition. There are likely to be actuarial charges from the pension fund on creation of a single employer pool, but it may be possible to reduce or eliminate these at particular points in the pension cycle, such as when funds are undertaking work for the triennial revaluation.

Note that trusts cannot pool their academies without agreement from the pension fund.

Academy trusts request an FRS 102 accounting disclosure each year. Note that academies within a trust may be pooled for accounting disclosure purposes but not for funding or contribution purposes or vice versa.

Some LGPS funds may allow employers, including academy trusts, to voluntarily create a pool to generate stability. Some may require this of all academies within the fund, creating a single multi-employer ‘all academies’ pool comprising all trusts operating within that fund. 

The LGPS fund’s funding strategy statement (published on their website) will outline their approach to pooling.

Pooling across scheme employers means that they can share risk, for example in relation to the cost of ill-health retirements and variations in the primary employer contribution rate (the cost of future liabilities) caused by changes in the age and pay profile of staff can be reduced when part of a larger pool. However, decisions in one academy in the pool, for example in relation to salary awards or early retirements, may affect the contributions required of all academies in the pool.

Once pooling arrangements are in place, whether within a single employer, or across employers, individual assets and liabilities may no longer be tracked by the fund actuary.  This means that it is not simple to revert back. This should be considered if an academy is likely to join another trust or merge with another academy as the actuary will need to undertake work (with an associated cost) to determine its share of assets and liabilities.

4.3 Asset pooling

When discussing the LGPS, it is important to note that there is another type of pooling in addition to employer pooling. Pension funds must pool their assets with other funds within the LGPS. This may enable funds to benefit from higher investment returns and lower investment management fees.

5. Academy conversions and transfers

5.1 Conversions

All non-teaching staff employed by a school on conversion to an academy and any new members of non-teaching staff who join post-conversion are entitled to membership of the LGPS.

Liabilities in relation to deferred members and pensioners at the point of transfer remain with the local authority.

Schools converting to academies should contact the relevant administering authority as soon as possible during the conversion process to determine what their responsibilities are as a scheme employer.

The LGPS fund actuary will carry out an assessment to determine the school’s share of assets and liabilities. The fees for this work will vary by fund and may need to be paid by the converting school. The DfE conversion grant can be used to meet this cost.

The methodology used to determine the new academy’s share of assets and liabilities may differ by LGPS fund but will be outlined in the funding strategy statement published on their website. The LGPS Scheme Advisory Board has published a technical note to explain the actuarial approaches to conversion which includes a number of worked examples.

Note that there may be either a pension funding deficit or surplus on transfer. Converting schools can discuss with the relevant local authority to help understand the methodology used to calculate this.

The LGPS fund will provide details of the proposed primary and secondary employer contribution rates. The primary rate (expressed as a percentage of pensionable pay) relates to future liabilities in relation to active members. An academy may also be required to make an additional contribution towards any deficiency that exists between assets and liabilities (a secondary contribution). This may be expressed as a cash sum or a percentage of pensionable pay. Employer contribution rates are considered at each triennial valuation.

Due to the strength of cover provided by the DfE LGPS Guarantee, LGPS pension funds are expected to ensure that academies are treated equitably with local authorities. However, converting schools should be aware that their contribution rate may change once they become an academy. At conversion, the fund may recalculate the contribution rate payable based on only the academy’s membership or up-to-date market conditions. Both of these may be different from those used when setting contribution rates at the most recent triennial valuation.

Where a new academy joins a trust which participates in a single or multi-employer pool the contribution rate will generally be in line with that agreed for the pool, although academies should check the specific approach adopted by the fund. More information is available in the pooling section.

5.2 Transfers

If an academy leaves one trust and joins another, all active, deferred and pensioner members transfer to the new trust. Note that this process is automatic only if academies participate in the same LGPS fund. If academies are in different funds, then approval is required from the Secretary of State for Levelling Up, Housing and Communities to transfer deferred and pensioner member’s liabilities.

The LGPS fund’s funding strategy statement or other published guidance will outline the fund’s approach to a transfer. The fund will recharge actuarial costs for the assessment of the assets and liabilities at the point of transfer will be required. This work may be more complex where the academy is transferring from a single or multi-employer pool and additional analysis may be required to separate the academy from the pool. If the transferring academy joins a new pool its contribution rate may change.

It is essential that LGPS assets and liabilities transfer to the new trust. The Commercial Transfer Agreement (CTA) must include wording confirming that all pension liabilities will transfer to the receiving trust, and that nothing will be left behind.

Academy trusts which are receiving new academies may wish to consider pooling if they already have academies in the same pension fund as the incoming academy.

6. Engaging with the LGPS

As of 2023, academy trusts are the largest group of employers in the LGPS (in terms of the number of participating employers). However, it is important to note that trust employees make up a growing minority of active LGPS members across the whole scheme, so local authorities remain the major stakeholder in local funds.

Trust finance, HR or business managers will receive regular communications from their pension fund as they are representatives of a scheme employer and LGPS members. Communications will include:

• annual benefit statements
• annual report and accounts of the fund
• consultations on updates to key documents such as the funding strategy statement
• investment strategy statement
• communication policy statement

Some funds hold an annual employer meeting where updates on the fund and the wider LGPS are discussed. These communications represent opportunities to engage with the fund and ensure the voice of academy trusts and academy trust employees is heard.

There are also opportunities to engage with the decision-making and governance bodies of a local scheme. LGPS funds are run by a local authority committee which is overseen by an independent pension board. Local practice varies but many committees invite representation on these bodies from non-council employers. Being a pension board or pension committee member ensures that academy trusts are represented when important decisions are made by funds.

At national level, the Scheme Advisory Board, which oversees the administration of the scheme includes representatives of academies at committee level. ESFA also has a team that deals with LGPS issues involving academy trusts and supports a working group of academy trust representatives (WG4). The working group monitors developments in the academy sector and provides feedback to the Scheme Advisory Board. WG4 can be contacted by the ESFA team or by using the customer help portal.