What is the Local Government Pension Scheme?

The Local Government Pension Scheme (LGPS) is one of the UK’s largest and most established public sector pension schemes.

Serving employees across local authorities and numerous public sector bodies, it provides a defined benefit pension. This means that members receive a pension based on their salary and years of service.

With regional funds across the England and Wales, the LGPS manages pensions for 6.5 million members. For those managing pension funds, it’s worth understanding the scheme’s core structure.

How does the LGPS benefit its members?

Security

The LGPS offers great security to its members – and that’s just one of the reasons for its enduring popularity. Any contributions made are backed by the promise of a guaranteed pension, which is a comfortable safety net for many workers approaching retirement age.

Fair pensions

Pensions are calculated based on an individual’s salary and accrued service. This provides a sense of predictability and stability that many other schemes can’t compete with. Members also benefit from tax relief on their contributions.

Flexibility

Moreover, the scheme offers flexibility in how individuals approach retirement, with options to take a lump sum or opt for a reduced pension. Additional contributions can be made to increase retirement income.

It also considers the financial wellbeing of the employee’s immediate family members by offering provisions for dependents in the event of their death.

How has the LGPS changed?

Recent reforms have introduced significant changes. One example is the government’s push to accelerate asset pooling, aiming to create larger, more efficient investment funds by 2026.

This could provide new opportunities for pension fund managers, with larger funds having the potential to invest in a broader range of assets. If you’d like a deeper understanding of these changes, you could consult a specialist LGPS consultant.

Another key development concerns inheritance tax. From April 2027, changes are expected to affect death grants, potentially affecting the tax treatment of benefits passed on. These changes could influence how members plan their estates and complicate strategic advice offered by pension fund managers.

What’s the situation for pension fund managers?

Pension fund managers need to stay ahead of these changes to ensure their strategies align with both current and future developments.

The governmental push towards asset pooling presents opportunities for investment but demands careful planning to ensure funds meet new regulatory standards. Managers need to stay open-minded while making sure they can still maximise benefits for members.

As the LGPS adapts, its continued success will depend on a clear balance between flexibility and security, with long-term sustainability maintained.