The UK government actuarial department has raised concerns about pension funds within the Local Government Pension Scheme (LGPS) and whether they can continue with their current accrual rate, singling out two closed transport schemes.

In a “dry run” report ahead of the 2016 round of statutory valuation of the 91 separate funds in the scheme, the Government Actuary’s Department (GAD) signalled concern about two passenger-transport funds now closed to new entrants – the West Midlands Integrated Transport Authority Pension Fund and the South Yorkshire Passenger Transport Authority Pension Fund – about future solvency. 

GAD said it was unaware there was any plan in place to ensure solvency for these two funds. 

The department was carrying out the trial version of a review it will conduct under section 13 of the Public Service Pensions Act 2013.

Section 13 will apply for the first time to the 2016 valuation round.

Commenting on the two transport funds, GAD said: “In particular, we might have sought to better understand whether the relevant administering authorities had a plan in place to ensure that the fund continues to meet benefits due in an environment of no future employer contributions being available, if section 13 had applied as at 31 March 2013.” 

While the assessment of these two funds had led to “red flag” labelling for some aspects, a number of open funds within the LGPS had been given amber flags for some of the solvency criteria evaluated.

The report uses a traffic-light system of green, amber and red flags to highlight whether action needs to be taken on individual issues.

“We may have engaged with some of these administering authorities to discuss the reasons behind these flags,” the department said in its report, noting that none of these open funds had attracted red flags.

The section 13 legislation requires GAD to report on whether four main aims are achieved: compliance, consistency, solvency and long-term cost efficiency.

In the dry-run report, GAD said there was no evidence of material non-compliance but that there were some inconsistencies between the valuations of the schemes, in terms of the approach taken, assumptions used and disclosures.

“These inconsistencies make meaningful comparison of local valuation results unnecessarily difficult,” it said in the report.

In terms of long-term cost efficiency, the report concluded that the actuarial department would have engaged with the Royal County of Berkshire Pension Fund and the Somerset County Council Pension Fund – if it had been conducting an official report – to investigate in more detail whether the aims of section 13 were met.

“We may also have engaged with some other administering authorities that had a significant combination of amber flags if section 13 had applied as at 31 March 2013,” it said.

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