UK - Local government pension schemes (LGPS) improved the average funding level in 2007 to approximately 83.5% of liabilities, a survey has revealed.

The research, carried out on behalf of the Societies of County Treasurers, Metropolitan Treasurers, Welsh Treasurers and London Councils, showed the average local authority pension fund earned a rate of return of 14.3% per annum over the three years to March 2007.

This is in comparison with the average return of 6.35% a year assumed at the 2004 LGPS valuation in 2004, which the survey claimed means the average funding level would have risen by 17%  - all other things being equal.

However the survey, conducted by Bryan Robinson, county treasurer of West Sussex county council and member of the Chartered Institute for Public Finance and Accountancy's (CIPFA) pensions panel, revealed between 2004 and 2007 real gilt yields fell by about 0.5% a year to increase the value of liabilities.

That said, the research claimed the repayment of deficits highlighted in the 2004 valuation, and a continuing reduction in the number of ill-health retirements, had "combined with market movements" to produce an overall improvement in funding levels.

As a result, the figures from 62 of the 88 English and Welsh Authorities - Scotland has a different timetable for valuations - suggested the average LGPS funding level had increased from 74.9% of liabilities in 2004 to 83.5%.

The survey findings also highlighted the rise in employer contributions to the schemes have been held at an average of just over 1% of payroll between now and 2010, compared to an average 4% increase in 2004.

The average fund value of the 62 schemes was approximately £1.5bn (€1.9bn), with an average deficit of £302m, and a deficit recovery period of around 20 years, while the 34 English counties had an average funding level of 82.3% with a deficit of just £358m, and a fund value of £1.7bn.

Figures showed of the 34 counties that took part in the survey, Somerset had the highest funding level of 95% - with a fund value of over £1.1bn and a deficit of £65.5m.

In contrast, Northumberland County Council appeared to have the lowest funding level of just 71.3%, with a fund value of £669m and a deficit of £269.7m, meanwhile the 15 London Boroughs surveyed had an average funding level of 79.7% with an average deficit of £143m, and an average fund value of around £562m.

The five metropolitan and unitary authorities included in the research reported an average funding level of 92.7% of liabilities, and an average deficit of just £356m, compared with a fund value of £4.5bn.

In addition, the nine Welsh authorities reported an average funding level of 75.1% - the lowest of the different regions covered by the survey - with an average deficit of £309m compared with an average fund value of just £937m.

Research also claimed increasing longevity is placing "further strain" on employers, although it admitted the phasing out of retirement before 65 and the introduction of the new LGPS scheme - which came into force on April 1 2008 - with a fairer cost-sharing basis "has mitigated" the threat of longevity.

The LGPS - which is valued at £125bn overall, with approximately £107bn assets in the English and Welsh funds - is expected to increase employee contributions from 6% to an average of 6.3% following the introduction of tiered contributions, as part of the 'new-look" scheme.

That said, the government is currently developing a formula for cost-sharing in the LGPS - to be in place by March 2009 - with a statutory consultation on the proposals put forward in an informal discussion paper by the government expected to take place in the middle of 2008.

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