Introduction
Every three years, funded occupational defined benefit pension funds in the UK are required by law to have a valuation. For the Local Government Pension Scheme (LGPS) in England the valuation date is 31st March 2025 with the process taking 12 months to be finalised by 31st March 2026. As an employer in APF the main output of the valuation for you is the reassessment of your funding position and contribution rates from 1st April 2026.
In APF each employer is responsible for the costs of providing future pension benefits to their current and former LGPS employees (these are your liabilities). The core benefits provided to members and the member contribution rates are set out within the LGPS Regulations and cannot be affected by you or APF. The members pension benefits are paid for by employer and employee contributions as well as investment returns. Each employer has an attributed notional share of the fund assets (these are your assets) from which benefit payments to your current and former employees are made. Each employer pays contributions into the Fund in relation to the benefits building up for current employees (“active members”) in the future – this is your “primary” contribution rate. In some cases, there is a shortfall between your assets and liabilities in the fund known as a ‘deficit’ which will increase contributions as additional “secondary” rate contributions will need to be paid to remove the shortfall. In other cases, the assets may exceed the liabilities in the fund and this is known as a surplus – in these circumstances your contributions may reduce. Contributions will be reviewed as part of the 2025 Actuarial Valuation and will be updated to cover the period 1 April 2026 to 31 March 2029. The details of each employer’s assets and liabilities in the Fund and the change to contributions will be sent out to employers in late 2025/early 2026.
Our key objective is to ensure that we sustain a 100% solvency funding level over a reasonable timeframe; your contributions are set with this in mind. This will inevitably mean there will be a balance to be struck between our key objective and affordability of your contributions because the higher the contributions, the greater the chance the Fund meets the objectives but the greater the cost to employers. The Fund is therefore looking to achieve the right balance in our funding strategy. This will also be influenced by the level of risk in terms of your financial strength (known as your covenant) – i.e. your ability (or otherwise) to withstand higher costs in the future should the current contributions be set at a level which subsequently needs to increase, e.g. due to adverse changes in investment markets, and this will be part of our considerations when finalising your contributions.
Funding Strategy Statement (FSS)
The Administering Authority of the Fund is Bath & North East Somerset Council and they are required to prepare an FSS. The FSS sets out how we determine the liabilities in respect of your members and hence the contributions that you are required to pay. It also documents:
- How the Fund’s overall objectives will be met at the valuation. This includes the desirability to maintain a stable primary contribution rate over time.
- To ensure transparency, the assumptions which will be used in the 2025 valuation
- The polices which apply to all employers in the Fund.
The FSS has changed substantially in format since the 2022 valuation to comply with new guidance which was issued in January 2025 by the Scheme Advisory Board (SAB) and The Chartered Institute of Public Finance & Accountancy (CIPFA). Also at a national level the FSS is subject to scrutiny by the Government Actuary’s Department under Section 13 of the Public Service Pension Schemes Act 2013.
As a participating employer in the scheme, APF wish to consult with you on the development of the FSS. We will take into account your consultation responses, however ultimately it is the responsibility of the Administering Authority to formulate and implement the FSS as part of the valuation process.
An updated FSS has been drafted for 2025 and was approved by the Avon Pension Fund committee at its meeting on 27th June 2025.
Read the draft Funding Strategy Statement (FSS) (PDF, 1 MB)
It is strongly encouraged that you review the FSS as it will have a financial and operational impact on you and your members. In particular it directly impacts on the Fund’s approach for setting the contribution rates employers will be required to pay to the Fund with effect from 1 April 2026. We would be grateful for your comments using our feedback form.
The FSS is a comprehensive document but incorporates a contents guide at the front – we recommend you review this section to decide what areas are of most interest and relevance to you. As explained in the video, the core section of the FSS covering an overview of the Fund’s aims, objectives, key funding principles, approach to managing risk and funding-related policies is covered in Sections A-C of the document followed by the detailed Fund policies.
- We are anticipating more employers will be in surplus at this valuation and there is a new surplus policy in Appendix D. The Fund has developed this policy taking account of the objective for sustaining long-term solvency whilst also providing contributions that are affordable and sustainable over the long-term for employers. The approach incorporates an allowance for a surplus reserve to support the sustainability of contribution rates and a run-off period for any surplus in excess of the reserve, of 12 years.
- Based on initial advice from the Fund Actuary we expect there to be a reduction in many employers’ contributions. The impact of changes to contributions will vary widely between employers as it relates to the experience of your membership (in terms of membership profile along with pay rises, ill health retirements and so on).
- We will aim to keep contributions as stable as possible, but this may not always be feasible from a long-term financial management viewpoint.
- There remain [square brackets] in the FSS where we will provide updates in due course e.g. the demographic assumptions used for future life expectancy, levels of retirement etc. This will be updated after the membership data for 2025 has been analysed alongside information on historic experience data in these areas, and also once updates to national projections have been considered in the case of life expectancy.
- The key financial assumptions we are proposing to use to determine employer contributions are set out on page 18. We have assessed the range of investment returns (versus CPI inflation - this is known as the outperformance) that the Fund may achieve in the future based on our investment strategy objectives. This has determined the discount rate we use to calculate your liabilities, and as required we have maintained the prudent margins we feel are appropriate. This will be reviewed over the consultation period considering geopolitical and market volatility to ensure we remain comfortable.
- We will be reassessing the strength of employers’ covenant within the Fund to ensure that employers can support their liabilities. This exercise is ongoing and will help us ascertain how able you are to meet the contributions required from the Fund and your ability to support your obligations to the Fund in the long term.
- We will continue to offer you the opportunity to prepay your deficit contributions early, over the period 2026 to 2029, to make an overall cash saving.
- We have included in the FSS all the funding-related Fund policies that you should be aware of and we draw your attention to Appendix K – notifiable events and Appendix N – roles and responsibilities of key parties.
- At the end of the FSS, to help you understand the technical and regulatory terms that are included in the document, there is a glossary of terms.
FSS Consultation
We would particularly like your comments on the following questions:
- Feedback on the assumptions and in particular those that relate to you as an employer e.g. the pay increases you expect to award over the next few years.
- Comments in relation to the affordability of contributions and whether there is any particular year between 2026 - 2029 which will be more challenging financially for your organisation. This will help us form a view on any possible flexibility.
- Any other feedback you want to make on specific areas of the FSS such as the policies and/or the Fund’s approach for consulting with you on the funding strategy as part of the 2025 valuation in terms of the information provided and format.