{"id":234641,"date":"2025-09-15T05:00:00","date_gmt":"2025-09-15T04:00:00","guid":{"rendered":"https:\/\/schoolsweek.co.uk\/?p=234641"},"modified":"2025-09-19T16:19:53","modified_gmt":"2025-09-19T15:19:53","slug":"the-windfall-that-could-save-schools-a-fortune","status":"publish","type":"post","link":"https:\/\/schoolsweek.co.uk\/the-windfall-that-could-save-schools-a-fortune\/","title":{"rendered":"The windfall that could save schools a fortune"},"content":{"rendered":"\n

Good financial news<\/a> is hard to come by for the education sector, but an opportunity is arising for schools to significantly reduce their outgoings. Here’s how.<\/p>\n\n\n\n

The Local Government Pension Scheme (LGPS) is the pension scheme for non-teaching staff in local authority-maintained schools and academies in England. And the good news is that is in a very strong position.<\/p>\n\n\n\n

This means that, from 1 April 2026, schools could significantly reduce their employer contributions without affecting the security of employees’ benefits.<\/p>\n\n\n\n

Understanding the LGPS<\/strong><\/h3>\n\n\n\n

The LGPS is the largest funded pension scheme in the UK and the fifth largest in the world, holding nearly \u00a3500 billion of assets across the whole of the UK. The scheme serves over six million active members and nearly twenty thousand employers. <\/p>\n\n\n\n

The LGPS is a defined benefit scheme. This means the pension an employee receives on retirement is based on a set formula, not on how investments perform. <\/p>\n\n\n\n

The formula is based on career-average revalued earnings (CARE). Each year, a portion of an employee’s pensionable pay (1\/49th) is added to their pension account. This amount is revalued annually to keep pace with the cost of living. When an employee retires, their total pension is the sum of all the amounts “banked” each year.<\/p>\n\n\n\n

Because it’s a public service defined benefit scheme, the pension amount is guaranteed by law and is not impacted by market fluctuations.<\/p>\n\n\n\n

The opportunity for schools<\/strong><\/h3>\n\n\n\n

The opportunity to reduce employer contributions stems from the LGPS’s very strong funding position. The aggregate funding level for the 87 LGPS funds in the England and Wales scheme reached a record high of 126 per cent at the 31 March 2025 valuation date. This is on a very prudent (low-risk) basis<\/a>.<\/p>\n\n\n\n

This is a significant and remarkable jump from the 67 per cent funding level at the previous valuation in 2022 and has resulted in a surplus of over \u00a3100 billion. This strong financial position means all employers can expect their contribution rates to be reduced.<\/p>\n\n\n\n

The LGPS assets are not managed by a single entity but by 87 different administering authorities across England and Wales (79 in England). Each administering authority has a pensions committee responsible for the investment strategy and funding, and elected councillors are the ultimate decision-makers.<\/p>\n\n\n\n

These decisions largely determine investment returns and funding levels. For example, as outlined in the Financial Times<\/a>, Kensington & Chelsea\u2019s approach is to have a lot of equities, which has led to an annualised return of 10.8 per cent over 10 years.<\/p>\n\n\n\n

Two main options<\/strong><\/h3>\n\n\n\n

With this surplus, schools and other employers have two primary strategies to consider: reducing their contribution rates or de-risking the scheme’s investments.<\/p>\n\n\n\n

Reducing the contribution rate<\/em><\/h4>\n\n\n\n

Given the current austerity budget, this would provide immediate financial relief for employers such as academies and local councils. In essence, the surplus could free up money for much-needed investments.  <\/p>\n\n\n\n

De-risking investments<\/em><\/h4>\n\n\n\n

This option involves “locking in” the current funding surplus by shifting the scheme’s assets from higher-risk investments (like equities) to more stable, lower-risk assets (like gilts and bonds).<\/p>\n\n\n\n

It is possible to de-risk an individual employer\u2019s assets as well reducing risk in the overall fund. The sweet spot would probably be a combination of both, depending on each employer\u2019s position and the fund they are in. <\/p>\n\n\n\n

According to the latest accounts for the academies sector<\/a>, academies paid \u00a31.4 billion in employers\u2019 contributions in 2022-23.  If, for example, contributions were reduced by half (which would be a midpoint between the two strategies above), this represents an estimated \u00a3750 million in savings potential for the sector.<\/p>\n\n\n\n

Early engagement is key<\/strong><\/h3>\n\n\n\n

The key is to engage as soon as possible and proactively with your LGPS fund. By understanding and articulating your school’s specific funding position and objectives, you can negotiate a tailored approach that balances affordability with long-term stability. <\/p>\n\n\n\n

Isio, an actuarial consulting firm with a team specialising in public service pensions, estimates that a 50-per cent reduction in employer contributions would represent \u00a34 billion in savings across all LGPS employers. This could help bridge the financial gap for many schools and local authorities. <\/p>\n\n\n\n

In making these decisions, schools and local authorities must take a\u00a0holistic view. Being too cautious and keeping higher contributions may come at the expense of essential children’s services, which would end up having more costly consequences in the future.<\/p>\n\n\n\n

To find out more, watch this Isio webinar<\/a><\/em><\/strong><\/p>\n\n\n\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

Good financial news is hard to come by for the education sector, so don’t miss this opportunity<\/p>\n","protected":false},"author":311124,"featured_media":171519,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"om_disable_all_campaigns":false,"footnotes":""},"categories":[6,3734],"tags":[],"post-theme":[3727],"class_list":["post-234641","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-opinion","category-the-leader","post-theme-the-business-leader"],"acf":[],"aioseo_notices":[],"aioseo_head":"\n\t\t\n\t\n\t\n\t\n\t\n\t\n\t\n\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t