Part 2 - If it looks like a surplus, walks like a surplus, and talks like a surplus - it's a surplus!

No ifs. No buts. Get back the surplus now.

We expect that headteachers and principals of schools and F.E. Colleges, multi-academy trust heads, and vice-chancellors of universities in the West Midlands will have no idea they have lost up to £2billion in funding over the last 3 years.

It will literally be news to them.

And the reason is an accounting trick: a nonsense piece of jiggery-pokery, called 'the asset ceiling'. A dangerous piece of maths that makes a pension fund surplus, to all intents and purposes, simply disappear.

It really is a case of 'now-you-see-it; now-you-don't'.

Simply put, although you put a pension fund's deficit in your accounts, you don't put a pension fund surplus in the accounts, because you've not got it yet, and MAY not eventually get it.

So you make it go away with this net-it-off, accounting bamboozlement: the 'Asset Ceiling'.

First of all, let's see what the Department for Education advises about pension fund surpluses in schools' accounts, just this March 2025. Well, it's pretty clear the DfE is saying that under the FRS102 accounting rules applying to Academies and Free Schools, you specifically are NOT REQUIRED to apply the asset ceiling.

So let's be clear: the DfE says it would be the correct advice to an Academy to say that you have a choice in whether or not to apply the asset ceiling.

Let's be clearer: the DfE says it would specifically be the INCORRECT advice to an academy that it MUST use the asset ceiling.

And, anyway, why would you use it?


What's certain is that the DHCLG literally did not get the DfE memo.

It is our view that the almost universal use of this asset ceiling trick has, intentionally or not, confused headteachers, vice-chancellors, principals and other bosses into thinking their institution's surplus actually doesn't exist; or even if it did, there's nothing they can do about it. Apart from wave it goodbye - as it has already sailed off into the sunset.

But here's the rub: the actual surplus is actually there, it does actually exist, effectively ring-fenced in the Pension Fund's bank account.

It very specifically has not gone away just because an asset ceiling tried to make it go away.

More widely every single council in the region (and probably the country), and the police and fire services, used the asset ceiling in their accounts in both March 2024 and March 2025, as they, too, thought their IAS19 accounts required it (doubtful).

We would assert that hiding the surpluses in this way suits the local government establishment, The City, legacy actuarial companies and the pension fund establisment very nicely indeed.

Because whilst it successfully hides the surpluses from view, it also hides from view their massive cock-up.

More seriously, it hides a scandal.

The distraction means employers, headteachers, principals, vice-chancellors, students and parents won't ask the awkward questions of Whitehall, the legacy pension fund industry and The City.

Awkward Q1: How on earth has £2Billion been carved out of education spending in the West Midlands and used instead to pump up the £4.3B surplus at the Pension Fund?

Awkward Q2: When they knew the Pension Fund surplus was already £700m in 2022, whose fault is it that over the next 3 years £2Billion in spending was diverted from schools, FE Colleges and Unis, and supercharged the surplus instead?

Awkward Answer to both Q1 and Q2: because of a collossal and (for children, in particular) catastrophic failure to stop it happening by DHCLG and the Pension Fund establishment; and then an attempt to hide it from everyone through asset ceilings.

We also believe there has been a concerted attempt by Whitehall, council officers, The City and the LGPS funds themselves to bamboozle journalists in particular into thinking any such challenges as those we have highlighted in these blogs are ill-informed nonsense.

We are sorry to report that, in the West Midlands at least, this has been highly succesful, with very few exceptions. 'Cui Bono?' and 'Quid celare conantur?' seem to be missing from the journalistic vocabulary.

If it looks like a refund, walks like a refund, and talks like a refund - it's a refund!

The other fundamental misunderstanding about the asset ceiling was the advice that it must be applied because any refund of the surplus was entirely at the discretion of the pension fund. This ignores the practical reality of refunds by negative secondary contributions historically, and now, at the every-3-years valuation stage.

But the advice also ignores the provisions in the regulations for such refunds between valuations under 2013 LGPS Regulations 64A(b) either by the fund itself, or on the election of any employer effectively and practically to force refunds, where (as, disgracefully, with WMPF) there is failure to act by the fund.

So the regulations specifically prepare for a scenario where things have changed radically BETWEEN valuations.

It would be more than remiss of an adviser NOT to inform an employer of the existence of these mechanisms. Or not to take them into serious account when considering advice on the asset ceiling. The appropriate caveat should had been advised.

And where a funding surplus already at £700million in 2022 had turned in to an accounting surplus of £4.3Billion by the autumn of 2024 (later confirmed in the Spring 2025), it would be difficult not to see there had been a radical change.

In 2022 the accounting liabilities at WMPF had already fallen by £10Billion in one year! The writing was very much on the wall.

Everyone in the industry and Whitehall knew about it. So it had to be hidden.

So, if a boss has been told by a pensions adviser that the surplus doesn't exist, and, even if it did, the chances of refund are almost impossible (and acounts are actually saying this word-for-word), then obviously the said boss is unlikely to do anything about it, and get on with the already difficult job of running the school, FE College, Uni or other public sector institution.

Very handy that.

We are also at the stage where if the secondary negative contributions cancel out the scheduled employers' contributions completely over the cycle, so there has to be an actual return of even further sums (as must be the case in the surpluses now), even the asset-ceiling flat earthers would have to actually call that a refund. Revenue went into capital and capital came back to revenue.

In fact, if you ask any legacy actuary company about asset ceilings, they will shame-facedly report they actually have absolutely no clue about whether the asset ceiling should be used or not. They'll admit it. So why has everyone done it?

Because their actuaries will, you know, 'sort of' advise to throw in the asset ceiling, you know, 'to be on the safe side'. When actually 'the safe side' is exactly the opposite.

The use of the asset ceiling (or any similar accounting gobbledygook system which hides the surplus) is not a requirement, it's just fashion. That is simply not good enough.

Ultimately, though, the fundamental failure is (even when the asset ceiling has been advised) not then to add supplementary clear written advice to the employer that:

1. the surplus exists;
2. it resides ring-fenced at the Pension Fund for the moment;
3. LGPS regulations require the return of that surplus at the latest at the next valuation ;
4. the regulations also provide the mechanisms for it to be returned through negative secondary contributions at the valuation or before;
5. the regulations allow any employer to require early and immediate effective recalculation and recertification (i.e. refund);
6. the regulations provide for the commencement of such refund with immediate effect, specifically BEFORE the next valuation

This should also appear in the accounts next to the asset ceiling calculation, or net assets statement, for everyone to see. This should have appeared in the councils' accounts,too.

Forget whether the daft Asset Ceiling is used or not. That's for the accounting birds.

Some advisers clearly also advise that the practicalities of getting the refund out is too difficult, due to the pension fund having a complex asset base. Again, it is a basic requirement in the LGPS that the vast majority of assets held in a LGPF must be able to be liquidated into cash within 12 weeks. It is typical for a fund to have 80% of the fund in such quick cash-converter assets. To advise otherwise or base advice on the misassumption it's complex and difficult would be an epic fail.

We believe all of the above should have been made clear to all of the employers in the West Midlands Pension Fund, regardless of the asset ceiling malarkey trick, so they in turn could tell their employees, the users of their services, and the public. Perhaps then the insitutions would have done something about it.

The same applies to the Councils, ALL of whom (as we have said) have applied the asset ceiling effectively hiding £2Billion of surpluses from the sight of West Midlands taxpayers and citizens.

It's a question of genuine transparency, yes.

But, we would argue, it is a question of basic honesty.