The government’s response to its consultation on the future of the Local Government Pension Scheme (“LGPS”) in England and Wales – published last week with the final Pensions Investment Review report - confirms its intention to implement the majority of the proposals within the consultation. Further details will be set out in the forthcoming Pension Schemes Bill, in subsequent regulations and guidance.
What were the proposed changes?
The consultation focused on “tackling fragmentation and inefficiency”, considering three principal topics:
- Reforming asset pooling
- Boosting investment in local areas
- Strengthening the governance of Administering Authorities (“AAs”) and pools
Final Policy Measures
Pooling – the government will require that:
- all AAs delegate the implementation of their investment strategy to, take their principal investment advice from, and transfer all assets to the management of their pool; and
- pools are established as investment management companies (authorised and regulated by the FCA) with the ability to carry out due diligence on and manage local investments.
The deadline for compliance with these requirements will be March 2026 (with some flexibility for AAs or pools which will not remain in their current partnerships).
Local investment – as part of the measures to be implemented, AAs will be required to set out their approach to local investment in their Investment Strategy Statement, and to work with relevant stakeholders to identify suitable local investment opportunities. Following feedback, the primary reporting requirements will now sit with pools, with AAs being able to draw on the pool’s report.
Governance – while many of the government’s proposals will be implemented as consulted upon, a couple of the previous proposals have been altered to reflect certain procedural and implementation issues. In particular, governance reviews will need to take place once every three (rather than two) years to align with existing valuation cycles. Further, the requirement for AA pension committees to have an independent member has been amended such that that individual will act in an independent advisory role, rather than as a voting member.
Looking forward
This represents the latest in a long line of government interventions on the topic of LGPS reform, and acknowledges the variation of responses (in particular on pooling). The stated timescale for compliance with these requirements is likely to prove challenging for pools and AAs, but the government clearly hopes these changes will provide long-term clarity and sustainability, putting the scheme on the strongest possible footing for the future.
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