Pension experts have expressed support for the government’s plans to improve the Local Government Pension Scheme's (LGPS) scale, governance, and investment, although concerns have been raised over accelerated timelines and potential conflicts of interest.

Announced in the Chancellor's Mansion House Speech, the plans aim to consolidate assets from the 86 LGPS administering authorities into fewer, larger pools of capital.

Industry experts welcomed the plans to ensure that pension committee members had a minimum level of skill, knowledge, and understanding, with the Association of Professional Pension Trustees (APPT) arguing that this was “absolutely vital”.

APPT vice chair, Vassos Vassou, emphasised that LGPS committee members and relevant personnel should adhere to the same standards as trustees.

The APPT also supported governance changes to require LGPS administering authorities to appoint an independent person as an adviser or member of the pension committee.

The PLSA also called the requirement for local authority funds to establish governance and training strategies a “welcome step”.

Timelines

However, there have been a number of concerns raised, particularly around timings, as the Society of Pension Professionals (SPP) warned that there could be insufficient time for pools to fully assess their options, given the government has said it expects proposals to be submitted by 1 March 2025, which is less than two months of this consultation closing.

The Pension and Lifetime Saving Association (PLSA) also acknowledged timeline compliance as a concern, but said it would support the government if an extension were granted, provided pools show “significant” progress and have plans to meet the proposals.

“A pragmatic approach will also be essential to ensure compliance within the proposed timeframe,” PLSA head of policy and advocacy, Zoe Alexander, said.

In addition to this, the SPP questioned the need for compulsory Financial Conduct Authority (FCA) authorisation by March 2026, suggesting there is “little to no evidence” to justify this requirement.

“Within the LGPS it is not clear how these proposals will meet either of the government’s objectives of improving pension outcomes for members or increasing investment in the UK,” SPP Public Sector Group chair, Kirsty McLean, said.

“As a result, we are urging them to carefully reconsider both the nature and pace of some of these proposals.”

Reviews/Advice

Hymans Robertson head of LGPS investment, Iain Campbell, also criticised the proposal to require advice from a single provider responsible for implementation and performance, indicating it introduces "conflicts of interest" and removes "competitively driven value for money, high service levels, and innovation."

Campbell said that adjusting the scope and scale of the pools is a “huge undertaking” and timescales are “hazardously ambitious”.

He noted that while pools are still developing their capabilities, their role is being expanded too quickly.

"Prioritisation is needed to ensure these developments are well-considered, robust, and capable of managing funds’ assets," he said.

Campbell emphasised that nearly all funds currently use investment consultancy services for strategy reviews, and the strong performance of LGPS so far reflects the value of these services.

“Therefore, funds should retain the option of using this tried and tested route – and select their advisor. This will minimise risk. Pools can then be included as an option once they have developed the services,” he continued.

However, Campbell, said it understood the government’s ambitions, suggesting other ways to achieve the same, if not better, results without introducing the level of risk to both the LGPS and UK.

The PLSA also suggested that any advice provided by a pool should be subject to review by an independent adviser or qualified investment consultant to ensure it is challenged and debated.

In addition to this, it called for pools to be authorised if they are offering advice to funds.

“For the LGPS, while we support the overall objectives of the reforms, proposals on strategic asset allocation and investment advice require further consideration. Funds must remain accountable to members, employers, and taxpayers for performance,” Alexander said.

Targets

The PLSA also supported allowing funds to set local investment targets within a range and the requirement for pools to obtain FCA authorisation, provided adequate time for compliance.

However, it warned that setting the right asset allocation was a "crucial" factor for driving long-term investment returns.

Complexity and cost

The SPP expressed support for pooling LGPS assets but opposed the requirement to transfer listed assets into pooled vehicles owned by the pool company. Instead, it advocated for a "comply or explain" approach to allow flexibility.

“On its pooling journey over the last decade, the LGPS has demonstrated a willingness to collaborate where that leads to efficiencies and improves investment, governance and performance,” McLean said.

“Whilst it is right for government to challenge the sector to assess its progress, the type and pace of changes being proposed run the risk of derailing some of the good work of the last decade, as well as impinging on administering authorities’ fiduciary duties.”

Gresham House CEO, Anthony Dalwood, also raised concerns, warning that the proposed changes could lead to stagnation in UK-focused investments.

He also warned that delegating investment strategy execution to pools would require significant time, resources, and talent acquisition.

He stressed the importance of ensuring that administering authorities remain at the heart of the process, as their input and oversight were “essential”.

Dalwood further argued that, for pools to offer a comprehensive service across all asset classes, they would need to replicate the scale and depth of the largest global asset managers.

He suggested a hybrid approach could be more effective to avoid such a scenario.

Dalwood also warned that the complexity of the transfer of assets should not be underestimated, as the process would be “costly and complex”, as pools need to familiarise themselves with the legacy strategies and liabilities of all their partner funds.

“Unless the pools are adequately resourced to source and execute on the smaller deal size tickets, these compelling investment opportunities are at risk of going unfunded as companies operating in more innovative and sustainable sectors often require smaller initial capital commitments,” he continued.

“The drive for larger ticket sizes is likely to increase the pools investing on a broader pan-European or global basis to satisfy allocation criteria, which runs counter to the government’s UK-focused growth ambitions.”

The SPP echoed this, suggesting that forced changes could incur unnecessary costs and could “fundamentally” change partnerships built over the last decade.

Capacity constraints

Capacity constraints also were an issue raised, with the PLSA warning that not all pools, with their current structures, will have the capacity to fully implement their partner funds’ investment strategies.

Given this, it suggested that allowances should be made for those pools that are currently building these capacities. 

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