The government's proposed reforms to the Local Government Pension Scheme (LGPS) proposed present “significant challenges” to administering authorities (AAs), according to Quantum Advisory.

The financial services consultancy emphasised that more work was needed before proposals on the LGPS framework could move forward.

Last November, the government put forward a package of proposals to reform the structure, investment and governance of the LGPS, followed by an industry-wide consultation, which closed last month.

The review focused on three key areas: asset pooling, governance, and local investment, which aimed to find ways to centralise asset management and delegate investment.

"While the goal of centralising decision-making to improve efficiency is a good one, the potential impact on AAs and scheme members could be significant," Quantum principal, Paul Francis, said.

"There is a real risk that the proposals could weaken AAs’ control, create conflicts of interest with pools providing principal investment advice, and complicate balancing local investment goals with fiduciary duties.”

Quantum emphasised that more clarity was needed to ensure AAs remain accountable and have access to independent advice to make well-rounded decisions that are best for members.

They stressed that independent oversight was crucial to ensuring accountability at both the AA and pool levels; otherwise, the effectiveness of the changes could be compromised.

Quantum senior investment consultant, Stefano Carnevale, claimed that in the coming months, pools will need significant transformation to meet the new requirements, such as gaining FCA authorisation and improving internal investment management and advisory capabilities.

“This process could involve substantial changes to personnel and investment processes," he stated.

“While the UK government’s proposals for LGPS overhaul present a forward-looking vision and could significantly reshape LGPS management, more work is needed before a final framework can be implemented. Ultimately, the framework must be manageable and serve the best interests of scheme members while promoting effective and sustainable governance.”

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