Examining the role of the LGPS in growing affordable housing
Pensions
Councils in England and Wales have an opportunity to use their pension surplus to free up much-needed funding for housing. However, with a 2026 deadline for changes to contributions, the time to act is now, as Steve Simkins, Partner at Isio, explains.
The Local Government Pension Scheme (LGPS) has £392bn of assets and is running at a significant surplus (£87bn as at 31 March 2025). A new report from Localis, in association with Isio and Local Partnerships, suggests that the scale of the surplus means councils’ pension contributions could be reduced without impacting members, freeing up funds for affordable and social housing.
Among the key recommendations in the ‘New Stable’ report are:
- Strategic use of pension surpluses with local authority employers mandated to allocate a proportion of savings from reduced contributions towards housing budgets.
- Reclassifying social housing as national infrastructure to unlock more capital funding and align it with other priority investments.
- Statutory local growth plans that outline housing investment opportunities and align with LGPS local investment strategies.
- A possible extension of the LGPS pooling deadline to 2027 with clear guidance on linking investments to national missions and emphasising social returns.
A holistic approach to local government
These recommendations recognise the potential for the LGPS to be more integrated into the wider local government ecosystem in which social and affordable housing play a crucial part. They encourage integrated approaches and solutions to both LGPS investment and funding to be found at a time when local government has significant funding challenges and needs to make the best use of available resources.
The government is exploring innovative and creative solutions that ensure local government funding is used to create maximum value. This approach does exactly that, meeting the objectives of the Office for Value for Money. Councils are also likely to want their pension funds to be a force for good. Increased investment in and funding for housing delivers on that ambition. It creates jobs, combats the social issues associated with poor housing and helps build communities. The societal and economic benefits go hand in hand, making it a true win-win.
Ensuring the system enables success
Success will require bold thinking and changes to existing guidance and regulation.
Reclassifying social housing as significant national infrastructure will be key to this. This would bring social housing under the remit of the National Infrastructure and Service Transformation Authority (NISTA) and the government’s 10-year infrastructure strategy and potentially extend the mandate of the National Wealth Fund (NWF) to include it.
Statutory local growth plans and spatial development strategies will need sufficient support and resources to make the most of housing investment opportunities. Collaboration between strategic authorities, housing associations, and regional Homes England teams will also be essential.
With these and other measures outlined in the report in place, councils will be empowered to redirect funding from pensions to housing and access LGPS investments in housing more easily.
The time to act is now
At Isio, we have explored the possibilities and practicalities of reduced employer contributions to the LGPS for several years.
We are confident that opportunities exist, but the 1 April 2026 deadline for changes to contributions means that councils must start exploring their options now. Wait until autumn, and time may run out.
Innovation and a commitment to delivering better outcomes for society are core to our values. We were delighted to co-sponsor this research and believe that Localis has provided a roadmap for change that is strengthened by its holistic approach.
The scenario of some council revenue savings being directed to removing barriers to housing development, at the same time as the LGPS becomes more adept at local investment, presents a panacea which can benefit our society as a whole.
Next steps
Isio’s expert Public Services team is exploring ways to work with co-sponsors, Local Partnerships, to support a council in a pilot project. We’d welcome the opportunity to talk to councils who would like to learn more and discover how they can embrace this exceptional opportunity.
Read the full report here or get in touch with Steve directly.
Research
Expanding and reforming the role of the Local Government Pension Scheme in driving affordable housing
In 2025, in spite of a challenging global environment and greatly restricted public purse, there is a national opportunity for investing in growth, hinging on effective utilisation of the large surplus held in the Local Government Pension Scheme (LGPS). This report, produced by think tank, Localis, in collaboration with Isio and Local Partnerships, puts forward the case that, by creating appropriate investment vehicles and funding principles, and providing clear government incentives and support, the LGPS can become a significant source of patient capital for addressing the UK’s chronic under-investment in genuinely affordable and social housing, ultimately contributing to both social prosperity and national economic growth.
Download the report
Steve Simkins
