Government confirms structural changes across the LGPS

The UK Government has now confirmed a series of reforms to the Local Government Pension Scheme (LGPS) in its response to the “Fit for Future” consultation. These changes represent a significant step in the structural change of LGPS asset pooling and governance.  

While the direction signalled in the original consultation remains largely unchanged, several new details and clarifications have emerged:  

Mandatory Independent Advisors  

All LGPS funds will be required to appoint independent advisors, the move aims to strengthen governance and decision making by ensuring funds benefit from external expertise. 

Fiduciary Management oversight 

A new emphasis has been placed on the importance of Fiduciary Management oversight. This shift creates a new world of Fiduciary Management which will need to be carefully managed. Many practical issues around this still need to be worked through. 

LGPS pools investment advice 

As anticipated, the government have confirmed that the LGPS pools are to be the principal providers of investment advice. External advice can only be used on an “exceptional” basis, reinforcing the role of pools in leading strategic investment decisions. 

March 2026 deadline remains 

The government has retained the challenging March 2026 deadline for full delegation of assets to pools. However, it has indicated that a phased implementation will be acceptable, provided that pools can demonstrate a clear and pragmatic plan for transition. 

Cross-pool investment now permitted  

A significant and welcome change is the permission for pools to invest in other pools. This opens the door for greater specialisation and innovation, allowing pools to develop expert investment strategies that can be accessed by others. 

September 2025 deadline for funds requiring new pool homes 

The requirement for funds that do not currently belong to a pool to find a new home by September 2025 is seen as particularly challenging. The tight timescale will require swift and decisive action from affected funds. 

Governance standards raised gradually  

The government’s proposed improvements in governance standards are seen as positive but gradual. While they enhance existing frameworks, they stop short of delivering transformational change. 

Forced fund mergers  

A new provision allowing for the forced merger of funds is especially notable. This signals a potential future in which consolidation extends beyond investment pooling to broader structural reform of the LGPS. 

Concerns around employers and surpluses remain unaddressed  

Despite feedback, the final response does not address concerns around the needs of employers and the management of surpluses. There is a risk that increased pooling could lead to poorer outcomes for some employers, even as others benefit 

This final report provides clear direction to the underlying funds for the LGPS to move towards operating with increased scale, efficiency and impact.  

By encouraging greater consolidation of assets, the government is guiding the LGPS to better leverage its scale to deliver better outcomes while playing a more active role in driving local and national economic growth. 

Whilst pooling builds scale, efficiency and investment opportunity, the LGPS is made up of nearly 20,000 employers with differing funding levels and circumstances. In order to ensure the best outcomes pools will need to look through their funds to the employers they provide investment returns for, especially with many employers having surplus assets. 

Andrew Singh, Associate Director, Isio commented:  

“Asset pooling in England and Wales has already delivered tangible benefits, including cost savings, and stronger collaboration. These reforms intend to build on that progress, creating a more consistent and robust approach to management across the LGPS. 

Enhancing governance and requiring funds to fully delegate asset management to pools, and working to a challenging deadline to achieve this, will ensure that the LGPS is better positioned to meet future challenges and seize investment opportunities.” 

Pensions AM: Pensions Bill Breakfast Briefing

Watch the recording of our Pension Schemes Bill breakfast briefing – giving the inside track on the next steps sponsors and trustees should consider to optimise their DB and DC schemes following the recent publication of the Bill. Watch here.