Barnett Waddingham's Barry McKay and Hymans Robertson's Iain Campbell
Backstop powers allowing government to direct an administering authority to participate in a specific pool represents a “material shift” in the relationship between central and local government, the industry says.
In the final report of the Pensions Investment Review, published yesterday (29 May), the government confirmed the March 2026 deadline for Local Government Pension Scheme (LGPS) asset pooling, with a backstop power set to be taken in the Pension Schemes Bill to protect the interests of LGPS members and local taxpayers where necessary by directing an administering authority to participate in a specific investment pool.
The government, which also published its response to its ‘Fit for the Future' consultation at the same time, also noted that LGPS reforms will see assets currently split over 86 administering authorities and the eight pools consolidated into just six.
It said local investment targets will be agreed with LGPS authorities for the first time – a move it said would secure £27.5bn for local priorities and allow LGPS authorities to work with regional mayors, Welsh Authorities and councils to back the projects that matter most to the 6.7 million public servants whose savings they manage.
Barnett Waddingham head of public sector consulting Barry McKay explained the ramifications of the government announcements yesterday. He said: "LGPS pools will be cut from eight to six, rightly or wrongly suggesting there is no possibility of ACCESS or Brunel being given the opportunity to meet the government's criteria. There's no shift in the 31 March 2026 deadline to transfer all assets to the pool and for the pools to be FCA regulated."
He added: "The pressure is now firmly on, for all funds/pools to meet that deadline and the government is suggesting that there will be only ‘limited flexibility' in timing for those funds looking for a new home or for the pools to take on new funds."
McKay said the new backstop power allowing government to direct an administering authority to participate in a specific pool "represents a material shift" in the relationship between central and local government.
He explained: "In deciding which pool to join, funds will be weighing up many different factors and fiduciary duty will be at the core of their decision-making. Government's preference may be for pool membership to be determined voluntarily, but time is short and many funds have a lot of new committee members and other complexities so it's conceivable that decisions won't be finalised by 31 March 2026. Not only may the Treasury have different views on how to ‘protect the interests of LGPS members and local taxpayers', but the very principle of having the sovereignty to make that decision is really significant for the LGPS. Many will now be asking: what comes next?"
Implementation issues
Hymans Robertson head of LGPS investment Iain Campbell said he was supportive of the government's vision and said its policy direction and desired outcomes for the LGPS were clear.
But he said he remain concerned that some valid implementation issues raised by knowledgeable and experienced members of the LGPS community had been "passed over" – meaning that the implementation carries risks to the success of both the LGPS and the outcomes for the UK.
Campbell said: "Key to these concerns is the deadline of 31 March 2026, which the government has confirmed remains in place. As fed back to government throughout the process, including in a letter from the Scheme Advisory Board on 12 May, this deadline is unnecessarily precipitous and raises the risk of rushed decisions, sub-optimal implementation and increased costs."
Despite this, Campbell said it was "pleasing" to receive some certainty of future direction so that funds and pools can act in confidence.
He said: "Officers and committees should now progress work to meet the new requirements in the best interests of their funds and stakeholders. Pool oversight will be essential in the short-term for funds, as the pools are now set to provide a vast range of services that will be incredibly impactful on returns.
"This will be especially important during the build – ensuring that pools develop this expansive range of new services to a sufficient level, while still delivering on the ‘day job' of managing funds' current assets well. Funds should consider whether the current arrangements need strengthening to reflect the larger role pools will play."
He said plans around local investment will also need to be a priority – noting a defined strategy and policy were essential for funds so that they can achieve their goals and ambitions here.
Campbell noted the ‘Fit for the Future' consultation response also confirmed that the governance proposals will largely proceed as originally outlined in the consultation, with more detail to follow.
He said: "The small tweaks that have been set out suggest that government will be less prescriptive in how administering authorities constitute their pension committees, and pool companies their boards.
"The role of the independent advisor will now be a non-voting role, taking account consultation responses in relation to the requirements of democratic accountability. Whilst the individual will require pensions qualifications and experience these will not be LGPS specific. Biennial governance reviews have become triennial, but there is still much detail outstanding on how they will work in practice."
