Background to the reforms
The Government launched the Fit for the Future consultation in November 2024, seeking views on proposals aimed at further consolidating assets, improving governance structures and building on LGPS’s role as a significant local investor. The consultation forms part of the Government’s wider pensions review and is designed to unlock further investment potential through consolidation, enhanced governance and clearer long-term direction.
Regulatory burden and proportionality
Pensions UK’s consultation response considers the requirement for pools to hold the full suite of Financial Conduct Authority (FCA) permissions as ‘disproportionate’, as it would potentially increase compliance costs without clear benefits. Instead, it recommends letting the regulator determine which permissions are genuinely necessary, rather than imposing a blanket requirement, to offer a balance of regulatory oversight and operational efficiency.
The response also raises concerns about new powers that would allow the Secretary of State to direct administering authorities into a particular pool. Pensions UK argues that such powers risk undermining local accountability and fiduciary responsibility. It urges that any use of these powers should take place in consultation with the relevant authority and should not override existing shareholder agreements. The strength of the LGPS, it argues, lies in its local governance model and deep understanding of member needs.
Practical timelines and implementation challenges
Pensions UK also highlights concerns around certain implementation deadlines, including requirements for administering authorities to publish their investment strategy statements and complete asset transitions within prescribed timeframes. It suggests that greater flexibility may be required to reflect operational, legal and market constraints, particularly where asset transitions are complex or dependent on external factors.
Investment advice and governance structures
The response emphasises the importance of maintaining access to independent investment advice. While recognising the role of asset pools, it argues that administering authorities should retain the ability to obtain independent advice to safeguard fiduciary duty and ensure balanced decision-making. Pensions UK also expresses concern that new regulations may expand the role of asset pools beyond their original remit. It recommends clarifying that pools should focus on advising on strategic allocation and implementation, rather than assuming broader governance responsibilities.
The introduction of new governance roles, including a Senior LGPS Officer and an Independent Person, is broadly supported. However, the response calls for flexibility in how these roles are implemented, particularly for smaller funds and single-purpose authorities. Clear guidance on responsibilities will be essential to avoid duplication or confusion.
Knowledge, training and oversight
Extending formal knowledge requirements to committee members is seen as a positive step, provided implementation remains both practical and proportionate. Pensions UK supports refreshed training frameworks and the introduction of enforcement measures where necessary to promote compliance and effectiveness. On independent governance reviews, Pensions UK questions whether these represent the most cost-effective mechanism for oversight. It suggests that existing local pension boards may be better placed to fulfil this function and encourages authorities to publish action plans in response to review findings to maintain public confidence.
A call for workable reform
Commenting on the response, Maria Espadinha, Policy Lead for LGPS at Pensions UK, said,
We support the drive for increased scale, stronger governance and accountability across the LGPS, but it is crucial that new regulations are proportionate, workable in practice, and do not undermine fiduciary duty or local decision-making. Our members have identified a number of operational, legal and practical challenges that must be addressed if the reforms are to deliver their intended benefits for scheme members. The LGPS is one of the largest and most successful funded pension schemes in the world. Its strength lies in local accountability and deep understanding of members’ needs. Any regulatory changes must enhance, not erode, these foundations.”
What happens next
Following consideration of consultation responses, the Government intends to finalise draft regulations before laying them in Parliament. Subject to the progress of the Pension Schemes Bill, the regulations are expected to come into force on 1 April 2026, accompanied by draft guidance notes.
Luke Carter, Regulatory Consultant at Equiniti said,
The direction of travel towards greater scale and stronger governance in the LGPS is clear. The challenge now lies in ensuring regulatory change is implemented in a way that supports effective administration, preserves fiduciary responsibility and remains workable for funds of different sizes. Practical clarity and robust governance frameworks will be critical as we move towards Royal Assent.”
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