Response to LGPS investment consultation | November 2023

Local Government Pension Scheme (England and Wales): Next steps on investments consultation response


  1. The response indicates an intention to implement the proposals as set out in the consultation whether the responses were positive, negative or neutral, effectively ‘we hear what you say but…’. 
  2. On pooling, the March 2025 date for transitioning all assets and reporting via the Investment Strategy Statement (ISS) on the pooling status of all assets, together with a preferred model of pooling will appear in revised pooling guidance – so no mandation but rather a comply or explain regime of please pool to avoid spending time and resources publicly saying why you haven’t/don’t intend to
  3. Also, on pooling the desire to see fewer pools of around £50bn has now been expanded to refer to pools of £200bn which has caused a few excited headlines in the industry press. A closer look reveals this to be a medium to long term ambition with no mandation or any mention of guidance setting out how this is to be achieved and all in the context of Government Actuary Department (GAD) estimates of LGPS assets of £950bn by 2040.
  4. The intention for a committee member training policy and reporting regime to be required by revised governance guidance remains unchanged.
  5. Annual report guidance will be revised to require standardised reporting in respect of pooling and benchmarking.
  6. On Levelling Up (LU) the requirement for a plan to invest up to 5% (or more if you want) remains as does the very broad definition of LU. The desire for pools to specialise remains but unfortunately there was no movement on the government’s stance that LGPS funds will only be able to invest in other pools via their own pool. The response can’t seem to agree if this will be achieved via changes to regulations (para 9) or guidance (para 94).
  7. LGPS Funds will be required to consider meeting the government’s ambition to invest 10% of assets in Private Equity (PE), via revised ISS guidance. Interesting they have stuck with the 10% to PE but state that Funds may also wish to invest in other private market vehicles (e.g. private debt) beyond this ambition. The response clarifies that the ambition will not be limited to UK investments.
  8. Regulations will be amended to require Funds to set objectives for Investment Consultants (including independent advisors) and to correct the definition of Investment. The response also encourages LGPS pools to strengthen partnerships with the British Business Bank.
  9. Finally, the Scheme Advisory Board (SAB) will expand the scheme annual report to include progress on pooling. 


1. Some interesting headlines have emerged based on para 28 which refers to pools of £200bn. However, para 27 is more helpful in that it clarifies that ‘there is no intention to take steps to mandate a move to fewer pools in the immediate term’ and that the ‘the focus in the short term should remain on accelerating transition of assets, improving governance and ensuring greater transparency and accountability’.

2. Even para 28 itself recognises that government should ‘look towards a smaller number of pools with assets under management averaging £200 billion in the future and government will work with funds and pools over the medium to long term to consider the pathway.’ Also, it should be noted that the £200bn figure is set in the context of GAD estimating the total value of LGPS assets by 2040 to be £950bn.

1. Revised ISS guidance will say that funds should transfer all assets to their pool by 31 March 2025. Guidance will also set out the ‘comply or explain’ requirements in that LGPS funds should specify which of their assets are pooled, under pool management or not pooled. In respect of those not pooled, LGPS funds should set out the rationale, value for money case and date for review.

2. The government accepts that for certain assets transition will be difficult or undesirable by March 2025 which may include jointly procured passive funds. Nevertheless, it will still expect a statement setting out the rationale and value case for these assets together with a date for review.

1. There will be revised pooling guidance to set a clear direction for all funds to move towards delegation of strategy implementation and manager selection and include a model of pooling which government expects to be adopted over time.

2. However, para 50 commits to that model being based on characteristics and outcomes rather than prescribing particular structures. This para also helpfully includes a statement that guidance will reflect that LGPS funds will remain in control of their pool, and this will be important in ensuring that it delivers the products and services which the funds wish to have, and the financial and non-financial benefits of scale for all.

3. More ominously para 50 also states that progress towards the model will be monitored with ministers taking a role in reviewing change and engaging pools as necessary.

4. Finally, government was not convinced by any of the arguments against pools providing investment advice indicating that this may be included as one of the guidance ‘characteristics.’

1. Revised annual report and governance guidance will require all Funds to publish formal training policies for pension committee members, report on training undertaken, and to align expectations for pension committee members with those for local pension board members.

1. Guidance will require standardised reporting in respect of pooling in the Annual Report and SF3 to include:

  • Consistent reporting of asset allocations into standard defined asset classes.
  • Assets to be split into pooled, under pool management and not pooled 
  • Net savings from investing via an LGPS pool.
  • Commentary on progress toward transition of assets to the pool.
  • Net returns against consistent benchmarks for both pooled and non-pooled assets.

2. The SAB scheme report to include a summary of the above information across E&W.

3. There appears to have been some movement on the definition of passive assets held by funds outside the pool. Para 67 states that where there is oversight of passive assets by the pool then Funds should set out how that oversight is exercised and report those assets held in passive arrangements with pool oversight as under pool management.

1. The response does not reiterate the section in the consultation which referred to the action government may consider if guidance on pooling is not followed.

Other sections

1. No change in the broad definition of LU as set out in the consultation i.e.;

  • makes a measurable contribution to one of the levelling up missions set out in the Levelling Up White Paper (LUWP); and
  • supports any local area within the United Kingdom

However, it is accepted that further clarification in guidance would be helpful.

2. Para 94 states that ISS guidance will be amended to require LGPS funds to publish a plan on how they will invest up to 5% (or more if they wish) of their assets under management (AUM) in projects that support levelling up across the UK. LGPS. However, this is not consistent with para 9 which states that Regulations will be amended for this purpose.

3. Interestingly para 94 also appears to include an indication that government would not have a problem with LU investments achieving lower returns and also sets out investments it considers would not be counted as LU. ‘These investments are generally expected to provide good returns but may include investments with lower returns made under existing guidance on non-financial factors in investment. The government considers that public markets investments in providers such as housebuilders, construction, utilities companies would generally not [be] eligible.’

4. Annual report guidance will be revised to require LGPS funds to report annually on progress against their plan to include both data and narrative.

5. No change in government’s view that investment in LU opportunities by LGPS funds should only be done via their own pool and not directly. 

1. The response sets out the government’s case for a greater exposure to private equity in the LGPS, namely:

  • The LGPS is well funded and has a long-term investment horizon (para 108)
  • A prudent adjustment in LGPS risk appetite could secure higher returns as well as contributing to UK growth (para 109)

2. Para 109 also clarifies that although investment in the UK would be welcome there is no intention to restrict the ambition to UK only investments.

3. The response includes in para 110 government’s view that setting an ambition of 10% does not mandate any investment in this space and that investments should only be made as part of an appropriate and diversified strategy 

4. Revised ISS guidance will require LGPS funds to consider increasing their allocation to private equity with an ambition of 10% of assets invested in this space.

5. The response clarifies that the ambition refers to private equity but recognises that there are broader opportunities in private markets (e.g. private debt) which LGPS funds may wish to access outside of this ambition.

6. The response encourages LGPS pools to develop and strengthen partnerships with the British Business Bank particularly regarding a possible future government-led investment vehicle.

1. Regulations and guidance will be amended to require LGPS funds that use investment consultants to set objectives and review them regularly. With regard to the application of the requirements to pool companies owned by LGPS funds, government considers it to be good practice to set objectives for all investment consultancy providers, including pools, and will set this out in revised guidance. The guidance will also make clear that all providers of investment consultancy services are covered including independent advisers and that such services include advice on investments, investment strategy statements, strategic asset allocation and manager selection.

1. Finally, there will be a technical change to the investment regulations by inserting the word ‘partnership’ at the end of regulation 3(1)(b).

Should you have any questions on our response please contact us.

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