Our response to the LGPS Fit for the Future consultation

The Local Government Pension Scheme (LGPS) is at a critical juncture, with the Government’s 'Fit for the Future' consultation bringing potentially seismic changes to operations and governance. Drawing on our significant experience advising LGPS funds, we have provided key recommendations to strengthen the proposals in investment pooling, local investments, and governance standards, changes we believe are critical to ensuring the Scheme delivers long-term value for members and employers.

The LGPS plays a vital role in supporting public sector employees across the UK. At BW, we are committed to driving meaningful improvements in its operation and governance. That’s why we have contributed to the Fit for the Future consultation.

The ambition of the consultation to streamline and enhance LGPS operations aligns with our own goals of fostering efficiency, accountability, and long-term value for members and employers. However, as we outlined in our response, we believe that there are a number of areas that need to be addressed in how the proposed changes are implemented across investment pooling, governance and local investments.

Strengthening pooling arrangements

We support the consultation’s aim to set minimum standards for pooling. However, the proposed significant limitations on independent investment advice coupled with  the restricted ability of Funds to select their providers increase the likelihood of poorer outcomes for Funds and their members.

In our view:

• Funds should retain access to independent advice for oversight and evaluation of pool-provided recommendations.
• Greater flexibility is needed for funds to express preferences around responsible investment and asset allocation.
• Additionally, introducing a specific regulatory framework for LGPS pools could help address existing gaps in governance and oversight.

Championing local investments

We are encouraged by the emphasis on local investments but recognise the complexities in defining and executing these. To maximise their impact, we recommend:

• Establishing clear objectives and minimum allocation targets for local investments.
• Enhancing collaboration between funds and local authorities to align with regional growth strategies.
• Introducing independent oversight mechanisms to ensure trust in local investment processes.

Elevating governance standards

Robust governance underpins the success of any reform. We fully support proposals to enhance knowledge, training, and conflict-of-interest policies within the LGPS framework. Our suggestions include:

• Appointing independent experts as voting members on pension committees.
• Providing clear guidance on committee membership continuity and training requirements.
• Ensuring that biennial governance reviews include a clear process in relation to sub-optimal outcomes.

Looking ahead

While the Government's proposals set a foundation, we believe that refining these areas will be crucial to achieving a sustainable and modern LGPS.

Our complete response is available as a downloadable resource below, detailing our thoughts on the consultation’s other key themes, including responsible investment and strategic asset allocation.

We remain committed to supporting the evolution of the LGPS and welcome further discussions on how to best serve its stakeholders.