Controlling around £392 billion in assets for 6.7 million members across England and Wales, the Local Government Pension Scheme (“LGPS”) represents the UK’s largest pension collective and continues to grow rapidly.
Government projections suggest assets could reach around £1 trillion by 2040.
But this scale of growth raises important questions.
Do Administering Authorities and their asset pools have the resources and processes to manage this expansion? Can they diversify effectively to meet future liabilities?
The recent Fit for the Future consultation sought to address these issues. The resulting legislation is set to reshape LGPS investing by:
- increasing long‑term investment in productive UK assets, including less liquid and more complex private market investments
- driving efficiency through the consolidation of pension pools
- moving LGPS assets into funds offered by those pools
- improving governance and reporting standards
Increasing local investment
Assuming the LGPS controls around £550 billion in assets by 2030, a 5% local allocation would represent more than £27 billion directed towards UK‑based projects. Even a modest shift of 1% would release over £5 billion of capital. The scale alone helps explain why the government is keen to encourage greater domestic investment, as reflected in the Mansion House Accord.
However, this remains a sensitive area. LGPS funds have a clear fiduciary duty to their members, not to government policy objectives. Authorities are understandably cautious about any suggestion that pension assets could be steered towards political priorities.
What can be said with confidence is that the potential investment universe is broad. Local allocations could include areas such as housing, regeneration, natural capital, energy systems, digital infrastructure, and transport, provided they meet the same standards of due diligence, risk assessment, and return expectations as any other institutional investment.
The government has reaffirmed that the LGPS fiduciary objective remains unchanged. Any local allocation must satisfy appropriate risk and return criteria and align with the fund’s long‑term investment strategy. The intention is not to push funds into unsuitable or underperforming assets, but to broaden the opportunity set where appropriate.
Consolidating LGPS pools and asset transition
The eight LGPS investment pools are due to be consolidated into six by March 2026. As part of this process, the Brunel and ACCESS pools will be wound down over time, and Authorities are beginning to transition to their new pooling arrangements.
The remaining pools will now need to consider a wider range of strategies and investment funds for Administering Authorities to invest in. From now, LGPS funds must begin transitioning their investments into these vehicles where an equivalent mandate already exists. Pools will also need to consider developing new solutions to meet the requirements of their member funds.
For example, if an Authority currently holds a global equities mandate with a third‑party provider, it will be required to transfer that investment to the equivalent fund managed or offered by its designated pool.
This transition will not happen overnight. In practice, many private market investments will need to run to maturity rather than transition to another strategy or offering.
Improving governance and reporting standards
Appointing an Independent Person will become a requirement, providing an impartial and experienced perspective on pool performance and ensuring each Authority’s governance and administration strategy is robust.
ESG and TCFD reporting
Climate reporting, renewable capacity, stewardship and ethical governance will remain the responsibility of each Authority. This means authorities will still need to allocate resources to monitor ethical investment policies, Task Force on Climate-related Financial Disclosures (“TCFD”) reporting, and other benchmarking requirements.
Success will require technical expertise, disciplined execution, and close collaboration
Many Authorities do not yet have the technology or operational infrastructure to manage change on this scale. Traditional administrators and custodians have historically focused on listed assets, with private markets often added later as a secondary service.
This is where experienced providers can add real value. They can support Administering Authorities and their investment pools in:
- developing robust governance frameworks
- providing middle‑office management
- delivering faster and more accurate portfolio reporting
- supporting Environmental, Social, Governance (“ESG”) benchmarking and TCFD reporting
Get this right, and 2026 could be a transformative year for the UK’s largest pension pot.
