Trailblazing or tail-chasing? Rethinking LGPS reform

Published: October 8, 2025

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In the first instalment of “Devil’s Den”, our secret columnist makes the case for resisting the Canadian and Australian pension playbook – and preserving the local accountability that defines the scheme

Much has been made of the Chancellor’s desire for the LGPS to be more like the consolidated public pension schemes in Canada and Australia with their large allocations to private markets and infrastructure.

There are so many good things about those schemes that it may seem churlish not to follow the path they have already trod and in many ways, especially regarding using scale to drive down costs, I would not demur from that view. However, in one important aspect, local investment, I would like to propose a different path, not to diminish the successes of those schemes or to play down their relevance but rather to celebrate the uniqueness of the LGPS.

In doing so I will not roll out the fiduciary duty argument or rail against government interference in investment decisions, both of which have their merits, but both equally can be challenged. For the former we can point to the fact that every investment decision is a risk and many, many do underperform; investments (not grants) directed to growth assets are arguably no different. In respect of the latter one could make the case that a statutory pension scheme backed and largely funded by taxpayers may owe at least some small duty to invest in their favour.

No, the case I will make for not completely following the example of Canada and Australia based purely on the “local” part of our scheme’s name.

The LGPS came into being as a means of local authorities providing pensions for their employees, originally via local acts of parliament before moving to a central set of statutory scheme rules (the LGPS regulations) while still retaining its local funds. This in a nutshell is the answer to why there are 86 LGPS funds, where local councils are providing local pensions backed by local taxpayers.

At the heart of this arrangement is local accountability. Local authority members (councillors) are the representatives of – and are accountable to – the same local taxpayers who significantly fund and ultimately guarantee the benefits of the scheme.

This “social contract” has proved to be a solid bedrock for over 100 years for the only funded UK public pension scheme of any scale. Any “reform” which diminishes that accountability by removing decision-making from councillors and places it in the hands of unaccountable “professionals” threatens that social contract and risks losing the local element from the LGPS.

You may well be thinking that this is an esoteric argument based on sentiment and nostalgia which cannot stand in the way of growth and progress. I would respond that growth and progress have always been fundamental parts of the LGPS.

It has continued to grow in both membership and asset base and has seen significant progress in how it invests and the benefits it pays.

But isn’t the government, in the latest reforms, pushing for more local investment from the scheme and therefore shouldn’t I be in favour?

There lies the rub.

Yes, local authorities together with mayors will seek to identify local investment opportunities, but the final decision to invest will be made by the six asset pool companies.

The individuals who make these decisions will not be accountable to scheme members, employers or local taxpayers except arguably via a long, indirect and tortuous shareholder route. There will surely be a temptation, given the resources required for due diligence, to select a small number of large opportunities over myriad smaller more locally focused ones.

Similarly pools may chase higher returns even where this conflicts with the strongly held views of local stakeholders. Such outcomes could undermine the entire exercise in the minds of those with an interest in where the LGPS is invested.

Would it not be better to celebrate the local nature of the scheme by utilising the scale of the pools to provide the necessary due diligence but leaving the final decision on whether or not to go ahead to those closer (and directly accountable) to those who pay for and benefit from those investments?

Just a thought.

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