By Alison Murray, Principal and Senior Consultant and Jeff Houston, Principal and Senior Pensions Consultant at Barnett Waddingham
Following on from Melanie Durrant’s blog on exploring the impact of LGR on the 2025 valuations, here we discuss the key governance implications of devolution and LGR for LGPS funds in affected areas.
What is devolution and LGR?
Although brought together in the Government’s December white paper, devolution and LGR are different.
Devolution - provided for by the Local Democracy, Economic Development and Construction Act 2009 and the Levelling-up and Regeneration Act 2023, it transfers funding and powers from national to local government. Current proposals expand mayoral responsibilities, including oversight of Police and Crime Commissioners (PCCs), Fire and Rescue services, and new strategic authorities, aiming for nationwide coverage with fewer politicians and greater efficiency. Devolution comes with financial incentives through ‘integrated settlements.’
LGR - governed by the Local Government and Public Involvement in Health Act 2007, LGR involves restructuring local government and doesn’t come with additional funding. Current proposals aim to replace two-tier authorities and some unitary councils with new unitary authorities (500,000+ population) to improve efficiency, capacity, and financial resilience.
The white paper also sets out a long-term ambition to “align public service boundaries including job centres, police, probation, fire, health services and Strategic and Local Authorities”. On 5 February 2025, the Minister for Local Government and English Devolution, Jim McMahon invited local authorities in all two-tier areas and small neighbouring unitary authorities to develop proposals for LGR and submit an interim plan.
What could this mean for the LGPS in England?
LGPS funds in England are already under the spotlight, with interest in where LGPS assets are invested; how much employers are paying into funds; and the future of pooling (although we understand that as of the 1 March deadline, none of the eight existing pools proposed to merge). The governance proposals in the Fit for the Future consultation are relatively mild and it’s hard to argue against any of them on common sense grounds, but could this be the calm before the storm?
A new administering authority
If, following LGR/devolution, the existing administering authority ceases to exist, this will mean:
Legislation will be required to ensure the new Administering Authority (AA) is listed in Schedule 1 of the LGPS Regulations and to transfer the functions, assets, and liabilities from the existing to the new AA.
Novation of all third-party contracts, including administration software, external audit, actuarial, investment, and legacy fund management contracts, will be required. Changes will also be needed to shareholder agreements and other governance documents related to pooling.
The new AA’s constitution will need to incorporate the pension committee and local pension board, and arrangements for the delegation of decision-making etc. All the fund’s existing policies, strategies, and other governance documents will need to be reviewed and replaced.
We assume the fund name would remain unchanged, and in some cases, it may be possible to simply change the name of the administering authority on existing fund documents, but that’s likely to be the exception.
Things to consider:
Prepare to develop a training plan – you’re likely to have new committee members and potentially a brand-new pension committee, in which case you’ll need to urgently develop and deliver an effective training plan to minimise disruption to the running of the fund and provision of services to members.
Ensure staffing arrangements - the Section 151 and other senior officers of the new AA may have no pensions experience, so you’ll want to ensure as much continuity of pension officers as possible.
Protect pension resource - you may wish to guard against pensions officers being temporarily redeployed to help implement the new local authority structure, reducing the resource available to the fund.
Ensure suitable office space – the fund may have specific needs, e.g. you may wish to ensure the new office allows the administration team to sit together and offers privacy for confidential discussions.
Enhancing governance during transition
Opportunities associated with a change AA include:
Reviewing the terms of reference for the committee and board to bring these up to date.
Creating a senior LGPS officer role with appropriate delegated authority (and appointing to that role).
Carrying out a root and branch review of the fund’s policies and strategies, updating them to allow for developments such as the new general code of practice and good governance recommendations.
Considering how pension committee appointments are made, to recognise the very different remit of the pension committee compared to other AA committees (within the Local Government Act context).
Introducing requirements for the chair of the pensions committee to align with the Pensions Regulator’s Code of Practice.
A more radical option: Single Purpose Pension Authority
The Fit for the Future consultation suggested Combined Authorities (CAs), Mayoral Combined Authorities (MCAs) and Combined County Authorities (CCAs) could have a role in identifying local investment opportunities. New voices and objectives will inevitably lead to complications, particularly if new CAs cross LGPS fund and/or pool boundaries. And will new mayors want to make the case for control of their local LGPS fund? Fund officers who have worked hard to ensure elected members and senior officers understand the unique nature of the fund within the AA won’t relish starting that process all over again with a new CA or MCA.
It’s not for the faint-hearted, but rather than assuming the new AA should be one of the new unitary authorities or the MCA, is it worth considering an alternative, i.e. creation of a single purpose pensions authority?
Strengthening pension governance amid change
Whilst fund merger appears off the table for now, we’re not convinced it has disappeared altogether. The more funds can demonstrate that their governance model delivers a quality and efficient service for members and employers, the better placed they are likely to be if merger discussions return. So, whilst hard-pressed fund officers may feel key decisions on LGR and devolution aren’t directly pensions-related so are best left to others, you might then miss an opportunity to drive significant governance improvements.
Managing the LGPS is not a core local authority service, but it provides a vital benefit for current and former workers delivering services to local taxpayers. Where LGR/devolution is on the cards care will be needed to ensure the pension fund is not forgotten. Experience tells us that making decisions without considering pension implications can be costly and time-consuming to remedy and we can’t imagine that anyone wants LGR or devolution to negatively impact LGPS members or employers.
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