Local Government Reorganisation, LGPS changes and devolution

A Rock and a Hard Place

Recently, many Administering Authorities have been inundated with new requirements which will stretch already beleaguered resources to breaking point. The twin causes of this additional pressure are: (i) the impact of the Pension Schemes Bill 2025, as it applies to the Local Government Pension Scheme (“LGPS”) (the “Pensions Bill”); and (ii) the impact of local government reorganisations (“LGR”), with the two often creating overlapping issues to address.

Whilst the Pensions Bill reforms to investments and pooling are the subject of a separate note, many of the changes as a result of devolution will also give rise to practical and legal issues for Administering Authorities, with those authorities which will cease to exist having even more issues to consider.

Contracts

On a basic level, an audit of all contracts between an Administering Authority (which is exiting the LGPS) and its service suppliers will need to be undertaken. This could include, software, actuarial, investment and fund management contracts, and any other advisors used by the authority. Consideration may also need to be given to shareholder agreements and/or pooling documentation in relation to investment pools, as two of the current eight pools will disappear as part of the reforms.

Any review will need to consider the termination provisions in the contract (including any notice requirements), whether any contracts will need to be novated to the new Administering Authority or pool, and what terms (if any) the contracts contain in relation to the transition of the service or investment to new legal entity. Transfer documentation for the movement of assets and liabilities between the new entities will also need to be agreed.

During this process, the audit outcomes should also be included as part of the wider transition management plan to culminate in the creation of a steps plan that is ‘fit for the future’.

Governance

In relation to governance, there are a wide range of issues to consider, these range from the listing of the new authority (if not already listed) as an Administering Authority in the Local Government Pension Scheme Regulations 2013, to a consideration of whether any changes are needed to the constitution of the new authority in relation to operation of the Local Pensions Board or the Pension Committee. In particular, thought will need to be given to whether the authority’s current terms of reference remain appropriate, or whether amendments are required, such as, in relation to the chair’s role and the requirements under the General Code.

The Pensions Bill will impose requirements for independent governance reviews to be conducted over set timescales, as well as having an obligation to have in place an LGPS Officer (with delegated power) who can act independently from any ‘s.151 Officer.’ Many of the “Fit for Future” governance recommendations are expected to come into law as part of subsequent regulations.

All the new authorities’ existing policy documents, strategy papers and any other governing documentation should also be reviewed to ensure they remain fit for purpose when benchmarked against Good Governance requirements and the General Code of practice. This would include the new requirements to have conflicts of interest policies and investment and administration strategies in place.

Training

These changes are going to require the potential involvement of a significant numbers of individuals in a range of new and different roles. Consideration needs to be given to whether there exists an appropriate skills base currently, or whether this will need to be augmented by a structured training programme for new pensions committee members (or potentially a brand-new pension committee altogether), to minimise disruption to the pension fund’s operation and provision of services to members. The Pensions Bill and accompanying regulations, as well as, the Regulator’s code of conduct and governance requirements are other major areas that will require training provision.

Operational Matters

For many pensions funds, protecting the limited pensions resources they have will be important, especially, where they may be under pressure to redeploy staff to other strategic areas as part of any devolution process (and suffer further dilution of pensions knowledge as a result). Ensuring continuity of key personnel will be important and should be part of any transition planning.

Likewise, it will be important to ensure that suitable office space and equipment has factored in advance. An Administering Authority will have specific needs, not normally relevant to wider local authority functions. Authorities will need to consider whether their current office space provision allows for the administration team to sit together, whilst also offering privacy for confidential discussions?

In terms of interactions with Admitted Bodies, it will be important to ensure early engagement and planning to provide that all issues surrounding Admission Agreements, “pass-through” arrangements and security (such as bonds and guarantees) have been understood fully. These considerations should cover the impact of LGR on pension contribution rates, security requirements and any other matters arising from any previous outsourcings or joint ventures.

Undertaking an audit of all matters to ensure that the appropriate documentation is in place may also be useful in light of the new independent governance reviews scheduled under the Pensions Bill.

Aside from the changes directly attributable to LGR, other ongoing matters such as the McCloud remedy implementation, fund valuations and (potential) changes to the Best Value Direction requirements may also impact on the operation and administration of LGPS funds.

Communications 

Any transition plan needs to allow sufficient time for Administering Authorities to communicate with impacted Admission Bodies, especially where a move may result in significant change in the terms of any pass-through arrangement or individual terms which will impact specific Admission Bodies. In addition, many of these changes may need further explanation to members themselves.

Mergers and Models

It is also worth considering that the reservation of powers to the Secretary of State under the Pensions Bill isn’t only confined to mandating investments. The Pensions Bill also grants the Secretary of State power to compel fund mergers in the future. In this context, some Administering Authorities may also consider whether their functions should be separated in the same way as those of the corresponding investment pool by adopting a “Single Purpose Pensions Authority” type model for future administration and governance purposes. It is not impossible to foresee the creation of administration and governance pools alongside investment pools in the coming years.

Given the tsunami of change heading for the LGPS and the stretched resources of many Administering Authorities, we have developed a range of tools to support Administering Authorities with these changes, ranging from simple checklists to bespoke training materials for staff.  We can also assist with legal reviews of contracts and support with policy provision.  Please contact our partners, Joel Eytle and Nigel Bolton, to find out how we can help your organisation.