Agenda item

The purpose of this report is to update the committee on the outcome of the Government’s Fit for the Future consultation.

Sawan Shah (Head of Finance, Brent Council) introduced a report from the Corporate Director Finance & Resources, outlining the outcome of the Government’s Fit for the Future consultation.

The Board was advised that in July 2024, the Chancellor had launched the UK Pensions Investment Review, which included proposals to improve the scale and efficiency of the UK’s defined contribution (DC) pension schemes and the LGPS. In November 2024, the Government had published its Fit for the Future consultation which included proposals in three key areas of the LGPS, namely to reform asset pooling, boosting investment in local areas of the UK, and strengthening the governance of administering authorities and LGPS pools.  Following this, the Government had published its final report on the UK Pensions Investment Review and its response to the Fit for the Future consultation and confirmed the decision to move ahead with the core proposals, setting out the final policy measures on pooling, local investment and fund governance.

In terms of the key areas highlighted for the Sub Committee the Board were advised these had related to:

·            The implementation of pooling arrangements, with the London CIV having been confirmed as the designated pooling entity for the 32 London boroughs.  All pools had been required to submit transition plans to demonstrate how the proposed minimum standards could be met. Of the 8 regional pools originally identified, only 6 pool plans had been accepted with the government having concluded that proposals from the ACCESS and Brunel pools did not align with its vision for the future of the LGPS.  It was confirmed that this would not impact on the London CIV.

Funds would continue to set their individual investment strategy, with implementation being delegated to their respective pools. To facilitate this, members were advised pools would be required to develop in-house investment management and advisory capabilities, with a view to establishing themselves as investment managers (and therefore be authorised and regulated by the FCA).  Despite opposition to the proposals, it had been agreed that pools would therefore be mandated to provide partner funds with principal advice on their investment strategies and whilst Fund’s would be able to procure advice from other sources, it was expected this would only be under exceptional circumstances.  Whilst the Government had originally proposed that all listed assets should be transferred to pooled vehicles by March 2026, with remaining legacy illiquid assets included, this had now been relaxed with the Government having stated that not all assets would need to be invested through a pool’s own funds (reflecting concern that it would not always make financial sense to transfer passive assets into a pool) but with the preference and default position remaining investment through a pool’s own funds.

·            The Government had also taken the opportunity to reiterate its encouragement for the LGPS to increase its investment exposure in the UK, with particular focus on exploring local investment opportunities covering areas which were broadly regional to the pool and its partner funds.  For the Brent Pension Fund, this would cover investments in the Greater London area.

Under these proposals, funds would be required to set a target allocation for local investment, outlined within their investment strategy. No statutory minimum had been prescribed for capital allocation; however, funds would be required to work with local authorities and regional stakeholders to ensure collaboration with local growth plans and prioritise opportunities which had the greatest impact. No specific targets for this local investment had been mandated by the government, meaning that funds could set the figure according to their needs, which would then be implemented through the pool. London CIV were stated to be working closely in order to scale up capacity to accommodate these new procedures, with officers expecting this to fall beyond the 12–18-month timeframe.

·            The main governance proposals being taken forward based on recommendations following the Good Governance project, undertaken by the Scheme Advisory Board (SAB). These included the requirement for partner funds to publish a governance and training strategy (replacing the governance compliance statement), outlining how knowledge requirements of members and officers would be met and also including a conflict-of-interest policy.  There would also be a need to appoint a Senior LGPS Officer who would hold overall responsibility for the management and administration of the fund, including the provision of advice to the Pension Fund Sub Committee and Pension Board and ensuring compliance with all statutory and regulatory obligations.  The proposals also included the need for pension committees to appoint an independent adviser, as a key driver of strengthening improvements in governance.

The Sub Committee had noted the requirement this would place on committee members, the senior LGPS officer, and officers to have the appropriate level of knowledge and understanding of their roles, with requirements for pension committee members and local pension board members aligned and guidance for non-compliance also to be issued.  These changes would be supported by an independent review of governance arrangements every three years, with the aim of providing assurance that governance recommendations were being met aligned with the triennial valuation cycle.

Having thanked Sawan Shah for the update, the Chair invited comments from the Board, with the issues raised summarised below:

·            In response to further details being sought on the reasons for the ACCESS and Brunel Regional Pools having been unsuccessful in their acceptance under the new LGPS pooling new arrangements, officers advised that limited feedback was available on the basis of the decision by the government with the concerns expressed by the Sub Committee at the apparent lack of transparency given the impact on those Funds directly impacted shared by the Board.

·            Following on from this, members asked if the Brent Pension Fund would now be reliant on LCIV for investment advice. In response, the Board was advised this had been expressed as a concern by Funds in response to the consultation given the potential conflict of interest that may arise from such an arrangement.  In response, the Government had now provided an opt-out enabling Funds to commission external advice in certain scenarios.

·            Seeking further assurance, members of the Board sought details on any potential areas of concern arising from the proposals.  In response, the key issue highlighted remained the capacity of the bodies providing the pooling arrangements to take on board the changes along with the timescale for delivery. It was noted that a positive factor remained that the pools had been clear with the Government that changes could not happen within 12 months given the need to develop and build the additional capacity and advisory capabilities that would be required. Whilst some already provided mechanisms for local investment, the changes would require more specific targets, and due diligence checks to help manage them. This aspect alone was seen to be a big undertaking, with the main challenge noted to be the shift from investment activity at the local Fund level to implementation at the pool level.

·            Assurance was also sought by the Board regarding Brent’s preparedness for the upcoming transition.  In response, the Board was advised that Brent was in a positive position to implement the changes, given the level of assets already investment through pooled arrangements with the London CIV and the transition plan already subject to development with LCIV. An Investment Management Agreement (IMA) was being coordinated, with Brent cashflow being positive and an external audit provided by Grant Thornton progressing well.

With no further comments raised and in noting the report had been subject to detailed review at the Brent Pension Fund Sub Committee on 24 June 2025, the Board RESOLVED to note the report and ongoing need to ensure progress in relation to the transition arrangements were kept under review.