Access has said that “all options are being explored”, while Brunel Pension Partnership is “taking some time to consider next steps”, after the government told the relevant partner funds that the pools do not meet the criteria for continuing independently. The administering authorities must tell the government by September how they intend to proceed.
 
It is unclear if the government will introduce legislation in the upcoming pension schemes bill to force mergers if the pools do not comply.
 
Access, which is currently run through a support unit based in Essex and operator Waystone, has started building a Financial Conduct Authority-registered company for its £52bn in pooled assets as the government set out in the ‘Fit for the future’ consultation from last November. 
   

       

The pool said previously that setting up a new company would cost about half as much as merging. It estimates the costs of a merger at £100m, or 28-36 basis points of active listed assets, based on merger offers from two other pools and analysis from a transition manager – which could end up being borne by scheme members or council taxpayers. Costs would include transition to any new – likely in-house managed – arrangement, such as stamp duty that it is understood the government would not waive, management costs and time out of the market, and would take around two or three years, much longer than the March 2026 deadline. 
 
A pool spokesperson said that “Access notes with concern that the government’s rejection of our proposal attempts to downplay significant cost considerations – without supplying its own analysis or counter-factual evidence – nor proposing a framework for how costs will be compensated in the event of undesirable pool or fund level mergers”, before adding that “all avenues are being explored”.  
 
Brunel, a pool in the South West of England, acts as investment manager of an authorised contractual scheme operated by Tutman but appoints external managers to handle assets and does not have Alternative Investment Fund Manager authorisation, while the government prefers in-house management. It looks after £36bn, including £9.6bn in private markets – a section of capital markets favoured by the government – and is known for its commitment to responsible investment. 
 
Brunel, which some say was a ‘poster child’ for pooling in the early days of the project, said it will “consider next steps” with its partner funds. 
 
“Our growth and success have been built on working with multiple stakeholders, and we will continue to work with the government and our partner funds to ensure the best possible future for our pool, its funds, and their members,” said chief executive Laura Chappell.  
 
Matthew Trebilcock, head of pensions at Gloucestershire Pension Fund, added: “We coordinate very closely to achieve our goals, and it is crucial that any structural changes enable this momentum to continue rather than be delayed.”  
 
The government did not say why the two pools were singled out despite seemingly looking to comply with the proposals.  
 
A government spokesperson said: “This government is determined to drive growth through our Plan for Change, including by taking advantage of scale and consolidation in our pensions system to unlock more investment, leading by example in the public sector. By 2040 the Local Government Pension Scheme is projected to reach £1tn in size – we must ensure the scheme is fit for the future. We have a duty to ensure every penny of members’ hard-earned money is well invested, and that the full scope of benefits the LGPS’s extraordinary scale are being harnessed and maximised.”  

  

The spokesperson added: “We will continue to engage closely with Administering Authorities and pools on how they will meet this ask.”  
 
Not all pools that did not initially meet all the criteria were told to merge. Northern LGPS, a committee-run collaboration between Greater Manchester Pension Fund, Merseyside Pension Fund and West Yorkshire Pension Fund, has had its business plan green-lighted. Its consultation response stated that it does not consider FCA-authorisation “an indispensable requirement” to implement investment strategies effectively, made the case for managing assets in segregated mandates, and raised concerns over the government proposal that pools should be the principal adviser to funds, as well as suggesting the timeline is too short. Northern pointed out its investments in the region its partner funds are based, and mallowstreet understands this played a role in the government’s approval of its plans. 

 

In the case of Access and Brunel, Sam Gervaise-Jones, managing director of client consulting at bfinance, said it was interesting how the government did not provide details on why it decided the two business plans did not meet their objectives, given how much evidence was provided to them. 

 

Sources said a half-hour meeting with one or two ministers was followed by a ‘yes’ or ‘no’ decision. 

 

According to Gervaise-Jones, the government told Access they do not believe it meets the objective for the wider LGPS and the government’s vision for the LGPS. 

“I'm not sure why that should matter for any individual pension fund. They are there to pay pensions, not to sacrifice themselves for the greater good,” he said. 

 

Gervaise-Jones noted that the government’s challenge was that none of the pools offered to do what the government’s consultation said it wants to deliver – further consolidation. In addition, the smallest of the pools – Local Pension Partnership – looks most like the government’s ‘vision’ of a fully in-house managed company that advises on strategy, meaning it was more likely the government would want other pools to join LPP rather than dissolve LPP, while Northern is already in-house managed and invests locally. Some have suggested Northern’s location could have also played a role in political terms. 

 

Access and Brunel may have ended up being the ‘softest targets’. Gervaise-Jones noted that with Access having 11 administering authorities, some pools are not interested in taking all of them on, but that some could decide to “break away” when they respond to the government in September. The response needs to be joint with any receiving pool, according to Gervaise-Jones. 

 

However, “if LGPS funds or pools refuse, it’s not clear what mechanism government has available to enforce the instruction to merge”, he noted. 

 

In September, the funds could theoretically respond to government that they have not been given any compelling evidence, are 60% to launching the FCA-authorised company and by March will be in a position where they meet the objectives. 

 

“I don’t know what happens at that point. I’m not sure the government has necessarily really thought through how committed local government is to doing what they think is right for the employers and members of the pension scheme,” he said.