Local Government Pension Scheme pools will have to be set up as full-scope UK Alternative Investment Fund Managers or as a MiFID investment firm by 30 September 2027, the government has said in its response to a recent consultation on how to implement the ‘Fit for the future’ requirements. Publication of funds' first investment strategy will not be required until 31 March 2027.  

The response about draft LGPS regulations implementing the Pension Schemes Act 2026, published on Thursday, states that the government will now take a different approach to making sure pools are set up as authorised companies, as it “appreciates the concerns raised around the compatibility of this regulation with financial services legislation”.
 
Rather than making pools comply with a list of specific authoritisations they should have, they will need to be set up as full-scope UK AIFMs or MiFID investment firms, but not until the end of September next year.

"It has always been government intent that asset pool companies will ultimately be AIFMs, but it is recognised that the different starting positions of the asset pools means this is not an achievable first step for all pools," the response explains.

A power to direct pools on what they must invest in – which may have also been incompatible with a 2020 Supreme Court judgment – was removed during the passage of the pension schemes bill, but the secretary of state can still tell pools in which “manner” they must invest, including whether to use pooled vehicles rather than segregated mandates or if ministers felt the pool had 'too many' investment funds. It is unclear if such directions will be compatible with FCA authorisations. 

The government is seeking to reassure the sector about this direction power; it now requires that any direction must explain why the secretary of state believes that the asset pool company is failing to comply with guidance, as well as the evidence it relies on.  

There have also been questions around how asset pools will implement the various responsible investment policies of their clients. The regulations refer to “priorities and preferences”, rather than ‘policy’, which some respondents feared could suggest that pools will be allowed to override them. The government has now said that the wording is not intended to imply that funds’ RI views can be overridden by asset pool companies.  

“Guidance will provide additional clarity on how administering authorities and asset pool companies should manage divergence between the responsible investment strategies of their partner funds without undermining the fiduciary duty of funds,” it added.  

It is currently still unclear whether pools will actually put all clients’ RI policies into practice, particularly where these diverge or where funds decide to divest on ethical grounds.  

When it comes to advice coming principally from pools, respondents had raised some concern about the definition of ‘proper advice’ and what would happen if funds did not think the pools had the right capabilities to provide this. 

The government plans to align the definition of ‘proper advice’ with that in s36(6) of The Pensions Act 1995. In guidance, it will state more clearly in which “exceptional circumstances” administering authorities can take advice about their investment strategy from outside their pool.  

Other changes in the consultation response include giving funds more time to transition. The period within which an authority’s assets must be under the management of the pool will be three months instead of three weeks, from a fund first beginning to participate in an asset pool company. 

An exemption from the requirement to only participate in one pool will also last for three months, rather than 28 days, and where participation in the original pool is solely for the purposes of winding up the pool, the exemption is valid until the original pool is wound up. 

Administering authorities meanwhile are given an extra six months to publish their first investment strategy in line with new requirements, as the deadline is being pushed back until 31 March 2027 in the final version of the regulations.