The government has published guidance for the Local Government Pension Scheme in England and Wales around asset pooling, governance and preparing and maintaining an investment strategy statement. 

The three pieces were published on Monday, with both the pooling and the governance guidance forming statutory guidance. 

The pooling guidance confirms much of what was discussed in parliament when the Pension Schemes Act 2026 was in draft. It states that asset pools must be limited by shares and registered in the UK. Pools need to be authorised by the Financial Conduct Authority. From 30 September 2027, all pools must be authorised as full-scope UK Alternative Investment Fund Managers. 

Perhaps less expected is its warning that administering authorities should consider if they really want to be a shareholder of a pool, as opposed to being just a client, and should only take the first route “if they have appropriate levels of resource, capacity and expertise to adequately fulfil the responsibilities associated with the role”. 

The guidance offers slightly more detail on some of the more contentious areas. For example, it says a pool ultimately decides if an investment is implemented through segregated mandates or collective vehicles, or whether it uses active or passive management, rather than the administering authority.

 
Mandation about the “manner” of investing also remains  part of the guidance. The secretary of state can give directions where they believe that the manner in which a pool invests “risks significant detriment” to one or more participating funds or “the scheme as a whole”. 

This could be, for example, where the minister thinks the pool is investing in a manner that does not prioritise achieving “maximum” benefits of scale, offering more sub-funds than ministers consider necessary, or segregated mandates where ministers feel collective funds would be better. The guidance does not specify what investment analysis or expertise the government would base this on, with the secretary of state’s beliefs apparently sufficient to trigger intervention. However, any affected pool, participating funds and the FCA would need to be consulted, including on whether a direction could put a pool in conflict with the requirements of their FCA authorisation.  

The guidance confirms that “this power may not be used to direct a pool company to invest or not invest in a specific asset or asset class, sector or region”. 

One of the questions that has come up in pooling is around responsible investment, as some local authorities have views on divestment or exclusions that others do not hold, for example. 

The government appears mindful that this is a sensitive area. The guidance states that “where the responsible investment strategies of the participating funds in a pool diverge significantly it may be appropriate to develop a small number of responsible investment options that administering authorities with similar approaches can align to, however it will not be appropriate for pools to establish multiple sub-funds or other vehicles in order to deliver minor differences of emphasis between the responsible investment strategies of different partner funds”.  

What remains vague is the definition of ‘local’, with the guidance talking of the “surrounding areas” of an administering authority and saying that the word ‘local’ really means ‘local or regional’.  

Not all local investments are made equal. The government says its definition of ‘local’ investments excludes listed equities “unless a clear local benefit can be established”, without specifying what this could be and whether local job creation would be sufficient, for example. 

In the government’s view, “typically, the investment sectors with the greatest potential for local investment are housing, regeneration, infrastructure, clean energy, small and medium enterprise finance, and natural capital”.

The LGPS Advisory Board welcomed the guidance and associated changes to the LGPS regulations which take effect from 30 June 2026, but said it recognises that there were different views on pooling.

"However, now that this has been set out in legislation the task before us is to make it work as well as possible. And there is still much of the detail to be fleshed out, particularly around oversight and governance, which the Board intends to support funds and pools in achieving successful outcomes," said SAB chair cllr Roger Phillips and board secretary Clair Alcock.

"The guidance provides the much needed clarity that administering authorities (AAs) have been waiting for to implement this significant package of reforms. In particular, the Board welcomes the continued focus on governance, reflecting many of the principles set out in its 2021 Good Governance recommendations," they said.

The new independent person and senior LGPS officer roles "represent a significant development in governance, and the Board recognises the efforts funds are making to get these roles in place", they added. SAB is exploring creating a dedicated event that would allow stakeholders to share insights and discuss how funds should approach their first Independent Governance Review.

SAB also welcomed the recognition of administration in the governance guidance: "The requirement for administering authorities to maintain an Administration Strategy is a welcome development which recognises the importance of pensions administration in delivering good outcomes for members and employers. The Board looks forward to further guidance to support funds in developing and implementing these strategies."