The UK’s Local Government Pension Scheme (LGPS) is facing a fundamental shift, driven by sweeping pension reforms that promise to change the way its funds are structured and managed.
Ortec Finance has recently delved into the LGPS and outlined the five considerations it brings.
As LGPS pools begin assuming more control over partner fund decisions, they must also rise to the growing demand for transparency and accountability. This transition will not happen overnight, so proactive pools would benefit from building flexible reporting systems that can adapt to the evolving requirements across the transition period, it said.
The expansion into a broader range of asset classes, including private assets, also adds complexity to portfolio management. The government’s emphasis on pensions as vehicles for local economic growth means that pools must navigate both investment returns and regional development objectives. This calls for sophisticated Strategic Asset Allocation (SAA) frameworks that can integrate unique local risks and returns across diverse portfolios while maintaining long-term return expectations, it said.
Climate change is another key pressure point. The growing physical risks from climate-related events are already testing portfolio resilience. At the same time, climate risk remains underpriced in many asset classes. Ortec believes it is increasingly clear that LGPS pools will need to embed climate considerations into their broader risk management frameworks. Using quantified climate insights across asset classes and integrating them with traditional risk metrics can provide a more complete view of exposure and resilience.
As more partner funds join a pool, reporting becomes increasingly complex. Each partner fund typically maintains its own unique investment strategy and benchmarks. Current rules requiring pools to report only on individual portfolios may not be sufficient in the future. Adopting scalable performance measurement and attribution frameworks now could significantly reduce complexity and manual effort later.
Meanwhile, LGPS pools must strike a delicate balance between addressing immediate resourcing needs and building long-term, in-house investment capabilities. While some needs can be temporarily met through external providers, pools should also invest in building internal teams that reflect the structure and complexity of their growing responsibilities.
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