Pensions UK has urged policymakers to build on the local government pension scheme (LGPS) existing strengths rather than pursue wholesale redesign, arguing that recent reforms are already strengthening the scheme’s governance, scale and investment capabilities.
The sector has recently undergone a major reshuffle after the government rejected proposals from the ACCESS and Brunel Pension Partnership investment pools to meet the minimum pooling standards under the Fit for the Future reforms. This resulted in 21 pension funds moving to the remaining six pools.
Pensions UK’s report – Local Government Pension Scheme: Supporting local workers, delivering local growth – argues that the current reforms are strengthening governance, building larger pools of capital, reducing costs and developing new ways of working to support greater local and UK investment where this is consistent with fiduciary duties.
The association described the LGPS as a “British success story”, providing secure retirement income for more than 7.6 million members, while operating in an efficient, effective and financially sustainable way.
The scheme’s financial position has also strengthened, with average funding levels across England and Wales rising from 105% in 2022 to 122% in 2025. Some 79 of the 86 funds were at least fully funded, while average employer contribution rates fell by 22% between 2022 and 2025.
The report said LGPS long-term investment returns had consistently exceeded inflation, averaging around 7% a year over the past decade and around 8% over longer periods.
It also highlighted the scheme’s contribution to the UK economy, with £68.6bn of LGPS assets in England and Wales – around 17% of total assets – invested domestically in UK business, infrastructure, housing and regional growth.
Pensions UK pointed to the savings generated through consolidation as further evidence of the benefits of the existing model. It said LGPS pooling had delivered £1.17bn in net savings since 2015, while national procurement frameworks had generated more than £200m in savings since 2012.
However, the fund is operating amid continuing reform, heightened expectations, and ongoing discussion about the scheme’s purpose, fundamental structure and performance.
Sovereign wealth fund
Recent public commentary from populist political party Reform UK, suggesting that the LGPS could be replaced by, or repurposed as, a sovereign wealth fund, overlooks both its legal purpose and the model’s existing strengths, according to Pensions UK.
The association said sovereign wealth funds are typically designed to manage state assets or pursue fiscal and strategic objectives. In contrast, the LGPS is a funded pension scheme that exists solely to provide the benefits it has promised to its members.
It added that while the objectives associated with sovereign wealth funds are legitimate, the LGPS already contributes to them through strong member outcomes, high performance and substantial investment in the UK.
Reform UK has also suggested closing the LGPS to new members, and new council employers joining a new defined contribution scheme instead, cutting employer contributions to about 10% to save councils “millions and millions of pounds every single year”.
Pensions UK warned that closing access to LGPS would worsen the retirement adequacy challenge, particularly given that the scheme serves large numbers of workers on relatively modest earnings. It said that moving new local government workers into less secure pension arrangements would risk lower retirement incomes for future cohorts and would exacerbate the adequacy crisis highlighted by the Pensions Commission.
It also argued that closing the scheme to new entrants would gradually shorten its investment horizon, potentially reducing its ability to take the long-term investment risk required to invest in productive assets, infrastructure and local growth.
Local economy
The report also called for action to unlock further LGPS investment in the UK, including the development of stronger investable pipelines, risk-sharing mechanisms and fiscal incentives.
Pensions UK said public-sector classification rules could also constrain funds from investing alongside public financial institutions such as the National Wealth Fund and British Business Bank, even where investments were made on commercial terms.
The report pointed to existing examples of LGPS investment supporting local economic growth. These include a £70m commitment from Border to Coast Pensions Partnership to fund 139 new homes at Springstead Village in Cambridge, as well as plans by Northern LGPS and Local Pensions Partnership Investments (LPPI) to invest a further £1bn in UK rental housing.
Pensions UK said the priority should, therefore, be to implement the current reforms effectively rather than fundamentally redesign the scheme.
It said: “The LGPS is already delivering secure pensions, value for employers and taxpayers, and significant investment in UK growth. Policymakers should focus on implementing current reforms well, strengthening investable pipelines and removing barriers that constrain long-term pension capital.”
