PwC comments on UK Government pension reforms

Commenting on LGPS pooling, Gareth Henty, head of pensions, PwC UK, said:

“The government’s proposed new mandate for LGPS pooling marks a stark shift from the original approach with all LGPS assets now to be pooled into FCA-authorised investment companies managed by professionals. This could potentially reduce local authorities' control over investment decisions. When pooling was first introduced in 2015, local councils were encouraged, but not required, to partner with others, and this has had mixed results.  Whilst undoubtedly the existing pools have been a success only 40% of LGPS assets are currently pooled. 

“For this strategy to be effective, non-pooled assets would likely need to be reallocated, potentially from overseas holdings to investments that benefit the UK economy. Questions remain, however, about how smaller pools will integrate into larger, established pools, a number of which are already FCA-authorised and exceed £25 billion in assets.

“Additionally, there have been discussions about LGPS funds setting targets for ‘UK investment.’ It remains unclear how this would operate in a fully pooled framework, as these consolidated funds may not align with specific regional priorities. With mandatory pooling on the horizon, the evolution of LGPS investments will require careful consideration to balance local interests with national objectives. With the right support and collaboration, there could be win-win situations here – however, having clarity from next year’s pensions bill will be critical.”

Mark Jennings, Head of Employer Covenant & Restructuring, PwC UK added:

“The Chancellor’s plans mark the next step in the journey for asset pooling for Local Government Pension Funds and there is clear logic in how this can be most effectively used to help stimulate the UK economy. As always though, the devil is in the detail around the timing and quantum of the mandates that will sit with these Funds.   

“The Funds’ assets are there to protect members’ benefits and despite challenges around the covenant support for these Funds (as some local councils who underpin the benefits have faced some well documented challenges of their own), they have seen increasing funding levels, partly due to their investment performance.

“So, there are issues to unpick here, and whilst UK economic growth is a common goal, how quickly this can be implemented and then investment diverted to major UK projects will determine how quickly this ultimately leads to the desired economic growth.” 

Commenting on Government proposals to consolidate defined contribution pension schemes, Roshni Patel, head of DC pensions and benefits at PwC UK, said:

“The consolidation of DC funds would see a concentration of fewer, larger pools without changing the nature of individual pot ownership. This could improve investment resilience and returns, but the UK may need additional incentives to draw investors back to domestic markets.

“Market volatility since the pandemic has exposed limitations among smaller, less agile DC providers, while larger ones—with assets often exceeding £25 billion—are better positioned but still face competitive pressure from global markets.

“In addition, the new Value for Money framework will play a key role in determining the future of underperforming schemes, coupled with additional legislation to allow the easy transfer of funds. Ultimately, members could still make individual investment choices, meaning there is no guarantee they would favour UK investments without added incentives. 

“If the aim is to encourage longer-term, domestic investment, Collective Defined Contribution (CDC) schemes may offer a better pathway. CDC structures, which pool investments, could support sustained UK investments while providing greater income stability to members. Decumulation-only CDC vehicles may also fill a gap in the current retirement market, allowing pensioners to purchase variable-income style annuities.”

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