Agenda item

The Head of Pensions Governance and Investments presented a report of the Corporate Director of Finance, the purpose of which was to provide Members with an overview of the changes arising from the Pension Schemes Bill and the draft 2026 LGPS Regulations, with a particular focus on how they will affect the Fund’s investment arrangements and its relationship with Border to Coast.

Teesside Pension Fund had participated in the Border to Coast Pensions Partnership asset pool since 2015, following a government directive to consolidate LGPS investments to achieve economies of scale, strengthen governance, and reduce costs while maintaining performance. The pool currently included ten other authorities.

In November 2024, the government launched the Fit for the Future consultation on further LGPS reforms. The consultation sought to reform the LGPS by enhancing asset pooling, improving governance, and increasing investment in local economies to ensure long-term sustainability. Key goals included tackling fragmentation, achieving economies of scale, and accelerating the transfer of assets to qualified, FCA-regulated pools.

These reforms were being driven through a combination of primary legislation, new and amended Regulations: 

•         The Pension Schemes Bill (expected to gain Royal Assent by April 2026) provided the overarching policy framework, giving Ministers new powers to set standards, issue directions, and require funds to make statutory appointments, and undertake governance reviews.

•         The LGPS (Pooling, Management and Investment of Funds) Regulations 2026 evolved the investment framework. They required each administering authority to participate in a single FCA regulated pool responsible for all investment implementation (including portfolio construction, manager selection, stock selection, rebalancing, and stewardship). Funds retained responsibility for setting investment strategy, including the Strategic Asset Allocation (SAA), but must take strategic advice principally from their pool. The regulations also codify new requirements for the Investment Strategy Statement, including the incorporation of local investment objectives and mandatory publication and consultation standards.

•         The LGPS (Amendment) Regulations 2026 were primarily concerned with governance. They introduced mandatory roles, policies and training requirements designed to increase capability, improve transparency, and ensure effective oversight. Among these measures were the creation of the Senior LGPS Officer, the appointment of an Independent Person, and the requirement for funds to maintain a Governance Strategy, Training Strategy, and Conflicts of Interest Policy. Committee members, Board members and delegated officers must meet statutory knowledge and understanding standards, to be supported by ongoing training and formally assessed.

These changes amounted to the most significant regulatory shift in the LGPS since pooling began, and successful compliance required an aligned governance model and operational partnership with Border to Coast.

The Government had also confirmed that the ACCESS and Brunel pools would close, with their Partner Funds required to identify alternative pooling arrangements. Seven of these administering authorities had indicated their intention to join Border to Coast, subject to due diligence and legal transition, which would significantly expand the size and scale of the partnership. An update on this had been provided separately.

Members were advised that further detail on the roles and responsibilities under the 2026 framework was included in the reports pack but the Head of Pensions Governance and Investments highlighted that the Independent Person would play a new statutory role, offering professional challenge and scrutiny to both the Committee and the Senior LGPS Officer, although in exceptional circumstances more than one person could be employed.  As a non-voting member of the Committee, their remit would extend beyond investment matters, covering the full range of LGPS activities and pool oversight.

The role of Border to Coast was also explained in further detail and they were responsible for all investment implementation, with clear accountability to Partner Funds. It must manage assets in line with the Fund’s strategy, using discretion over manager selection, fund design, portfolio construction, rebalancing, stewardship and hedging. Border to Coast would also provide strategic investment advice, local investment capabilities, legacy asset management, reporting, and support for ISS development. Border to Coast had already begun developing these enhanced capabilities through its 2030 strategy, agreed with shareholders in 2024, to unlock the governance premium associated with holistic scheme management.

Members queried whether there was a potential conflict of interest regarding Border to Coast’s new responsibilities under the 2026 framework and highlighted the need for continuity at Committees. It was confirmed that it was a government proposal that LGPS pools were to be the principal providers of investment advice and the Head of Pensions Governance and Investments advised that the administering authority would look to extend William Bourne’s role for a period of time whilst the transition took place and Border to Coast were in strong position to advise all 18 funds in the pool. The Independent Person would ensure that independent challenge was maintained.

A Member queried whether a review of governance arrangements was needed in light of the upcoming changes and several alternative arrangements were discussed such as a single purpose pension organisation.

The Head of Pensions Governance and Investments advised that specific statutory government guidance remained incomplete and detailed regulations had not yet been finalised which created a current level of uncertainty around the direction in which the Fund was going.

ORDERED that:

1.     The information provided was received and noted.

2.     A report exploring alternative potential governance arrangements was presented at a future meeting.