As the Pension Schemes Bill continues to progress through Parliament, paving the way for significant reforms to the pensions industry in the UK, we look at the impact on public sector pension schemes and the Local Government Pension Scheme (LGPS) in particular.

Introduction

The Pension Schemes Bill (the “Bill”) was first introduced into Parliament on 5 June 2025, and has subsequently progressed through seven sittings including the public bill committee, report stage and third reading in the House of Commons, and amendments via the committee stage in the House of Lords. The Bill is generally intended to modernise the UK pensions system with a particular focus on larger, more efficient pension funds and utilising pension schemes to drive economic growth.

Overview of the Pension Schemes Bill

The Bill’s main provisions are divided into five parts on defined benefit pension schemes, defined contribution pension schemes, superfunds, miscellaneous provisions and general provisions. The key provisions either amend existing rules, or provide for future regulations, to:

  • Reform investment provisions in the Local Government Pension Scheme (LGPS) including an enactment for a “backstop” power which requires administering authorities to participate in a regional asset pool;
  • Return surplus in DB schemes to employers through a relaxation of the current statutory rules;
  • Develop a common framework for assessing value for money in trust-based and FCA-regulated DC schemes;
  • Encourage consolidation of small, dormant pension posts using multiple default consolidators;
  • Facilitate consolidation of DC schemes through requirements for most multi-employer schemes to operate default arrangements with at least £25 billion of assets;
  • Impose new duties on DC trustees and FCA-regulated providers to offer default decumulation;
  • Allow trustees of occupational pension schemes to recover overpaid pensions following a Pensions Ombudsman determination without requiring a court order;
  • Introduce a legislative framework for the authorisation of DB superfunds, including mechanisms for transfers in;
  • Provide for the provision of information about payments from the Pensions Protection Fund and the Financial Assistance Scheme, and other technical legislative changes relating to the schemes; and
  • Implement the proposed remedy for the issues arising following the 2024 Court of Appeal decision in Virgin Media Ltd v NTL Pension Trustees II (the Virgin Media Case).

LGPS – Key Provisions

Whilst the majority of the Bill focuses on reform to private sector pension schemes, there are a number of areas which will reform public sector schemes, and the LGPS in particular, including the LGPS Scotland (LGPS(S)).

Chapter 1 of Part 1 of the Bill focuses on the LGPS, which, as a reminder, is a funded scheme unlike the majority of other public sector pension schemes. As such, the LGPS holds and invests assets with the intention of being sufficiently solvent to cover the costs of benefits payable under the scheme. Since 2015, the 86 administering authorities in England and Wales have managed investments through eight LGPS asset pools, which have varied approaches and levels of engagement across the different arrangements. Similarly, 11 administering authorities administer the LGPS(S) although there are no asset pools in Scotland.

The focus of the provisions under this chapter of the bill is in respect of these investments, and in particular, asset pooling across the administering authorities, allowing the government to set rules about asset pool companies and administering authorities interactions with these companies. The key clauses are:

  • Clause 1 (Asset Pool Companies) provides for significant powers for the government to issue directions to asset pool companies requiring compliance with statutory guidance, including for authorities to join or leave asset pools, or direct their investment management activities, with the intention of applying certain “necessary” standards for the operation of asset pools.
  • Clause 2 (Asset Management) requires that scheme managers cooperate with certain strategic local authorities to identify and develop appropriate investment opportunities.
  • Clause 5 (Scheme Manager Governance Reviews) introduces governance reviews for scheme managers, with the aim of improving governance in administering authorities and asset pools.

Following amendments made during the committee stage in September, certain clauses contained in Chapter 1 of Part 1 now extend to the LGPS Scotland, following exchanges between the Scottish Ministers and the UK Government. Specifically, clauses 1, 2, 4 and 7 have been broadened to include reference to the Scottish Ministers through broader references to “responsible authority” rather than to “Secretary of State” and delete specific reference to England and Wales.

Compliance with Fiduciary Duties

On 9 February 2026, certain ministers wrote to Members of the House of Lords to clarify the government’s intentions with the LGPS, following industry feedback and concerns. The letter acknowledged that the LGPS was undergoing a “period of significant change as a result of [our] reforms” and the associated costs and work required, but noted it was essential to ensure that the LGPS was fit for the future. The letter reiterated that the significant powers proposed under clause 1 of the Bill are intended as backstop powers only, i.e. that the powers are only intended to be used in “extreme circumstances”.

In terms of the power to direct investment management activities of an asset pool, the letter confirmed that the power may only be used where the Secretary of State is satisfied that the asset pool is managing funds or assets in a way which is detrimental to i) one or all of its partner funds, ii) their members, iii) their employers, or iv) the scheme as a whole. The letter specifically states that this is to ensure that the power cannot be used for political purposes, but only in the Secretary of State’s role as steward of the scheme.

The letter provides further explanation in respect of the move to six asset pools, and clarification regarding the direction of investments i.e. that the government cannot mandate investment, and regulations will set required areas of investment e.g. ESG, local investment, but not specific investments themselves.

Next Steps

The next stage in the process for the Pension Schemes Bill is the report stage, a further chance for the House of Lords to scrutinise elements of the Bill and make further amendments, which is scheduled to begin on 16 March. Indications from the Department of Work and Pensions suggest that the Bill is likely to receive Royal Assent in early 2026, however no dates have been confirmed as yet.

If you would like to discuss anything raised in this blog in more detail, please get in touch with a member of the pension team or your usual Brodies contact.

Contributors

Juliet Bayne

Partner

Ellie McWilliams

Senior Solicitor