LGPS reforms: Statutory Guidance for administering authorities in relation to Investment Strategy Statements

On 29 June 2026, the Ministry for Housing, Communities & Local Government (MHCLG) published three statutory guidance documents to support LGPS administering authorities in meeting their changing obligations in relation to fund governance, asset pooling, and investment strategy statements. 

In this first in our three part series of articles on the new statutory guidance documents, we focus on the new guidance for administering authorities on preparing and maintaining their investment strategy statement (ISS).

As a reminder, the ISS Guidance is intended to operate alongside the Local Government Pension Scheme (Pooling, Management and Investment of Funds) Regulations 2026 (the “Regulations”), which came into force on 30 June 2026. For more commentary on the Regulations please see our July 2026 article - LGPS Fit for the Future: pooling and governance regulations laid - Burges Salmon.

The Regulations were made under a combination of powers under the Public Service Pensions Act 2013 and the new Pension Schemes Act 2026 (PSA26), The PSA26 reforms have made significant changes to LGPS investments and asset management. For a short reminder of these reforms please see our section 1 of our handbook: pensions schemes act handbook.

What is the ISS requirement?

The requirement for funds to prepare an ISS is not new but the existing regime (under the Local Government Pension Scheme (Management and Investment of Funds) Regulations 2016 and associated guidance) has been repealed and replaced by Part 4 of the Regulations, together with the ISS Guidance. 

The Regulations and the ISS Guidance together now frame the relationship between funds and pools, and set out the requirements for formulating and maintaining their investment strategy, which must be documented in the ISS. The ISS is a statement of the strategy formulated by the administering authority under Regulation 10(2), although it is Regulation 11 that prescribes what the strategy must include (this includes the authority’s high level financial objectives, approach to risk, responsible investment priorities and preferences, high-level local investment objective and a high-level strategic investment allocation amongst other requirements).

Much of the important detail about the content of the ISS is set out in the ISS Guidance. We consider some of the key points below.

Role of the administering authority and asset pools

As a reminder, the responsibilities in relation to a fund’s investment strategy are broadly shared as follows:

Before preparing their Investment Strategy, administering authorities are required to take advice from their pool (Regulation 10(2)). That advice should cover all elements of the Investment Strategy as set out in Regulation 11, the ISS Guidance and the statutory guidance on asset pooling. Once the strategy is in place, it is then the responsibility of the pool to deliver the strategy. Pools are required to take all reasonable steps to implement investment strategies.

In our July 2026 article about the Regulations, we highlighted that the response to the consultation on the Regulations promised that the ISS Guidance would address the situation where an asset pool is genuinely unable to deliver a fund’s investment strategy. Paragraph 2.8 of the ISS Guidance states that “pools must take all reasonable steps to implement the investment strategies set by their partner funds, while recognising that full alignment may not always be possible where objectives conflict”. It goes on to explain that if the pool is too flexible in implementing the investment strategy of individual partner funds the result may be that the fundamental aims of pooling become frustrated as investments are too fragmented.

High-level investment objectives

Administering authorities are responsible for setting the investment strategy, which includes setting high-level investment objectives. According to the guidance, the ISS should detail how funding requirements are expected to be met by the high-level investment objectives. 

The guidance outlines how administering authorities should set their high-level financial objectives in the ISS. It must include objectives relating to returns, risk, cash flow and local investment. Some helpful examples of these objectives are provided in the guidance document.

Paragraph 3.5 sets out a list of relevant factors that administering authorities should consider when setting the high-level investment objectives, namely:

• Risk appetite – it is for the administering authority to determine the level of risk it considers acceptable, having taken advice from the pool and considered the fund actuary’s views. The impact of the risk on the employers should also be a consideration for administering authorities – this is because lower returns may result in higher employer contributions. 
• Fund maturity – the administering authority should consider the maturity of the fund, both now and its anticipated maturity over time. 
• Risk management – the overall approach by the administering authority to investment risk must be stipulated. However, the responsibility for monitoring and managing those risks sits with the pool, which must implement appropriate risk management frameworks, controls and reporting processes.

The ISS Guidance also sets out which matters should not be considered as part of the setting the fund’s investment strategy. This includes implementation matters such as choosing asset managers and styles of investment management but also extends to geographical zones of investment (though there is a specific carve out for local investment objectives).

Strategic asset allocation

A strategic asset allocation (SAA), setting out the proportion of the fund’s assets to be invested in each asset class (in line with the investment objectives), must be included in, and read in conjunction with, the ISS. The purpose of the SAA is to set out a practical means of delivering the objectives and it can be set either by the administering authority (after having taken advice from the pool), or by the pool on the administering authority’s instruction. Paragraph 4.7 highlights that the ISS must set out the rationale for the asset allocation and identify the risks associated with it. 

The ISS Guidance sets out a template which the SAA must follow, which includes both a percentage asset allocation and a tolerance range (which should be wide enough to avoid having to frequently re-balance). Cash can be excluded, although administering authorities should make the pool aware of the levels of operational cash needed to meet liabilities. 

Responsible investment

A significant portion of the ISS Guidance is dedicated to the question of responsible investment, which is one of the required elements of the investment strategy under Regulation 11.  Perhaps this is recognition that this may be a particularly challenging area to balance the objectives set by different participating funds within a pool whilst pursing the pool’s overall scale and efficiency objectives?

In setting their responsible investment approach and priorities for the ISS, administering authorities are encouraged to be as “clear and succinct as possible”. The approach is required to be reviewed in every valuation period to ensure it remains up to date. 

This section of the ISS Guidance begins with a helpful reminder / articulation of key considerations in relation to responsible investments, including:

• in setting their investment strategy, administering authorities must consider all financially material factors in relation to the performance of their investments, including ESG factors;
• they can also “take non-financial considerations into account” provided that:
  • doing so does not risk significant financial detriment to the fund; and
  • they have good reason to believe that members would support their decision;
• an administering authority’s responsible investment approach can include a preference for investments which have a positive non-financial impact, as well as an “acceptable” financial return;
• account should be taken of the views of employers and members in relation to responsible investment.

The guidance cautions against undue influence from campaign groups and states that the ISS should not set exclusions for individual countries, companies or investment styles. 

The importance of collaboration between participating funds and pools is highlighted. Paragraph 5.11 of the ISS Guidance suggests that a pool responsible investment policy, whereby a single approach to responsible investment is agreed across the pool, can work well where needs are broadly aligned across the partner funds and pools. Where full alignment across a pool is not possible, partner funds and pools are encouraged to work together to form a limited number of partner groups which each have a shared approach. Where an approach still cannot be agreed between an administering authority and their pool, the next stage is to escalate concerns as set out in the pool’s governance arrangements.

Administering authorities should also set out objectives regarding stewardship in the ISS. This includes compliance with the Financial Reporting Council’s Stewardship Code, as well as objectives relating to engagement with investees and how voting rights are exercised. Again, emphasis is placed on the need to maximise alignment of approach across the pool and its partner funds, with a view to increasing impact as well as minimising cost.

Local investment

Local investment objective setting is a key area where administering authorities were awaiting further detail from MHCLG. The ISS Guidance helpfully outlines four key areas the objective on local investment should consider – these are the target area (i.e. geographic areas for the pool to target in terms of local investment – this must be included), returns and risk, target range (again, a required element) and impact (as a high level goal / benefit the administering authority wish to see from their investment). Further detail on each of these points is provided in the guidance.

In relation to identifying the target area, there is helpful clarification as to what constitutes a “local investment”. The ISS Guidance explains that the PSA26 definition (which extends to the areas of any of the partner funds in a pool) is the widest that an administering authority can select and that it is open to administering authorities to target a narrower area – the example given is the economic region of the administering authority. It also explains that investments for the “benefit of persons living or working in” an area is intended to include investments in the surrounding region as well as the geographic area of the administering authority. It is explicitly noted that UK-wide investment, while encouraged, is not local investment (which should be local to the fund or pool), although it is recognised that local investment can be made as part of a UK-wide strategy.

There is recognition that investing with the aim of having a positive local impact may mean authorities choose to indicate a different approach to expected returns – it is suggested that they may wish to set a minimum expected return rate for local investments, referred to as a “hurdle rate”. It is emphasised that the primary goal should remain generating the long-term risk-adjusted returns to pay pensions.

There is a requirement for administering authorities to set a target range, expressed a percentage of the fund’s total invested assets within a range, for assets to be invested locally. If a project is politically controversial in an administering authority’s local area the pool is required to seek information from the administering authority, and to take that into account.

Process

The ISS Guidance provides some helpful additional detail as to the process for preparing an ISS under the new post PSA26 investment and governance arrangements. 

Timing: Under the Regulations, the deadline for administering authorities to publish their first investment strategy is 31 March 2027. This was extended from the original 30 September 2026 deadline due to concerns raised in consultation responses about capacity within pools to advise their partner funds, as well as the interplay with timescales for appointments to new key governance positions such as the LGPS Senior Officer (who is responsible for ensuring the draft ISS is prepared, which is then considered by the pension committee).

• Advice: In finalising the ISS the decision-makers should consider the advice received from the pool, the results of the actuarial valuation and any relevant changes in regulations or policy. They might also consider the views of employers and member representatives, if relevant to do so. 
• Consultation: Administering authorities are required to formally consult with employers, members (by way of consulting with member representative groups), any relevant strategic authority and any other person it considers it ought to consult. 
• Review: Within 18 months of the effective date of each valuation, administering authorities must review their ISS, and if necessary, publish a revised strategy / statement. They may also consider an additional (“out of cycle”) review if major changes have or are expected to occur. Whilst the guidance emphasises that the ISS be long term in approach and focus, this review process will help ensure the balance between assets classes, overall risk and returns is appropriate to meet funding requirements, Advice should also be sought from the pool as part of the review process.
• Enforcement: The ISS Guidance includes a reminder that, if the Secretary of State considers that an administering authority has not complied with the statutory guidance, it could direct the administering authority to review, and if necessary, revise, the ISS or it could direct it to make specified changes. Consultation with the relevant administering authority would be required before any such direction is made and there is further detail about this process in the ISS Guidance.

Actions - what should administering authorities be doing now?

Given the scale of change, and the imminent (albeit extended) 31 March 2027 deadline for the first ISS to be completed, administering authorities should be taking structured, practical steps now to prepare their first ISS under the new regime. Such steps may include: 

Gap analysis of the current ISS: Map the existing ISS against the new requirements — including the mandatory objectives, the prescribed SAA template, the responsible investment framework and the governance roles — to identify areas that require new content or substantive revision.

Engage with the pool early: Regulation 10(2) requires the authority to formulate its ISS after considering pool advice. Early engagement is essential, particularly on the SAA, responsible investment alignment and the pool’s capacity to implement local investment strategies. This is particularly important given all funds within a pool will be seeking advice from their pools in the coming weeks and months – capacity might be an issue, notwithstanding the extension of the original deadline.

Appoint or confirm the LGPS Senior Officer: The LGPS Senior Officer has a number of key responsibilities in relation to the ISS, including oversight of ISS drafting and compliance. While the deadline for appointing the Senior Officer is 31 December 2026, administering authorities will benefit from having them in place as soon as possible.

Engage the Local Pension Board: The guidance expects board engagement ahead of formal consultation. Begin discussions with the board on the approach to ISS development, including governance, responsible investment and local investment.

Develop the ISS objectives: Draft the returns, risk, cash flow and local investment objectives in collaboration with the pool and the fund’s investment adviser. The local investment objective will require engagement with the relevant strategic authority and consideration of any Local Growth Plan in place.

Review the responsible investment policy. Assess the current approach against the guidance’s framework, including the two-limb test for non-financial considerations and the requirement for pool alignment. Consider how member and employer views will be obtained and evidenced.

Prepare the SAA using the prescribed template. Populate the nine mandated asset classes with appropriate allocations and tolerance ranges, ensuring consistency with the ISS and the returns and risk objectives.

Plan the consultation process. Build a realistic timetable for consultation with employers, scheme members, the strategic authority and other stakeholders. Allow adequate time for the consultation to comply with public law principles.

How we can assist?

Our team of public sector pensions lawyers is one of the largest in the country. Our dedicated LGPS specialists are well placed to assist administering authorities and pools with understanding the new legal framework for LGPS investments – please do get in touch if you have any questions.

This article was written by Louise Pettit and Aimee Boundford