With vaccinations continuing to roll out, the economy back in growth and restrictions relaxing, we’re all hoping the worst of the pandemic is behind us.


However, significant uncertainties remain – from the threat of new variants to the longer-term economic impact of the crisis. For good or bad, there’s no going back to how things were before.


Covid-19 has highlighted risks, changed attitudes and opened opportunities that will have a lasting impact on all organisations - including Local Government Pension Schemes (LGPS).


In addition to these uncertainties, LGPS Funds face a range of further requirements. The Pensions Regulator (TPR) plans to move to a Single Modular Code and the Good Governance Project (GGP) for the LGPS, among many other things, wants to introduce a biennial independent governance review.


Funds are also under pressure to pay more attention to environmental, social and governance (ESG) matters and will be required to report against guidelines set by the Task Force on Climate-Related Financial Disclosures (TCFD).


These factors add up to an unprecedented collision of challenges for a sector already struggling with complex demands. With all this in mind, Mercer is challenging LGPS Funds to seize the moment, reflect on what has changed and think hard about the future.


We recently held a webinar to discuss “issues facing the LGPS as we emerge from the pandemic”. It was a stimulating session that raised subjects we’ll cover here along with insights from conversations in the market. What’s clear is that while some Funds have weathered the pandemic better than others, with further upheaval ahead everyone has lots to do.


Some Funds are already responding. A poll of webinar participants showed almost a third reviewing their business plans or strategy with another 11% prioritising their response to risks and opportunities. Those focused on “business as usual” need to ask what this means in a world transformed by the crisis and other pressures.

We advise Funds to consider their challenges and opportunities using four broad categories: risk, governance, operations and investments. None of these has become easier during the pandemic and many extra layers and requirements have been added.


These categories are also interlinked. For example, the pandemic has coincided with heightened interest in climate change which cuts across multiple categories. The same goes for governance and cyber security.


More than ever, this connectedness requires a coordinated, integrated approach to managing core priorities.

Poll: Which of the following will be your biggest priority over the next 12 months?



The core risks for LGPS Funds are investments, employer strength, costs and funding. When it comes to investments, the buoyancy of certain asset classes in response to the pandemic has left some Funds in materially better shape. But the macroeconomic outlook is uncertain.


The economy could weaken when government support is withdrawn. Inflation is also a worry. If recent trends become entrenched, interest rates may rise, affecting returns as well as potentially causing the economy to slow. And don’t overlook the continued fallout from Brexit and its potential impact.


Local authority budgets are under additional pressure from the pandemic and its impact on the public finances is likely to affect what becomes “affordable” for councils when contribution rates are next reviewed. Many Funds are also adopting net-zero goals that have the potential to affect returns (and thereby discount rates, liability calculations and thus funding positions).


These connected risks mean Funds should prepare for testing times ahead. The pandemic has produced policy responses that were unimaginable a couple of years ago with an impact on risk calculations. Funds should review these risks against their long-term goals.



LGPS governance requirements are becoming more demanding. As mentioned earlier, TPR’s consolidated code will introduce significant new requirements that boards must consider. The GGP’s proposal to bring governance reviews in line with the private sector will create more work and complexity.


Together with more demanding climate-related reporting under international guidelines, these measures may make it harder for boards and committees to monitor their Fund’s direction. The pandemic has added to the complexity of governance related to people, decision-making and contingency planning.


Partly as a result of the crisis, some experienced officers at Funds may retire in the next few years. Funds should make sure succession planning is in place and ensure knowledge is passed on to the next generation at a time when complexities continue to increase.


Informal knowledge transfer has been made harder during the pandemic – you can’t swivel your chair to ask the person behind you a quick question working from home. With home or hybrid working set to continue, Funds should think about how to enable this kind of interaction.


Similarly, Funds could also establish clearer career paths and improve training for their people. We’re working with Funds to develop a suite of training videos covering areas such as actuarial funding, decision-making and administration related to achieving net-zero targets to upgrade training.


Virtual meetings helped councils and Funds stay connected during the pandemic. Funds have reported that these meetings were better attended than before and produced stronger engagement – but they also created more work. Our webinar poll showed more than a quarter of respondents saying committees and boards became more engaged and challenging during the crisis.

However, virtual and hybrid meetings lack the one-on-one, informal interaction that can help get big decisions across the line. We are talking to Funds about how to improve internal communications so that these interactions can take place in online settings.


The pandemic has exposed shortcomings in many organisations’ planning for major risk events. In a more connected, volatile world these events arguably pose an increased threat and Funds should review their preparedness for shocks of all kinds.


Cyberattacks are a case in point. These events were already an increasing threat before the pandemic and the shift to home working and teleconferencing has made organisations more vulnerable to attacks.

Poll: Over the past year, has the committee/local pension board of your Fund become:




The crisis has highlighted weaknesses in some Funds’ processes and functions and created extra pressures that will not go away.


Funds report changes in the way members engage – for example, more communication through email and longer calls to helplines. This may be because members have time on their hands and are focusing on the future during the crisis. These trends generate extra work and may be long-lasting as the impact of the pandemic resonates.


In many cases, service level agreement targets have been allowed to slip but boards will want to see improvement as the pandemic recedes. This may be difficult to achieve with some Funds reporting reduced productivity and effectiveness with implications for member experience.


We have heard from some Funds that member queries are being dealt with more slowly than before with calculations needing to be reworked in some cases before being issued. This may be the result of increased workload, employee burnout and lack of informal interaction to resolve problems. Managers may face difficulties restoring standards in a climate that prioritises mental health and with many local authorities committed to this cause.


The pandemic has also made workforces more mobile because employees working remotely are able to take jobs in other parts of the country. For example, we're working with a Fund hundreds of miles from London that has seen one its employees joining a London borough without relocating. Mercer is helping to bridge the gap until the Fund fills this post.


This trend is likely to continue as Funds seek to bring in the skills needed to deal with the many challenges they face. In a competitive market, communication, training and a clear career path will help you keep your best people and attract new employees when required.



With interest rates at record lows and some assets near record highs, Funds should check their investment strategy is appropriate. There remain compelling opportunities across private markets and many Funds are considering reducing equity risk by switching into illiquid assets.


The pandemic has helped reinforce the drive to respond to climate change and other ESG risks by highlighting how catastrophic events have the potential to affect investment returns. The crisis has also drawn attention to the S in ESG, for example by sharpening the focus on portfolio companies’ treatment of employees and suppliers. Funds are also increasing their knowledge and understanding of impact investment with many keen to allocate to such opportunities.


We are working with Funds to review their investment strategies based on these factors and make sure their plans are aligned with long-term goals.


Seize the moment

We hope this article has illuminated some of the main issues facing LGPS Funds as the pandemic passes its peak. It’s an increasingly complex picture but the main challenges are becoming clearer.


Now is the time to take a clear-eyed look at your strategies and processes to make sure they are fit for a future in a world transformed by the crisis and other pressures.


Mercer’s Forensic Integrated Risk Management (FIRM) approach allows you to review risk, governance, operations and investments, set goals and monitor progress. We are already working with several Funds on projects to help them meet the challenges and make the most of opportunities resulting from the pandemic.


Come and talk to us if you would like to find out more.


Important notice:

The article is intended for general information only and does not contain investment, financial, legal, tax or any other advice and should not be relied upon for this purpose. The value of investments can go down as well as up.

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