Tower Hamlets Pensions Committee navigates 'Fit for the Future' reforms and critical risks.
The Tower Hamlets Pensions Committee convened on Thursday, 1 October 2026, to address significant reforms impacting the Local Government Pension Scheme (LGPS), alongside a comprehensive review of the fund's risk register. The meeting, chaired by Councillor Suluk Ahmed, saw in-depth discussions on the 'Fit for the Future' reforms, which are set to reshape the governance and investment landscape of the LGPS.
'Fit for the Future' Reforms and Their Impact
The 'Fit for the Future' reforms, implemented through the LGPS (Amendment) (Governance) Regulations 2026 and the LGPS (Pooling, Management and Investment of Funds) Regulations 2026, introduce significant changes aimed at strengthening governance, increasing consistency, improving investment efficiency, enhancing accountability, promoting scale through pooling, and improving long-term sustainability. These reforms reshape the investment landscape by centralizing strategic advice with the pool and removing the dual consultant model. The Investment Strategy Statement (ISS) is now tightly prescribed, requiring specific high-level objectives and a mandatory template for Strategic Asset Allocation (SAA) that limits granularity.
Key structural shifts include:
- Mandated asset delegation to FCA-authorised pools: All LGPS assets must be delegated to and managed by pools, with pools acting as the principal investment advisers. This creates a hard boundary between the Fund and the pool, with implementation decisions such as tactical asset allocation, fund manager selection, and asset disposal resting solely with the pool. The Fund retains responsibility for setting its investment strategy, including objectives, risk, and approach to responsible and local investment, but the implementation of these strategies is delegated to the pool (London CIV in this case).
- Revised governance requirements: This includes the mandatory appointment of a Senior LGPS Officer (who cannot be the Section 151 Officer or Monitoring Officer) and an Independent Person to provide additional governance and assurance. There is also a requirement for training and knowledge standards for Committee members, Independent Governance Reviews (IGRs) every three years, and the publication of administration strategies.
- Statutory local investment targets: Administering authorities must set target investment ranges for local investment and report annually on this in consultation with pools.
- Phased approach to governance and potential fund mergers: The reforms signal a possible future consolidation of administering authorities themselves.
Updates were provided on the implementation roadmap for these reforms, highlighting the ongoing work to ensure compliance with new legislative and regulatory demands.
Key Strategic Risks Under Scrutiny
Key strategic risks facing the fund were scrutinised, with particular emphasis placed on those arising from the implementation of the 'Fit for the Future' reforms, the delivery of government pooling initiatives, the management of critical pension systems, and considerations around divestment and exclusion policies.
The government's pooling reforms are identified as one of the most significant strategic risks facing LGPS Funds. The implications for the Fund include:
- Reduced investment implementation flexibility: The Fund must work closely with London CIV to ensure compliance with new statutory requirements concerning investment management and asset transition. The pool (London CIV) is responsible for the implementation of the Fund's investment strategy, including tactical asset allocation, investment manager selection, and asset disposal.
- Increased dependence on pool delivery capability: The Fund is reliant on London CIV's ability to effectively implement the investment strategy and deliver required investment outcomes. Failure in this regard could lead to underperformance, implementation delays, and deterioration in funding outcomes.
- Potential for misalignment: Stronger climate governance standards and reporting requirements from pools could lead to misalignment with the Fund's strategy if not managed collaboratively.
- Governance and accountability challenges: The reforms require administering authorities to hold pools accountable as shareholders and clients, which can be complex. The Fund must monitor London CIV's implementation of the ISS, including investment performance, risk, costs, and stewardship.
Critical Pension Systems and Associated Risks
The critical pension systems facing the Fund, with their associated risks, are:
- Pensions Administration system: The contract for this system expires on 31 October 2026. Failure to secure a suitable replacement or extension could result in service disruption, increased costs, regulatory breaches, and reputational damage.
- Risk Management system: The contract for this system expires in February 2027. Similar to the pensions administration system, failure to manage this transition could lead to service disruption and increased costs.
- HR/Payroll system (supporting pensioner payroll): This system, used for pensioner payroll services, expires in February 2028. The management of this account is outside of the Pension Fund's direct control, and the Fund is engaging with HR/Payroll colleagues to ensure renewal or satisfactory transfer. Failure to ensure service continuity could lead to significant disruption in paying pensioners.
These systems are critical for delivering pension administration services, pensioner payroll, financial accounting, employer accounting, regulatory reporting, and risk management. The overarching risk is the potential for service disruption, increased costs, regulatory breaches, and reputational damage due to failure to secure suitable replacement arrangements, contract extensions, or successful system implementations.
Addressing Highest-Rated Risks
The committee also reviewed the fund's risk register, identifying the highest-rated risks in areas such as regulatory and statutory compliance, investment and pooling, governance and oversight, and administration and systems. The proposed strategic risk architecture, as outlined in Appendix 2 of the Pension Fund Risk Register report, re-groups risks into four principal categories: Investment & Funding, Operational & Technology, Governance & Compliance, and External & Regulatory. This differs from previous frameworks by creating a smaller, more focused strategic register with 15 broad risks, rather than attempting to catalogue every conceivable risk. The aim is to provide a clearer overview of the principal strategic risks facing the Fund.
The highest-rated risks in regulatory and statutory compliance are:
- Statutory Reporting & Financial Statements (PF13): The risk is failing to produce accurate, complete, and timely statutory accounts, Annual Report, regulatory returns, or other required reporting. Consequences include financial misstatement, audit qualification, missed statutory deadlines, regulatory scrutiny, and reputational damage.
- Statutory Investment/Governance Compliance & Intervention (PF14): The risk is materially failing to comply with statutory investment, pooling, or governance requirements, creating conditions for regulatory or Secretary of State intervention. Consequences include regulatory breach, intervention/direction, governance escalation, and reputational and financial consequences.
- Cyber Security, Data Protection & Business Continuity (PF15): The risk is a cyber attack, data breach, system outage, or other business continuity event preventing the Fund from operating or compromising member, employer, or financial information. Consequences include loss of sensitive data, inability to pay pensions, fraud, operational disruption, regulatory action, and financial and reputational loss.
Actions being taken include:
- PF13: Completing the 2025/26 external audit and addressing outstanding requests, publishing audited Pension Fund accounts within the statutory timetable, and establishing an integrated annual statutory reporting calendar.
- PF14: Establishing a comprehensive LGPS statutory compliance checklist, completing revised ISS and governance documentation, and introducing a six-monthly compliance assurance report to the Committee and Local Pension Board.
- PF15: Undertaking Fund-specific cyber/business continuity assurance reviews, testing Fund disaster recovery and pension payroll continuity, and obtaining cyber/operational resilience assurance from critical third-party suppliers.
Engagement and Administration Updates
Discussions also covered the administration of the pension scheme, with a report indicating a substantial reduction in the backlog of outstanding tasks, most now being completed within five to ten working days. Progress on a data cleanse project was also noted, with a revised completion expected by 30 November 2026.
Engagement with employers and members was another key agenda item. The proposed Pension Fund Annual Information Forum was scheduled for late October 2026, aiming to provide scheme members with updates on benefits, governance, funding, and investments. Employer engagement activities include the Pension Fund Employer Forum (PFEF) and consultations on the Investment Strategy Statement (ISS). The PFEF is designed to provide updates, support, and two-way dialogue with scheme employers, covering topics such as valuation understanding, regulatory reform updates, employer statutory responsibilities, and data/McCloud remedy implications. Regarding the ISS, under the LGPS (Pooling, Management and Investment of Funds) Regulations 2026, administering authorities must formulate, consult upon, and publish their first updated ISS by 31 March 2027. The Fund must engage and consult with all stakeholders, including scheme employers, ahead of this deadline. Officers are planning to use future events to support employers with training and resources for accurate data submissions and annual returns.
Financial Health and Audit
The committee also reviewed the Pension Fund's risk register, approving its updated format and endorsing the proposed strategic risk architecture. The meeting also addressed the financial health of the fund, with a report on the Pension Fund Closing 2025/26 and External Audit noting that the audit was at an advanced stage. The committee was asked to approve the draft Pension Fund Annual Report and Accounts for 2025/26, subject to the completion of the audit.
Paul Audu, Interim Head of Pensions and Treasury, provided updates on various aspects of the fund's administration and engagement, while also presenting reports on the risk register and the 'Fit for the Future' reforms.