The newcomer’s guide to: Single purpose pensions authorities

Written By:

Tom Parker
Lead Writer
LAPF Investments

As Surrey awaits MHCLG’s decision towards becoming the UK’s third Single Purpose Pension Authority, we explore the origins of this alternative governance model and whether more funds will follow suit

Toward the end of last year, and following an extraordinary meeting of its committee, the Surrey Pension Fund announced it would be moving to a Single Purpose Pension Authority model (SPPA). The move, it said, would provide “optimal governance” with greater independence and the ability to more effectively manage potential conflicts of interest.

The decision was made after it was decided its administering authority would be dissolved as part of a reorganisation of the county council.

If it were to keep the model it currently has, it would have had to reassign the administrating authority. Instead of doing this, Surrey recommended creating a standalone authority.

Commenting on the news at the time, the committee’s chair Richard Tear said: “I am very pleased at the outcome of the vote. This decision puts members and employers at the forefront of the everything the Pension Fund does.”

When fully enacted, it will become the third SPPA operating in the UK, following in the footsteps of the London Pensions Fund Authority and the South Yorkshire Pensions Authority.

But where did this model come from, and – as we begin to see local authorities across the country – will the Single Purpose Pensions Authority be the management model of choice for funds in the LGPS?

How did SPPAs come into existence?

You can trace the origins of SPPAs right back to the formation of the LGPS as a sector in the 1920s.

It came as a result of campaigning by the National Association of Local Government Officers (NALGO). Founded in 1905, one of the trade union’s first stated goals was to establish a pensions scheme as, at the time, local government officers had non-statutory pension provisions.

Pensions, it argued, were essential for attracting and retaining skilled staff, and providing security for both officers and their families.

In 1919, following growing post-war pressure to improve conditions for local government officers and thanks to lobbying from NALGO, the Local Government Board – which was abolished and folded into the Ministry of Health that same year – appointed a Departmental Committee to examine whether a uniform superannuation scheme should be introduced.

Among the recommendations was one that each county or large borough should maintain its own superannuation fund, meaning each had to create and manage its own pension fund.

As part of this, all employees and employers would pay into their local fund, with each fund overseen by the council’s Pensions Committee – a model seen to this day. This included decisions on administration, investments, and back-service credits.

15 years later, and because of both patchy coverage and cumbersome administration, Parliament introduced the Local Government Superannuation Act – which saw more local government employees becoming members of pension schemes, and the creation of a more uniform framework for benefits and contributions across authorities.

Except for a major reorganisation of councils in England and Wales which came into effect in the mid-1970s – resulting in the consolidation of funds and the birth of specialist pension teams – this was how the LGPS conducted business until the 1980s when authorities in London and South Yorkshire decided to go in a different direction.

Abolition of metropolitan counties

It all came as a result of the abolition of metropolitan counties.

These counties came into existence through the 1972 Local Government Act as a strategic tier for major urban areas. However, by the early 1980s they were seen by the governing Conservative party as an unnecessary tier of government.

As such, in their 1983 general election manifesto, the party pledged to abolition them – describing them as “wasteful and unnecessary”.

While the government argued the move would reduce bureaucracy, result in cost savings and improve service delivery, many believe the move was partly politically motivated, as metropolitan councils – including in both London and South Yorkshire – were the domain of Labour councillors and officials.

As part of the act, the Secretary of State – who, at the time this was enacted was the environment secretary Nicholas Ridley – was given the power to make reorganisation orders for transferring functions, property, rights and liabilities from residuary bodies to new authorities.

Now, for the most part, this saw him direct LGPS funds be transferred to successor district councils, as they were of sufficient size to be administered at this level. Greater Manchester, for example, is administered by Tameside, while West Midlands is administered by Wolverhampton.

There were two notable exceptions to this – namely South Yorkshire and the Greater London Council.

There were several reasons why these two were singled out for special treatment – although it was primarily down to the scale and scope of both these funds.

The first of the two to begin down the SPPA path was South Yorkshire, coming through the Local Government Reorganisation (Pensions etc.) (South Yorkshire) Order 1987.

This order was used to do several things, including establishing South Yorkshire as a legal entity, defining its membership, powers and funding arrangements, and transferring all pension-related assets and liabilities from the South Yorkshire Residuary Body to the new organisation – the South Yorkshire Pensions Authority (SYPA).

It also looked at the governance arrangements of the new entity, with its membership consisting of councillors from the four district councils that make up the south Yorkshire council area – namely Barnsley, Doncaster, Rotherham and Sheffield – nominated by districts to the authority.

Among these members, the authority would then elect its own chair and vice-chair. Members would also be required to answer questions on the authority’s work at their respective district councils.

Given the complexity of the reorganisation taking place at Greater London, the transfer process took a few more years – eventually coming into effect thanks to the London Government Reorganisation (Pensions etc.) Order in 1989.

This saw the newly founded body corporate take over the pension functions from the London Residuary Body – which had taken on responsibility in the intervening period – creating the London Pensions Fund Authority (LPFA).

Under the terms of the new body, the LPFA could levy London borough councils and the City of London – which had taken on responsibilities that used to be run by the Greater London Council, such as transport, housing and education – with the amount payable by each authority being proportional to its population.

Its role was also expanded, absorbing the pensions of other abolished bodies such as the Inner London Education Authority and the London Residuary Body.

Unlike with SYPA, board members were – at the time – appointed by the Secretary of State, giving the government central oversight rather than leaving appointments up to the boroughs, with ministers arguing that borough involvement could lead to fragmented governance or conflicts of interest.

This changed at the turn of the millennium when the Greater London Authority (GLA) was established, with the Mayor of London taking over responsibility for both the appointment and removal of board members and approving the fund’s budget and strategic plan.

During this time, the fund also took on responsibility for the pensions of most GLA-run bodies, except for the likes of Transport for London and the Metropolitan Police, both of which have separate pension schemes.

How does a single purpose pension authority differ to a traditional LGPS fund?

There are several key distinctions between SPPAs and a traditional LGPS fund – although the most stark are in two areas, namely operationally and in governance.

Critically and most crucially, the job brief of a SPPA is to solely manage and administer the pension benefits for members of that LGPS – this means staff in the fund are solely dedicated to this work.

This is compared to the typical model, which sees the likes of finance and section 151 officers at the district council where the fund is based in assuming managerial responsibilities of the fund.

It does mean decisions often reflect the council’s priorities and there’s more direct scrutiny; often staff will be juggling multiple responsibilities and it places constraints on how much specialist expertise can be brought in.

As for governance, unlike at a traditional fund, an SPPA has an independent board which has fiduciary responsibility for the fund. In the traditional model, fiduciary responsibility falls solely at the feet of the pension committee – with support for officers at the fund.

Now there is a form of accountability for an SPPA fund, coming in the form of a Local Pension Board (LPB) – a requirement under LGPS regulations. Made up of employer and member representatives, these boards offer an oversight and reporting role – but crucially hold no fiduciary responsibility on funding decisions.

Outside this, they have several sub-committees on areas such as investment, auditing and risk – although like the LPB, these are here to provide scrutiny and assurance, and hold no executive authority.

Benefits and drawbacks

By far and away the most appealing aspect for an SPPA is its independence, meaning it is able to bring in specialist staff which can focus exclusively on pensions and investments.

This independence also means it is insulated from local political pressures, because decisions are based less on short-term priorities but on fiduciary duty and regulatory compliance.

Having said this, the loss – if an organisation operates in a certain way – of local democratic accountability means decisions can feel more remote from local priorities, while employers and members may feel more distant from the decision-making of the fund itself.

There is also a resourcing challenge when moving to a model like this, as councils would need to establish dedicated teams covering investment, governance, risk and administration, which may not be proportionate or efficient.

Then there is the question of whether there is a need for internal investment specialists in the new landscape where investment decision-making becomes more centralised in pools.

Having said this, boards still have fiduciary responsibility for any SPPA-led fund – and as such having specialist expertise could still be beneficial at a governance and oversight level.

The growing interest in SPPAs reflects genuine advantages they offer over traditional fund structures. By consolidating specialist expertise and removing pension management from competing council priorities, SPPAs can deliver focused decision-making grounded in fiduciary duty rather than short-term political pressures.

However, the model is not universally suited to all funds. The substantial costs of establishing a new authority, combined with the loss of local democratic accountability, present significant barriers.

Questions also remain about whether dedicated investment expertise remains essential as pooled investment arrangements become more centralised.

Rather than a clear future direction, SPPAs are likely to remain an option for larger, more complex funds facing governance challenges or major restructuring. Smaller funds may find enhanced governance within existing arrangements more practical and cost-effective.

The LGPS will likely continue to accommodate multiple structures, with individual funds choosing arrangements best suited to their own circumstances.