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Contributions set to increase as sector pension scheme deficit £500m higher than expected, analysis shows
Housing associations could be on the hook for significant increases in contributions to the sector’s pensions scheme after analysts estimated that it could be valued at £500m more than expected.
Analysis by pension consultants LCP, shared with Inside Housing, found that housing associations could see deficit contributions to the SHPS increase by between 30% and 50% in the coming years.
The pensions scheme, which is revalued every three years, has a deficit of £1.5bn, according to LCP. This figure is the same as at the last valuation in 2017, but comes despite associations upping their contributions over recent years to reduce the deficit.
Mike Richardson, a partner at LCP, said: “These results could translate into an increase in deficit contributions for housing associations of 30 to 50%, coming into effect from April 2022.
“Although on the face of it the deficit hasn’t grown since last time, having also been £1.5bn in the 2017 valuation, associations have been paying significant deficit contributions since then – in excess of £400m over three years – and so the position should have really improved.”
Mr Richardson also noted that several housing associations have transferred out of SHPS, taking their share of the deficit with them, yet the deficit has remained the same.
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Richard Soldan, a partner at LCP and head of its social housing practice, said the findings could mean higher costs for employers offering defined benefit schemes – a more generous type of scheme that pays you based on your salary instead of the amount of money you contribute to your pension.
He said: “As well as increases in deficit contributions, we are also expecting significant increases in the cost for employers that offer defined benefit pensions to current employees through SHPS, perhaps up to an extra 5% of salary or more depending on the benefits being offered, which is an enormous increase.
“This increase will need to be met by employers, employees or a combination of the two – and none of these options will be welcome.”
LCP urged housing associations boards to begin considering how to manage their SHPS exposure even though contributions are not likely to come into force until 2022.
A number of housing associations have left SHPS, which is run by TPT Retirement Solutions, in recent years as they look to gain control over their liabilities. Large associations Clarion, Bromford and Radian were among the first to leave the scheme.
Alternative analysis by First Actuarial, using the same methodology as LCP, suggested that the deficit had grown since the last valuation to £1.6bn.
Sam Mullock, a partner at First Actuarial, said: “The focus will now be on whether that methodology remains appropriate, given the significant change in financial markets due to the impact of COVID-19.
“Pension scheme funding makes assumptions about the long term and, because SHPS is supported by strong employers, the trustee has some flexibility in its valuation approach. This flexibility includes being able to allow for any funding improvements that may materialise in 2021 if markets continue to recover.”
A spokesperson for TPT Retirement Solutions said they expect to share the outcomes of the valuation in spring 2021.
They said: “While we complete the valuation, you may see third-party discussions about the estimated results. Please remember that specific scheme details are available only to TPT, as the trustee. We will share the results directly with employers participating in SHPS as soon as they are available.
“In the meantime, employers should look out for updates in our regular communications with them and they can also view the valuation timeline on our SHPS valuation site.”
Update: at 5:45pm, 05.10.20
The story was updated to include a response from TPT Retirement Solutions.
