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Contributions to sector pension scheme deficit predicted to rise
Housing associations could be forced to pay more into the sector’s pension scheme, as experts predict a 50% increase in contributions to reduce its deficit.
The Social Housing Pension Scheme (SHPS), which most associations pay into, was revalued on Saturday by The Pensions Trust. An estimate on the revaluation is not due until November, but an independent valuation by consultants Lane Clark & Peacock (LCP) predicted that it would rise to £1.5bn and that contributions from associations would rise by 50% in line with this.
At the last triennial revaluation, the deficit stood at £1.3bn, but increased contributions by associations at that time were supposed to reduce it to £1bn by now. Instead, a fall in the ‘discount rate’ used by actuaries to calculate the values of pension schemes and based on various factors led to an increased deficit.
Richard Soldan, head of social housing at LCP, told Inside Housing: “The main thing is change in financial markets, the fact that it’s now hard to get returns on investments. The expected returns in the long term are lower now than they were three years ago. If you expect lower returns, you have to have more money in the fund today.”
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Sanctuary, which left SHPS in 2015, saw its defined benefit pension deficit double, an early sign that the SHPS revaluation could see an increased deficit.
Gary Moreton, head of social housing at consultants RSM, told Inside Housing: “The whole sector is holding its breath. It’s expecting the deficit to have worsened and it could well have worsened.
“We’re all fearing the worst and therefore that could well be quite a hike in the deficit, which in itself would mean that the contribution levels are highly likely to go up as opposed to going down, so that’s going to put further pressure on costs and funding of staff.”
Writing this week for Inside Housing, Steve Danby, audit manager at Mazars, predicted: “There is every likelihood that [contribution levels] will rise.”
He added: “The discount rates used for these various calculations can have a significant effect and, despite hints of possible forthcoming interest rate rises (when has that not been suggested?), it looks likely that discount rates will be lower than in 2014 certainly.”
The Pension Trust, which manages SHPS, has been contacted for comment.
