Landlord closes access to defined benefit pensions

Orbit Group has become the first housing association to close access to the potentially more costly defined benefit arm of SHPS. Instead, both new and existing contributors to any pension scheme will switch to defined contribution from next April.

Orbit’s decision comes ahead of the government’s introduction of pension auto-enrolment next year, which will result in increased pension liabilities across the housing sector.

Around 350 of Orbit’s 1,300 staff pay into defined benefit schemes, the majority of which - just under 300 - are members of SHPS. Benefits already accrued under defined benefit schemes will be preserved.

Anne Turner, finance director at Orbit, said auto-enrolment has meant the 37,000-home landlord has had to increase its pension provision in the short term but closing defined benefit schemes could reduce its risk profile over time. From April all Orbit contributors will pay into the SHPS defined contribution scheme.

‘I think we are ahead of the game on this,’ she said. ‘This is part of our policy to reduce the risk for the organisation and provide more equality for our staff.’

In a defined benefit scheme, an employee’s pension is stipulated in advance, with the employer paying that amount irrespective of how its pension fund performs. If the fund underperforms, the employer can be left out of pocket.

In May, SHPS revealed that its deficit - the gap between its assets and liabilities - had ballooned to more than £1 billion. As a result, the 700 housing associations that contribute to the scheme must collectively pay an extra £30.6 million a year over the next 13 years to remain in the scheme.

As a landlord with one of the largest SHPS memberships, Orbit will pay £1.7 million annually to help repay the deficit. It will continue to make these payments after the switch.