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SHAPS deficit reduced earlier than expected
Deficit contributions being paid into the Scottish Housing Associations’ Pension Scheme (SHAPS) will end earlier than expected, according to the latest update.
Figures shared with the 140 housing organisations participating in the defined benefit (DB) and defined contribution (DC) sections of the scheme revealed that the deficit contributions will cease earlier than expected, on 30 September 2022.
In 2015, the position of the scheme was a concern as the funding level stood at 76% and the funding deficit was around £200m.
Since then, all DB employers have been paying deficit recovery contributions, currently around £32m per annum, to restore the funding to 100%.
Every three years, an actuarial valuation is carried out for the DB section to estimate how much is needed today to pay all the pensions promised to members.
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This estimate rests on a number of assumptions, including the scheme’s future investment returns, how long its members are expected to live and inflation.
SHAPS is run by pensions provider TPT Retirement Solutions. Its employer committee (EC), with advice provided by First Actuarial, recently began negotiating the 30 September 2021 appraisal of the fund’s assets and liabilities, which resulted in the positive deficit valuation.
Neal Thompson, partner at First Actuarial, said: “The EC of the SHAPS has delivered good news for Scottish employers in the sector. Deficit contributions are to cease earlier than expected, on 30 September 2022.
“This is a welcome development at a time when there are so many other calls on employers’ resources. We should bear in mind, though, that there is always variability in the funding levels of defined benefit schemes and there is no guarantee that further deficits will not arise in future.”
Mr Thompson said the EC has also consulted employers about changes to future benefit accrual to make the DB benefit structure more affordable and less risky, the outcome of which is expected to be communicated to employers soon.
A spokesperson for TPT said: “We are pleased that, despite low government bond yields, the 30 September 2021 valuation saw an improvement in the funding level to 98%, from 88% at 30 September 2018.
“The improvement is primarily due to the strong performance of the scheme’s investments and the contributions from employers. The scheme and employer committees, representing the trustee and the SHAPS employers respectively, have agreed that the reduced deficit will be cleared by the deficit contributions payable under the 2018 Recovery Plan which ceases on 30 September 2022.”
TPT said the committees will continue to monitor the funding position of the scheme and maintain an open dialogue ahead of its 2024 valuation.
The positive news follows an announcement in February that the deficit for the Social Housing Pension Scheme in England and Wales had dropped below £1bn for the first time in over a decade.
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