17 October 2018
The long-awaited results of the September 2017 valuation of the Social Housing Pension Scheme, or SHPS, have now been released. The headlines include:
- The deficit has increased from £1.3 billion in 2014 to £1.5 billion in 2017 despite housing associations paying £350m of deficit contributions over the three years;
- This means an increase in contributions from housing associations towards that bigger deficit – an extra £14m pa from April 2019, increasing to nearly an extra £100m pa across the sector in five years’ time;
- The way these contributions are allocated between employers has changed – this will mean some winners and some losers. In particular this is likely to mean some of the larger more established associations paying a higher share of deficit contributions than they have in the past; and
- There will be a further large increase in contributions for any associations who are still offering defined benefit pensions to employees through SHPS.
There are options for employers who still provide defined benefits to current employees to control the increases in costs, for example by increasing the amount paid by employees, or reducing the benefits to provide in future. Given the scale of the increases in contributions, policies that associations have had in the past to simply require the employees to pick up any cost increases may well need to be reconsidered this time.
SHPS is asking for employers who want to make changes to employees’ contributions or benefits to notify them by 30 April 2019, having first consulted with employees. Consultation would normally take at least 60 days.
Commenting on the valuation, Richard Soldan, Partner and Head of the Social Housing and Not-for-profit team at LCP said:
“Whilst housing associations are currently rightly concerned with wider housing issues like health and safety, the increase in the SHPS deficit and contributions is unwelcome, but largely as expected. Associations who will have been budgeting for a reduction in their contributions to the SHPS deficit in 2020 and again in 2023 can no longer expect those reductions, and most will see an immediate increase next April.
“Any association that continues to provide defined benefits for current employees through SHPS will also need to consider how to respond to the significant ongoing cost increases. The good news is that those associations do have options to reduce costs and reduce future risks, and we would encourage associations to consider how any changes fit within their wider reward package.
“Given the time it has taken SHPS to publish the valuation results, it is good to see that they have very sensibly pushed back the increase in future service contributions to next July, and given employers until the end of April to consult with employees and decide on any changes to future benefits or contributions. In practice this is likely to mean associations will need to start consulting with employees no later than the end of January, so we definitely expect the SHPS valuation to be on Board agendas for the next meeting.”