Social Housing Pension Scheme - Brace Yourselves

It's that time again for the social housing pension scheme

Christopher Murray discusses the options available to RPs once The Pensions Trust has delivered its latest valuation results.

Can it really be three years since RPs locked into the Social Housing Pension Scheme (SHPS) were dreading a letter from The Pensions Trust with news of how much the cost of their pension schemes would increase? Well here we are again, at a point when liabilities have increased beyond expectations and investments haven't.

There's little point in trying to speculate what the damage might be, other than to brace ourselves for another increase in contributions, interpreted by most non-actuaries as 'costs'. We don't expect to see anything concrete until May, when the results of the 30 September 2011 valuation should be released. Employers will then be consulted on how best to pay off the inevitable increase in deficit over a respectable period.

The current plan for clearing the deficit that existed at 30 September 2008 is to apply a charge of 7.5% of each employer's scheme salary role at that date and to increase this by 4.7% per annum compound for 15 years from 2010. This means that deficit recovery contributions will double over the period, regardless of any decline (or increase) in membership.

If the Pension Regulator's guidance is adhered to, any new recovery plan will be additional to the existing one, but given the financial pressures that have been experienced by RPs over the last year, it remains to be seen whether or not this will be the case.

On the basis that 'forewarned is forearmed' it is probably worth considering what options might be on the table.

Do nothing

It depends on your starting point but if you can afford to maintain the status quo, once the increased funding requirements are known (which may also affect contributions for future accrual) this would at least put off the need to enter into a consultation process with your employees.

There are many variations within SHPS, from RPs who have kept their original defined benefit (DB) structure open to new entrants, to those who have ceased future DB accrual in favour of the defined contribution (DC) structure that was introduced in 2010 and paying a reduced surcharge of 1.5%. The surcharge itself may well be revisited, as could the 50% concession to those who have adopted the DC plan.

Introduce salary sacrifice

Over the last 18 months or so there has been a considerable increase in companies...

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