The Social Housing Pension Scheme

Have you missed the boat?

RPs who participate in Social Housing Pension Schemes (SHPS) have until 30 November this year to advise The Pensions Trust (TPT) of their new strategy for pensions. However, for those who cannot meet the deadline there are other options available.

Background

The SHPS had accrued a substantial past service funding deficit by the date of its last actuarial valuation, 30 September 2008. This has necessitated a dramatic hike in past service deficit recovery contributions from April 2010, increasing from 4.4% of pensionable payroll to 7.5% of a notional payroll (determined on the valuation date), which will increase by 4.7% per annum until the past service deficit is eliminated, which is expected to occur by 2023. Future service contributions have also increased.

Where n/60th final salary benefits are being provided, the new rates will result in contributions being increased by approximately 15% (n/70th final salary – 16%), relative to what is currently being paid. The monetary increase will be closer to 21% for those who have previously adopted the 'lower cost' career average revalued earnings (Care) alternative.

What's new?

A lower cost n/80ths defined benefit (DB) structure is to be introduced in April 2010, along with a 1/80th Care option. A defined contribution (DC) alternative will become available in October 2010, when TPT has appropriate administration systems in place. TPT will be withdrawing the n/70ths final salary option from employers who do not currently subscribe to it.

Timings

TPT has given RPs until 30 November 2009 to advise of their future pensions strategy, but a decision on the strategy cannot be made by a board of directors without first undertaking a formal consultation process with employees, which must last for a minimum of 60 days. This leaves little time to devise a strategy, consult staff and agree the final programme.

We anticipate the process could take up to five months to complete, including the 60-day requirement. Therefore, if you have not yet started this process, it is likely that you will miss the deadline and there will be no alternative but to pay 15% to 21% higher total pension contributions from next April.

So you think you're going to miss the deadline? Good news; you have another chance. Historically, there has been little scope to adopt new benefit structures other than on dates specified by TPT, usually 1 October. This will change from April 2010, when it will be possible to...