Nasreen Hussain, Director of Finance and Resources at Soha Housing, outlines how her organisation reacted to the SHPS deficit rise, and updates on the new defined benefit funding code.
Following the September 2016 valuation, the Social Housing Pension Scheme (SHPS) deficit rose to £1.3bn, with past service deficit and future contribution rates also increasing.
At Soha, we considered a number of options to react to this, taking into account the impact on staff in terms of affordability, and projected pension values on retirement, alongside the risk and cost to the business.
Following consultation with staff, the board agreed to equalise and cap the employer contribution rate at 10% across all pension structures and introduce a salary exchange with all of the employer national insurance contribution saving passed onto staff.
Under the current climate, the result of the 30 September 2020 SHPS valuation is expected to show an increasing deficit. The final results are expected in summer 2021 with any change effective from 1 April 2022.
We have already started the discussion at Soha. The workshop with our pension advisor covered the SHPS valuation, what other housing associations are doing, potential changes to pensions laws and alternative pension strategies. We are going to consider some alternatives using other organisations as case studies in the New Year. By the time the SHPS valuation results are announced, the board will have already done some upfront thinking and taken some in-principle decisions.
Some of you may be aware of the Pension Regulator’s new defined benefit (DB) funding code. The purpose of the code is to strengthen DB funding with less reliance on employers. The objective is to ensure that DB pension scheme funding is prudent, with shorter recovery plans. The options available are fast track or bespoke.
The NHF has been working with its pension consultants Isio (formerly KPMG’s UK pensions practice) and has proposed a ‘fast lane within bespoke’ route for housing associations as a sector. More details on this will be in the NHF’s winter Finance Newsletter.