The Social Housing Pension Scheme (SHPS) 2020 valuation results have now been published.
10 employers have decided to exit and bulk transfer out of the SHPS over the three years up to 30 September 2020. TPT’s results imply that broadly around £1bn of liabilities may have left the scheme with these employers. This is around 15% of the scheme. Although, this has reduced the remaining SHPS deficit by £229m. That deficit is now shared across a smaller number of employers.
The cost of building up new benefits has risen sharply since 2017, driven by a fall in government bond yields. The change in cost of new benefits over the years leads to
cross-subsidies between employers – some will be winners and others losers. Those now closed to new service are still exposed to the risk from employers who remain open to new benefits.
The cost of funding benefits already built up has also risen, although the full impact has been delayed until later years.
Employer contributions towards benefits already built up will rise by 17% on average (for some employers by as much as 40% or more) from April 2022. Employer contributions commitments overall have risen by around 72%.
The deficit is now around £450m behind the Trustee’s funding plan from the last valuation. Employers have paid deficit contributions of £405m over three years.
Had the funding level progressed in line with the Trustee’s plan at 2017, the deficit at 30 September 2020 would have been around £1.1bn. This compares to the actual deficit at that date of £1.56bn. This is a poor outcome but there was broadly a 25% chance it could have been worse.
The funding level is volatile. Had the valuation date been at 31 March 2020, for example, when markets were hit by the start of the pandemic, the deficit would have been nearer £2bn and contributions would have increased by closer to 50% (compared with 17%) from 1 April 2022. This assumes the same approach as taken at 30 September 2020.
The impact for a housing association will not just be financial. Organisations will need to reconsider their pension strategy from a finance, people and governance perspective.
Isio expect more employers, of all sizes, to now relook at the option to close to new benefits (if not already closed) and to consider the option to exit the SHPS altogether – either to take control of funding for themselves with the associated gains in asset and liability management, or as a route to access better pricing and flexibility to settle the debt in full.
What the right route for an individual organisation is will depend on many factors and there is no “one size fits all” solution. Any employer looking at exit as an option (for control, flexibility or settlement) needs to weigh this up against the efficiencies of being in a multi-employer scheme.
Housing associations and boards will need to consider the impact on projected costs over the short, medium and long term, as well as the wider people and governance options and implications. You will want to understand how you get from where you are now to where you want to be.
Isio have created a bulletin which you can read here. It covers the results in more detail and their views on:
Isio’s SHPS 2020 valuation modules are designed to offer in depth, tailored analysis of your organisation’s own participation, in order to inform decision making and strategy. If you would like support and want to understand your options, please get in contact with Housing Lead, Katy Taylor.
Isio is one of the country’s leading independent pensions advisory firms, known and respected for its agility and the team has more than 1,000 client relationships. We're working with our pensions advisers Isio to keep the sector up to date on key areas affecting housing associations.Find out more