Social Housing Pension Scheme (SHPS)

The Social Housing Pension Scheme – key issues and considerations for housing associations.

The SHPS Pensions Committee has published provisional SHPS valuation results and information on proposed future service benefit changes.

Please note: The Social Housing Pension Scheme is run by The Pensions Trust, not the National Housing Federation. You can find out more about the Defined Benefit and Defined Contributions schemes on The Pensions Trust website.

Provisional results

The deficit of £1.035bn in 2011 has increased to £1.323bn in 2014 due to lower than expected future interest rates and changes to other assumptions. Consequently, deficit contributions will rise for all employers by a similar amount to that following the 2011 valuation. The cost of benefits building up going forward has also increased as a result, although this has been offset by changes proposed to the benefits members will build up in future.

The overall impact on individual employer contributions will be announced in July. The allowance for scheme expenses is also going to change from a flat rate of 0.9% of salary roll for all to a rate that depends on the number of defined benefit pension scheme members. This will be beneficial for some and not for others. As well as the changes outlined above, the end of contracting out in April 2016 will increase the level of National Insurance contributions required by both employers and employees.

Impact on people

Changes to future benefits building up which come into force from April 2016 will include increasing the Normal Retirement Age to 67 and capping pension increases before and after retirement at 2.5% p.a. These changes will lead many employers to reconsider the range of options that are offered to staff under the scheme and the related employee contributions. Therefore careful communication with staff about these changes will be extremely important as there could be a significant impact on members’ benefits.

Financial impact

You should consider the impact of these increases in contributions on your 30-year business plan and any associated stress testing. The impact of the introduction of FRS 102 will mean the present value of the agreed deficit contributions will be shown as a liability on the balance sheet. Managing past service deficits in a multi-employer scheme such as SHPS is a challenge as you have little control over the degree of investment risk or the rate at which contributions are paid. However, you will be aware that some SHPS employers have taken control of financing benefits and risk management by transferring a proportion of their section out of SHPS and into their own scheme.