On the go: The upcoming Social Housing Pension Scheme valuation could reveal a deficit of £1.5bn, almost £500m higher than expected following the last valuation in 2017, according to a report from LCP.
The pensions consultancy estimate is based on the scheme using the 2017 methodology for the pending valuation. If the SHPS shortfall rises as predicted, the scheme could require an increase in contributions of between 30 per cent and 50 per cent.
The estimated deficit would then remain the same as in the 2017 valuation, but this would be despite housing associations having made contributions totalling more than £400m in the past three years.
LCP also forecasts that costs may increase by up to 5 per cent or more of salary in contributions for employees currently earning defined benefit pensions in the scheme.
Tim Gilbert, senior consultant at LCP, noted that the SHPS valuation “should be on boards’ agendas as soon as possible given the likely impact on costs, especially given the current economic climate”.
“They will need to consider their options in relation to managing their SHPS exposure, and this may include investigating whether they should be following in the path of the increasing number of employers who have transferred their pension liabilities out of the SHPS and into their own scheme,” Mr Gilbert continued.
“The looming increases in costs may act as the trigger for more associations to make the move.”
Richard Soldan, partner and head of LCP’s social housing practice, added: “As well as an increase in deficit contributions, employers are potentially facing an eye-watering increase in costs for employees that are earning DB pensions in the scheme.
“This increase will need to be met by employers, employees, or a combination of the two — and none of these options will be welcome. Boards will need to start to think about how they will respond to the likely significant increases in costs.”
