SHPS valuation results finally released – the clock is ticking for employers

The Social Housing Pension Scheme (“SHPS”) has finally released the results of the 30 September 2017 valuation. As expected the past service deficit has increased. However, an overhaul to the way this is split between employers means there will be winners and losers.  In addition, the cost of building up new benefits has substantially increased which will mean higher contributions from participating employers from July 2019.  Employers now need to decide whether any changes should be made to their pension offerings to lessen the impact of these increases.

Chris Mapp, head of Social Housing at XPS Pensions Group said: “These results have been long awaited, having initially been promised back in March 2018. TPT Retirement Solutions have explained that the delay was due to the new governance arrangements as well as talk of ‘robust challenge and scrutiny’ during the consultation process.

“Any employers planning to make changes should start the process as soon as possible. Although the increase in future service costs doesn’t come into effect until July 2019, compared to an April commencement in previous valuations, making any changes to pension provision is a significant decision needing proper analysis, engagement with the Board and a consultation period of at least 60 days.  SHPS have imposed a deadline of 30 April 2019 for employers to notify them of how they wish to proceed.

“With the recent XPS Pensions Group survey showing that 55% of Housing Associations have no policy in place to deal with pension cost increases and over 90% of respondents either definitely or possibly reviewing their pensions offering, we expect to be very busy helping a lot of clients in the coming months.  Any organisation with members in SHPS should start to consider their options as soon as possible.”

Key findings from the valuation:

Despite contributions towards the deficit of £350m over the last three years (after allowing for expenses and benefits accrued), the past service deficit has risen from £1.3bn to £1.5bn, marking the fifth consecutive valuation at which the deficit has grown

  • SHPS has consulted with its representative Employer Committee on how employers will meet the deficit. It has been proposed that they will change their approach and recalculate deficit contributions for all employers based on a ‘liability share’ – the new contributions will replace the various previous tranches entirely and this will create ‘winners and losers’ with revised contributions due from 1 April 2019. Some organisations could see a material increase in their deficit contributions.
  • The benefit options are not changing going forwards, and the increase to the future service rate (around a third) that TPT Retirement Solutions is imposing is at the lower end of the range they previously warned of. These increases are to be introduced from 1 July 2019. In particular: 
    • The total cost of Final Salary 60ths will rise from 20.6% to 27.2% of salary. This is a sizeable increase and employers that still offer this level of benefit will have to decide how to allocate that increase between the members and the employer.
    • Even for less generous options, such as CARE 80ths, total contribution rates have increased by 4.1% to 16.7%.

For more information please contact:
Rebecca Noonan, Senior Consultant, Camarco
Tel: 020 3757 4981 / 07900 340483

Sophie Boyd, Senior Consultant, Camarco
Tel: 020 3781 8339 / 07542 834725