The latest valuation results of the Social Housing Pension Scheme (SHPS) released in August 2021 provided a daunting read for many social housing employers since the overall deficit has slightly increased to £1.56 billion, although in percentage terms there has been a slight increase in the funding level to 77%. SHPS is the leading pension scheme for the social housing sector. It is used by most housing associations as their main pensions arrangement, as well as organisations such as the National Housing Federation. For a reminder of the highlights of the valuation results released in August 2021, they have been summarised by my colleague Doug Mullen and you can read about them in his post here, along with some options for employers to consider.
There are two kinds of pension offered through SHPS:
- the more common defined contribution pension invests employer and employee contributions, with the performance of those investments determining how much is paid out on retirement; and
- the more attractive but less common defined benefit pensions offer a specific pension amount each year after retirement, based on salary and longevity.
Inside Housing reports that in total, around 65,000 employees from more than 400 employers are enrolled in the SHPS scheme with around 7,000 people in SHPS on a defined benefit package.
At a round table for providers of social housing yesterday, we asked attendees about the options that they were considering taking in response to the results. Our observation was that there is still a cohort of employers who do not want to close entrance to the social housing pension defined benefit scheme and are trying to balance the employer value proposition while being fair to current and future employees. Most employers are in the position that they are not keen to close entrance to the SHPS defined scheme but financially they may have to. A pension is a significant part of an employer's recruitment and retention strategy and many housing providers do not want to close the defined benefit scheme to new joiners because when faced with challenges to recruitment in parts of your business, the pension offering becomes a critical part of the benefits package. Furthermore, there is the perception that offering the defined benefit scheme to existing employees and only offering the defined contribution scheme to new staff is neither fair nor inclusive. The question remains as to whether employers are able to, or are prepared to pay more for the defined benefit scheme.
Do you fancy joining in the conversation? If you would value a conversation about what the options for your organisation might be or would like to hear about the options being considered by employers in the sector, please contact my colleagues Doug Mullen or Alice Kinder.
Employers will need to look at their options for managing the costs of future service benefits which could include closing defined benefit structures or requiring staff to pay some or all of the additional cost.