With the welcome news that the overall Social Housing Pension Scheme deficit has fallen from £1.5 billion to £690 million, employers participating in the defined benefits structures have a new set of decisions to make.

At the last valuation in September 2020, the deficit stood at £1.5 billion, but a combination of positive investment returns and employer contributions has seen that reduce to £690 million as of September 2023, despite higher inflation and salary rises.  The overall funding level has slightly improved as well from 77% to 79%.

This big reduction has a number of implications:

• future service contributions have fallen sharply, in some cases by as much as 60%;
• deficit contributions are reducing by 12% from April 2024 and will only rise at 2% per year, rather than the originally planned 5.5% per year;
• the cost of leaving the scheme is also likely to have fallen;
• the contribution rate in the 1/120th CARE structure has fallen so low that it no longer meets auto-enrolment quality standards and is therefore closed for the next three years.

The precise position for each employer will depend on their membership profile and which defined benefit structure they participate in.  The improvement in the balance sheet position and saving on deficit contributions will be very welcome for providers at a time when they face increased costs, although per member expenses are increasing substantially.

The past few valuations have seen a relentless rise in contributions with employers having to choose who will bear these increases. This valuation brings a welcome break from that cycle. There are still, however, a number of decisions that will need to be taken by employers:

• Who should benefit from the reduction in future service contributions - the employees, the employer or both?
• If the CARE 1/120th structure is currently offered, what structure will the employer offer instead?
• Where a defined benefit structure has been closed, it is appropriate to re-visit that decision?
• If a fall in the cessation debt now means that it is now affordable to exit, is this an option that the employer wants to pursue?

Although the decisions may be more palatable this time, there may still be a need to consult with staff or trade unions about the decisions.

For help with considering your options, please contact Doug Mullen or Lauren Broderick.