Hold your nerve
The increase in social housing pension scheme deficit is nothing to panic about, says Roderick Ramage
It’s been reported that the social housing pension scheme’s deficit has increased by £370 million to more than £1 billion. So, should you panic?
First, remember that pension deficits are mathematical constructs based on guesses about future economic and demographic factors. They are not debts, but they underpin the calculation of your contributions. No one is liable to pay a pension deficit, unless the scheme is being wound up or an employer leaves a multi-employer scheme; and then the deficit - the discontinuance debt - is likely to be higher than the normal valuation deficit.
Pension schemes are long-term cash flows. What matters is how much the scheme needs and how much you can afford to pay. The issue to focus on is, therefore, the income pressures and not the deficit.
Will your employees share the cost by paying increased contributions?
If you switch to money purchase within the SHPS, you fix your costs for the future pensions accrual, but remain liable for contributions based on the deficit for past service and the risk of a discontinuance debt. Will this save costs overall?
If you leave the SHPS, you may become liable for your share of the discontinuance debt. If you become insolvent and cannot pay it, your share will become ‘orphan liabilities’, to be funded by the remaining employers, but the phoenix rising from your ashes will be free of the pension debt.
SHPS is a ‘last-man standing’ scheme. You do not want others to fail and increase the burden on you so you should keep your collective nerve.
Roderick Ramage is a solicitor and pension law consultant at Weightmans