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Large housing association closes most generous pension scheme

Hampshire-based housing association Vivid has closed its most generous pension scheme due to the deficit in the social housing sector’s multi-employer pension scheme, Inside Housing can reveal.

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Picture: Getty
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Vivid has closed its most generous pension scheme due to the deficit in the social housing sector’s multi-employer pension scheme #ukhousing

A Vivid spokesperson confirmed to Inside Housing that the association has closed its ‘defined benefit’ scheme and moved all its staff onto a new ‘defined contribution’ scheme, in a move that experts suspect could be replicated across the sector.

According to a spokesperson for the company, less than 50 employees were on the defined benefit scheme, which pays out a guaranteed amount from the employer on retirement.

They have all been moved onto the new defined contribution scheme, which instead involves employees paying a fixed amount into their pensions from their wage, with the amount they receive in retirement depending on the pension’s performance in financial markets.


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Those employees will retain the benefits they have already accrued.

The 31,000-home housing association described the new scheme in its annual report for the past financial year, which also revealed that the group’s surplus was £73m, up from £66m in the previous year.

Vivid said the move was a response to the deficit on the multi-employer Social Housing Pension Scheme rising to £1.5bn.

Employers in the scheme will have to increase contributions by 50%, while the cost of future benefits will rise by 30%. Because Vivid has closed its defined benefit scheme, it will avoid these increased costs.

A Vivid spokesperson said the new scheme means “nearly 800 of our staff have access to a better pension offer than they had before”.

The scheme has minimum contributions of 2% from employees and 6% from employers up to a maximum of 10% matched contribution.

According to the spokesperson, there were previously three defined contribution schemes with a range of contribution levels “but none had the mix of a low employee contribution rate and the ability to have a matching contribution from the company of up to 10%”.

Duncan Short, director of resources at Vivid, told Inside Housing: “Our reasons for closing our defined benefit schemes were, first, to reduce risk. This risk does link to the deficit but is more about our inability to influence or manage the unknown.

“Second, as a new organisation, at the time of reviewing pension schemes we wanted a scheme of which all staff, irrespective of background, became members to help us create Vivid. As a result of closing the defined benefits scheme and introducing the new scheme, we’ll have a net increase to our pension costs, so it wasn’t about saving money.”

Vivid’s accounts also showed that the association grew its turnover for the year to £250m, up from £228m in the previous year – 67% of this came from social housing lettings, down from 72% in the previous year.

The association’s income from open market sales increased considerably from £26m to £47m. Its operating margin, meanwhile, rose from 38% to 41%.

Update: at 15.02 on 4.7.19 This story was updated to include a comment from Mr Short.

How will this affect me?

How will this affect me?

If you’re a social housing worker on a defined benefit pension within the Social Housing Pension Scheme, it’s as likely as not that your employer is one of those which will seek to move to defined contributions.

According to Chris Mapp, head of social housing at XPS Pension Group, it is almost certain that this will result in the housing association paying less into your pension, whether this means there is an overall fall in the total contribution or just a rise in the percentage paid by you.

But the main difference, Mr Mapp says, is that where with a defined benefit pension, the risk falls on the employer, with defined contribution, the employee bears the risk.

With a defined benefit pension, an employer guarantees the amount that will be paid out at the end. If the investments made by the pension scheme fail to deliver that amount because of a downturn in the market or something else, the employer makes up that shortfall.

With a defined contribution pension, however, no specific pay-out is guaranteed. Instead, the only thing that is fixed is the amount the employer contributes to it. Therefore, the employee is the one subject to the vagaries of private investments.

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