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New SHPS payments calculations to create ‘winners and losers’
The way housing associations’ deficit payments to the Social Housing Pension Scheme (SHPS) calculated is set to change under new plans predicted to create new “winners and losers”.
SHPS is currently undergoing its fourth valuation, which experts predict will lead to a 50% rise in contributions by members overall to pay off the increased deficit of £1.5bn.
The plan is expected to have “significant” effects for some housing associations, leading to some associations paying more in deficit payments than they would have done under the previous valuation method and some less.
In the past, the amount an association contributed to the deficit was calculated as a percentage of its pensionable payroll. This applied to two of the previous three valuations of SHPS done in 2005 and 2008. For its third valuation, in 2011, SHPS decided to share new deficit payments among members differently, calculating it by looking at organisations’ actual share of liabilities but keeping the original payments the same.
A source close to the revaluation has told Inside Housing the employer committee is now in favour of “ripping up the deficit recovery plan and starting again based on everyone’s true share of liabilities”.
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The source added: “Some people are winners and losers now. [The new method is] a fairer way of doing it, but it could potentially be a bigger change for employers, because if they were a big winner or loser, that could go away.”
To calculate the new position, SHPS will have to determine the value of each individual member’s liability under the scheme, evaluating how much will have to be paid out to employees in pension payments over time.
Steve Danby, audit manager at accountancy firm Mazars, said these calculations are much more complicated than those required by the previous method, as they require actuaries to determine a discount rate against future payments and how pay rates and inflation will change over time.
He told Inside Housing: “You’re making assumptions which means you don’t know the precise figure.”
One finance director told Inside Housing: “There are inevitably some winners and some losers, but the overall mechanism – on the face of it – would appear to be fairer and more equitable.
“The narratives that various advisors have published have said it could be significant for some housing associations. For others, it won’t be much of a change.”
Because of new governance arrangements required by The Pensions Regulator, SHPS now has two committees, and the scheme committee must also agree to the plan.
According to the valuation source, having two committees is the reason the valuation has been delayed. Though the final figure was originally scheduled to be released in June, it is now not expected until September.
