The Social Housing Pension Scheme (SHPS) past service deficit has risen for the fifth consecutive valuation, from £1.3bn to £1.5bn, according to its valuation as at 30 September 2017.
The valuation, which was originally scheduled for release in March 2018, found that the deficit had increased despite contributions towards the deficit of £350m over the last three years.
This means increased contributions from housing associations towards the bigger deficit, an extra £14m per year from April 2019, are required to shrink the deficit. This may increase to nearly an extra £100m per year across the sector in five years time.
LCP partner and head of the social housing and not-for-profit team, Richard Soldan commented: “Whilst housing associations are currently rightly concerned with wider housing issues like health and safety, the increase in the SHPS deficit and contributions is unwelcome, but largely as expected.
“Any association that continues to provide defined benefits for current employees through SHPS will also need to consider how to respond to the significant ongoing cost increases.”
SHPS has proposed, following consultation with its employer committee, to change its approach and recalculate deficit contributions for all employers based on a 'liability share'.
If this happens, it could result in some of the larger associations paying a higher share of deficit contributions than they were previously.
However, the benefit options are not expected to change and the increase to the future service rate is only around a third.
The increases are set to be introduced from July 2019 and include the total cost of final salary 60ths rising from 20.6 per cent to 27.2 per cent.
The valuation also found that SHSP DB membership has fallen by nearly 50 per cent since the 2014 valuation, whilst DC membership has increased by over 40 per cent.
Furthermore, the valuation highlighted that the cost of building up new benefits has increased significantly, which could mean higher contributions from participating employers from July 2019.
XPS Pensions Group head of social housing, Chris Mapp added: “With the recent XPS Pensions Group survey showing that 55 per cent of housing associations have no policy in place to deal with pension cost increases and over 90 per cent of respondents either definitely or possibly reviewing their pensions offering, we expect to be very busy helping a lot of clients in the coming months. Any organisation with members in SHPS should start to consider their options as soon as possible.”