The latest triennial valuation of the Social Housing Pension Scheme will reveal a deficit of £1.5bn, up from £1.4bn in 2014, LCP analysis predicts.

The firm has warned that it is bad news for approximately 500 housing associations that participate in the scheme, at a time when the sector is already under pressure, after Moody’s recently downgraded the credit rating of a significant number of large associations.

Commenting, LCP partner and head of LCP’s social housing advisory team Richard Soldan said: “The 30 September valuation – which associations will be notified of in the next few months – will make for troubled reading, with our analysis showing the scheme’s deficit is likely to be around £1.5bn. This figure compares with a deficit of £1.3bn from the previous valuation in 2014, and comes despite associations paying £340m in deficit contributions since then.”

LCP said the current deficit contributions are consistent with that expected deficit of around £1bn at this valuation, so a deficit of £1.5bn effectively represents a 50 per cent increase in deficit contributions which has to be met by the current employers.

“So all else being equal, things have got a lot worse. And, actually, things may well not be equal. The £1.5bn deficit assumes the SHPS trustees take a similar approach to this valuation as they did in 2014 – but they might want to do something different,” Soldan added.

“The Pensions Regulator has said that in general it wants to get more involved during a valuation process, rather than afterwards once all the decisions have been made. Is SHPS on its radar? And could it ‘nudge’ the SHPS trustees to take a more prudent view of the future this time around, which would give a bigger deficit?”

However, if it is revealed that the deficit stands at £1.5bn, it will be an improvement on 2016 figures, when the deficit was £1.8bn, and it had a funding level of 71 per cent. Despite this, LCP has warned that the deficit will lead to increased contributions, to meet the deficit and of providing DB pensions for existing employees’ future service.

LCP partner Mike Richardson explained: “Today’s financial markets imply that future service contributions might increase by around 50 per cent. Another huge increase in cost for some associations. This will be the third time future service costs have increased in as many valuations. We know many employers choose to share at least some of the increases in future service costs with employees. But is this affordable going forward?”

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