Social housing group moves out of SHPS as contribution hike bites
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A Welsh housing group has left the Social Housing Pension Scheme and set up its own pension plan within TPT Retirement Solutions, as employers seek greater control over pension assets and liabilities.
The Wales & West Housing Group Pension Plan was established with effect from 1 April this year, the same date on which contribution changes to SHPS take effect. The more than 360 employers still in the SHPS are seeing large contribution hikes following the September 2020 valuation.
CARE remains open
The new Wales & West Housing Group scheme provides both defined contribution and defined benefit, which remains open to new members. The group previously had an open CARE scheme in SHPS with a 1/80th accrual rate open to new joiners, while a final salary scheme and a CARE scheme at 1/60th accrual were closed.
mallowstreet understands that the employer sought greater control over the costs, risks and the funding level of the scheme. The group, which consists of several companies and manages over 12,000 properties in Wales, had pension assets of £67.5m and a pension deficit of just over £15m in late 2020.
Risk of taking on orphan liabilities very low in SHPS
SHPS is a ‘last-man standing arrangement’, with employers potentially liable for other participating employers’ obligations if those are unable to meet their share of the scheme deficit after leaving the scheme.
But while there is a risk that employers become liable for the pension costs of others, this has not really happened in the social housing sector to date, said David Davison, director at consultancy Spence & Partners.
“You don’t tend to have insolvencies in the social housing sector,” he said, as when one social housing organisation becomes insolvent, it is taken over by another. Both SHPS and its Scottish equivalent have “next to nil” orphan liabilities because of this, Davison added.
If an employer is in the SHPS DB scheme, “to avoid triggering the [s75 exit] debt you have to contribute to SHPS DC”, he explained, but by setting up their own scheme and just closing to accrual, the employer does not need to stay in the SHPS DC scheme.
‘Much logic’ in leaving multi-employer schemes
For larger social housing organisations, there is “so much logic” in going it alone in terms of pensions, Davison believes, even if it is expensive to set up because the funding level of any new scheme has to be at least equivalent – and ideally higher – than that of the existing scheme.
“The employer would have to provide more money or a guarantee up front. But the potential for investment freedom and for getting yourself in a position to go to buyout” are vastly improved, he argued.
While the membership make-up might differ considerably between employers, each of them gets invested in the same way in a multi-employer scheme, he said; “why would you want to limit yourself to a fund that didn’t suit you, when you could invest for return and reduce the ultimate cost?”
Several large housing associations have left SHPS in recent years, including the Guinness Partnership, which manages 65,000 homes, Bromford, Clarion, Abri (formerly Radian) and Sanctuary.
