Housing Association pension liabilities and contributions set to increase

 
LEADING independent pensions and employee benefit advisors Quantum Advisory has addressed corporate members of Community Housing Cymru, highlighting the importance of reviewing their FRS 102 pension disclosures to potentially improve balance sheet positions, and providing an insight into current market trends in the major pension schemes used by the sector.

Corporate pension actuaries at Quantum, Stuart Price and Adam Cottrell, spoke during the hour-long webinar on Friday 7 May, focussing on issues surrounding the Local Government Pension Scheme (LGPS) and the Social Housing Pension Scheme (SHPS).

Left: Adam Cottrell. Right: Stuart Price.

Providing a brief overview of the last 12 months, Adam said: “Corporate bond yields drive the discount rate assumption for Associations’ FRS 102 pension accounting numbers and, along with long-term expectations of inflation, movement in these assumptions has the biggest impact on a Housing Association’s pension balance sheet position.

“Unfortunately, the past year has seen corporate bond yields fall and this, combined with the significant increase in the expectation of long-term future inflation, will have increased pension liabilities significantly. On a positive note, there have been big improvements asset-wise which will help to offset some of this negativity. However, overall, it’s likely that the majority of Housing Associations will see a deterioration in their pension balance sheet positions as of March 2021 compared to the previous year.”

Looking at current SHPS and LGPS issues, Stuart stressed that it was highly likely that deficit contributions for SHPS employers, along with the cost of future accrual, will increase following the latest valuation in September 2020, with results due very shortly. He concluded that SHPS may simply become unaffordable to both employers and employees in the future.

Stuart said: “Contribution rates will very likely increase soon because the £1.5bn SHPS deficit hasn’t come down as we’d hoped and the cost of building up more defined benefit pension is increasing. It will be down to individual Associations to decide how to react to this and whether they will increase contributions for employees, offer sections with less generous accrual, a combination of both or perhaps even scrap defined benefit pensions altogether.”

Stuart finished by stressing the importance of pension education for employees within the workplace. He added: “The continuing move to defined contribution pensions only makes the importance of employee education greater. The invaluable benefit of engaging with pensions early in your career cannot be understated and employers have a key role in encouraging this”.

Quantum Advisory, which has its headquarters in Cardiff, provides a full suite of pensions services to employers and trustees. For further information visit the website. To watch the full presentation here.