Inside Housing – News – Housing association pension charges to rise by a third | #retirement | #elderly | #seniors
Expected increases in inflation and falling corporate bond yields will see housing associations’ pension costs rise by as much as 30% in the coming years, experts have warned.
Expected increases in inflation and falling corporate bond yields will see housing associations’ income and expenditure pension charges rise by as much as 30% #UKhousing
Pension consultancy Isio expects that “pain will be felt across the board” for housing associations offering employees defined benefit pension schemes, with charges predicted to increase.
Katy Taylor, housing lead at Isio, told Inside Housing: “Housing associations will see a significant increase in their FRS102 deficits this year, with overall funding levels down around 5% and deficits increasing by up to 50%.
“But the even tougher news is that income and expenditure pensions charges for defined benefit schemes will increase significantly, adding 30% or more to pre-pandemic levels.”
Defined benefit schemes are those that offer a specific or ‘defined’ pension amount each year after retirement, based on an employee’s salary and how long they have worked for their employer.
FRS102 is a financial reporting standard that requires organisations to recognise their complex financial instruments, such as derivatives and swaps in their income statements.
Ms Taylor said that the rise in charges comes as a result of a “significant increases in future inflation expectations” as well as a reduction in corporate bond yields from a spike in March 2020.
The Social Housing Pension Scheme (SHPS) – the main pension scheme in the sector – is run by TPT Retirement Solutions and currently has more than 7,000 active defined benefit members. More than 320 employers have at least one active member in a defined benefit structure.
A recent revaluation of the SHPS showed that the deficit of the scheme – that is, the gap between the amount of money in a defined benefit scheme’s coffers and the amount it needs in order to pay retirement incomes to members – had grown by 50% from £1bn to £1.5bn.
“Each housing association is different and the impact will depend on their actual pensions assets and liabilities profile, but the pain will be felt across the board,” Ms Taylor added.
Adam Cottrell of Cardiff-based Quantum Advisory, which undertook separate analysis, also identified the impact that falling bond yields and inflation projections have had.
He said: “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.”
Stuart Price, also from Quantum Advisory, 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.”
A number of large housing associations have left the SHPS in recent years, including Clarion, Radian, Sanctuary and Bromford.