Housing associations could face “significant” pension contribution increases following the completion of the Social Housing Pension Scheme’s (SHPS) 2020 valuation, LCP has warned.

Its analysis estimated that the valuation could reveal a scheme deficit of £1.5bn if the same methodology is used as in 2017.

LCP said this would be nearly £500m higher than expected under the defined benefit (DB) scheme’s funding plan, set out following the 2017 valuation.

The firm estimated that this could result in housing associations’ deficit contributions increasing by between 30 per cent and 50 per cent.

Furthermore, LCP warned that costs may increase by up to 5 per cent or more of salary in contributions for employees currently earning DB pensions in the scheme.

Although these changes are not expected to come into force until April 2022, LCP said that the SHPS valuation should be “high on housing association board agendas” due to the “potentially huge” impact on costs.

While the estimated deficit for 2020 is around the same as in 2017, housing associations have paid over £400m in contributions over the last three years.

“With housing associations paying significant contributions over the last few years, as well as some associations transferring their share of the deficit out of SHPS, it would be hoped that the deficit would have reduced,” commented LCP partner, Mike Richardson.

“However, our calculations show that the deficit has stubbornly remained at around the £1.5bn level as assets have failed to keep up with the growth of liabilities.”

TPT Retirement Solutions is the scheme provider and, in response, a TPT spokesperson said: “The valuation of the SHPS is due at 30 September 2020, and we will be working hard to share the outcomes – and any associated deficit contributions – with participating employers in Spring 2021.

“While we complete the valuation, you may see third party discussions about the estimated results. Please remember that specific scheme details are available only to TPT, as the trustee.

“We will share the results directly with employers participating in SHPS as soon as they are available. In the meantime, employers should look out for updates in our regular communications with them and they can also view the valuation timeline on our SHPS valuation site.”

LCP partner and head of social housing practice, Richard Soldan, added: “As well as an increase in deficit contributions, employers are potentially facing an eye-watering increase in costs for employees that are earning DB pensions in the scheme.

“This increase will need to be met by employers, employees, or a combination of the two – and none of these options will be welcome. Boards will need to start to think about how they will respond to the likely significant increases in costs.”

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