The next valuation of the Social Housing Pension Scheme (SHPS) is expected to show that its funding position has “improved significantly” on an ‘all else equal’ basis over the past three years, meaning that the SHPS is ahead of where it was forecast to be, according to LCP.

LCP’s analysis found that, following a series of valuations that led to deficit increases and ever more money being needed from employers and members, the next valuation as at 30 September 2023 would “break the mould”.

After allowing for expected changes in methodology, LCP estimated that the SHPS deficit would be around £750m, a shortfall that “should be covered” by the contributions that associations are currently paying.

This is expected to result in deficit contributions staying at approximately the same level, barring a significant change of approach.

LCP stated that this would be a new experience for many associations, as they are used to dealing with valuations where the primary consideration was how much the deficit contributions would increase by.

LCP head of social housing, Mike Richardson, explained that the key driver in the results was the increase in long-term interest rates, which has led to material shrinking in the size of the SHPS.

“In fact, we estimate that it is now back to around the size it was in 2011,” he continued.

“For many organisations, the improved funding position may make options available which weren't there previously.

“For example, a typical association may see its current exit debt be less than half the equivalent figure three years ago at the time of the last valuation.

“Payment of this amount may not have been affordable then, but perhaps it would be today? This is a new option for many associations, and we have worked with a number of associations that have already taken advantage of the reduced cost of exit."

LCP not-for-profit practice head, Richard Soldan, added: “Another consideration is those employers who still have employees building up new defined benefit pensions.

“On an all-else-being-equal basis, we would expect the total cost of providing these benefits to have broadly halved.

“For example, the cost of building up new benefits in the final salary 60th section may fall from just over 40 per cent of pensionable salary to around 20 per cent or 25 per cent - which is a huge reduction.

“The reaction of employers is likely to depend on how increases at previous valuations were dealt with – were increases met solely by either the member or the organisation, or was the pain shared?

“Given the scale of the likely changes, we recommend that employers in this position start considering their options as soon as possible.”

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