UK: Social Housing Pension Scheme - Brace Yourselves

Last Updated: 4 April 2012
Article by Christopher Murray

It's that time again for the social housing pension scheme

Christopher Murray discusses the options available to RPs once The Pensions Trust has delivered its latest valuation results.

Can it really be three years since RPs locked into the Social Housing Pension Scheme (SHPS) were dreading a letter from The Pensions Trust with news of how much the cost of their pension schemes would increase? Well here we are again, at a point when liabilities have increased beyond expectations and investments haven't.

There's little point in trying to speculate what the damage might be, other than to brace ourselves for another increase in contributions, interpreted by most non-actuaries as 'costs'. We don't expect to see anything concrete until May, when the results of the 30 September 2011 valuation should be released. Employers will then be consulted on how best to pay off the inevitable increase in deficit over a respectable period.

The current plan for clearing the deficit that existed at 30 September 2008 is to apply a charge of 7.5% of each employer's scheme salary role at that date and to increase this by 4.7% per annum compound for 15 years from 2010. This means that deficit recovery contributions will double over the period, regardless of any decline (or increase) in membership.

If the Pension Regulator's guidance is adhered to, any new recovery plan will be additional to the existing one, but given the financial pressures that have been experienced by RPs over the last year, it remains to be seen whether or not this will be the case.

On the basis that 'forewarned is forearmed' it is probably worth considering what options might be on the table.

Do nothing

It depends on your starting point but if you can afford to maintain the status quo, once the increased funding requirements are known (which may also affect contributions for future accrual) this would at least put off the need to enter into a consultation process with your employees.

There are many variations within SHPS, from RPs who have kept their original defined benefit (DB) structure open to new entrants, to those who have ceased future DB accrual in favour of the defined contribution (DC) structure that was introduced in 2010 and paying a reduced surcharge of 1.5%. The surcharge itself may well be revisited, as could the 50% concession to those who have adopted the DC plan.

Introduce salary sacrifice

Over the last 18 months or so there has been a considerable increase in companies introducing salary sacrifice facilities for their staff as a cost-effective way to make pension contributions. This has occurred primarily where some form of DC arrangement is in place. More recently we have seen the same approach used with DB schemes, such as the SHPS final salary and CARE benefit structures. Indeed, The Pensions Trust has made it surprisingly easy to operate salary sacrifice alongside 'traditional' contributions.

By 'sacrificing' an amount of salary equal to a person's pension contribution in favour of an equivalent amount being paid into the scheme as an employer's contribution neither party pays national insurance (NI) on the amount sacrificed. As the present SHPS DB schemes are all contracted-out of the state second pension, the amount of personal NI saving will be 10.6% of the contribution for most basic rate taxpayers, or 2% for most higher rate taxpayers. The employer will save 10.4% or 13.8%, depending on a person's level of earnings (all percentages effective from 6 April 2012).

Worthwhile savings could be made by both parties by using salary sacrifice. In the case of employers, this could help to offset increased costs arising from the valuation.

The effectiveness of a salary sacrifice facility is greatly dependent on how well the concept is communicated to staff. Face to face presentations have been found to be considerably more effective than the most well-presented written material, although both are needed in order to ensure that individuals understand the options available to them.

Reduce future benefits (within SHPS)

This may well have been done in 2010 with the advent of lower cost n/80ths final salary and CARE alternatives. The DC option that was introduced in October 2010 might have appeared to offer an attractive home for future contributions although the increase in NI contributions and the loss of certain benefits under the mainstream SHPS would also need to have been considered.

If future service benefits were reduced in 2010, it might be difficult to review the structure again so soon. But three years ago, who could have predicted such instability in the eurozone, the depth of recession and the extent of financial constraints that have been inflicted upon RPs? On this basis, it might again be worth looking at the lower cost options that are available.

One option that has been mooted is to introduce an n/120ths contracted-in final salary scheme. If it does come into being, one wonders just how useful such a scheme might be. Not only would the NI rebates (on earnings between £5,564 and £40,040) be lost, but the pension generated by this would be minimal. The only mitigating factor is that people would start to accrue benefits under the state second pension, which favours lower earners.

Benefits beyond SHPS

It would be possible to offer a lower cost scheme for future new entrants, while maintaining at least some form of active membership of SHPS (DB or DC) so as not to trigger the liability for a Section 75 debt (full buy-out costs; unaffordable for most employers).

Deficit recovery contributions would continue to be payable alongside whatever 'active' element of SHPS is maintained. If another scheme is permitted to run alongside SHPS as a vehicle for new members, the full surcharge (currently 3% but subject to review) would be payable. On the other hand, auto-enrolment may not be far over the horizon, depending on staff numbers, which will also require consideration, so it might be worth 'biting the bullet' and moving to a non- SHPS alternative while some attractive propositions are still available in the market.

Members' contributions

If members were asked to pay more last time around in order to maintain their existing scheme structure, it would be difficult to approach them again so soon. In addition, there could now be a perception among employees that a right has been created to enjoy a certain level of benefits.

Financial assessment

By the end of 2011, all employers who participate in SHPS in any of its guises will have undergone a form of employer covenant assessment. The idea is for The Pensions Trust to establish the ability of employers to meet their future obligations under SHPS. In some cases, this could lead to only lower cost options being available from April 2013, when new funding rates will be in place and the yet-to-bedetermined recovery plan is implemented.


It would be prudent to start considering your options before the results of the valuation are known. This will allow your organisation to develop a strategy to cope with the range of possible outcomes before you get funnelled into what we expect will be The Pension Trusts' prescribed timetable for decisions and processes.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.