The advent of 'auto-enrolment', impending changes to the LGPS and the cessation of contracting-out means that guidance on pensions is more sought after than ever by RPs. Smith & Williamson can help.

Most RPs participate in the Social Housing Pensions Scheme (SHPS) or the Local Government Pension Scheme (LGPS) and until the last few years needed little guidance on pension issues. Successive actuarial valuations of SHPS have led to higher contributions and the need to make some difficult choices. The advent of 'auto-enrolment', impending changes to the LGPS and the cessation of contracting-out are now changing the game.

Local Government Pension Scheme

Participation as an admitted employer in the LGPS is rather like operating your own private (albeit rather generous) pension scheme to the extent that your funding rate is effectively your own. 2014 will see the present final salary structure replaced by one that is based on career average revalued earnings and adjustments to contributions. Has consideration been given to how this will be promoted to those of your staff who will be affected by it? Have you considered your future funding obligations?

Social Housing Pension Scheme

April 2013 is when recent decisions about benefits and contributions (necessitated by the September 2011 valuation) will come into effect. This may have been the subject of staff consultations, financial modelling and a lot of head-scratching on the part of management boards or not, as the case may be. If the opportunity to review contributions and benefit structures has passed you by, it is not too late to do something as you do not need to wait a further three years to reconsider.

Alongside SHPS, many RPs also participate in one or more of the Pensions Trust's Growth Plans, some of which have generated unexpected deficits and raised questions about how to deal with them.

Private schemes

Occupational money purchase schemes and group personal pensions are in evidence amongst the larger RPs, often running alongside the schemes mentioned above. Many such plans have arisen through acquisition and are in need of review on account of vast improvements in contract charges over the last few years. Terms that were considered to be competitive just five years ago are unlikely to be as attractive today. Modern administrative systems can also facilitate the management of private pension plans. It is not uncommon for a large RP to have multiple pension arrangements in place, with different providers imposing widely varying contract charges. Rationalising such arrangements makes sense for many reasons - less time spent on administration, lower charges for staff and modern contracts with ease of access for members.

Auto-enrolment

Pensions auto-enrolment is inevitable. Planning for and the administrative requirements of auto-enrolment should not be underestimated. Most payroll providers ought to be able to handle the monetary aspects but the need to communicate with all staff (eligible or not) should not be underestimated. The choice for many larger RPs will be between putting the right software (or 'middleware') in place and recruiting more staff to handle the onslaught of additional work generated by the legislative requirements of auto-enrolment.

Cessation of contracting-out

If you operate any form of active defined benefit arrangement (such as most of the SHPS structures) chances are that it will be contracted-out of the state second pension and you will be faced with having to pay 3.4% higher National Insurance contributions (probably from 2017). Those scheme members who currently enjoy an NI rebate of 1.4% of their earnings (between the relevant earnings limits) will need to pay more when this facility expires. So who will pay the RP's extra 3.4% and when do you need to start planning for this?

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.