Pension liabilities - a perfect storm for the social housing sector

The private sector restructured their pension provision years ago, moving away from expensive and volatile defined benefit pension schemes. This gives it a competitive cost advantage in the commercial housing sector, where Registered Providers (RPs) are seeking to enter or increase their presence.

Start now

Now is the time to set up a project plan and agree your 2021 pension strategy and cap your liabilities. Consult with employees about the type of defined contribution scheme they want for this new normal to reflect the flexibility that they require. 

Consider the legals – what can you change?

The first step is to consider the legal position by checking employees’ contracts of employment and any employment-related documentation. If employees have transferred from the public sector, then the outsourcing contracts with any requirements under the Transfer of Undertakings Protection of Employment (TUPE) or Fair Deal should be checked, as these can restrict how  pension benefits can be restructured. 

Check your pension scheme options

The employer bears the ultimate liability for any shortfall in benefits in a defined benefit pension scheme like SHPS, the LGPS or  a stand alone defined benefit scheme. By contrast, in a defined contribution section, benefits are based on the size of a member’s pension pot and the cost of buying an annuity. Any risk is taken by the member.

Take care that exiting from any defined benefit scheme will not trigger a large employer payment. Check if the trustees or statutory body would agree to paying off any deficit over a number of years. Speak to a financial and actuarial advisors to understand the impact of any changes on the balance sheet.

Cost management

Consider what type of pension benefit you wish to offer and ensure that your employees value it. A move away from defined benefit pension schemes could help reduce volatility of pension costs and give RPs more control over their pension spend. This new normal requires new thinking to deliver people’s funding for retirement.  

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at August 2020. Specific advice should be sought for specific cases. For more information see our terms & conditions.