UK - The Social Housing Pension Scheme (SHPS) is to offer a defined contribution (DC) option to employers for the first time after the latest valuation revealed its deficit had increased to £633m (€715m) at the end of September 2008, from £209m the previous year.

Preliminary figures from the latest triennial actuarial valuation revealed the deficit had more than tripled in 2008 after the scheme saw an annual investment return of -17.7% despite alterations to reduce volatility.

In its annual review of 2008, the pension fund had suggested the results of the valuation could lead to increased costs and changes to the benefit structure, following the impact of recent market volatility and increased life expectancy. (See earlier IPE article: SHPS to review benefits in light of valuation)

Following the release of the preliminary figures, SHPS has now confirmed deficit recovery contributions will increase from the current level of 4.4% to 7.5% per year, and this is expected to clear the deficit in 13.5 years.

It also revealed that, after discussions with employers, it intends to extend the range of benefit structures available to participating employers and members from the existing options of a defined benefit (DB) scheme with 1/60th accrual, a DB scheme with 1/70th accrual and a Career Average Revalued Earnings (CARE) scheme at 1/60th accrual.

From April 2010, employers will be able to offer staff a DB option with 1/80th accrual and a CARE option with 1/80th accrual, while from October next year it will also introduce a defined contribution (DC) option for employers.

Colin Small, chairman of SHPS, said: "Like most schemes undergoing an actuarial valuation at the current time, SHPS is not immune to the effects of the poor performance of world stock markets, nor to the increasing life expectancy of its members, both of which factors have impacted upon the results of the valuation."

He suggested that by offering a "wider range of lower cost, lower risk options for our employers and their staff, we are enabling employers to offer a benefit structure which allows them to focus on their core business, while maintaining excellent pension provision".

Small also claimed the addition of a DC option from October 2010 demonstrates the pension fund's ability to "respond to the changing needs of its employer members".

SHPS has now contacted all the employers in the scheme to inform them of the impact of the valuation and the range of benefit options available from 2010, and will begin a consultation process with employers who want to review their existing arrangements.

Logan Anderson, head of customer relations at the scheme's administrator, The Pensions Trust, said: "SHPS will be supporting employers in this process in several ways - by providing a detailed guidance note, to be issued in May 2009, by running a series of employer forums in June and in July 2009, and by offering a number of open days at The Pensions Trust's office in Leeds."

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