Housing sector learns how markets affect pension schemes
Leading independent pensions and employee benefit advisors Quantum Advisory has addressed corporate members of Community Housing Cymru, highlighting the impact of market trends and global events on the major pension schemes used by the housing sector.
Stuart Price (pictured above) and Adam Cottrell, corporate pension actuaries at Quantum, spoke during the webinar on Thursday 19 May, focussing on issues surrounding Defined Contribution (DC) schemes, the Local Government Pension Scheme (LGPS) and the Social Housing Pension Scheme (SHPS).
Speaking about the potential outcomes of defined benefit (DB) pension liabilities on Association’s balance sheets as at 31 March 2022, Adam Cottrell said: “Global equities rose between April 2021 and March 2022 with a generous growth of around 9%. While DB schemes such as LGPS and SHPS aren’t wholly invested in global equities as they have diverse investment portfolios, it is a good proxy to understand asset performance.
“A combination of really strong asset performance and reduced liabilities due to the increase in corporate bond yields means that, in relation to their pension liabilities, we have seen Association balance sheets improve by the year end of 31 March 2022 compared to the previous year. LGPS’ more aggressive investment strategy means that the improvement in the balance sheet of those Associations who participate in LGPS is likely to be greater than with SHPS where any improvements may have been more modest.”
Adam also talked about the LGPS’ triennial funding valuation which is currently underway and full results are likely to be made available to employers in Autumn 2022.
Providing his thoughts on the likely outcome, Adam said: “It will depend on each LGPS Fund as they are valued differently. High level indications are that the past service position would be better than three years ago but the cost of providing benefits for future service is likely to increase, so the results will be a bit of a mixed bag and will vary between different Associations.”
Stuart Price provided an update on the latest funding information from SHPS.
Stuart Price said: “Even though short-term inflation is going up, we have seen that this has been factored into investment markets’ expectations and long-term inflation prospects, which are so important for DB schemes such as SHPS, remain relatively flat. However, the impact of short-term inflation increases, as well as the war in Ukraine, is more obvious in the recent performance of global equity markets which have been quite volatile over recent months.
“As a consequence, the funding position of SHPS DB hasn’t broadly changed since September 2021. The silver lining is in relation to future service rates as we expect at the current time contribution requirements for future accrual to reduce by something like 20%. This will likely mean a reduction in employer and employee contributions to SHPS DB.
“Although these figures will need to be confirmed when the next full funding valuation is carried out in September 2023 (and we still have some way to go until we reach that date), and any potential reductions in contributions would not come into effect for housing associations until September 2024 at the earliest, I think we are finally seeing good news for Associations that participate in SHPS DB.”
Stuart finished by touching on the impact changes to national insurance rates and thresholds will have on those Associations who have a salary sacrifice arrangement in place for employee pension contributions and emphasising the value to Associations of providing pension education and engaging with their employees.