Many housing associations understandably feel trapped in their existing pension schemes. Withdrawing from a multi-employer pension scheme such as the Social Housing Pension Scheme (SHPS), for example, can involve making a large payment into the scheme to secure benefits for all members.
Under SHPS, the trigger for such a termination debt tends to be the date when the last active member leaves the scheme. This debt is not payable incrementally over time; instead it must be paid as a one-off sum based on the ‘insurance cost’ of those benefits. This will be an expensive and significant debt for most housing associations.
For the Local Government Pension Scheme (LGPS), a termination valuation is required if an employer is about to leave the scheme. Many LGPS funds also have a policy of requiring a debt payment when the last active member leaves, and will set this figure close to the insurance cost of securing benefits.
Different LGPS funds have different policies governing when they trigger the debt and how it is calculated. It’s important to plan ahead and set an appropriate mitigation strategy.