Pensions have become a particular issue for housing associations, in common with many other organisations, due to the high level of take up of defined benefit arrangements and the increasing cost of funding these arrangements.
Transferring employees from local authorities had their pension benefits protected under the Transfer of Undertakings (Protection of Employment) Regulations (TUPE) and the best value regulations.
TUPE allows defined benefit provision to be replaced with a defined contribution arrangement. However, the best value regulations introduced in 2007 for local authorities (broadly in line with the Fair Deal policy which applies to central government employers) required that where staff are compulsorily transferred out of the public sector to an external provider, the new employer has to provide a 'broadly comparable' pension scheme for the transferred staff. Most housing associations fulfil this requirement by participating in the Local Government Pension Scheme (LGPS) on behalf of those staff transferred.
The policy also required accrued pension rights to be protected, meaning that previous employers bulk transferred arrangements for staff transferring their public service pension benefits. This has led to many housing associations to have significant defined benefit pension obligations, particularly in the LGPS.
In 2013, a revised Fair Deal policy for central government came into force whereby all staff whose employment is compulsorily transferred from central government to independent providers of public services must retain access to their previous employer’s pension arrangements. The new provider then becomes a ‘participating employer’ in the public sector arrangement.
Housing associations are not currently covered by Fair Deal because they tend to take on staff from local rather than central government. They therefore currently have the choice between participating in the LGPS and setting up a broadly comparable scheme. However, the government has completed a consultation on introducing Fair Deal to local government, which if implemented will mean housing associations will be required to offer only LGPS to those staff who have transferred from local government.
Different rules on transfer rights apply in Wales and Scotland; see the separate Wales and Scotland chapters for more detail.
Housing associations have in the past offered defined benefit pension provision when employers in other industries (particularly in the private sector) have moved towards offering defined contribution arrangements.
However, the risks and rising costs of defined benefit pension arrangements (for both the employee and the employer) and the introduction of auto enrolment mean that many housing associations have now closed defined benefit schemes to new entrants and some have closed them completely, in line with the private sector, with many now offering defined contribution arrangements, particularly to new staff.
In general, there are four main pension arrangements that are used within the social housing sector: Social Housing Pension Scheme (SHPS), the LGPS, housing associations’ own defined benefit schemes, and other defined contribution schemes. These are covered in the following sections.