Bulk transfers from the Social Housing Pension Scheme
Many employers who participate in the defined benefit section of the Social Housing Pension Scheme (SHPS) are considering doing bulk transfers out of their liabilities from SHPS into their own pension schemes.
SHPS has over 400 participating employers who are unconnected with one another. As at 30 September 2017, it had a deficit of over £1.5 billion on the scheme specific funding basis.
SHPS is a "last man standing scheme". This means the last remaining employer in the scheme is responsible for funding any remaining deficit, which could include liabilities relating to other non-connected employers. For example, if an employer experiences an insolvency event and is unable to pay in full its debt to SHPS, that unpaid part of the debt becomes an "orphan liability" and is spread out amongst the remaining employers in SHPS, who are then responsible for paying it. Therefore employers are cross-subsidising each other's liabilities.
Many employers are now looking to remove these risks by doing a bulk transfer of their liabilities out of SHPS into a newly created pension scheme of their own:
- The new pension scheme can be set up with The Pensions Trust (TPT) (which is the trustee of SHPS), but it is legally separate to SHPS. Alternatively, employers can set up a pension scheme outside of TPT.
- Employers then transfer all of their liabilities out of SHPS into their new scheme (the New Scheme), along with a proportion of the assets of SHPS.
- There is usually no debt to be paid at the point of transfer because the employer is taking its liabilities with it to the New Scheme.
Once the New Scheme is set up and the bulk transfer of liabilities has taken place, the employer then starts making contributions towards the deficit in the New Scheme. The difference is that now:
- all of the contributions being paid into the New Scheme go towards paying the benefits of employees and former employees of that employer, and not towards benefits of employees of other unconnected companies participating in SHPS;
- employers have more control in the New Scheme over the pace at which they can pay off the scheme's deficit;
- employers have more control over the investment strategy followed by the New Scheme; and
- the risk of being the "last man standing" and being responsible for funding any remaining deficit which other employers cannot pay is removed.
Our team can help by:
- Advising on the legal requirements for doing a bulk transfer without member consent out of SHPS.
- Drafting the transfer agreement and the scheme documentation for the New Scheme.
- Drafting and advising upon any security which will be provided by the employer to the New Scheme.
- Advising on any non-disclosure agreement which TPT will require employers to sign before it will share scheme data with them.
The team have advised on three completed bulk transfers out of SHPS to date, and is currently advising five other employers in relation to five other bulk transfers out.
Trowers Top Tips on bulk transfers out of SHPS
- Make sure you ask your lawyers to review the non-disclosure agreement which TPT will require you to sign.
- Obtain a clear breakdown of costs from TPT of doing a bulk transfer at the outset.
- Seek actuarial advice early on in order to understand what investment strategy your new scheme might be able to pursue, and what funding strategy you might be able to agree.
- Establish early on whether any properties which you own, which you will offer as security to the new pension scheme have any encumbrances or restrictions on them which you will need to address before being able to grant them as security.
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