The total deficit of the UK housing associations with the largest gap between their assets and liabilities has reached more than £3bn, Social Housing analysis has found. Chloe Stothart and Gavriel Hollander report

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The total deficit of the UK housing associations with the largest gap between their assets and liabilities has reached more than £3bn, Social Housing analysis has found. Chloe Stothart and Gavriel Hollander report #UKhousing #SocialHousingFinance


A major change in the way the Social Housing Pension Scheme (SHPS) is recorded in housing association (HA) accounts in 2019 has revealed that the total deficit of the 106 English associations with the largest gap between assets and liabilities was approaching £3bn at the end of the 2018/19 financial year.

Social Housing analysed the accounts of all associations with deficits of more than £8m for 2018/19. Among the 106 English HAs that recorded a deficit between pension assets and liabilities of more than £8m in 2018/19, the total deficit came to £2.95bn. The same group of associations recorded a deficit between them of £1.65bn in 2017/18.

Including the handful of Welsh associations and one Scottish provider that also recorded deficits in excess of £8m, the overall figure reached £3.1bn across 115 organisations. The growth in overall deficit among this group of associations was 78 per cent. The majority of the increase is likely to be down to a significant change in accounting practices for SHPS.



Previously, under financial reporting standard (FRS) 17, associations that were members of the SHPS – or the Scottish Housing Associations’ Pension Scheme (SHAPS) – did not present their share of the schemes’ total deficits in their annual accounts. This was in contrast to the Local Government Pension Scheme (LGPS), whose members did report deficits.

With some landlords – particularly large stock transfer associations – much more heavily invested in the LGPS than the SHPS, this situation created an imbalance in apparent pension deficits across the sector.

In essence, this means that the 2018/19 accounts provide a basis for comparisons in the future, explained Steve Simkins, partner and public services leader at pensions advisory services firm Isio.

“Now you can compare a housing association with SHPS with a housing association with LGPS and get a fair comparison,” he said. “This is because in 2018 the housing association with LGPS participation would be showing the high deficit that comes from the low discount rate and the housing association with SHPS would be showing this lower deficit which is just based on agreed cash contributions.

“So we now have a baseline, which allows you to compare consistently all defined benefit provision across the whole of the social housing sector.”

And while Mr Simkins described comparing 2017/18 figures as published in association accounts with 2018/19 as being an “apples and pears” comparison, the move to FRS 102 has allowed for the direct comparison of deficits between different associations.

Our analysis has revealed that 13 associations carried an overall pension deficit across all their schemes of at least £50m at the end of 2018/19. This group was led by Peabody, which had a £96m deficit, and The Guinness Partnership (£91.7m). It included five members of the G15 group of biggest London-based landlords, while all but one of the 13 – Bolton at Home – owns or manages at least 30,000 homes.

Bolton at Home also had the largest deficit on a per-unit basis (£4,465) of the group with the largest deficits. That figure put the 17,500-home landlord in the top five in terms of deficit per unit of all associations carrying more than an £8m deficit.

“Now we have a baseline, which allows you to compare consistently all defined benefit provision across
the whole sector”

Of those associations with the biggest deficit in 2018/19, several have already reported their 2019/20 position. Two of the top three have more than halved their deficit over the year. The Guinness Partnership saw a fall from £91.7m to £40.4m, while Metropolitan Thames Valley Housing’s (MTVH) deficit came down from £79.2m to £31.1m. Peabody’s deficit also fell but by a more modest proportion, from £96m to £80m.

Social Housing’s analysis of all English associations with a deficit of £8m or more in 2018/19 that have also published accounts for 2019/20 showed that across the board, deficits came down by 32 per cent from £2.438bn to £1.648bn.

In Wales, the overall fall was a more modest 23.5 per cent among landlords with a deficit of more than £8m. The seven landlords that qualified produced a deficit of £140m in 2018/19 compared with £107m in 2019/20.

That figure was still higher than the same group of associations collectively declared as a deficit in 2017/18 (£92m) before the change in accountancy rules.

There is, however, a further complication to factor in when drawing a comparison between 2018/19 and 2019/20. With the financial year end falling at the end of March, a month that this year saw the start of the coronavirus lockdown and unprecedented movement in the bond markets, pensions experts have warned that this year’s deficit figures are likely to prove a mirage.

“The primary reason for the drop in deficits between 2018 and 2019 is the increase in corporate credit spreads over the year, and in particular the fact that credit spreads were high at 31 March 2019,” added Mr Simkins.

“Those credit spreads quickly narrowed, so had the position been assessed for example at the end of April, the deficit would have been closer to the end of the 2019 position. An issue for the sector is to be aware that the lower deficit at the end of March 2020 may have been a short-term phenomenon, and they should anticipate an increase through to 2021.”

HAs with pension deficits over £8m in 2019 (England)

Organisation Units 2019 Pension provision 2018 (£m) Pension provision 2019 (£m) Pension provision 2020 (£m) Difference 2018 to 2019 (%) Per unit 2019 (£)
Peabody 56,678 -71.5 -96 -80 -34.2 -1,693.80
Guinness 64,944 -5.6 -91.7 -40.4 -1,537.50 -1,412.00
Metropolitan Thames Valley 57,043 -35.6 -79.2 -31.1 -122.6 -1,389.20
Bolton at Home 17,580 -53.9 -78.5 n/s -45.5 -4,464.70
Sovereign 57,987 -31.4 -74.9 -52.8 -138.8 -1,291.50
Together 36,512 -52.8 -73.5 -77.7 -39.2 -2,012.50
Clarion 125,881 -70.9 -69.3 -32.3 2.3 -550.5
Platform 44,317 -45.3 -65.9 -47.9 -45.6 -1,487.20
WDH 31,439 -42.8 -62.9 -79.5 -47 -1,999.40
Thirteen 33,858 -49.7 -60.9 -71.2 -22.4 -1,798.50
Notting Hill Genesis 65,458 -40.5 -58.3 -22.5 -44 -890.6
Jigsaw 34,679 -46.4 -55 -53.1 -18.6 -1,587.00
Optivo 47,255 -25.3 -52.6 -33.7 -108.4 -1,113.90
Riverside 56,089 -15.4 -49.4 -21.6 -221.1 -880.4
Citizen (WM Housing) 30,816 -44.5 -49.2 -49.6 -10.5 -1,595.10
LiveWest 37,329 -6.6 -48.1 -23.5 -624.6 -1,287.60
Aster 30,791 -33.2 -45 -32.4 -35.6 -1,462.00
Believe (County Durham Housing) 18,315 -43.5 -45 -52.7 -3.4 -2,454.90
Midland Heart 33,454 0 -45 -17.2 n/a -1,343.80
L&Q 95,539 -36 -44 -25 -22.2 -460.5
Torus 37,561 -33.2 -43.4 -21.9 -30.9 -1,156.40
Wrekin Housing Group 13,339 -38.3 -42.2 -50.7 -10.1 -3,160.70
Sanctuary 101,218 42.6 -41.4 -25.9 -197.2 -409
Home Group 55,424 -40.2 -40.4 -29.7 -0.5 -729.5
Your Housing Group 27,730 -5.7 -39.4 n/s -585.9 -1,420.70
Vivid 30,521 -13.1 -37.1 -16.3 -182.3 -1,214.60
Stonewater 32,354 -4 -36.4 -16.7 -812.3 -1,125.40
Bromford 43,674 -36.3 -35.6 -13.5 1.9 -815.6
Karbon 26,834 -22.5 -35.5 -8 -57.9 -1,323.10
Yarlington 10,409 -36.4 -35.2 n/s 3.3 -3,384.80
Onward Homes 34,786 -0.9 -35.1 -13.6 -3,985.30 -1,010.00
Accent 20,623 -26.4 -33.9 -28.2 -28.4 -1,642.80
A2Dominion 38,133 -5.1 -33.5 -16.4 -556.9 -878.5
Orbit 43,470 -3 -32.4 -13.9 -980 -745.3
Radian 23,035 -31.7 -32 n/s -0.9 -1,390.10
The Community Housing Group 6,062 -24.7 -31.9 -32 -28.8 -5,254.40
PCH 15,961 -28 -30.1 -26.6 -7.2 -1,884.30
Magna 8,973 -27.9 -29.9 -29.8 -7.1 -3,330.10
Longhurst 22,778 -3.2 -29.3 -12.2 -809.8 -1,287.80
Wythenshawe Community 13,677 -20.1 -28.5 n/s -41.8 -2,087.10
Incommunities 23,200 -30.2 -28.4 n/s 6.1 -1,223.70
First Choice Homes Oldham 11,445 -20.4 -28.2 -15.9 -38 -2,464.20
Housing Plus 12,194 -19.8 -27.2 -24.7 -37.4 -2,232.70
BPHA 18,721 -27.2 -26.8 -25.3 1.4 -1,433.50
PA Housing 23,059 -1.1 -26.7 -11.8 -2,316.10 -1,159.90
Rochdale Boroughwide Housing 12,923 -14.2 -24.9 -9.9 -75.9 -1,926.80
Magenta (formerly Wirral Partnership Homes) 12,705 -16.1 -24.8 -21 -53.8 -1,949.50
Places for People 197,712 -16.5 -22.1 -13.1 -33.9 -111.8
Plus Dane 13,681 -12.1 -21 -12.3 -74.3 -1,538.40
EMH Group 19,599 -5.7 -20.4 -9 -256.2 -1,039.80
Great Places 19,305 -0.9 -20.3 -9.5 -2,144.50 -1,052.20
Aspire 9,042 -14.5 -20.2 -13.6 -39.6 -2,236.50
Housing Solutions 5,713 -20.7 -20.1 n/s 2.8 -3,517.10
Trafford Housing Trust 8,966 -12.9 -19.4 n/s -50.2 -2,161.20
GreenSquare 12,056 -6.6 -19.4 -14.1 -192.4 -1,607.10
One Vision 13,235 -12.8 -19.2 n/s -50.8 -1,453.90
Nottingham Community 9,415 0 -18.6 -6.9 n/a -1,972.80
Hyde 48,796 -13.3 -18.4 5.2 -38.1 -376.9
Beyond Housing 15,097 -21.2 -18.4 n/s 13.1 -1,217.10
NACRO 2,548 -14.7 -18.4 n/s -24.6 -7,207.20
Flagship 28,207 -6.5 -17.7 -12.6 -173 -629.2
ForViva 23,365 -6.3 -17.6 n/s -180.4 -754.5
Network Homes 21,235 0.6 -17.1 -5.6 -2,994.60 -805.6
Connexus 10,693 -9.3 -17 -16.4 -81.6 -1,587.30
Futures 10,010 -11.6 -16.3 -8.4 -40.8 -1,625.50
Grand Union 11,921 -14.8 -15.8 -13.6 -6.8 -1,326.70
Anchor Hanover 53,441 -11.4 -15.8 -12.5 -38.2 -295.8
One Housing Group 16,308 -0.2 -15.6 n/s -8,654.50 -955.5
Regenda 13,003 0 -15.1 -8.6 n/a -1,160.30
Weaver Vale Housing Trust 6,248 -10 -15 -5.5 -50.1 -2,404.80
Look Ahead Care and Support 2,322 0 -14.9 n/s n/a -6,406.10
Moat Homes 20,636 -1.4 -14.4 -6.1 -941.7 -698.6
Saffron Housing Trust 6,394 -10 -14.3 -10.8 -42.7 -2,233.20
Vale of Aylesbury Housing Trust 8,313 -12.3 -14.2 -11 -14.7 -1,702.90
Housing 21 21,009 -0.2 -14.1 -5.2 -7,378.80 -672.8
Paradigm 14,908 -8.5 -14 -7.1 -64.2 -941.2
WHG 21,065 -23.9 -13.8 -14.2 42.2 -657.3
CHP 10,055 -13.3 -13.2 -13.2 1.2 -1,310.50
Yorkshire Housing 16,697 0 -13.1 n/s n/a -786.8
Accord 13,277 0 -13.1 -4.9 n/a -986.8
Aldwyck 11,150 0 -13 n/s n/a -1,166.50
The ExtraCare Charitable Trust 3,687 0 -12.6 n/s n/a -3,428.30
NSAH (Alliance Homes) 6,610 -10.4 -12.3 -12.3 -18 -1,858.20
Silva (Bracknell Forest Homes) 7,533 -12.9 -11.7 n/s 9.1 -1,557.10
South Yorkshire HA 5,753 -0.7 -11.5 n/s -1,468.00 -2,000.50
Gentoo 29,952 17.8 -11.5 n/s -164.5 -383.9
St Mungo’s 3,116 -7.7 -11.3 n/s -48.1 -3,640.20
Poplar Harca 9,485 -6 -10.9 -7.3 -82 -1,150.60
Ongo 10,182 -7 -10.8 -4.1 -55.3 -1,061.40
Progress 10,252 -10.5 -10.6 -11.2 -1.1 -1,032.90
Westward 7,536 -6 -9.8 -5.1 -62.4 -1,294.20
Bernicia 14,654 1.4 -9.6 -5.3 -781.8 -653.2
Southway Housing Trust 6,201 -6.6 -9.5 -3.5 -43.9 -1,535.70
Salix Homes 8,716 -6.3 -9.4 -2.7 -48 -1,073.30
Southern 28,334 -8.7 -9.4 -8.6 -7.2 -330
RHP 10,407 -3.8 -9.2 -5.7 -143.7 -888.4
Shepherds Bush HA 5,109 -3.7 -9 n/s -146.3 -1,763.00
Phoenix House 482 0 -8.8 n/s n/a -18,244.80
Stafford & Rural Homes 6,365 -6.2 -8.8 n/s -41.4 -1,380.40
Hexagon 4,430 -4.2 -8.8 -3.3 -106.9 -1,976.50
Origin 6,690 -4.2 -8.7 -3.3 -107.6 -1,294.60
Cross Keys Homes 11,464 -6.6 -8.5 n/s -29 -739.1
MHS Homes 9,064 -10.7 -8.4 -11.1 21.6 -924.3
Hightown 6,383 -0.4 -8.4 -3.3 -2,036.10 -1,308.50
LHP 12,552 -4.2 -8.2 -3.7 -94.2 -655.8
Irwell Valley 7,650 -4.1 -8.2 n/s -96.9 -1,065.60
Total England 2,644,802 -1,641.00 -2,951.40 -1,647.90 -79.9 -1,115.90
Total UK 2,736,301 -1,739.50 -3,099.50 -1,762.50 -78.2 -1,132.70

Notes: n/s = 2020 accounts not available at time of compilation; n/a = 2018 figure is 0

This short-term change was reflected in the significant drop in deficits recorded by a number of associations. In its annual report for 2019/20, The Guinness Partnership recognised the reasons behind its 56 per cent reduction in deficit, stating: “The liability has fallen during the year as the credit spread between corporate bond yields and government bond yield has risen, which has an impact of reducing liabilities in FRS 102 pension deficit calculations.”

If anything, finance directors expect deficits – and therefore contributions – to increase in the coming years, whether or not their associations are members of SHPS. Clarion Housing Group, whose deficit more than halved from £69.3m to £32.3m between 2018/19 and 2019/20, has already told employees to pay higher pension contributions for the coming year. The UK’s largest landlord joined the growing group of associations to leave SHPS in 2018.

HAs with pension deficits over £8m in 2019 (Scotland)

Organisation Units 2019 Pension provision 2018 (£m) Pension provision 2019 (£m) Pension provision 2020 (£m) Difference 2018 to 2019 (%) Per unit 2019 (£)
Bield Housing & Care 4,614 -9.2 -15.1 n/s -64.2 -3,280.70
Total Scotland 4,614 -9.2 -15.1 0 -64.2 -3,280.70
Total UK 2,736,301 -1,739.50 -3,099.50 -1,762.50 -78.2 -1,132.70

Notes: n/s = 2020 accounts not available at time of compilation; n/a = 2018 figure is 0

HAs with pension deficits over £8m in 2019 (Wales)

Organisation Units 2019 Pension provision 2018 (£m) Pension provision 2019 (£m) Pension provision 2020 (£m) Difference 2018 to 2019 (%) Per unit 2019 (£)
Bron Afon Community Housing 8,968 -25.4 -33.4 -29.5 -31.3 -3,722.20
Tai Tarian (NPT Homes) 9,537 -24.1 -25.6 -31.7 -6.5 -2,686.40
Tai Calon Community Housing 6,401 -13.4 -19.3 -14.1 -43.6 -3,010.30
Newport City Homes 9,655 -10.4 -16.6 -13.8 -59.9 -1,722.60
Wales & West 11,934 -10.8 -14 -5 -30.3 -1,174.70
Monmouthshire Housing 3,738 -8 -12.6 -9.6 -57.4 -3,378.50
Pennaf Limited 5,998 0 -10.2 n/s -1,700.10
Grwp Cynefin 3,824 0 -8.5 -3.7 -2,221.80
Total Wales 60,055 -92.1 -140.2 -107.3 -52.3 -2,335.20
Total UK 2,736,301 -1,739.50 -3,099.50 -1,762.50 -78.2 -1,132.70

Notes: n/s = 2020 accounts not available at time of compilation; n/a = 2018 figure is 0

Ian Johnson, chief financial officer at MTVH, told Social Housing that he expects other associations to follow Clarion’s lead in increasing contributions: “I think that’ll be a trend you’ll see increasing across the sector in the next 12 to 18 months, anticipating the impact of the new code of conduct. We are looking at options to mitigate [the expected rise in contributions].

“We all expect the funding deficit to rise and our cash obligations to rise. By and large, sector pensions are underfunded, including SHPS, and those schemes that have exited it are likely to remain underfunded [so] there’s some catching up to be done.”

The code that Mr Johnson referred to is the consultation on The Pensions Regulator’s code of practice for defined benefit schemes.

“Leaving SHPS wasn’t done to reduce deficit but to better manage the risk profile in our pension obligations”

MTVH also left SHPS in 2019, although Mr Johnson explained that the decision to do so was not based on the change in accounting practice that meant SHPS deficits were now on balance sheet.

“What leaving SHPS has done is give us more scope to do more things going forward,” he said. “It wasn’t done to reduce deficit but to better manage the risk profile in our pension obligations.”

Nevertheless, some advisors have suggested that the switch to FRS 102 and the new transparency over SHPS-related deficits could push some boards to think about leaving the scheme.

HAs with a pension surplus in 2019

Organisation

Units 2019

Pension surplus 2018 (£m)

Pension surplus 2019

(£m)

Pension surplus 2020 (£m)

Difference 2018 to 2019 (%)

Per unit 2019 (£)

Catalyst

20,898

-0.7

0.1

-7.2

107.8

2.6

Industrial Dwellings Society (1885)

1,507

0.0

2.6

0.0

1,753.8

Merthyr Valleys Homes

4,425

3.6

4.6

0.0

30.3

1,043.8

Total surplus

26,830

2.8

7.3

-7.2

157.4

272.7

“Accounting treatment doesn’t affect the costs of benefits to employees – the obligations are the obligations – but it makes the obligations much clearer, so it brings SHPS into sharper focus,” said Sam Mullock, partner at First Actuarial. “They can see in their accounts what their share is. It does make it more likely [they will leave], not because anything has changed in pension benefits or liabilities but because it makes it clearer to boards what their obligations are.

“There’s been an increase in bulk transfer activity. Associations with more than £30m liabilities are pretty much all looking at this but that is still a minority of SHPS employers.”

An analysis of pension contributions of 202 housing associations carried out by First Actuarial in the summer found that the sector’s pension schemes showed improved funding levels in the year to March 2020. Overall funding levels were up seven per cent, while funding levels for SHPS and ex-SHPS schemes were up 13 and 15 per cent respectively.

“Accounting treatment doesn’t affect the costs of benefits to employees – but it makes the obligations much clearer”

The report said this outcome “was a surprise for many associations which were braced for a greater balance sheet deficit due to COVID-19”. Aggregate asset value remained unchanged at £6.3bn across the associations surveyed, the report found.

“The reason the assets are broadly unchanged is you have equity assets going down, and bond assets going up,” Mr Mullock added. “You’ve also got associations putting lots of money into these schemes so you’d hope assets would increase year on year as you get positive return and money going into the schemes. So flat is not a great result but maybe not as terrible as people expected.”

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