UK - The Social Housing Pension Scheme (SHPS) is to consult with members about possible new benefit options and contribution rates later this year as it anticipates its latest actuarial valuation will reveal increased costs.

In its annual review of the year to 30 September 2008 the pension scheme, administered by The Pensions Trust, reported a £233m (€263m) fall in the value of the fund from £1.76bn to £1.53bn over the year as investments returned -17.7%.

The report noted the investment strategy of the fund, which has over 56,000 members, was altered over the year to try and reduce volatility, leading to the Pensions Committee and Trustee investing 7.5% of the scheme's assets in a fund of hedge funds.

Changes to the strategy, taken after professional advice, also included a reduction in the allocation to global equities from 75% to 67.5%, while 17.5% is invested in fixed interest bonds and the remaining 7.5% is in property.

Despite the alterations, however, the fund returned -17.7%, which was 1.4% below the benchmark as although it outperformed the benchmark in property and money markets this was offset by "disappointing performances" in global equities and the fund of hedge funds.

The last valuation of the fund in September 2005 revealed a funding level of 83% and a deficit of around £283m, but while the deficit had dropped to £209m by September 2007 the negative investment performance of last year is likely to have offset this improvement.

SHPS confirmed the next valuation from September 2008 is currently in progress, with the results expected later this year, but it warned "global financial problems combined with people living longer are expected to push up the cost of benefits".

It therefore stated: "Employers will consult with members during the summer about the valuation results, the effect on contribution rates and some new benefit options."
SHPS last altered its benefit structure in 2007 when it gave the 700 employers involved in the scheme the choice of three benefit options: staying with a DB scheme at 1/60th accrual; keeping the DB scheme and reducing accrual to 1/70th or switching to a Career Average Revealed Earnings (CARE) scheme. 

Colin Small, chair of the SHPS Committee, admitted 2008 had been a difficult year for investments as £233m was wiped from its value, and warned it is "unfortunate timing that the scheme valuation coincides with poor market conditions" as it means the results will be "difficult".

He said: "A combination of people living longer, tighter regulation and the effects of the credit crunch mean costs will almost certainly go up. The Committee is only too well aware of employers' and members' concerns about affordability and we are prepared for this challenge.

Small added the scheme's adviser had been talking to employers about the benefit options and confirmed "during the summer employers will be consulting with members about their future pension arrangements based on a revised offering from SHPS".

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