Major players see pension deficits soar

The falling stock market and an ageing population has left three of the largest players in social housing posting multimillion-pound pension deficits.

The Housing Corporation, Home Group and Peabody Trust all saw the value of their funds fall in their latest annual reports (see "How deficits have risen", right).

The corporation's pension fund deficit rocketed from £3.7m on 31 March 2002 to £33.4m on the same date this year.

Home Group saw its final salary scheme deficit soar from £4.9m to £25.2m over the same period and Peabody's deficit grew to £11m.

Home subsidiary Stonham Housing Association saw its deficit increase from £2.2m to £8.6m.

Its fund is a standalone part of the social housing pension scheme run by the Pensions Trust.

The stock market slump – which was at its worst in March when associations valued their schemes for their annual reports – was partly responsible for the deficits.

Home Group's equities lost a quarter of their value over the year, dropping to £9.9m. But Home chief executive Malcolm Levi said the UK's ageing population was the main cause.

He said: "The actuaries do the calculation on the basis that we are living for an extra three to four years, and that has to be paid for. The collapse of the stock market plays a part, but the main reason is increasing longevity."

Employee contributions to the fund will rise from 5% to 7% on 1 October, but Levi said he did not expect increasing contributions to have a negative impact on recruitment.

The group had already decided to raise employer contributions by about 4% a year over three years (HT 20 June, page 14). The group closed its final-salary schemes to new members in 2001 and opened a money purchase scheme for them which, by definition, cannot get into deficit.

Peabody's £11m deficit is its largest ever. Catriona Simons, the trust's finance director, said: "There will be no contribution changes until the triennial review that is due in March next year."

Peabody's £1bn pension fund – 83% of which is invested in stocks and shares – forms a small part of the funds managed by the London Pensions Fund Authority. This means Peabody has little say in investment decisions. Simons said the authority changed its strategy to less high-risk investments last year, and added that Peabody was "taking a long-term view to the problems rather than knee-jerk reactions".

The Housing Corporation's pension fund is part of the City of Westminster's pension fund. Under local government rules, the fund can only increase employer contributions. Changes to employee contributions can only be made by government.

n The Pensions Trust will tell members whether it is to raise contributions to the Social Housing Pension Scheme at the end of next month. The trust is consulting on a 2.2% contribution rise after finding a £117m deficit (HT 25 April, page 14).