Social housing pension scheme explained: a comprehensive guide

You probably had no idea about which pension scheme to go for when you’d started your first job in the social housing sector.

Now, a couple of decades into your professional life, you might have heard about the social housing pension scheme (SHPS) which might also make you wonder how it will affect your post-retirement financial status.

So in this guide, we'll break down everything about SHPS in plain English - no fancy jargon or complicated terms. We'll explore its structural types, requirements and how it fares against other pensions.

Keep reading to learn more.

What is the social housing pension scheme (SHPS)?

SHPS is a pension plan that is specifically for the employees in the UK social housing sector. It is managed by the pensions trust and extends the coverage to all the staff of more than 500 housing associations.

Usually, ordinary workplace pensions primarily depend on the market performance. However, SHPS offers a retirement income that is calculated by your final salary and years of service. The target retirement age (also known as TRA) of this scheme is 65 but you can take benefits at any age from 55 years. The main features of SHPS are:

Defined payout

Your pension is usually calculated using a formula that includes the number of years you’ve been a member of the pension scheme and your pensionable salary. For example, 1/60th of your annual salary x number of years of your service.

Employer contributions

Your employer/housing association pays into the scheme as well to fund your future pensions. Hence, your regular savings grow faster.

Inflation protection

The benefits are adjusted yearly depending on the inflation (CPI), thus your purchasing power will not be affected significantly.

What are the pre-requisites to join the SHPS?

You can join the scheme if you work for an employer who is participating in SHPS, are between the ages of 16-74, and have completed the minimum service period specified by your employer (not more than twleve months after you started work).

If you are eligible, you might have been enrolled automatically by your employer. The automatic enrollment criteria is that you earn more than £10,000 per year and are under state pension age. And if you aren’t, check with your employer and fill out an employee eligibility application form to become a part of the scheme.

Types of social housing pension schemes

The main aim of SHPS is to help workers in the housing sector have enough to live on post-retirement. And the scheme’s benefits certainly make it live up to its expectations in most cases. There are two main structures of SHPS:

Defined benefit (DB) structure

This structure guarantees you a certain amount of pension that may depend on your salary and service period. DB structure has different variations, for example:

Final salary

The pension is calculated with respect to the last salary of your career as an employee.

Career average revalued earnings (CARE)

Your pension is calculated using the average salary earned during your career (not the final salary). Earnings are updated yearly to keep pace with the rising cost of living (CPI + 1.6%). This is the best option for those who are still young or had hugely different salaries in their careers.

Defined contribution (DC) structure

This type of pension structure involves contributions from employer and employee both. They are then invested in an individual account. Hence, the retirement benefits depend on the market indicators and investment returns.

What happens if you leave the social housing pension scheme (SHPS)?

Sometimes, unavoidable circumstances might push you to opt out of the scheme. For instance, a new job or the decision to switch to another pension while still working for the same employer. In such a case, you can choose to get a deferred pension, transfer the benefits to another plan, or take a refund of the contributions (subject to deductions) if you leave with less than two years of qualifying service. 

In the case you change your job and accept an offer from another employer who is also a member of the Social Housing Pension Scheme, you can reactivate your membership within 30 days of leaving and choose to continue it.

How does SHPS compare to other pension schemes?

Feature	SHPS	Private sector DC pension
Income	Guaranteed for life	Depends on investments
Risk	Borne by employer	Borne by employee
Flexibility	Limited	High (access to lump sums)
Cost	Higher employer contributions	Lower employer costs

 

Get expert advice

In conclusion, the Social Housing Pension Scheme remains a crucial retirement security for thousands of UK housing professionals. With its guaranteed income, inflation protection and ethical roots, it’s a powerful financial security tool for you. However, it also comes with challenges like rising costs and complexity.

But, being an employee who counts on a good pension post-retirement, you have to have the knowledge to help you make the right decision. Therefore, at Regulated Advice, we’ll connect you with pension experts who can explain the Social Housing Pension Scheme and help you make a decision best suited to your post-retirement needs.

Let Regulated Advice match you with a financial advisor for expert advice.