Pensions accounting – what should you be considering now?

31 March 2025 is fast approaching, with many housing associations already starting conversations with auditors about the approach this year.

There are three key areas where housing associations need to be proactive ahead of the upcoming year-end to avoid any late surprises. Firstly, housing associations should proactively consider how they wish to approach their accounting assumptions and what they wish to achieve. The second and third are technical points, reflecting recent and upcoming court rulings, which could have significant impact on an employer’s accounts if they are not carefully managed.

Setting assumptions

It will be crucial for housing associations to consider the assumptions adopted for valuing pension liabilities in their accounts. At the time of writing, interest rates on Government bonds are at the highest they have been for more than a decade, but long-dated credit spreads (the additional interest charged on corporate bonds over government) are at historically low levels. There is also added uncertainty on future mortality trends.

Whilst auditors have their views on assumptions, these typically involve ranges of what is acceptable and the increased volatility over the year may mean these acceptable ranges are wider than they have been. Housing associations should consider what assumptions best meet their needs – whether that be minimising balance sheet liabilities, or mitigating the potential accounting impact of future cessations.

We strongly encourage housing associations to engage with their pension advisors prior to the year-end to discuss their options and ensure assumptions are set in line with your wider objectives rather than taking the default approach at the last minute.

TPT benefit review

There is currently uncertainty around whether historical changes in certain TPT scheme rules were fully effective. This includes the Social Housing Pension Scheme (SHPS). Given the uncertainty, TPT have approached the High Court to get a definitive ruling on the correct benefits to pay.

The case is due to be heard in February 2025, meaning the outcome may be known in May / June 2025. If there are no changes to the timeline, it is likely the ruling will be known before most housing association accounts get signed. However, this is not set in stone, and even if a ruling is delivered in May it may raise further questions that need to be answered before the correct benefits are known.

For SHPS, TPT have previously estimated that the outcome of the court case could be an increase in liabilities of 4% in total, but the impact on any individual employer will depend on their particular membership and the benefits offered. Housing associations will need to agree with their auditors how any increase in liabilities as a result of the benefit review is accounted for. In our experience, engaging early is more likely to lead to a favourable outcome and allows time to manage all stakeholders (both internal and external).

Section 37 / Virgin Media Case

On 25 July 2024 the Court of Appeal handed down its ruling in Virgin Media Limited v NTL Pension Trustees II Limited and others. The Court has dismissed the appeal against an earlier High Court judgment relating to the validity of changing certain pension benefits without an actuarial confirmation.

This could have an impact on contracted-out defined benefit schemes like SHPS and many others that housing associations participate in. It has not yet been confirmed, but there could even be an impact on the LGPS.

Our non-legal understanding is that this ruling means that if the legal process at the time of making relevant pension scheme rule changes (from 1997 to 2016) did not include requesting and obtaining an actuarial confirmation where required, then the rule change is at risk of being void. This may have material consequences for some pension schemes. For TPT schemes we understand some aspects may be considered in conjunction with the Benefit Review.

In contrast to last year-end, we understand there may be calls from company auditors for sponsors and trustees to investigate whether their scheme (and hence the sponsor) may have additional liabilities as a result of the judgment. It is a non-trivial and risky exercise to understand and quantify any additional liabilities and we recommend engaging early with your advisors and auditors to understand their requirements before carefully considering next steps in reviewing historical legal documentation.

Actions and next steps

Housing associations should proactively raise these issues with auditors now, to avoid any surprises later in the accounting process.