ÐÇ¿Õ´«Ã½

Home Group is in talks with staff and unions about raising pension contributions after it emerged that its fund had a deficit of almost £5m – and rising.

The 2001/02 accounts, the most recent set, showed that the group's standalone pension fund was £4.9m underfunded.

Stonham Housing Association, a member of Home Group and the Social Housing Pension Scheme, had a £2.1m deficit on its fund.

Finance director Alan Park said Home Group's 2002/03 accounts – due out next month – would show that the deficit had worsened by "several million".

Home Group plans to raise employer contributions to the group scheme 4% a year for the next three years to plug the gap.

Park said the group was talking to trade unions about additional rises in employee contributions, and expects to make a decision in the next month.

He said employer contributions could increase to 18.5% for 2003/04, to 22.5% for 2004/05 and would rise to 26.5% for 2005/06 if necessary.

This compares with an industry-wide average rise in contributions of 13.1% for 2002/03 and 15.1% in the longer term.

Like many pension funds, the group's scheme suffered from plummeting share values. Park said: "I do not think we are any different from anyone else in the marketplace. The majority of our investment was in equities and there was a substantial drop in their value."

The group closed its final salary scheme to new members in March 2001, offering them a money purchase scheme instead.

The group is just the latest to consider raising contributions in response to a deficit. The Social Housing Pension Scheme is consulting its members on a 2.2% contribution rise after it reported a £117m deficit in April (HT 25 April, page 14). North British Housing Association reported a £12.5m deficit in its pension fund last year.

I do not think we are any different from anyone else in the marketplace

Alan Park, Home Group

Associations are likely to be showing increased pensions deficits when annual reports for 2002/03 are published.

Simon Braid, social housing partner at consultant KPMG, said: "We would expect deficits to at least double and sometimes increase many times more."

… As sector's scheme is hit by £1.3m insurance costs
A government plan to insure pensions will cost the sector's scheme £1.3m – but local government schemes will be exempt.

The plan, announced on 11 June, would safeguard all final-salary pensions, including those held by the Social Housing Pension Scheme, if firms go bust. The social housing scheme, managed by the Pensions Trust, will pay a levy to cover the costs of the insurance. Housing associations with standalone schemes will also have to pay a levy.

Trevor Smith, consultant to the chief executive at the trust, said it expected to able to meet the insurance costs through administrative savings.

Firms with well-funded pension schemes will pay smaller levies than underfunded schemes. Final contribution figures have yet to be released, but it is understood that firms will pay between 0.3% to 1% of payroll for the insurance scheme.

However public sector schemes, including the local government pension schemes, do not have to pay into the protection fund because they are effectively underwritten by the government.

The government also announced a 2.5% reduction in the amount of money employers, including councils, must contribute to final salary pensions to allow for rises in inflation.

For some schemes, the cost of contributing to the pensions protection fund will be offset by the reduction in inflation cover.

However, the Pensions Trust had already factored the change in inflation provisions into its calculations, so it will not pay more.