Clarion Housing Group is to increase employee pension contributions for hundreds of its staff members by as much as 100%, Inside Housing has learned.
The UK’s largest housing association has written to members of the Clarion Housing Group Pension Scheme (CHGPS) informing them that from 1 April, employee contributions for some defined benefit pensions could be set at 22.9% of their salaries.
This rate will apply for workers with 1/60 final salary pensions – meaning their annual pensions are worth 1/60th of their salary at retirement for each year of service at Clarion. However, employer contributions will remain capped at 7.5%.
Around 340 Clarion employees are understood to be affected by the changes.
A pensions expert warned that the 22.9% rate could make the 1/60 final salary scheme “unaffordable for some employees”. But they added that the main alternative would be closing the defined benefit scheme entirely.
The letter, signed by Catrin Jones, group director of corporate services at Clarion, and seen by Inside Housing, said the association “is acutely aware of how significant a change this is for many of you”.
Referring to feedback from a consultation on the changes, it added: “Understandably, the overwhelming majority of concerns related to the proposed increase in contributions and the employer contribution which is capped at 7.5%.
“The cost of providing a defined benefit pension is significant as this carries a guaranteed future benefit and is something that most companies no longer offer for this reason.”
One pensions expert said: “The 22.9% rate is undoubtedly high, meaning that carrying on in the 1/60 final salary scheme could be unaffordable for some employees.
“However, the employer’s main alternative to this approach is often closing the defined benefit scheme down completely, which is something we have seen a lot of associations do.
“Some employees may prefer the approach we see here, where they can remain in a defined benefit scheme, albeit at a relatively high cost.”
Clarion is among several housing associations to have left the Social Housing Pensions Scheme (SHPS) since 2018 because of concerns that employer contributions could rise by up to 50%.
Other associations are also understood to have moved to a pension model which sees their employer contributions fixed for different pension arrangements, with employees paying for the cost of more generous pensions.
Employee contribution rates for the 1/60 Career Average Revalued Earnings (CARE), the other pension product within the CHGPS, will be 17%. In this scheme, the annual pension amount is based on average earnings over a worker’s service.
For 120 CARE pensions – where the annual pension amount would be a quarter the average salary for a worker who had spent 30 years at Clarion – the employee contribution will be 4.5%.
The employer contribution will be capped at 7.5% for both policies.
CHGPS members have been given until 27 February to inform Clarion if they want to change to a cheaper pension policy before the changes kick in, or withdraw altogether.
A spokesperson for Clarion said: “We are acutely aware the increase in employee contributions under the CHGPS defined benefit schemes will represent a significant change.
“We have consulted on this change and provided guidance for members about their choices, including moving to a different defined benefit arrangement within the scheme or joining the open defined contribution scheme.
“The reason the employer contribution remains unchanged is because it is capped at 7.5%, which is consistent with our open pension arrangement that we offer to all employees.
“The cost of providing a defined benefit pension is significant as this carries a guaranteed future income and is something that most companies no longer offer for this reason.”