Guest Blog by Colin Rodger, Director of Alexander Sloan Financial Planning.

Letters will be dropping through the letterboxes of SHAPS members shortly. The news they bring is not good.

The scheme’s investments have increased in value over the 3 year period to 30 September 2012 by over 20%, but the scheme’s liabilities have increased by more. This means that the deficit has increased from £160m at September 2009 to £303.9m at September 2012.

The scheme has gone from a funding level of 64.8% to 56.4%.

This will have two certain consequences: the deficit contributions paid by the employer, and the future service contributions paid by employer and employee will increase.

The new contribution levels range from 11.4% for the CARE 120 scheme to 24.6% for the Final Salary 60 scheme.

Of even more concern for employers will be the cost of funding the past service recovery plan.

This started off at 10.2% of salaries escalating at 4.5% a year. From April 2014 it will rise considerably. The basis of the calculation is changing so that each employer’s contribution will be based on its share of the liabilities. The average increase in the annual contribution from the 2009 level will be 153%. Therefore, for an RSL with an original annual contribution of £50,000 would on average see its contribution to the past service deficit increase to £126,500 per annum.

However, the new method of calculation may impact more on some RSLs, such as older Associations with an ageing staff profile. The rate for these RSL may increase well in excess of 153%.

More details will become available over the coming months, with SHAPS expected to produce more detailed information by the end of June 2013.

Alexander Sloan Financial Planning will be producing more blogs in the future on this topic focusing on the options available to RSLs in future and highlighting issues as they arise