PSI20.1.26 - Funding and Surpluses: Funding General - Salary Growth

(This archived guidance relates to HMRC discretionary practice before the 6th April 2006. For current guidance on Registered Pension Schemes see the Registered Pension Schemes Manual)

The actuary also makes estimates about future increases in the members’ salaries. In the wake of the clear trend away from automatic incremental scales towards individually assessed performance related pay awards, it is not appropriate for actuaries to assume as a matter of course that a career scale (taking account of promotion and seniority) should be incorporated into the funding basis. If you come across the adoption of such an assumption you should ask the actuary to justify it. Salaries may also increase because of inflation and the actuary must therefore make assumptions about its effects. Pension scheme funding is a long term proposition and the actuary’s calculations will reflect his/her expectations about inflation trends many years ahead rather than current rates.

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