PSI20.1.3 - Funding and Surpluses: Funding General - Introduction

(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)

Third, the employer can set aside money in advance of the employee’s retirement. By this advance funding the cost to the employer is both reduced, because the money set aside will itself earn interest, and spread over a number of years. The employee can benefit too. Where the scheme is held under irrevocable trusts, the funds are separate from, and not available to, the employer. This is so regardless of whether the trustees include the employer. This protects the employees’ pension rights and gives them a value independent of the employer’s future success or failure. For these reasons most schemes are funded in advance.

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