PSI20.1.42 - Funding and Surpluses: Funding General - Determination of Contributions

(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)

Assumptions about mortality, inflation and interest are part of the actuary’s calculations along with the basic detail about the scheme’s benefit structure and personal data about scheme members, such as age, sex, length of service and salary. The actuary calculates the present value of the estimated outgoings from the scheme (pensions in payment, future pensions and expenses). This present value is the amount of capital which, if available now, would, with the interest earned in the future, meet all the liabilities as they fall due. The actuary will then place an actuarial value on the existing assets of the scheme (see PSI20.2.12): the extent to which this falls short of the present value of the liabilities is the present value of the future contributions needed. The actuary can then calculate an annual rate of contribution to be provided by the employees (if the scheme is contributory) and the employer.

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