PSI20.3.11 - Funding and Surpluses: Insured Schemes - General - Methods of Funding - “Single Premium” or “Current Cost” Method

(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)

With “single premium” or “current cost” funding, the unit of pension earned for each year of service based on current remuneration is purchased in that year. In this form of funding the contributions required for a fixed amount of pension increase each year. This is because premiums paid in the early years of scheme membership earn interest for a longer period than those paid nearer to retirement; also, salaries will generally increase. This funding method should not be confused with single premiums paid to secure an immediate annuity on retirement (see PSI20.1.2). “Single premium” or “current cost” funding is extremely rare nowadays.

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