Page 98 - Group Insurance and Retirement Benefit IC 83 E- Book

are at work in a continuing scheme causes the Single Premium cost to rise more

gradually, and the Annual Premium cost to diminish more slowly, than would otherwise
be the case: in fact, it frequently happens that the point is never reached—or has not yet

been reached—at which the Annual Premium cost falls below the corresponding Single
Premium cost.

(3) Turnover

Employees leaving service generally have the option of taking either a refund of their

own contributions (sometimes with, but more usually without interest) or the paid-up
pension purchased by their own contributions. In the latter case the pension secured by

the employer's premiums may be granted in addition. In most cases the employee elects

to take a refund, and the employer's paid-up pension is surrendered.

The paid-up pension secured by the employer's premiums is always greater with Annual
Premium costing than with Single Premium costing, and in the former case, when added

to the pension purchased by the employee's own contributions, always exceeds the scale
pension which has accrued. Unless the rules of the scheme require the excess paid-up

pension to be surrendered, the employer has paid for an unnecessarily high withdrawal

benefit in cases where the employee is entitled to the full paid-up pension. With Single
Premium costing, this situation does not occur.

Any surrender value to the employer is necessarily less than the full actuarial value of the

paid-up pension being surrendered.

For this reason, the Annual Premium method is more wasteful from the employer's point

of view than the Single Premium method. There is often no surrender value at all with
Single Premium costing in respect of an employee who withdraws below the age of, say,

30 because no pension has been bought by the employer, the employee's own

contributions having been more than sufficient to secure his full scale accrued pension. In
such circumstances, however, the only profit to the Life Office is the difference between

the full actuarial value of the paid-up pension purchased by the employee's own