A cash balance plan is an occupational pension scheme
which works in a similar way to a defined
contribution scheme. They are sometimes called 'hybrid' schemes
because they combine aspects of defined contribution
and defined benefit
schemes.
How does it work?
Your employer offers you a certain amount of pension fund for
every year you are a member of the scheme. If the
contributions made to the scheme do not achieve enough investment
growth to provide you with the benefits promised by your employer,
you will still be entitled to receive the benefits promised to
you. Your employer will have to make up the balance.
What happens when I retire?
When you come to retire, your total pension fund will be
available for you to use to purchase an annuity. Your pension
will depend on the annuity rates in force at the time, and it is
impossible to predict what these might be. It is therefore
hard to tell the level of pension you can expect to receive.
We recommend that you ask for a statement every year, showing the
pension you have built up to the date of the statement.
