The following Pensions guidance note Produced in partnership with James Gulliford & Michael Collins of Gateley LLP provides comprehensive and up to date legal information covering:
At its simplest level, a cash balance pension scheme is an arrangement by which the member builds up a guaranteed cash sum or amount during their pensionable service, which will be made available for the provision of retirement benefits. When a member comes to retire this cash sum is then applied to buy an annuity (or provide other retirement benefits) on whatever terms can be secured in the market at that time.
Such an arrangement can be seen as combining some of the features of a defined benefit (DB) arrangement with some features of a defined contribution (DC) arrangement. This is significant for how the risks inherent in any pension arrangement are allocated between the member and the sponsoring employer, as examined in this Note.
There are different types of cash balance schemes but they fall broadly into two categories based upon how the cash sum at retirement is derived:
the first is where the cash sum is determined by reference to the member’s service and final salary at retirement (or earlier date of leaving). That is, the cash sum is based on a percentage of final salary for each year of pensionable service. This type of arrangement is referred to in this Practice Note as a ‘salary-based‘ cash balance scheme
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