Your employer may run a cash balance plan to give you a retirement income. Although your employer is responsible for supporting the scheme, in most cases a board of trustees runs it and are responsible for paying retirement benefits.
Your employer decides the levels of contributions to the cash balance plan, usually as a percentage of your earnings. Your employer will contribute to the scheme, but may also require that you also contribute.
Contributions made to a cash balance pension by you and/ or your employer receive tax relief and are invested in your individual ‘pension pot’ in the same way as a Personal Pension.
The board of trustees invest the funds in a range of different assets selected to provide a minimum level of investment return. If the investment return in a particular year is not enough, your employer will make further contributions to top up your pension pot to the minimum guaranteed level. Unlike a Personal Pension your employer bears the risk of poor investment performance.
In most cases, your employer promises you a minimum amount of pension pot for each period of service, usually complete years. When you retire, if there is not enough money in your pension pot to meet the minimum amount your employer makes up the shortfall.
At retirement you use your pension pot to provide an income by the purchase of an Annuity or by drawdown. Some larger employers also promise the level of retirement income you can buy with your pension pot. If your pension pot has not grown enough to buy the promised level of retirement income, your employer will have to pay to make up the shortfall so you receive the benefits promised.
If you are evaluating your pension, we strongly advise that you seek professional advice from a fully qualified and regulated Independent Financial Advisor. Pension decisions are usually a major financial decision that requires the appropriate level of advice to make the right choice. In contrast, mistakes can be costly. To arrange for a no obligations, initial free telephone consultation click here.