What other types of scheme are there?
A few schemes have been mentioned which have some differences from a regular DB or DB scheme.
Cash Balance Scheme
In a DC Scheme the member bears all the investment risk as the scheme simply pays out whatever benefits the amount in the pot will supportIn a Cash Balance scheme the amount paid in each year is fixed regardless of what the scheme does with the actual contributions.
This promise or guarantee breaks the connection between amounts paid in and the pot made available to provide benefits.
Consequently some of the risk is transferred to the scheme as any guaranteed or promised amount must be made available to the member irrespective of the level of funds held.
Career Average Revalued Earnings Scheme (CARE)
Similar to a DB scheme but benefits are calculated based on the average of revalued pensionable earnings over the whole period of pensionable service.Pensionable earnings are revalued each year to allow for inflation.
The revaluation is based on an index such as the Retail Price Index or the Consumer Price Index.
Hybrid Scheme
A DB scheme with elements of a DC scheme design, known as an underpin scheme.
Or, the member has benefits on a defined benefit basis AND on a DC basis in the same scheme. This is common where a DB scheme has closed .
The benefits are calculated and revalue to retirement.
Future contributions are paid on a DC basis.
