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DA: Cash balance versus conversion of benefits

R

rahsamcl

Member
The above are listed as two forms of DB defined ambition schemes but I am not clear on what the difference is - can anybody explain?

Thanks!
 
Cash Balance

A cash balance, the balance stays with the scheme even if the member leaves the scheme.

When the member leaves the scheme, the cash will stay with the scheme and revalue in deferment and then a lump sum is paid at retirement.

So the scheme still has the investment risk.

Conversion of Benefits

A conversion of benefits is the same but when you leave the scheme via withdrawal or ill health a lump sum is converted to DC (i.e. it will go up with investment returns rather inflation). Therefore the investment risk is removed from the scheme.

I hope this helps
 
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