Skip to main content

How it works

How Cash Balance works

Cash Balance is a type of Final Salary pension arrangement where a known portion of your earnings built up in your Retirement Account each year.

While you were a contributing member of the Scheme, the credits in your Retirement Account were increased on 1 June each year until retirement in line with the rise in the Retail Price Index (RPI) plus 1.5% (up to a maximum of 6.5%). This is known as revaluation. The notional value of your Retirement Account continues to increase in line with statutory requirements from your date of leaving to your retirement.

At retirement, your Cash Balance fund is used to provide an income for you and your family.

How Final Salary works

In addition to your Cash Balance benefits, you will also receive a Final Salary pension.

Your Final Salary pension is worked out using the following formula:

1/60 X pensionable service in the Final Salary X Final Pensionable Earnings at the earlier of your date of leaving the Scheme or 31 December 2012.

Your Final Salary pension at Normal Retirement Date will be based on your:

  • Pensionable Service up to the date you moved to the Cash Balance section; and
  • Final Pensionable Earnings at your date of leaving the Scheme or 31 December 2012, whichever is earlier.

Your Final Salary pension will be revalued in line with statutory requirements from your date of leaving the Final Salary section until your retirement date.

The basics - Cash Balance section

The Provident Financial Staff Pension Scheme (the Scheme)

1. Both you and the Company made contributions

You received credit to your Retirement Account of 20% of your Pensionable Earnings for each year of Pensionable Service (or proportionate amount of each complete month). The 20% credit included your 5% contribution with the remaining 15% coming from a mix of Company contributions and investment returns.

2. You receive an income at retirement

The amount from your Retirement Account in the Cash Balance section (after any cash lump sum) will be used to buy a lifetime annuity.

Your pension at Normal Retirement Date will be based on the accumulated amount available from your Retirement Account and cost of buying your chosen type of lifetime annuity. The choices you have will include:

  • The provision of a spouse/registered civil partner's pension on your death and, if so, at what level (e.g. half or two-thirds of your own pension).
  • Increases to your pension above the statutory Limited Price Indexation (LPI). LPI means an increase in line with the Consumer Prices Index (CPI) up to 2.5%. You can choose whether or not to include higher pension increases and the rate of those increases (for example, unrestricted RPI increases or increases at a fixed rate of, say, 3% each year). However, the higher the increases you choose, the lower the annual pension will be.
  • To include a guaranteed payment period (e.g. 5 or 10 years).

Many other factors affect the cost of buying a lifetime annuity, including life expectancy trends, interest rates, differences between annuity providers, your state of health and whether you are smoker.

3. When you retire, you can use your Retirement Account in two ways

When you retire, you can take up to 25% of the value of your Retirement Account as tax-free cash. The rest must be used to purchase a lifetime annuity (which provides you with an additional income for the rest of your life). You'll also have the option to provide a pension for your spouse/registered civil partner in the event of your death.

Read more about lifetime annuities under Taking your benefits.

4. Pension flexibilities

If you don't want a lifetime annuity, you can transfer the actuarial value of your notional Retirement Account to a personal pension scheme in order to use the pension flexibilities. Please note you must do this before drawing any benefits from the Scheme as this option won't be available once you start to take your benefits.