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What do u mean when its said that in desired contribution plan the actuarial and investment risk lies with employee ? I’m quite confused between the difference between desired contribution and desired benefit plans?
Hi,
When you say desired are you actually saying defined? I’ve only heard of a defined contribution plan. The risk lies with the employee in this type of plan because the company has paid a fixed amount into the employee’s individual pension pot. So upon retirement the employee will take their cash from this pension pot. The value of the money invested in the pension pot can go up or down, hence the risk lies with the employee. If the pension value has fallen then the employee has less of a pension on retirement.
With a defined benefit the risk lies with the employer/company as they have guaranteed to the employee an amount when the employee retires. If there isn’t sufficient funds within the company pension pot then the company is legally obliged to make the payments that have been agreed.
Hope this helps.
Thanks
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