RPSM09203010 – Member Pages: Member Benefits: Pension benefits from a hybrid pension arrangement: Overview

Overview

A typical hybrid arrangement is an arrangement which offers either money purchase benefits but underpins a members entitlement with a minimum defined benefit. There are other variations but whatever the options only one type of benefits will ultimately be provided.

Normally, at the point benefits are drawn or entitlement arises under a hybrid arrangement it ceases to be a hybrid arrangement, and will either be treated as a money purchase arrangement or a defined benefits arrangement, as relevant. If the benefits provided are money purchase or cash balance benefits then the arrangement will become a money purchase arrangement. If the benefits provided are defined benefits then the arrangement will become a defined benefits arrangement.

Example

Mark is a member of a hybrid scheme which is a money purchase scheme underpinned by a defined benefit promise. Normally where benefits are being provided on a money purchase basis a member may be given the option of receiving/purchasing:

If he took advantage of any of the final three options above he would be deemed to be in receipt of money purchase scheme benefits - see RPSM09102010. This would be the case even if the resulting benefits were less than what he would receive if he took advantage of the defined benefit underpin.
However if he was offered an initial annual pension he would have to establish whether it was a scheme pension or a pension based on the defined benefit underpin. If it were a scheme pension then it would be treated as a money purchase benefit. Otherwise it would be treated as a defined benefit.