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The Actuary The magazine of the Institute & Faculty of Actuaries

Risk-awareness pays off in hybrid pension arrangements

The Pensions Regulator has  published a statement to help trustees and their advisers understand the structure of their hybrid scheme – schemes with defined benefit (DB) and defined contribution (DC) elements – and to take action to address these risks.

Surveying 150 hybrid schemes, the research highlighted that trustees did not always understand their scheme structure and the benefits it offers – increasing the risk of members receiving unclear or misleading communications, and incorrect retirement benefits. Additionally, in 50% of these schemes, DB and DC assets were mixed together in the same bank account or investment fund, and in some cases were not separately identifiable.

June Mulroy, executive director for DC, governance and administration,  said: “Members should be able to plan for retirement confident that they will receive the right pension benefits. But our research indicates that some schemes are so complex that even those accountable for running them struggle to understand their workings. And in half of cases, DB and DC assets were not held separately, increasing the potential for errors in pension payments, or when schemes wind up.

“I’m concerned that some hybrids have overly complex scheme rules and out-of-date structures based on legacy advice. We will be liaising with employee benefit consultants and their advisers in the coming months to discuss these issues.”

The full statement can be found at http://www.thepensionsregulator.gov.uk/press/pn11-25.aspx