General principles: arrangements: hybrid arrangements
Section 152(8) and (9) Finance Act 2004
A hybrid arrangement is an arrangement where only one type of benefit will ultimately be provided under that arrangement, but the type of benefit that will be provided is not known in advance because it will depend on certain given circumstances at the point benefits are drawn.
For example, the arrangement may provide the member with other money purchase benefits based on the contributions that have accrued over time, but be subject to a defined benefits minimum or underpin. So if the benefits provided by the money purchase pot at the point benefits are drawn fall below a certain defined level, for example 1/60ths of final remuneration for every year worked, that higher defined benefit will be provided.
There are various combinations of hybrid arrangement. The member may be provided with:
- either other money purchase or cash balance benefits
- either other money purchase or defined benefits
- either cash balance or defined benefits, or
- other money purchase, cash balance or defined benefits.
At the point benefits are drawn or entitlement arises under a hybrid arrangement it ceases to be a hybrid arrangement, and will either be a money purchase arrangement or a defined benefits arrangement.
If the benefits provided are other 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.
There is a slight qualification to the above treatment where a member with a hybrid arrangement reaches age 75 without taking their entitlements under the arrangement. Here the benefits potentially provided under that arrangement are tested against the individual’s available lifetime allowance at that time, subject to specific rules. How this is done is explained on PTM056550.