The question of the nature of money purchase benefits has attracted considerable attention over recent years. Given the onerous and growing financial burdens that defined benefit pension arrangements can impose on employers, the ability to identify clearly and unambiguously the nature of pension scheme benefits has become increasingly important. This is particularly so in the case of hybrid pension arrangements, which typically contain a variety of different types of benefits.

For further information on types of pension arrangements, see Practice Note: Types of pension arrangements for employees.

For most purposes, a benefit is a ‘money purchase benefit’ if it falls within the statutory definition of that term in the Pension Schemes Act 1993, s 181 (although, in some cases, an equivalent definition of the term is contained in another provision, eg in the Pensions Act 2008, s 99 in relation to auto-enrolment). Whether a benefit is money purchase in nature may affect the treatment of that benefit under pensions legislation in a number of circumstances eg in relation to:

1. •

   scheme-specific funding

2. •

   employer