Is the only benefit entitlement DB (with or without DC AVCs)?
Where the benefit entitlement is defined benefit and there is either no DC benefit at all or the only DC entitlement is DC AVCs, this benefit structure would be classed as ‘defined benefit’ rather than ‘hybrid’. If so, you should answer ‘Yes’ to this question, complete the remaining questions and submit your return.
Does the scheme have a separate DC-only section (excluding DC AVCs)?
The key element here is that there are multiple sections of the scheme established under one trust deed, where one or more of the sections include members only accruing DC benefits (excluding DC AVCs). For example, a closed DB section with an open DC-only section. Members may hold benefits in one or more sections.
Does the scheme structure include any DC Additional Voluntary Contributions (AVCs) for DB members?
Answer ‘Yes’ where there are DB members with DC AVCs, including those currently making AVCs and those who have done so in the past. This is where members with DB benefits are paying or have paid additional voluntary contributions into a DC arrangement, often with a separate provider, for example an insurance company. Answer ‘No’ where the only DC benefits within the scheme are a DC top-up or separate DC-only section as these are covered in separate questions. The DC AVC fund may include special employer contributions made as a result of a bonus sacrifice arrangement where a member foregoes all or part of their bonus and the employer makes a contribution to the scheme to purchase DC benefits.
Does the scheme have any DB benefits with a DC top up (excluding AVCs)?
A DB scheme where some or all members pay into a DC section as part of the core scheme benefits. This benefit design is different from DC AVCs which are benefits in addition to the core scheme benefits. This means that some or all the members accrue a DB benefit plus part of the contributions are invested to provide DC benefits. For example, benefits on earnings up to a set level are DB and contributions on earnings above this level provide DC benefits. These DC monies may be used at retirement to provide additional tax-free cash, an additional pension paid by the DB section or to purchase an annuity. DB schemes with a DC top up may also offer DC AVCs. If the AVCs are payable into a separate section from the DC top up then you should also answer ‘Yes’ to the question above ‘Does the scheme structure include any DC Additional Voluntary Contributions (AVCs) for DB members?’
Does the scheme have an underpin?
A scheme with an underpin is one where the benefit payable is calculated as the greater of two alternatives, typically the higher of a DB or DC benefit.
Selection of underpin types:-
A DB section with a DC underpin
The benefits payable are the higher of (i) the DB benefits calculated using the scheme’s normal benefit formula (for example 60ths or 80ths) and (ii) an alternative calculation which is on a DC basis, where contributions are invested in DC funds.
A DB section with a notional DC underpin
A notional underpin is a 'what if' calculation. For example, the scheme may offer to give the member the greater of a DB benefit (e.g. 1/80th) or the annuity that could be purchased with the fund. To work out the DC comparison the scheme would calculate at retirement the value of the member and employer contributions, assuming they increased in line with a specific index or other formula, and then purchase an annuity using agreed rates. The key distinction from the DC underpin in the previous question is that the DC benefits are notional and not based on actual investments.
A DC section with a contracted out underpin on a DB basis
A scheme which will pay a member the greater of (i) the annuity that could be bought with their DC pot and (ii) their DB contracted out benefit (GMP for benefits accrued before 6 April 1997 or Section 9(2b) rights for benefits accrued after 5 April 1997).
A DC section with a contracted in DB underpin
The benefits payable are the greater of (i) the annuity that could be bought with their DC pot and (ii) an alternative calculation on a DB basis (for example 60ths or 80ths) but is not generated from contracting out.
Are there any DB and DC monies invested in the same fund, or with the same investment manager?
Please answer ‘No’ where all DC and DB monies are invested in different funds and with separate investment managers.
If ‘Yes’, please tick the appropriate option(s) that apply