Money purchase benefits—the statutory definition
Produced in partnership with Wyn Derbyshire of gunnercooke LLP
Money purchase benefits—the statutory definition

The following Pensions guidance note Produced in partnership with Wyn Derbyshire of gunnercooke LLP provides comprehensive and up to date legal information covering:

  • Money purchase benefits—the statutory definition
  • The pre-2014 statutory definition of money purchase benefits
  • AON Trust Corporation v KPMG (‘the KPMG case’)
  • Bridge Trustees v Houldsworth (‘the Bridge case’)
  • The revised statutory definition of money purchase benefits
  • When did the revised definition take effect?

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:PSA 1993, s 181

  1. scheme-specific fundingPeA 2004, ss 221‒233

  2. employer debtsPA 1995, s 75

  3. the Pension Protection Fund (PPF), orPeA 2004, ss 107‒220

  4. the distribution of assets on a scheme wind-upPA 1995, s 73

Trustees should therefore ensure they consider carefully whether or not any scheme liabilities fall within the statutory definition, particularly in view of the government's narrowing of that definition with effect from 24 July 2014 (see The revised statutory definition of money purchase benefits below). Where there is uncertainty as to whether or not a benefit falls within the definition, trustees should seek legal advice.

For further information on