UK - The UK's Department for Work and Pensions says the growth in hybrid schemes may be driven in part by the "very uncertain outcomes" of defined contribution plans.

The DWP states in a new report that "many of the factors that may lead to a greater prevalence of hybrid plans stem from the very uncertain outcomes inherent in DC plans". Another factor was the volatility of accounts, where members "follow equity-orientated strategies designed to maximise their future pensions".

The department's comments come in a research report called "Risk sharing and hybrid pension plans" which draws together the findings of three studies commissioned from consultants and academics.

The DWP concludes that the growth of hybrid plans in the UK is unlikely to be as dramatic as the growth in DC plans due to "different drivers".

It said: "The move to DC was part of a global trend, driven largely by financial considerations, as sponsors sought to take control of both the volatility and the overall cost of their defined benefit plans."

But it stated that some sponsors will be reluctant to pass on investment risk to employees - leading to career average, cash balance or combination plans instead. "This could lead to a more balanced sharing of risk between sponsor and employee."

And concerns about the impact of market conditions prevailing at retirement "may persuade DC sponsors to take on limited amounts of pension risk".

The DWP argued as well that the government "may wish to consider whether the variability of DC plans is acting as a disincentive and that individuals are being discouraged from saving sufficiently for their own retirement".

The DWP said it wanted to promote discussion and better understanding of pension scheme design "within government and the wider pensions world".

The three studies include:

-- 'Hybrid Pension Plans: UK and International Experience' by Kevin Wesbroom and Tim Reay of Hewitt Bacon & Woodrow.

-- 'Comparing Pension Outcomes from Hybrid Schemes' by Deborah Cooper of Mercer Human Resource Consulting.

-- The Optimal Allocation of Pension Risks in Employment Contracts' by David McCarthy of Tanaka Business School/Imperial College London.