Are Hybrid Pensions a Scam?

What You Need to Know About Hybrid Pensions

As retirement advisors, one of the most common concerns we hear from clients is: “Are hybrid pensions a scam?” It’s a fair question, especially with all the conflicting information out there. Let’s walk through this together so you understand what a hybrid pension really is, how it works, and most importantly, how to avoid the pitfalls that cause people to feel misled.

What Is a Hybrid Pension?

A hybrid pension blends the guaranteed lifetime income of a traditional pension with the flexibility and control of personal retirement accounts like a 401(k) or IRA.

Think of it like this: With a traditional pension or immediate annuity, you receive income for life, but you give up access to your principal. With a hybrid pension, you keep control of your money and still receive guaranteed lifetime income through an income rider added to an annuity contract. In short, hybrid pensions offer a balance between security and flexibility—but only when structured correctly.

So, Is It a Scam?

No, the concept of a hybrid pension is not a scam. But many people feel scammed because of how these products are presented or sold, often with high fees, confusing terms, and unrealistic promises. Let’s break down the five most common ways clients have felt misled, and how we help avoid them.

Confusing or Biased Information

Most negative opinions about annuities—especially hybrid pensions—come from Wall Street firms that don’t offer them. These firms often publish articles warning against annuities, saying you’ll “lock up your money for life.” Still, they rarely explain the difference between immediate annuities and modern hybrid annuities.

We educate our clients on the different annuity types so you’re never in the dark. A hybrid pension, done right, does not lock up your money—you can still access your principal, pass it on, and in some cases, even grow it.

High Fees and Hidden Costs

Many hybrid pensions use variable annuities, which are tied to the stock market and come with fees that often exceed 3–4% per year. Over time, that can cost tens of thousands of dollars, without the client even realizing it. We typically avoid these. Instead, we focus on fixed indexed annuities, which offer principal protection and usually carry no more than 1% in annual fees, if any.

Low Cap Rates and Participation Rates

Suppose you’ve purchased a hybrid pension tied to a fixed indexed annuity. In that case, you may have been promised market-linked growth without market risk. That’s great in theory, but here’s the catch: cap rates and participation rates.

• A cap rate limits how much you can earn annually (e.g., 4%, even if the market goes up 10%).
• A participation rate only gives you a portion of the market gain (e.g., 50% of a 10% return = 5%).

We help you find carriers offering higher caps and participation rates, and we make sure you fully understand how your money is credited before you sign anything.

Misleading Roll-Up Rate Guarantees

Another source of confusion is the guaranteed roll-up rate—a marketing term used in income riders. Some clients hear “8% guaranteed” and assume their account balance is growing at 8% per year.

Not quite. That roll-up rate is used only to calculate future income, not to grow your actual account value. It’s a formula, not a bank deposit. Like how Social Security increases your benefit when you delay taking it, but it doesn’t mean your savings account goes up.

We believe in cutting through that confusion. When we design a hybrid pension, we’ll walk you through both the cash value side and the income rider side, so there are no surprises.

Advisors Who Don’t Offer the Right Products

Many traditional financial advisors don’t talk about hybrid pensions because they:

• Can’t charge management fees on them
• Are tied to broker-dealers that don’t allow them to recommend fixed products
• Focus only on assets under management (AUM), not guaranteed income

We’re independent. We don’t sell variable products. We’re not tied to any one company. And we don’t get paid based on your AUM. That means we can focus entirely on what’s best for your retirement strategy, not on commissions or quotas.

Why You’ve Likely Never Heard of Hybrid Pensions

Most people don’t hear about hybrid pensions from their employer, their investment advisor, or the media. Why? Because hybrid pensions don’t generate recurring fees for financial firms.

But just like Social Security or a traditional pension, these plans are guaranteed by insurance companies—the only institutions legally allowed to put “lifetime income” in writing.

So, Who Is a Hybrid Pension Right For?

We typically recommend hybrid pensions for clients who:

• They are concerned about outliving their money
• Want a guaranteed income without giving up control
• Prefer low or no fees
• Are you looking for a strategy to retire earlier and with peace of mind

Depending on the carrier and structure, we can often secure 7%–15% payout rates for life, based on your original deposit, without relying on stock market performance.

Let’s Talk

If you have questions or want to see if a hybrid pension fits into your retirement plan, we’re here to help. Contact us for a personalized consultation—no obligations, just clarity.