Jargon Buster
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A B C D F G H I K L M N O P S T U V W
ABI 1994 method
This is a test to work out whether the benefits paid by a money purchase scheme are more than the Inland Revenue limits. It does not apply to a small self- administered scheme.
Accrual rate
In a defined benefit scheme this is the rate at which pension benefits build up for the member. They will get a certain amount for each year of pensionable service.
Accumulated contributions
These are all the contributions a member has paid, plus anything extra the money has earned. In a money purchase scheme, these can include the employer’s contributions.
Accrued rights
This term is sometimes used to mean accrued benefits.
This is a system of investment that could be used for a pension fund. It involves buying and selling particular investments
to try and get better growth.
This is a member of an occupational pension scheme who is building up pension benefits from their present job.
Actuarial assumptions
These are the figures and estimates that an actuary uses when they make an actuarial valuation. This can include how long people are expected to live, price rises, how much people are expected to earn, and the income from the pension scheme investments.
This is where the actuarial value of a scheme’s assets is less than the actuarial liability. The actuarial deficiency is the difference between the two.
Actuarial increase
This is the extra pension benefit a member gets when retiring after the normal retirement age.
This is the money a pension scheme will have to pay out for pensions after the date of the actuarial valuation.
Actuarial reduction
This is a drop in a member’s pension because they have taken their pension early.
This is a report on an actuarial valuation. This name is also used for when an actuary says how changes to a scheme might affect it financially.
This is where the actuarial value of a scheme’s assets is more than the actuarial liability. The actuarial surplus is the difference between the two.
This is when an actuary checks what the pension scheme assets are worth and compares them with the scheme’s liabilities.
They then work out how much the contributions from employers and members must be so that there will be enough money in the scheme when people get their pensions.
This is the value an actuary puts on something.
An actuary is an expert on pension scheme assets and liabilities, life expectancy and probabilities (the likelihood of things happening) for insurance purposes. An actuary works out whether enough money is being paid into a pension scheme to pay the pensions when they are due.
Added years
This is when a member of a defined benefit pension scheme becomes entitled to extra pension benefits because:
- a transfer payment has been made by another scheme;
- an additional voluntary contribution has been paid; or
- the member’s pension benefits have been improved by the employer or the pension scheme (or both).
Additional component
This is another name for additional pension.
This is what the Government sometimes calls the pension paid by SERPS.
Additional voluntary contribution (AVC)
This is an extra amount (contribution) a member can pay to their own pension scheme to increase the future pension benefits. Paying AVCs does not normally mean a member will get more from a cash option.
This is the person who is responsible for managing the pension scheme from day to day.
Aka
Also known as.
Allocation option
This allows a pension scheme member to give up some pension benefits in return for a pension for the member’s husband, wife or dependants.
Annual pension estimate
This is similar to a benefits statement. This is a statement of the pension benefits a member has earned. An annual pension estimate will be based on certain expectations or predictions, so the benefits the member actually gets will probably be different.
This is a report that the trustees of an occupational pension scheme send to members and employers each year to keep them informed on the scheme.
Annuitant
This is a person who receives, or is entitled to, an annuity.
This is a fixed amount of money paid each year until a particular event (such as a death). It might be split into more than one payment, for example monthly payments.
This is what people normally mean by a pension ie it’s the weekly or monthly payment you get when you’re retired. When you retire you use your pension fund to buy the annuity. the regular payment you negotiate is usually guaranteed for the rest of your life. Read more
Many schemes use an annuity to pay pensions. When someone retires, their pension scheme can make a single payment, usually to an insurance company. This company will then pay an annuity to the member. The money paid to the member is what people usually call their pension.
This compares the size of an annuity (how much it pays each year) with how much it cost to buy.
This is a pension scheme which meets conditions set by the Contributions Agency. This means that a member of the scheme can contract out of SERPS.
Approval
This is when the Pension Schemes Office (PSO) says that a scheme is suitable for tax relief. This means members can count some or all of their contributions against their tax bill. If a scheme meets certain conditions, it will get mandatory (automatic) approval. If the scheme does not meet the conditions, the PSO may give it discretionary approval.
The Pension Schemes Office (PSO) does not normally allow a scheme to pay a pension before a member is 50 (or 60 with a retirement annuity). With some jobs, the PSO may allow a lower pension age. One example might be professional footballers, whose earnings are mostly early in their life. These jobs are called recognised occupations. The PSO has an approved occupations list to show which jobs are recognised occupations.
This is either a personal pension scheme or a free-standing additional voluntary contribution (FSAVC) scheme that has got approval from the Pension Schemes Office (PSO). The term approved scheme is not used for occupational pension schemes, even though they can get approval from the PSO.
These are everything that the trustees hold for the pension scheme. They can include investments, bank balances, and debtors.
This is a qualified person who checks accounts. If an auditor believes the law has been broken in an occupational pension scheme, they must tell the Occupational Pensions Regulatory Authority (OPRA). This is called whistleblowing.
On 6 April 2005 the Pensions Regulator took over from Opra (the Occupational Pensions Regulatory Authority). The Pensions Regulator is the new regulatory body for work-based pension schemes in the UK.
Augmentation
This is when extra pension benefits can be bought for a pension scheme member. They are usually paid for by the employer or the pension scheme.
Average earnings scheme
This is another name for a career average scheme. This is a scheme where the pension benefits earned for a year depend on how much the member’s pensionable earnings were for that year.
These are earnings between the lower earnings limit for national insurance contributions and the upper earnings limit. SERPS
is worked out on these earnings. These are also called upper band earnings.
Basic component
This is a term pension companies use for the basic state pension.
Basic pension
This is what the Government sometimes calls the basic state pension.
This is a pension paid by the Government to people who have enough qualifying years. It is not earnings related.
Beneficiary
This is a person who is getting pension benefits, or will do so when a particular event happens.
This is a statement of the pension benefits a member has earned. It may also give a prediction of what their final pension might be.
With pension schemes, this is everything the member gets after retiring because they were part of the scheme. It usually means the money paid to the member as their pension. It could also include death benefits.With insurance, this is the money the insurance firm pays out if something happens. For example, a life assurance policy would pay death benefits if the insured person dies.
Benefits Agency
This is an organisation connected to the DSS. It is in charge of paying state benefits such as Income Support and Jobseeker’s Allowance.
These are things other than money which an employer gives to you for doing your job, for example a company car or a clothes allowance. Only benefits in kind which are taxed are usually counted when working out figures to do with pensions.
Your IFA has to give you “Best Advice” by law. This means gaining a complete understanding of your particular circumstances before deciding which pension plan is the best for you. After the pension selling scandals it is now law for anyone selling a pension to ensure they have fulfilled various criteria including a detailed questionnaire (known as the “factfinder”) completed with the pension buyer.
Bid price
This is the price members of a unit trust will get for each unit if they cash them in.
Bridging pension
This is a pension which a member may receive from their pension scheme between the time they retire and the time they reach their state pension age.
Bulk transfer
This is when a group of members is moved from one occupational pension scheme to another.
This is an insurance policy which pension scheme trustees can buy for a member instead of paying them pension benefits. The insurance company pays the member (or the member’s dependants) a pension.
This is a tax made on any “gains” i.e. profits you make when you sell assets i.e. things like shares, a rare collection of antique toys and so on.
This is the amount of money a pension scheme member can transfer to another pension scheme.
This is giving up part or all of a pension in return for getting a one-off payment straightaway. It is also called commutation.
Centralised scheme
This is a pension scheme which is used by several employers.
Certificate of eligibility
This is a document that an employed person fills in to confirm that they are not in an occupational pension scheme, and so they can pay into a personal pension scheme.
Certificate of existence
This is a document to confirm that a pension scheme member is still alive.
A ‘class A’ member is:
- a member of an occupational pension scheme which was created after 13 March 1989;or
- a member of an earlierpension scheme who joined after 1 June 1989.
A ‘class B’ member is:
- a member of an occupational pension scheme which was created before 14 March 1989;and
- the member joined between 17 March 1987 and 31 May 1989.
A class C member is a member of an occupational pension scheme who joined before 17 March 1987.
Clawback
This is when a member’s pensionable earnings or a member’s pension are reduced to take into account the amount of state pension the member will get.
Closed scheme
This is the name for a pension scheme which does not accept new members anymore.
This is setting up a number of pension schemes at the same time. It lets the member draw the pension benefits at different times.
Common investment fund
This is the name given when the investments of two or more pension schemes are pooled together.
This is giving up part or all of a pension in return for getting a one-off payment straightaway. It is also called a cash option.
These are the things which decide how much pension needs to be given up so that the member can get a one-off payment instead.
This is a scheme organised by an employer to provide pension benefits for their employees.
This is money paid by every occupational pension scheme that is covered by the laws on compensation. This money pays for the Pensions Compensation Board.
Compulsory purchase annuity (CPA)
This is an annuity that an insured occupational scheme must buy for a member when they retire.
Contingent annuity
This is an annuity which is paid to someone when someone else dies.
Continuation option
This is an option offered by the insurance company which insures a pension scheme’s death benefits. It allows a member who is leaving the pension scheme to take out a life assurance policy without taking a medical or providing other evidence of their good health.
Continuous service
A member of an occupational pension scheme may have already spent an earlier time in that scheme (with a break in between) or in a different scheme. Continuous service means that this earlier time is added to the member’s existing service. This could happen if a member takes a break from work to have a baby, or moves between two connected schemes.
If someone contracts out of SERPS, their national insurance payments are lower. They also pay into an occupational or personal pension scheme which has to meet certain conditions.
This term is used to describe a scheme where the members contract out of SERPS.
Contracted out Employments Group (COEG)
This is a part of the Contributions Agency that deals with contracted out employment.
Contracted out money purchase scheme (COMPS)
This is an occupational pension scheme where members contract out, and the employer pays a certain amount into the scheme. When the member retires, this amount is used to make sure they get at least as much pension as they would have got from SERPS.
Contracted out salary related scheme (COSRS)
This is an occupational pension scheme where the members contract out of SERPS. The member’s pension is based on how much they have earned.
Contracting out certificate
The Contributions Agency gives this certificate to a pension scheme that meets the conditions to be contracted out.
Contribution holiday
This is the period when the usual contributions to a pension scheme are stopped for a time. This is usually done when the scheme has more funds than it needs.
This is the money paid into a pension fund for a member. It can be paid by a member or an employer.
This is a department of the DSS. It keeps records of people’s national nsurance contributions and makes sure that the contributions are paid. It also gives advice on national insurance. The Contribution Agency’s phone number is 0113 232 4854.
Contributions equivalent premium
This is a special payment to the state scheme. It is usually paid when a member with less than two years of qualifying service leaves a contracted out scheme. The member is then counted as having been in SERPS for the time they were contracted out.
Contributions holiday
Some pension providers may let you take a contributions “holiday” where you stop the regular payments / contributions for an agreed period. You would need to discuss this with your provider. However the new Stakeholder pensions should allow for these without any problem.
Contributory scheme
This is a pension scheme where both the employer and the members have to pay into the scheme.
Control period
This term is sometimes used when an actuary works out the scheme’s liabilities by looking at how much pension the members have earned so far. The actuary may then set the standard contribution rate for a certain length of time (the control period). During this time, the standard contribution rate should be enough to make sure the scheme’s assets are enough to cover its liabilities.
Controlled funding
This is a plan to make sure that all the pension scheme’s liabilities can be paid. It is often used for final salary schemes.
This is a document given to a member telling them the details of the pension scheme and their right to cancel the plan without any cost. The cancellation has to be done within a given time. It is sometimes called a cancellation notice.
This is a company which acts as a trustee.
Creditors
These are amounts owed by the pension scheme.
Current funding level
This is the amount of money needed to pay the pensions that members have earned so far.
Current value of your pension fund
Your savings are being invested. As the value of the investments change – with the daily rise or fall in the share prices etc – so the value of your savings (ie pension fund) will change on a daily basis.
Custodian trustee
This trustee looks after the trust’s assets.
If a pension pays less than this limit, the whole of the member’s share of the pension fund can be taken as a one-off amount.
Death after retirement benefit
If a member has this option, then their dependants will get some benefits from the scheme if the member dies after starting to get pension benefits.
This may be paid to a member’s dependants if the member dies. It may be a pension or a one-off payment. It could be death after retirement benefit or death in service benefit.
If a member has this option, then their dependants will get some benefits from the scheme if the member dies before starting to get pension benefits.
These are amounts owed to the pension scheme.
Declaration of trust
This is the document which creates the pension scheme trust.
Deed of adherence
This is a legal document which allows a new employer to take over the running of a pension scheme. The new employer has to agree to follow the scheme’s rules.
Deed of appointment
This is a legal document appointing a new pension scheme trustee.
This is an annuity which will start to pay out at some time in the future.
Deferred annuity purchase
This name is also used when a member retires, but chooses not to spend their share of the pension fund on an annuity straightaway.
Deferred member
This is a member who has left a scheme, but will get benefits when they retire. These are called preserved benefits.
This is a pension which is taken later than the member’s normal retirement date.
When someone stops being an active member of a pension scheme, the pension benefits they have earned become preserved benefits, and the member is now called a deferred pensioner. They will get these benefits at a later date.
Deferred retirement
This is when a person decides to retire and draw their pension late. It is sometimes called late retirement or postponed retirement.
This word may be used to mean an actuarial deficiency. This is where the actuarial value of a scheme’s assets is less than the actuarial liability. The actuarial deficiency is the difference between the two.
This is where the rules of the scheme decide how much pension the member will get. There are different ways of working out the size of the pension, but the member will know which system the scheme uses. The most common type of defined benefit scheme is a final salary scheme.
This is where the size of the member’s pension is not decided by the rules of the scheme. The size of the member’s pension will be affected by how much money is put into the pension fund for the member, how much the pension fund has grown, and what annuity rate is available when the member retires. This system is also called a money purchase scheme.
This document shows the rules of the pension scheme and what it provides in detail.
Department of Social Security (DSS)
This is the Government department responsible for the state pension schemes.
This is someone who is financially dependent on a member of the pension scheme (or on a pensioner of the scheme). The scheme rules will usually say what is meant by a ‘dependant’.
Dependant’s pension option
This allows a member to give up part of their pension so that it can be paid to their husband or wife or a dependant.
Derivative
This is a general word used to describe special financial instruments such as options and futures contracts. Financial instruments are agreements to buy or sell something, under terms laid out in a contract.
Direct investment
This is when the trustees of a self-administered scheme directly hold the scheme’s investments.
Disclosure regulations
These are the rules which pension scheme trustees have to follow when giving information about the scheme to members and official organisations.
Discontinuance
This is when contributions to a scheme stop and the scheme is closed down or becomes inactive.
Discontinuance valuation
This is an actuarial valuation which is done to work out what would happen if the pension scheme was stopped or closed down.
This is when the Pension Schemes Office (PSO) agrees that an occupational pension scheme can be approved, even though it does not meet the usual rules.
This is when the trustees give increases in pension benefits above those set out in the pension scheme rules.
Discretionary scheme
This is a scheme where the employer chooses which employees are allowed to join. The contributions and benefits may also vary from one member to another.
Disqualification order
This is an order made by the Occupational Pensions Regulatory Authority (OPRA). It means that a certain person is banned from being a trustee of any occupational pension scheme.
Drawdown facility
This is when a member retires, but chooses not to buy an annuity straightaway. Until the member buys an annuity, they take an income from the scheme.
This is:
- indexation(or escalation);
- index-linkingearnings to work out pension benefits;or
- index-linkingfor working out Inland Revenue limits.
Dynamism
This is another word for dynamisation.
Earlier service component
This is the part of a member’s pension benefit that was earned under a final salary scheme before limited price indexation was brought in.
Early leaver
This is a person who stops being an active member of a pension scheme but who does not start to get a pension straightaway.
Early retirement
This is when a member retires before their normal retirement date and gets their pension immediately.
Earmarked benefits
These are the pension benefits set aside by a court for a member’s husband or wife after a divorce.
Earmarked money purchase scheme
This is a type of occupational pension scheme. It means all the benefits are paid by insurance policies or annuities. Each of these policies or annuities is set up for one particular member, their dependants or both.
Earmarked policy
This is a policy held by a pension scheme to provide life assurance cover, or an annuity for a particular member.
This is a limit on how much of a member’s earnings may be used to work out the limits on contributions and benefits in an approved scheme. This limits the amount that a high earner can put into a pension scheme and still get tax relief. The earnings cap affects Class A members only. It is similar to final remuneration, which can affect all members.
This is a theoretical earnings figure that is used for working out state pensions or guaranteed minimum pensions.
Eligibility
These are certain conditions that somebody must meet to be a member of a pension scheme and to receive pension scheme benefits.
Emoluments
These are a member’s earnings and they include benefits in kind (such as company cars).
This is the organisation the member works for.
Employer’s pension scheme
This is a pension scheme organised by the employer to provide pension benefits for employees. It is most often called an occupational pension scheme.
Endowment policy
This is an insurance policy which will pay out a single amount on a fixed date in the future or when the policyholder dies (whichever happens first).
Enhanced commutation factor
A commutation factor is something which decides how much pension needs to be given up so that the member can get a one-off amount instead. An enhanced commutation factor takes account of the member’s pension increasing in the future.
Entry date
This is either the date an employee can join a pension scheme, or the date they actually do join.
Equal access
This is the term used to describe the requirement that members of both sexes have identical entry conditions to pension schemes.
Equal treatment
After a European ruling, Britain’s pension laws were changed to say that each sex must be treated the same.
Equivalent pension benefit (EPB)
This is the benefit which an employer must give an employee who was contracted out of the old graduated pension scheme.
This is an automatic increase in the amount of pension a member gets (or will get in the future). The amount goes up at regular times, and usually at a fixed rate.
Ex gratia benefit
This is something that an employer gives to an employee, even though they do not have to.
Executive pension plan (EPP)
This is another name for an executive scheme.
This is a pension scheme for specially chosen employees. It is also known as a top hat scheme.
Exempt approved scheme
This is an approved scheme that is not a personal pension scheme, and is set up under a trust that cannot be changed.
Experience deficiency
This is the deficit (loss) when the pension scheme’s actual performance is compared with what the actuary originally predicted.
Experience surplus
This is the surplus (profit) when the pension scheme’s actual performance is compared with what the actuary originally predicted.
If a scheme pays death benefits, this is where the member tells the trustees who should get this benefit if the member dies. The trustees do not have to follow the member’s wishes. This is also called nomination or form of request.
These are the member’s earnings used to work out their pension in a final salary scheme. The amount used could be the member’s earnings in the last few years before they retire.
The word given to describe the various benefits that a particular pension has. These are outlined in the Key Features document which should come with every pension. A typical list of features would be varying contributions, waiver of contributions benefit, flexible retirement age etc.
Final earnings scheme
This is another name for a final salary scheme.
Final pensionable earnings
This is another name for final average earnings.
This is a limit that affects how much of a member’s earnings are taken into account when the Pension Schemes Office (PSO) works out the highest amount of benefit they can get from an approved scheme.
Final salary scheme
This is the most common type of defined benefit scheme. It means that the pension paid to the member is based on how much they are earning when they retire. This amount could be an average over their last few years of work.
Financial Conduct Authority (FCA)
This is the UK’s main financial services regulator. It superceded the Finacial Services Authority which was closed because of its dismal performance only a few years after being set up as the “brave new” watchdog to protect UK consumers from bad practice in the finanial services sector.
Financial Services Authority (FSA)
This is the former organisation that dealt with financial business, such as pensions. It was replaced by the Finacial Conduct Authority because of its dismal record and involvement with the Financial Crisis of 2008
Flat rate scheme
In this type of scheme a member’s pension depends on how long they have been in the scheme. The member’s earnings do not affect the amount of the pension. This is a type of defined benefit scheme.
Forgoing
This is a written agreement between the member and their employer where the member agrees to have their wages cut by a certain amount. The employer then puts this amount into the pension scheme for the employee.
This is another name for expression of wish. If a scheme pays death benefits, this is where the member tells the trustees who should get this benefit if the member dies. The trustees do not have to follow the member’s wishes. This is also called nomination.
Franking
This is the name given to taking any increase in the guaranteed minimum pension off the other pension benefits.
Free cover
An insurance company may agree to cover a group of people for death benefits without asking for proof that they are in good health. For example, this group could be members of a pension scheme. Free cover is the highest amount of benefits that the insurance company will pay out for any one person under this system.
Free-standing additional voluntary contributions
These are payments into a free-standing additional voluntary contribution (FSAVC) scheme.
Free-standing additional voluntary contribution (FSAVC) scheme
An active member of an occupational pension scheme can pay extra amounts into a separate scheme, called a free-standing additional voluntary contribution (FSAVC) scheme. These are run by pension firms. The benefits they get from the scheme will be based only on these extra amounts. It is possible to contract out by joining a free-standing additional voluntary contribution (FSAVC) scheme.
These refer to “up front charges”. Until recently most pension plans tried to take most of the charges you have to pay in the first year or two, both as a way of getting the money quickly, but also to encourage you to stay with them. If you stopped your pension within two or three years, most of your payments would have gone on charges and you would be left with very little to show for your investment. This practice is termed “Front-end Loaded charges” and should be avoided.
These are the benefits a member has already earned from a scheme when they stop being an active member (or the scheme closes). The member will get these benefits when they retire. These are also called preserved benefits.
Frozen scheme
This is a scheme which has been closed. No more contributions will be paid and the members will get their frozen benefits when they retire.
Fully insured scheme
With this type of scheme, the trustees take out an insurance policy for each member. The policies guarantee that each member will get all the benefits that the scheme rules say they should get.
Fund account
This is part of the accounts that a scheme must produce each year. It shows how the scheme has dealt with members, income from investments, and what the scheme has bought and sold during the year.
These are the people who control how the pension fund’s money is invested.
Funded unapproved retirement benefits scheme (FURBS)
This is an occupational pension scheme that is not designed to be approved. This type of scheme saves up assets to pay members’ benefits, unlike an unfunded scheme. Most FURBS are top-up pension schemes.
Funding
This is setting assets aside (saving up) so that money is available to pay future liabilities.
This is a comparison of a scheme’s assets and liabilities.
Funding plan
This is a plan to make sure that money is available at the right time to pay out pension benefits. It usually involves setting the contributions at a certain level, such as the standard contribution rate.
Funding rate
This name is sometimes used to describe the recommended contribution rate. This is how much the actuary says the standard contribution rate should be to make sure the scheme has enough money to pay the necessary benefits.
Funding ratio
This is the funding level, written as a percentage.
This is a contract to buy goods at a fixed price and on a particular date in the future. Both the buyer and the seller must follow the contract by law.
This is paid by all occupational and personal pension schemes covered by the Pension Schemes Registry. It pays for the Pension Schemes Registry, the Pensions Ombudsman and the Occupational Pensions Regulatory Authority (OPRA).
On 6 April 2005 the Pensions Regulator took over from Opra (the Occupational Pensions Regulatory Authority). The Pensions Regulator is the new regulatory body for work-based pension schemes in the UK.
This was a version of SERPS which was used up to 5 April 1975.
Graduated retirement
This was the pension paid by the graduated pension scheme. The benefits depended on how much had been paid in contributions.
This is your total earnings i.e. salary, wages or whatever, BEFORE TAX.
This is your total salary, BEFORE TAX.
Group personal pension (GPP)
This is a system where several employees at one company join a personal pension scheme with the same pension firm. Each member has a separate scheme with the pension firm, but contributions are collected together. The member may get better terms with a GPP than with a normal personal pension scheme. The employer may be more likely to pay contributions, because there will be less paperwork than with each employee dealing with a separate pension firm.
This is an insurance policy which covers more than one person.
Guaranteed annuity
This is an annuity that is paid until the person getting it dies. If they die before a certain date, the annuity is then paid to their dependants until that date.
This gives a person the right to use the money they get from their insurance policy to buy an annuity, with the annuity rate guaranteed in the insurance policy. It can apply to a pension scheme as well as an insurance policy.
Guaranteed minimum pension (GMP)
A member of a contracted out occupational pension scheme will get at least this much pension unless:
- The member’sservice is all after 5 April 1997. Their benefits would then come under limited price indexation (LPI).
- Some of the member’sservice is after 5 April 1997. They would have some of theirbenefits affected by GMP and some by LPI.
- The scheme is a contractedout money purchase scheme. The member’sbenefits are then affected by protected rights.
Guaranteed pension
This is the name for the minimum pension a particular insurance policy will pay.
There are Inland Revenue limits on how much money can be paid into a free-standing additional voluntary contribution scheme. A headroom check may be carried out to make sure that these limits are kept.
This is one way of measuring the value of assets. It uses what the assets originally cost, but an amount is often taken off for wear and tear and age.
Hybrid scheme
This is an occupational pension scheme where the pension benefits can be worked out in two ways. The way that gives the higher benefits will be used. This name is also used for an occupational pension scheme that pays both final salary and money purchase benefits.
This happens when a member retires early because of ill-health. They may get higher pension benefits than a member normally gets when they retire early.
Immediate annuity
This is an annuity which starts to pay out straightaway.
In-house AVC scheme
This is an additional voluntary contribution (AVC) scheme offered by an occupational pension scheme to its members.
Incapacity pension
If a member’s illness means they cannot work as normal, they may get an extra pension. This depends entirely on the rules of their scheme.
Incentive payment
This is a payment the DSS used to make to certain personal pension schemes or contracted out occupational pension schemes. This was sometimes called the 2% incentive.
This is when a member retires, but chooses not to buy an annuity straightaway. Until the member buys an annuity, they take an income from the scheme.
Independent financial advisor (IFA)
An IFA (Independent Financial Advisor) is a personal finace specialist. S/he has to give truly independent financial advice on all types of financial products – in this case, pensions. If they don’t they’ll be in trouble and you should be able to claim compensation.
An IFA is supposed to assess your circumstances carefully. They then make recommendations from all the pension providers in the market. There are a huge number of products to choose from, but it isn’t as difficult as it sounds because there are several computer programmes the IFAs can subscribe to which do all the research for them. For more see Independent Financial Advisors and Why using an IFA is best etc.
IFAs are regulated by the Financial Services Authority (FSA). At the time of writing the FSA is monitoring all IFAs very carefully. For example they are visiting IFAs regularly and asking hard questions about why they recommended what to who. This is a big change from the former regulatory regime and a direct result of the various financial product mis-selling scandals.
Independent trustee
This is a trustee who has no connection with the pension scheme, the employer or the members. For example, an independent trustee might be appointed if an employer goes out of business.
This is a way of measuring changes in prices or earnings, and adjusting pensions in line with these changes. For example, if a pension was linked to a price index, and prices rose by five per cent, then the pension would also rise by five per cent.
This is another name for indexation.
This is an occupational pension scheme with only one member.
Inflation proofing
This is when a pension scheme uses price rises for indexation. It means that the pension a member gets will not be worth less if prices have gone up.
This is the Government department that deals with taxes.
These figures set the largest amount of benefits and contributions allowed in an approved occupational pension scheme. There are different limits for class A, class B or class C members. As a rough rule, a member’s benefits are often limited to two thirds of the wages they got in the year before they retired.
This is a pension scheme where the only way the assets are invested is in an insurance policy. It does not include schemes that use a managed fund policy.
This is reducing a member’s benefits by part or all of the amount that they will get from the basic state pension. State pension offset is one type of integration.
Interim trust deed
This is a trust deed which allows a pension scheme to be set up with very general terms. The detailed rules are usually set up later in a definitive trust deed.
Internal dispute resolution (IDR)
This is the system an occupational pension scheme must have to deal with member’s concerns or complaints. If a member is not happy with what happens through this system, they can take their case to OPAS or the Pensions Ombudsman.
This is when the money paid into a pension scheme is used to buy things like stocks and shares, bonds and properties. These are called investments.
This is putting money into investments thus buying a share of, typically, a company, which will use the money to expand its operation and then give back a corresponding share of the increased profit to the investors. This increase would be called the investment growth.
This is the income earned by the pension fund’s investments.
Investment Management Regulatory Organisation (IMRO)
This is an organisation that deals with investment management companies. It makes sure that the rules and laws on investment are followed. IMRO’s phone number is 020 7676 1000.
This is someone the trustees appoint to manage the investment of the scheme’s assets.
Investment report
This gives details of investments held by the pension fund, and the buying and selling of them. It explains why the investments were chosen and the reasons for any changes.
Investment trust
An investment trust is a company which invests money in different securities. It is listed on the stock exchange.
ISA / Individual Savings Account
A type of savings/ investment where you benefit from tax breaks. Very basically the government allow you to invest a certain amount of your earnings on a tax free basis. This is to encourage savings (or is it to help the big financial institutions. No shurely not).
There are several types of ISAs: Maxi ISAs, Mini ISAs and each type has its own rules and investment limits. In other words it’s just fascinating (stifled yawn) but too complicated to get into just here. ISAs replaced TESSAs and PEPs a couple of years ago.
If you want to know more about ISAs go to www.moneysorter.co.ukand follow the links from there.
Key features document
This is a document that people offering a life insurance policy or pension scheme must give to anyone thinking of buying a policy or joining a scheme.
This is when a member retires and takes their pension after the normal retirement date.
Later earnings addition
When a member is still in pensionable employment and:
- their contracted outemployment has finished; and
- the member’s earnings arehigher in this later job than they were when contracting out finished;
the minimum benefit may be increased.
Letter of exchange
This is a letter from an employer to an employee, which is all or part of the individual arrangement document. The employee signs a copy of the letter to show that the terms are agreed.
Level of funding
This is the how much the actuarial valuation says a scheme’s assets are worth compared to its liabilities. It is usually a percentage figure, meaning that a scheme with a 100 per cent level of funding would have assets and liabilities worth the same amount.
This is an amount that a pension scheme has to pay each year. The amount depends on how many members are in the scheme. There are two types, the general levy and the compensation levy.
These are amounts which the pension scheme will have to pay now or at some time in the future. The most common liability is paying members’ pensions.
This is an insurance policy which will pay out if a member dies. When used in pensions, the policy may only pay out if the member dies before they retire or leave their employer.
Lifelong Individual Savings Account (LISA)
This was a name some people suggested for a new Government idea for a pension investment system. But the Government chose the name Pooled Pension Investment (PPI).
Limited price indexation (LPI)
This is a part of the law that says pensions paid by an occupational pension scheme, and protected rights paid by an appropriate personal pension scheme must increase by at least a certain rate each year. This rate is five per cent, or the increase in the Retail Price Index, whichever is less. LPI does not affect additional voluntary contribution (AVC) or free-standing additional voluntary contribution (FSAVC) schemes. It only applies to pension benefits earned after 5 April 1997. Any benefits earned before this come under the guaranteed minimum pension (GMP).
A member who worked both before and after this date would have some of their benefits affected by GMP and some by LPI.
Linked qualifying service
Linked qualifying This is when a member used to belong to another scheme and the pension benefit earned in it has been transferred into the member’s new scheme. The qualifying service in the two schemes is linked together.
Long service benefit
This is the term used for a member’s benefits which will be paid at their normal pension age. This figure is used when working out short service benefit.
This is the least amount someone must earn before they have to pay national insurance.
Lump sum certificate
This is a certificate which a pension scheme must supply in some cases when a member transfers to another scheme. The certificate shows the largest one-off amount available from the transfer payment given to a new pension scheme.
This is a fund, run by an insurance company, that people can invest in. With pensions, this can be where somebody from outside the scheme is employed to invest the scheme’s assets, usually in a range of investments.
This is when an occupational pension scheme meets all the normal rules for contracting out, so the Pension Schemes Office(PSO) has to automatically make it an approved scheme.
Market value
This is the price an asset should fetch if it is sold on the open market.
Master policy
This is an insurance policy which covers more than one person. It is also called a group policy.
In an approved scheme this is the largest pension benefit a member can receive. This does not apply to personal pension and simplified defined contribution schemes. The size of the maximum approvable benefit depends on whether the member is a Class A, Class B or Class C member.
This usually means someone who has joined a pension scheme.
Member-nominated director (MND)
This is a director of a corporate trustee that is chosen by the members of an occupational pension scheme.
Member-nominated trustee (MNT)
This is a trustee chosen by the members of an occupational pension scheme. Usually, at least a third of the trustees of an occupational pension scheme will be member-nominated trustees.
Member participation
This is the term used to describe members having a say in how their pension scheme runs.
Member’s normal contribution
This is the member’s regular payment to the pension scheme as set out in the scheme’s rules.
A scheme may set a minimum benefit. This means that the member will get at least this much, even if their pension works out to be less. This is also called a minimum pension.
These are contributions the DSS pays to an appropriate scheme when a member decides to contract out.
Minimum funding requirement (MFR)
This is part of the law on pensions. It says that a defined benefit scheme should not have an actuarial deficiency.
This is the smallest amount an employer is allowed to pay into a contracted out money purchase scheme. This amount will give the protected rights.
A scheme may set a minimum pension. This means that the member will get at least this much, even if their pension works out to be less. This is also called a minimum benefit.
Mis-selling
This is a word used to describe the problems of firms selling pensions to people who would have been better off staying with the scheme they were already in. One example is somebody leaving an occupational pension scheme to join a personal pension scheme, but losing out because their employer no longer paid money into their pension fund.
This is a way the actuary of an occupational pension scheme works out how much an insurance policy is worth to the scheme. It bases the value on how much the scheme pays to the insurer for each member, but does not include anything the insurance firm charges for setting up the policy, such as commission or expenses.
Modification order
This is an order made by the Occupational Pensions Regulatory Authority (OPRA). It means that an occupational pension scheme must make a particular change, even though this is normally against the scheme rules.
On 6 April 2005 the Pensions Regulator took over from Opra (the Occupational Pensions Regulatory Authority). The Pensions Regulator is the new regulatory body for work-based pension schemes in the UK.
Money purchase
This is when a member’s benefits are based on the contributions paid by them and for them, and any increase in this amount
from investments. In most cases, this involves using the member’s share of the pension fund to buy an annuity.
This is where the size of the member’s pension is worked out by the money purchase method. The size of the member’s pension will be affected by how much money is put into the pension fund for the member, how much the pension fund has grown, and what annuity rate is available when the member retires. This is also called a defined contribution scheme.
These are salespeople who give you advice on and sell you Mortgages. They’re not as well regulated as IFAs
Any financial institution that offers and/or arranges mortgages. These could be insurance companies, friendly societies, building societies, banks, unit trust managers and, nowadays, even supermarkets.
This is money that the Government takes from both workers and employers. The amount depends on how much the worker earns. Some Government benefits, such as the basic state pension and SERPS, depend on how much national insurance you have paid.
NI (National Insurance) contributions
These are payments into your National Insurance “account” which covers your future pension, unemployment benefit, NHS service etc. They are usually held back from your pay along with your PAYE (pay as you earn) tax.
Net assets statement
This is a statement showing the difference between an occupational pension scheme’s assets and liabilities.
Net book value (NBV)
This is what an asset originally cost to buy (called historical cost) less a sum for wear and tear and ageing.
This is your earnings AFTER TAX. So if you’ve earned say £100 and have been taxed at, say, 22% the £78 you have left is your net earnings.
These are earnings of self-employed people or earnings of employees who are not in an employer’s pension scheme. Net relevant earnings are used to work out the highest amount which can be paid into a pension scheme where contributions get tax relief.
This is your earnings (e.g. salary, wages) AFTER TAX. So if your gross salary is say £100 and have been taxed at, say, 22% the £78 you have left is your net salary.Net salary
If a scheme pays death benefits, this is where the member tells the trustees who should get this benefit if the member dies. The trustees do not have to follow the member’s wishes. This is also called expression of wish or form of request.
This is a scheme which is not designed to be approved by the Pension Schemes Office (PSO). It can be used to provide extra pension benefits over the earnings cap (limit) on approved schemes. Tax relief is not usually available for these schemes.
Non-contributory
This is a type of pension scheme where the members do not have to pay into the scheme themselves.
Non-pensionable earnings
These are earnings that are not used when working out contributions or benefits. They could include overtime or bonuses.
Non-pensionable employment
This is employment where either a worker chooses not to join an occupational pension scheme, or there is no occupational
pension scheme that they can join. Earnings from non-pensionable employment can be counted towards net relevant earnings.
This is the earliest age that a member can usually take their full pension benefits. Somebody retiring before this age will usually get a lower pension, but this may not apply with ill-health early retirement.
This is the date when a member can normally start to get their pension benefits. It will usually be the date that they reach normal pension age.
This is when employees doing a particular job usually retire. It is usually the same as the normal pension age.
This is the date that the scheme rules say a member should normally retire. In most cases, it is the date that they reach normal pension age.
This is a scheme organised by an employer to provide pension benefits for their employees. It is sometimes called a company
pension scheme.
Occupational Pensions Advisory Service (OPAS)
This is an independent body which advises pension scheme members about their rights under their schemes. It can deal with complaints about pension schemes, but cannot force a scheme to do something. The body is now usually known as OPAS because it now covers personal pension schemes. OPAS’ phone number is 020 7233 8080.
Occupational Pensions Regulatory Authority (OPRA)
This is the official organisation that makes sure trustees of occupational pension schemes follow the law. OPRA’s helpline number is 01273 627600.
This is sometimes used to mean state pension offset. This is when a member’s pensionable earnings or a member’s pension are reduced to take into account the amount of state pension the member will get. It is a type of integration.
An independent person who settles disputes and acts as a standards “watchdog”.
This is the option to use the money from an insurance contract to buy an annuity from any insurance company at whatever annuity rate they offer. It could apply to a member’s share of a pension fund, meaning they can shop around for the best deal.
This is when an employee leaves an occupational pension scheme or chooses not to join one.
This is the name for a contract where somebody pays a sum of money for the right to buy or sell goods at a fixed price by a particular date in the future. However, the goods do not have to be bought or sold.
These are the contributions an employer pays regularly into an occupational pension scheme.
Overfunding
This is where a scheme has an actuarial surplus.
Overlap
This is where a dependant’s pension is paid as well as a pension guarantee payment.
Overriding legislation
This is where the law overrides a pension scheme’s rules.
Paid up benefit
This is a type of preserved benefit that will be paid by an insurance policy. This policy has been fully paid for.
Partially approved scheme
This is a pension scheme where only part of it can be approved by the Pension Schemes Office (PSO). For example, this could be a scheme where some of the benefits are paid to overseas employees who do not pay British taxes.
This is a method of investment that tries to limit risk by following a market. As an example, it might involve buying a number of shares in the 100 biggest companies on the stock exchange, rather than buying and selling particular shares. This could involve using a tracker fund.
People often choose passive investment management because they believe it is safer than active investment management.
This is service before a member has joined the pension scheme or before a particular date.
This is a pension benefit which a member has earned for past service or for service before the pension scheme was formed.
This is where pension benefits are paid out of present day income. There is nothing set aside to pay future pension benefits.
This is a type of unfunded scheme. The basic state pension and SERPS are both pay as you go schemes, with the benefits
paid from taxes.
These are a set of details saying when contributions should be paid and how much they will be. A money purchase scheme must have a payment schedule.
Pension cost
This is the amount expected to be charged to the employer’s profit and loss account for pension contributions over the period that scheme members are expected to work.
Pension fraction
This is a fraction (or part) of earnings used to work out benefits in a scheme where the benefits depend on earnings, such as a final salary scheme.
For example, if the pension fraction is a sixtieth, then a member will earn benefits at a sixtieth of their final salary for each year worked. If they work for 40 years, their pension will be 40 sixtieths, or two thirds, of their final salary.
This is the money saved and turned into assets of the pension scheme. It could mean an individual’s pension fund or a pension provider’s total pension fund.
This is when the pension scheme pays extra money to reach a guaranteed total, if the pensioner dies early. The money is usually paid to the pensioner’s dependants.
Pension increase
This is when a pension which is already being paid is increased.
Another term for a Pension scheme i.e. operated by a pension provider.
A personal pension scheme or free-standing additional voluntary contribution (FSAVC) scheme must be set up by an special organisation. This organisation is called a pension provider. These could be insurance companies, friendly societies, building societies, banks, unit trust managers and nowadays even supermarkets.
Another term for a Pension plan i.e. operated by a pension provider
Pension scheme statement of recommended practice (SORP)
These are the rules that say how the accounts of an occupational pension scheme must be worked out and written.
This is the part of the Inland Revenue that decides whether a pension scheme can be approved. Before 1 April 1992, it was called the Superannuation Funds Office.
This is a list of occupational and personal pension schemes kept by the Occupational Pensions Regulatory Authority (OPRA). It can be used so that members can find schemes they have lost touch with, and so that OPRA can check that every scheme has paid the levy. You can ask about the register by calling 0191 225 6393.
Pension splitting
This is when a member gets divorced and their benefits are split between them and their ex-husband or ex-wife. Rules to allow or order pension splitting may become law during 1999. These rules may also affect what happens if one of the couple remarries, or they die before retiring.
Pension tax relief at source (PTRAS)
This is a way of giving members tax relief. People in occupational pension schemes have their contributions taken out of their pay before their tax is worked out.
Pensionable age
This is the age when people can start to get the basic state pension and SERPS.
These are the earnings used to work out benefits and contributions that depend on a member‘s earnings. They might not include overtime. The amount may be affected by state pension offset.
This is the period of employment which is taken into account when working out pension benefits.
This is another name for pensionable employment.
This is someone who is getting a pension at the moment.
This is someone (or a company) appointed to act as a trustee of a small self-administered pension scheme.
Pensions Compensation Board (PCB)
This is the organisation that deals with the pensions compensation scheme.
This is a system set up by law. It can pay compensation to members of occupational pension schemes when the assets
have been affected by dishonesty and the employer is insolvent. It covers most approved occupational pension schemes, but there are some exceptions. It does not cover unfunded schemes.
The Pensions Ombudsman is an independent person who settles disputes between pension scheme members and the pension schemes. Pension schemes must follow the Ombudsman’s rulings, but they can challenge them in court.
These were the tax exempt savings vehicles that have been replaced by ISAs.
This is an insurance policy which pays an income to someone who has been taken ill with a long-term illness or disability. A pension scheme might buy this policy as part of a member’s benefits. The policy may stop paying out when the member
reaches normal retirement age. This can also be called prolonged disability insurance.
Permitted investments
These are the types of investments that trustees can make under trust deed rules.
Permitted maximum
Particular laws use this name for the earnings cap. This is a limit on how much of a member’s earnings are counted when the Inland Revenue works out their maximum approvable benefits.
This is the “first amount” of money you earn which is not taxed. The basic personal allowance for the financial year 2000/2001 was £4,385. This meant that the first £4,385 of your salary would not be taxed.
The term given to anything to do with arrangements made for people’s money eg mortgages, pensions, insurance, bank accounts etc.
Personal Investment Authority (PIA)
This is a former regulator / organisation
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Personal pension
This is someone’s personal pension arrangement. It can also mean a retirement annuity set up before July 1988.
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Personal pension arrangement
This is the agreement somebody has with a pension firm about their personal pension scheme.
Personal pension contributions certificate (PPCC)
This is a certificate, prepared by a pension provider, for a member to send to the Inland Revenue. It proves that they are a member of the scheme, and how much their contributions are.
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Personal pension Scheme (PPS)
This is a scheme run by a private company for one person. It can be for someone who is self-employed, or an employed person who is not in an occupational pension scheme. Somebody who is part of an occupational pension scheme that only pays death in service benefit (which means there is no pension paid) can also join a personal pension scheme.
Pivotal age
When a contracted out member reaches this age, they should be better off if they go back to SERPS. The age will depend on the member’s situation.
Pooled Pension Investment (PPI)
This is an idea that the Government is considering. It is not a pension scheme itself, but a system of investing a pension fund in a range of stocks, shares and so on. The idea is that it will be more flexible, and that members will have a better idea of how much their pension is worth.
Before the Government chose the name PPI, some people suggested it would be called a Lifelong Individual Savings Account (LISA). If the Government goes ahead with the PPI system, it may be delayed until stakeholder pensions start.
Post 89 member
This is another name for a class A member. This is somebody who is:
- a member of an occupational pension scheme which was created after 13 March 1989; or
- a member of an earlier occupational pension scheme who joined after 1 June 1989.
Post 89 regime
This is the system of maximum approvable benefits allowed for class A, class B or class C members.
This happens when a member stays employed after their normal pension date and does not start to take a pension.
Pre-award dynamism
This is the change in value of a member’s preserved benefits between when they leave the scheme and when they retire. It could be because of indexation, escalation or a discretionary increase.
Pre- 1 June 1989 continued rights
These are the rights of an occupational pension scheme member who comes under the Inland Revenue limits on maximum approvable benefits which applied between 17 March 1987 and 31 May 1989.
Pre- 17 March 1987 continued rights
These are the rights of an occupational pension scheme member who comes under the Inland Revenue limits on maximum approvable benefits which applied before 17 March 1987.
Pre- 87 member
This is someone who joined an occupational pension scheme before 17 March 1987. This is another name for a class C member.
Pre-scheme service
This is a member’s service before becoming a member of the pension scheme.
These are payments into an insurance or assurance policy/plan.
Premium value
This is a way of valuing a long-term insurance policy for a pension scheme’s accounts. It is based on how much the scheme has to pay for each member. The actuary or accountant may chose to use a modified premium value, which does not include the insurance firm’s charges for setting up the policy.
Prepayment
With pensions, this is when an employer pays more contributions than the actuary has worked out are needed. The extra amount, called prepayment, is shown as an asset in the employer’s accounts (rather than those of the pension fund).
Prescribed rules
These are rules that give a system for choosing a member-nominated trustee. Unless the scheme has a system decided by the trustees or the employer, or if this system does not work, the scheme must use the prescribed rules.
Present value
This is how much future payments or income are worth now. It is worked out by taking off an amount for interest, and taking into account how likely it is that the money will be paid. It is sometimes called capitalised value.
Preservation
This is when a pension scheme gives a member preserved benefits.
Any form of pension that is not a state pension e.g. personal, company / occupational pension and stakeholder pension.
“For the equal amount of time” e.g. if you were earning £400 a month and worked for one week, pro rata, you would earn £100.
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Salary grade scheme
This is a type of career average scheme. The benefits earned each year depend on which range of earnings a member is in, rather than the exact amount they earned. For example, somebody who is paid £15,000 might earn the same benefits as somebody who is paid £15,500.
Salary-related scheme
This is a scheme where the member’s pension depends on their earnings. It is a type of defined benefit scheme.
Salary sacrifice
This is an agreemejargonbuster.cfmnt between an employer and a worker. The employee gives up some of the wages they would have got in the future, and the employer pays the same amount as a contribution to a pension scheme. The Inland Revenue’s rules say this agreement must be in writing. This does not count as an additional voluntary contribution.
Schedule of contributions
This is a particular type of payment schedule. It is signed by an actuary, and designed to make sure the scheme does not have an actuarial deficiency during the time the schedule will be used. A defined benefit scheme must have a schedule of contributions because of the minimum funding requirement.
This is when the Government decides how much preserved benefits should increase between a member leaving a scheme and their normal pension date.
These are the particular rules of a pension scheme. A member has the right to see the full scheme rules.
Section annuity
A section 32 annuity (also called a section 32 policy) is another name for a buy-out policy.
A section 226 annuity is another name for a retirement annuity.
Section schemes
A section 53 scheme is an occupational pension scheme that used to be contracted out, and still has a guaranteed minimum pension (GMP) or protected rights. This means it is still dealt with by the Contributions Agency. This used to be called a section 49 order.
A section 590 scheme is an occupational pension scheme that gets mandatory approval. This used to be called a section 19 scheme.
A section 608 scheme is an occupational pension scheme that was approved before 6 April 1980 (under old rules), and has not taken any contributions since then.
Section orders
A section 53 order is the old name for a schedule 3 order.
A section 109 order is when the Government decides how much a guaranteed minimum pension (GMP) should rise by each year. It covers GMPs from after 1988. This used to be called a section 37A order.
A section 148 order is when the Government decides how much the earnings factor should rise by each year. This used to be called a section 21 order.
Section policies
A section 32 policy is a buy-out policy. This is also called a section 591 policy.
A section 32A policy is an insurance policy that takes care of protected rights. It is used for an active member or a deferred pensioner when a contracted out money purchase scheme closes.
Securities and Investments Board (SIB)
This board watched over the organisations which control UK investment businesses. It also controlled, through a set of rules, what the UK investment businesses do. It has now been replaced by the Financial Services Authority.
Segmentation
This is setting up a number of pension schemes at the same time. It lets the member draw the pension benefits at different times. This only applies to personal pension schemes and retirement annuities. It is also called clustering.
This is when a pension scheme’s assets are managed by an investment manager from outside the scheme, but are kept separate from other assets that the investment manager controls.
Self-administered personal pension
This is another name for a self-invested personal pension.
This is an occupational pension scheme where the trustees or an investment manager decide how the assets are invested. ‘Self-administered’ does not mean that the members run the scheme themselves.
Self-employed annuity
This was another name for a retirement annuity. This was a way that self-employed people, or people whose job did not offer an occupational pension scheme, could save for retirement. It was not a pension scheme, but an agreement with an insurance company or friendly society (a special type of financial firm). The agreement could be approved by the Inland Revenue, meaning the member got tax relief. No new retirement annuity agreements have been allowed since 1 July 1988.
Self-invested personal pension (SIPP)
In this type of pension scheme the member has a say in the scheme’s investments. They may employ somebody to make these decisions for them.
Self investment
This is when an employer invests part of the pension fund in assets used in connection with the employer’s business. For example, this could include buying land to build a new factory. In most cases, only five per cent of a scheme’s assets can be invested in this way. Different rules apply to a small self-administered scheme.
This is the length of time a person has worked for an employer or connected employers, such as one firm that took over another.
This is the pension benefit which must be kept for a person who stops being an active member of a pension scheme, but who does not start to get a pension straightaway.
Simplified defined contribution scheme (SDCS)
This is a money purchase scheme that is allowed to contract out and become approved under simpler rules and Inland Revenue limits than usual.
Small self-administered scheme (SSAS)
This is a self-administered occupational pension scheme with no more than 12 members. The scheme will normally be run for a family business. These schemes must meet special conditions, such as having a pensioneer trustee, before they can be approved.
Solvency test
This is a test done by the actuary. The actuary works out whether the pension scheme has enough assets to pay the pension benefits owed to its members under the scheme rules. This test may be done to check a scheme meets the minimum funding requirement.
Special contributions
These are extra contributions that an employer pays into an occupational pension scheme. This could be to cover new benefits, or to make up an actuarial deficiency.
The Government is planning to introduce this new title for pensions. It can be used for a personal pension scheme, or an occupational pension scheme that uses the money purchase method. A stakeholder scheme will have to meet certain conditions, such as how the scheme is run, and what charges it makes. The plans for stakeholder pensions will probably become law during 1999.
This is the normal contribution rate worked out by a valuation. It does not take into account any actuarial surplus or actuarial deficiency.
State earnings related pension scheme (SERPS)
This is the extra state pension that employed people can earn. They pay extra national insurance contributions once their earnings reach the lower earnings limit. People can choose to contract out of SERPS by joining an appropriate occupational or personal pension scheme.
This is sometimes used to mean the state pensionable age.
This is the age people normally start getting the basic state pension and the benefits from SERPS. At the moment, it is 65 for men and 60 for women. Between the years 2010 and 2020, the age for women will gradually rise to 65.
State pension disregard
This is another name for state pension offset.
This is when a member’s pensionable earnings or a member’s pension are reduced to take into account the amount of state pension the member will get. It is a type of integration. It is also known as offset.
State scheme premium
This is a special amount paid to the DSS to buy certain SERPS benefits. In most cases, this meant that somebody who had contracted out could get some of the SERPS benefits they would normally have lost by being contracted out. Most state scheme premiums have not been available since 6 April 1997.
State second pension
This is what the Government plans to replace the SERPS scheme with. It has been designed so that people who do not earn a lot should get a higher pension than they would with SERPS.
Statement of recommended practice
This is advice issued by the Accounting Standards Committee on the accounting rules which should be followed for pension schemes.
Statutory discharge
The law says that a member who leaves a scheme has a right for the scheme to pay a certain amount (a cash equivalent). This amount is either put into a new scheme as a transfer payment, or used to buy an insurance policy (a buy-out policy) which later pays benefits straight to the member. Statutory discharge is when somebody uses this right.
Statutory scheme
This is a pension scheme set up by an Act of Parliament, for example the Civil Service scheme.
This is when a member uses a legal right to have their old scheme make a transfer payment to a new scheme.
Superannuation
This is a word which some schemes, particularly those in the public service, use to describe a member’s contributions.
Superannuation Funds Office (SFO)
This was the part of the Inland Revenue that dealt with approved schemes before 1 April 1992. It is now called the Pension Schemes Office (PSO).
Statutory discharge
The law says that a member who leaves a scheme has a right for the scheme to pay a certain amount (a cash equivalent). This amount is either put into a new scheme as a transfer payment, or used to buy an insurance policy (a buy-out policy) which later pays benefits straight to the member. Statutory discharge is when somebody uses this right.
Statutory scheme
This is a pension scheme set up by an Act of Parliament, for example the Civil Service scheme.
Supplementary scheme
This is a separate pension scheme which gives a member extra benefits. It is also called a top-up pension scheme.
This is where the actuarial value of a scheme’s assets is more than the actuarial liability . The surplus is the difference between the two. It is usually called an actuarial surplus.
Surrender
This is when an insurance policy is cancelled and the insurance company pays an amount (called ‘the surrender value’) to the policyholder.
Suspension order
This is an order made by the Occupational Pensions Regulatory Authority (OPRA). It stops a named person from using their powers or carrying out their duties as a trustee of any occupational pension scheme covered by the order. The named person will get back these powers if the order is removed.
On 6 April 2005 the Pensions Regulator took over from Opra (the Occupational Pensions Regulatory Authority). The Pensions Regulator is the new regulatory body for work-based pension schemes in the UK.
Targeted money purchase
This is a money purchase scheme that says how much benefit it aims to pay. The scheme does not have to pay this amount.
Tax benefits, Tax relief, Tax incentives, Tax breaks
The Inland Revenue gives you an incentive to save money, in this context for retirement, by not taxing you if you spend your money in certain ways. For example, if you put your money into a personal pension you are not taxed on any of it.
If you have already been taxed on the money you’re putting into a private pension the government will put the tax you paid on that money back into your pension plan.
Tax relief at source
This is a way of giving members tax relief. People in occupational pension schemes have their contributions taken out of their pay before their tax is worked out.
Temporary annuity
This is an annuity that is paid until a certain date, or until a certain person dies, whichever happens first.
This is a type of insurance policy which pays out if the insured person dies before a certain date.
Term insurance policy
This is another name for a term assurance policy.
Tied agent
This is somebody who can only give advice on the financial products (such as pensions) sold by one firm or group.
Tied annuity option
This is when an insurance firm pays out on a policy, and the person who gets the money uses it to buy an annuity from the insurance firm. For example, a pension scheme could use the money from a policy to buy an annuity for a member. The annuity rate will be whatever the insurance firm is offering at the time. This is different from a guaranteed annuity option, where the annuity rate is fixed by the insurance policy. This is also different to an open market option, where the money from the policy can be used to buy an annuity from a different insurance firm.
This is a pension scheme for specially chosen employees. It is sometimes called an executive scheme.
This is where a member joins an extra pension scheme to get extra benefits. The Pension Schemes Office (PSO) uses this name for unapproved schemes.
Total earnings scheme
This is a type of career average scheme. It means the member’s pension is worked out as a fraction (part) of their total earnings while they were in the scheme.
Tracing service
There are two tracing services. One is run by the Pension Schemes Registry to help people keep track of the pension benefits they have earned in the past. The other service is run by the DSS to help schemes keep track of their deferred pensioners.
This is another name for a tracking fund.
This is a way of investing that means buying a range of investments that should grow at the same rate as a particular market. For example, this could mean buying shares in the 100 biggest companies on the stock market. A tracking fund could be used for passive investment management.
This is a group of employers and occupational pension schemes which agree to deal with transfer payments in the same way.
Transfer credit
If a member changes schemes, they may get a transfer payment from their old scheme to the new one. The benefit that the member earns from this payment is called a transfer credit. This will also count towards their qualifying service in the new scheme.
This is an amount that a scheme may pay when a member leaves. This amount will either go into a new scheme that the member has joined, or will be used to purchase a buy-out policy for the member. The scheme may make this transfer payment because of the scheme’s rules, or because of the member’s rights under the law (a statutory transfer).
Transfer premium
This is an amount that could have been paid to the Government when a member moved their benefits to an occupational pension scheme that was not contracted out. When working out the figures, an amount was taken off to cover the guaranteed minimum pension (GMP).
In return for the transfer premium, the member got extra benefits from SERPS. The transfer premium has not been available since 6 April 1997.
Transfer value (TV)
This is the amount paid as a transfer payment.
Trivial pension
This is a pension which is so small it can be cashed in without affecting the Pension Schemes Office (PSO) approval.
Under a trust, named people (called trustees) hold property on behalf of other people (called beneficiaries). The trustees can be beneficiaries.
Trust corporation
This is a company which acts as a trustee and holds the trust’s assets.
This is a legal document used to:
Trust instrument
This is the name for the documents which set up the trust and decide the trust’s rules.
This is a person or a company appointed to carry out what the trust must do. They must follow the laws that apply to trusts.
Trustee report
This is a report by the trustees on certain things to do with an occupational pension scheme. It may be part of the annual report.
Unallocated assets
These are pension scheme assets which have not yet been used to provide pension benefits.
This is an occupational pension scheme which is not designed to be approved by the Inland Revenue.
Underfunding
This is when a pension scheme’s assets are less than its liabilities.
In this type of pension scheme, assets are not saved up before the pension benefits are paid. A pay as you go scheme, such as SERPS, is a type of unfunded scheme.
Unfunded unapproved retirement benefits scheme (UURBS)
This is an unfunded occupational pension scheme that is not designed to be approved by the Pension Schemes Office (PSO).
Uniform accrual
This is the assumption that pension benefits are earned at the same rate over the whole time a member is expected to work.
Unisex annuity rates
These are annuity rates which are the same for men and women.
Unistatus annuity rates
These are annuity rates which are not affected by whether somebody is a man or a woman, whether they are married, single, separated or divorced, or whether they have any dependants.
Unit linked pension
In this type of pension scheme the pension scheme benefits depend on what happens to a unitised fund. The scheme is usually linked to the unitised fund through an insurance policy.
This is a trust which people can invest in by buying units. The trust uses investors’ money to buy investments. The fund manager values the fund’s assets from time to time and puts a new price on the fund’s units.
This is where a group of different people or companies have their money invested together, instead of separately (as with a segregated fund). The scheme is split up into units. A unit trust is a unitised fund.
Unitised with profits policy
This is a with-profits policy where each person or firm’s investment is a share of the fund, rather than a particular amount of money.
Untied annuity option
This name is sometimes used for an open market option. This is the option to use the money from an insurance contract to buy an annuity from any insurance scheme at whatever annuity rate they offer. It could apply to a member’s share of a pension fund, meaning they can shop around for the best deal.
Unused relief
This is the amount of tax relief that a member of a personal pension scheme has available for their contributions, but has not yet used. They may choose to count this unused relief for a different tax year, which is called carry back or carry forward.
These are earnings between the lower earnings limit for national insurance and the upper earnings limit. People in SERPS have to pay extra national insurance based on these earnings.
This is the highest amount of earnings on which employees pay national insurance. The employer still pays national insurance for earnings above this limit.
Upper tier earnings
This is another name for upper band earnings.
This word is sometimes used to mean an actuarial valuation. This is when an actuary checks what the pension scheme assets are worth and compares them with the scheme’s liabilities. The actuary works out how much the contributions from employers and members must be so that there will be enough money in the scheme when people get their pensions. With defined benefit schemes, there must be an actuarial valuation every three years.
Valuation balance sheet
This is a way of showing actuarial assets and actuarial liabilities. An actuarial surplus or actuarial deficiency is listed to balance the figures.
Valuation basis
This is the name for the way the actuary values a scheme’s assets and liabilities, and the estimates they make.
Valuation date
This is the date used for the actuarial valuation. The figures shown will be for this date.
Valuation method
There are several ways that actuaries can value pension scheme assets and liabilities. The actuarial report must say which way was used.
Valuation report
This is a report on an actuarial valuation. It is also called an actuarial report.
Variable pension
This is another name for income withdrawal. This is when a member retires, but chooses not to buy an annuity straightaway. In the meantime, they take an income from the scheme. This could apply to a member of a small self-administered scheme, a personal pension scheme or a defined contribution occupational pension scheme.
Vested rights
These are:
This is the length of time an employee has to work for an employer before they can join the employer’s pension scheme. It is also called a qualifying period.
This is a benefit that a personal pension scheme or a retirement annuity may offer. It means that an insurance company will pay extra money into the scheme if the member cannot pay their usual contributions because of ill-health or disability.
This may be worth taking out if you have any doubts about your ability to continue paying. It will pay your pension contributions, for example throughout the term of the policy, (up to retirement) if you can’t pay due to ill health etc.
An occupational pension scheme’s actuary or auditor (the person who checks the accounts) must by law tell Occupational Pensions Regulatory Authority (OPRA) if they believe the scheme is breaking certain rules. Other people can tell OPRA this, but they do not legally have to do so.
Widow’s (or widower’s) guaranteed minimum pension (WGMP)
A contracted out occupational pension scheme must pay at least this amount in pension benefits to the widow or widower of a member who dies. This applies for any benefits earned before 6 April 1997. It does not apply to a scheme that has contracted out under the protected rights rule.
Winding up
This is closing an occupational pension scheme. It can done by buying annuities for all the members. These will be deferred annuities in some cases. Another way of winding up a scheme is to move all its assets and liabilities into another scheme. This will be done by following the scheme rules, or any laws that apply.
This is a type of insurance policy. It means that a policyholder will get a share of any surplus in the insurance company’s life insurance and pensions business.
Introduction
Plain English Campaign owns the copyright on this guide.
The Plain English Campaign has written a detailed glossary of pension terms which they have kindly allowed us to reproduce here for your convenience.
You may find this useful when actually buying a pension. Check any term you want clarified by scrolling down A – Z.
Should you want to download it, it’s free, but don’t forget the copyright belongs to the Plain English Campaign.
We all have much to learn from this guide. And we all have much to thank Plain English Campaign for. Over the years the Campaign has made a valuable difference to the way government and business communicate with people. It has helped people to understand their rights and duties. This guide is a further important milestone.
Mark H Ashworth
Head of Group Pensions
Nat West Group
We have written this A-Z guide to help you to understand some of the terms you will come across when you buy a pension.
You can click on any of the letters below to go straight to definitions beginning with that letter. When our definitions include a term that is explained in more detail, it is highlighted with a link. You can click on the link to go straight to that term’s definition.
Disclaimer
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