Helping you understand pension jargon!
Our Pension Jargon Buster offers readers a valuable glossary of financial terms and phrases to help you cut through technical jargon and understand your pension planning.
A-Z of Pension Terms
An A-Z of over 90 common words and phrases used in pension advice; this FREE guide is a must for your personal financial toolkit. Pension planning seems a lot more complex than it actually is. All you need to understand is what you have in place, and what your options are.
Pension statements, valuations, option forms and transfer calculations can be very confusing.
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Pension advisers speak another language. Pension benefit statements are filled with technical pension jargon, and financial acronyms. Understand what it all means with our FREE pension jargon buster.
Pension statements are littered with technical terms and confusing acronyms. From SIPP to DB; RAC to GARs, we explain what it all means. Our guide has been written just for us. You won’t find a glossary of pension terms quite like it elsewhere.
Our guide covers popular pension terms, but if you think we’ve missed anything, please get in touch! Check out our news and blog, which is regularly updated with articles about specific pension terms and help with your planning options.
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Jargon Buster - Pension Glossary
| Pension Jargon | Definition |
|---|---|
| Additional State Pension/SERPS | Benefits accrued in a pension which were collected from 'contracting' (opting) out of additional State pension credits |
| Additional Voluntary Contributions (AVCs) | AVCs are accrued when a pension scheme member has opted to add further contributions. This builds an additional pension fund alongside scheme benefits |
| Annual Allowance | The maximum amount a UK taxpayer can contribute to pensions each year, and gain tax relief |
| Annual Management Charge (AMC) | The management fees charged to an investment fund, expressed as a percentage |
| Annuity | A contract of income for life, obtained from a private insurance company in exchange for pension funds at retirement |
| Appropriate Independent Advice | Advice in relation to a transfer of safeguarded pension benefits, delivered by a qualified Pension Transfer Specialist from an FCA regulated firm, independent of relevant parties, and holding the correct advisory permissions |
| Appropriate Pension Transfer Analysis (APTA) | A formal pension analysis using professional tools, produces a statistical report (Transfer Value Comparator, TVC) comparing existing benefits held to the proposed new pension arrangement, while accounting for assumptions over inflation, investment performance and costs. |
| At-Retirement Advice | Advice delivered to an individual who is in the 'at-retirement' stage of planning, comparing their immediate retirement options under their existing scheme benefits, with the option of transferring benefits out |
| Attitude to Risk | A description of the level of investment risk an individual is prepared to take with funds, typically assessed using a professional tool or questionnaire |
| Benefit Crystallisation | There are several 'benefit crystallisation events' (BCE), including the point at which a member takes pension benefits, death, or upon transferring funds to a QROPS. This is the stage where the lifetime allowance test is conducted. |
| Bridging Pension | A short-term income typically lasting from the time an individual claims income benefits to their State pension age from a defined benefit scheme |
| Cancellation Rights | A transfer of benefits out of a pension scheme is irreversible, however the arrangement of a new plan offers a period of time where the individual can cancel without negative effect, this is typically 30 days |
| Capacity for Loss | An investor must consider whether they can suffer investment loss without it having a negative effect on their financial lifestyle or security. For example, while an investor may want to take an aggressive approach to investment, should they not have sufficient wealth or income in place elsewhere, it would be inappropriate to take such risk; they do not have the 'capacity for loss' that such risk could entail |
| Career Average Revalued Earnings (CARE) | Where pension income benefits are linked to average earnings over an individual's service or a certain period of time |
| Cash Equivalent Transfer Value (CETV) | The amount a pension scheme has calculated to be available to a member to transfer to their private arrangement, in exchange for their safeguarded scheme benefits |
| Ceding Scheme | The scheme from which a transfer value (CETV) is being considered for transferring out |
| Client Agreement | This is a 'terms of business' document advisory firms use to engage clients for the provision of professional advisory services |
| Commission | An amount payable to an adviser or intermediary, which is directly funded via fixed product costs levied on funds held |
| Commutation Factor | A defined benefit scheme member will have the option to 'commute' a portion of their income benefits in exchange for a Pension Commencement Lump Sum (PCLS), this is calculated using scheme commutation factors |
| Consumer Prices Index (CPI) | A measure of inflation in the UK, determined by the cost of a basket of goods, excluding the costs of home (e.g. rising mortgage, rental, council tax costs) |
| Contracted-out Benefits | Pension benefits obtained by 'contracting' (opting) out of additional State pension benefits |
| Critical Yield | Expressed as a percentage, the critical yield is an estimated annual return required to match the scheme benefits under the proposed plan. |
| Cross-border Advice | Where advice is delivered from one country to a resident of another country |
| Death Beneficiary | The individual/s or charities nominated to receive benefits in the event of the death of a pension member |
| Deferred Benefits | Pension benefits held by a scheme for an individual's retirement |
| Defined Benefit | A pension scheme whose benefits are pre-determined/guaranteed |
| Defined Contribution Scheme | A pension determined by contributions made to it, without any guarantees over what benefits may be available at retirement |
| Dependents Pension | Scheme income death benefits which would be available to be claimed in the event of a member's death. This is typically payable to a spouse or qualifying financial dependent such as children or a long-term partner. |
| Discharge Forms | A pension scheme's required paperwork in order to authorise the transfer of funds |
| Discretionary Fund Management | A discretionary fund manager is permitted undertake investment transactions within a portfolio without prior reference to the owner. The mandate is agreed at the start, as are the parameters within which the investment manager must operate. |
| Discretionary Increases | Where the revaluation (pre-retirement) and/or escalation (post-retirement) of income benefits under a defined benefit scheme is entirely awarded at the discretion of pension scheme trustees |
| Double Taxation Agreements (DTAs) | These are cross-country government agreements where legislation is clearly outlined in relation to taxation, and should be considered in all cases where funds are withdrawn outside of the country of origin. |
| Early Retirement Factors | Scheme-specific factors which determine the reduction in income benefits should a member claim retirement income prior to the scheme's 'normal' retirement age |
| Enhanced Annuity | A form of pension annuity which has been enhanced due to the applicant demonstrating poor health following an underwriting assessment |
| Escalation | How inflation-linked income benefits revalue post-retirement |
| Factfind | A form used by advisory firms to obtain comprehensive personal and financial information about a client, as well as their planning objectives |
| Final Salary Scheme | Where pension income benefits are determined by a calculation involving the member's salary at their date of leaving, and years of pensionable service |
| Financial Advice Declaration (FAD) | Confirmation that advice has been delivered to a pension scheme member by a Pension Transfer Specialist |
| Financial Conduct Authority (FCA) | The UK financial regulator of advisers and intermediaries |
| Financial Services Compensation Scheme (FSCS) | The FSCS was set up under the Financial Services and Markets Act 2000 and exists to protect clients of FCA authorized firms. The FSCS offers a range of protection across different types of financial products. For further details about the FSCS and how it may protect you, visit www.fscs.org.uk |
| Flexi-Access Drawdown | Income drawdown without limitations. While income is not capped or limited under flexi-access drawdown, it is taxable. |
| Flexible Pension Benefits | Pension funds held in a form of private or personal pension plan. This is typically identified as a plan with a fund value, where funds are invested in the markets and therefore the value is subject to investment risk and explicit costs. |
| Funding Deficit | Should a scheme's total assets be deemed insufficient provision for its long-term liabilities (i.e. paying scheme member pensions) by an independent auditor, it will be determined to have a funding deficit. |
| Funding Status | How a scheme's actual resources compare to its long-term liability of paying scheme members their income benefits for their lifetimes. This is regularly assessed by scheme auditors. |
| Guarantee Period (death benefits) | A period of time where scheme benefits will be payable in full, in the event of the death of a member |
| Guarantee Period (transfer value) | A scheme member's CETV is typically guaranteed for three months from calculation |
| Guaranteed Annuity Rates (GARs) | Where a pension provider will offer an annuity using a minimum rate, typically only at a certain retirement age, with specified ancillary benefits |
| Guaranteed Minimum Pension (GMP) | The GMP is a guaranteed minimum pension income at retirement, typically honoured only at age 65 for men and 60 for women. They are a form of 'contracted out' pension provision, obtained by an individual opting out of additional State pension credits. |
| Hurdle Rate | The estimated rate of return required from the proposed plan to achieve a fund from which a level (non-inflation linked) annuity can be purchased, at a value matching the starting income of the existing scheme |
| Hybrid Scheme | A pension arrangement containing a mixture of benefit types, this can include a combination of safeguarded and non-safeguarded assets |
| Income Drawdown | Drawing a regular income from a private pension arrangement, while funds remain invested and subject to investment risk |
| Inflation Linked Income | Income which rises each year in line with a pre-determined measure of inflation, this may be subject to an annual cap and is set by the scheme |
| Investment Bond | A form of investment wrapper subject to certain rules and restrictions, within which investments are made and traded. This typically comes with a fixed charging structure and pays an intermediary commission. |
| Investment Funds | Investment funds are a collection of monies managed by an investment team according to their specific mandate and risk profile |
| Investment Platform | An investment product offering the ability to hold and trade investments |
| Investment Risk | Funds invested into the markets are subject to investment risk. The value of funds can fall as well as rise. |
| Late Retirement Factors | Factors used by a scheme to determine any enhancement which may be awarded to income which is claimed later than a scheme's 'normal' retirement age |
| Lifetime Allowance | The maximum amount an individual may hold across their UK pension benefits before it may become subject to taxation upon crystallisation |
| Lifetime Allowance Charge | A taxation applied in the event of a benefit crystallisation event where funds are in excess of the lifetime allowance |
| Limited Prices Index (LPI) | An inflationary measure. This is usually the lesser of the annual increase in the Retail Prices Index (or Consumer Prices Index) and 5%, although the percentage limit can vary. |
| Liquidity Risk | The risk of being able to access money and withdraw funds, this can be due to restrictions over investment funds or products. Where an investor might be unable to convert an asset into cash without suffering penalty, or be unable to trade assets when fund are required. |
| Minimum Pension Age | The earliest age from which a healthy individual can claim benefits from a UK pension, determined by legislation |
| Money Purchase Schemes | A form of defined contribution scheme, where the value is determined by contributions and the success of investments, subject to explicit costs |
| Non-Contingent Charging | A fee which is payable with no regard to whether planning was put in place |
| Normal Retirement Age | The age from which scheme benefits are available in full |
| Ongoing Charges Figure (OCF) | A representation of the overall charges of an investment fund, including typical trading costs and the Annual Management Charge (AMC). Previously known as the Total Expense Ratio (TER) |
| Option v option advice | Where advice is a restricted ‘option v option’ assessment of whether it is more suited for an individual to retain their benefits in their current state, within an existing scheme, or approve a specific proposal presented and recommend that the transfer of benefits does suit that individual's objectives, and is appropriate to their needs and long-term planning. It is important to note that while the transfer may be deemed appropriate, that does not mean that there isn’t a more suited, more flexible, lower cost, better functioning or more established solution available on the marketplace. |
| Overseas Transfer Charge (OTC) | A taxation levied upon benefits being transferred overseas to a QROPS arrangement, unless the transfer is excluded from the charge. |
| Partial Pension Transfers | A scheme may offer a partial transfer option, where some funds may be transferred away while some benefits are retained under the scheme. |
| Pension at Date of Leaving (DOL) | The value of income benefits calculated at the point a member leaves pensionable service, which will be held under the scheme for that member's retirement and typically benefit from inflation-linking |
| Pension Commencement Lump Sum (PCLS) | A lump sum payment upon commencement of benefits which is free of UK taxation |
| Pension Increase Exchange (PIE) Option | Some schemes offer options at-retirement, to adjust scheme income benefits to account for pre-determined inflationary increases |
| Pension Protection Fund (PPF) | The PPF was set up in April 2005 to give protected for members of a pension scheme if the scheme winds up and there are insufficient assets to provide members' benefits. See www.ppf.org.uk for more details. |
| Pension Sharing Order | Where a member's pension benefits is subject to a sharing order following a divorce settlement, typically expressed as a percentage of benefits or as a specific right |
| Pension Transfer Specialist (PTS) | A UK regulated financial adviser with the required qualifications in order to advise upon the transfer of safeguarded pension benefits |
| Pension Trustee | A regulated trust company whose responsibilities are to look after pension funds for the benefit of its members |
| Pensionable Service | A period of employment where an individual has qualified to accrue company pension benefits |
| Phased Retirement | Where a pension member utilises their PCLS entitlement across tax years rather than taking a full lump sum at commencement of benefits |
| Pound (Dollar) Cost Averaging | Buying shares or currency across a period of time in order to gain an 'average' price rather than trading all at once |
| Protected rights | Pension benefits obtained by 'contracting' (opting) out of additional State pension benefits |
| Public Sector Schemes | Pension schemes accrued through government service, such as employment under the Police or NHS. Such benefits are not able to be transferred-out, except under the Public Sector Transfer Club. |
| Public Sector Transfer Club | Where members of public sector pension schemes can transfer their previous public sector-linked benefits to a current public-sector pension arrangement |
| Qualifying Regulated Overseas Pension Scheme (QROPS) | A type of overseas private pension wrapper, approved by HMRC to accept UK pension transfer funds. |
| Receiving Scheme | The pension arrangement whereby funds are proposed to be transferred to |
| Reduction in Yield (RIY) | The effect of costs upon projected growth, typically expressed as a total percentage |
| Restricted Advice | Advice which does not consider the whole of the market, and is instead restricted to consider certain areas of advice or certain products/solutions only. |
| Retail Prices Index (RPI) | A measure of inflation in the UK, determined by the cost of a basket of goods, including typical costs at home (e.g. rising mortgage, rental, council tax costs) |
| Retirement Income Strategies - Income Modeller | An additional report using the Selectapension tool; used to determine the longevity of funds when planning a withdrawal strategy, while accounting for assumptions over inflation, investment performance and costs |
| Retirement Quotation | An offer of income for immediate retirement, often including various options for taking a lump sum in exchange for a lower income |
| Revaluation | The way a deferred pension income links to inflation pre-retirement |
| Risk Profile | A description of the level of investment risk an individual is prepared to take with funds, typically assessed using a professional tool or questionnaire |
| Safeguarded Benefits | Safeguarded pension benefits include defined benefit schemes (whether “career average” or “final salary”), and other scheme types which hold valuable benefits that would be lost in the event of transfer. |
| Scheme Administrators/Trustees | The pension trustees for an individual's safeguarded pension scheme |
| Section 32 | A safeguarded pension arrangement which usually contains a protected tax-free cash allowance and restricted access to monies. |
| Section 9(2b) rights | Section 9(2b) rights are benefits accrued after 1997 under a scheme contracted out under the “Reference Scheme Test” and must guarantee a minimum level of income, calculated by reference to salary. |
| Self Invested Personal Pension (SIPP) | A UK regulated private pension arrangement, which holds pension investments for retirement planning. |
| Spousal Pension | An income death benefit available for the lifetime of a surviving spouse, from a defined benefit scheme upon the death of a scheme member |
| State Second Pension/S2P/SERPS | Benefits accrued in a pension which were collected from 'contracting' (opting) out of additional State pension rights |
| Statement of Entitlement | Confirmation of a pension member's benefits held under a pension scheme |
| Statistical Analysis | An analysis of whether a pension transfer is appropriate from a financial point of view, assuming the individual lives to normal life expectancy. |
| Transfer Value Comparator (TVC) | Produced using a professional Transfer Value Analysis System (TVAS) and forming part of the Appropriate Pension Transfer Analysis (APTA); a statistical report comparing existing benefits held to the proposed new pension arrangement, while accounting for assumptions over inflation, investment performance and costs. |
| Letter of Authority (LOA) | Formal appointment of an advisory firm by a client can made using a 'Letter of Authority'. This can be used for pension research and/or transfer of advisory agency. |
| Letter of Authority (LOA) | Formal appointment of an advisory firm by a client can made using a 'Letter of Authority'. This can be used for pension research and/or transfer of advisory agency. |