Active Member
A pension scheme member who has not yet taken any retirement benefits.
A-Day
6 April 2006 - the effective date of pensions simplification, when HMRC introduced a single tax regime for all UK pension schemes.
Additional State Pension
A pension paid on top of your basic state pension. It used to be called SERPS but is now called the State Second Pension (S2P). Self employed people cannot build up an additional state pension.
Alternatively Secured Pension (ASP)
Allows a pension scheme member to defer purchasing an annuity at age 75. A defined level of income can be drawn on the invested funds until the member decides to purchase an annuity or dies. This income is taxable.
Annual Allowance
The maximum pension contribution a pension scheme member is allowed each year without giving rise to a tax charge.
Annual Fee
The basic charge for running a pension scheme
Annual Management Charge
The administration fee levied each year on a defined contribution scheme, a personal pension plan or a stakeholder pension scheme.
Annuitant
The person who is receiving an annuity payment
Annuity rate
The amount of monthly income you get depending on several factors such as interest rates, retirement age, health and sex.
Annuity
A policy from an insurance company that converts your pension fund into pension income. Pension income is taxable.
Arms Length Transaction
A normal commercial transaction between two or more persons
Auto-Enrolment
An arrangement where an employer automatically enrols an employer into a pension scheme. This arrangement is to become compulsory from April 2012.
B
Basic State Pension
The benefit provided at state pension age to those with a sufficient National Insurance Contribution record.
Beneficiary
An individual who is eligible to receive benefits from the scheme.
Benefit Crystallisation Event
See Crystallisation Event
C
Civil Partner
Those in a same sex relationship who have entered into a Civil Partnership in accordance with the Civil Partnership Act 2004.
Complaints Procedure
The formal grievance procedure for pension scheme members and beneficiaries
Commission
Payment received for arranging your pension scheme. This is deducted from your investment.
Concurrency
The principle allowing someone to pay into more than one pension scheme at the same time.
Connected Party
Connected parties are certain relatives, trustees, partners and companies. The following are defined by HMRC TCGA92/S286.
A person is connected to an individual if that person is the individuals;
Spouse or civil partner, a relative of the individual, the spouse or civil partner of a relative of the individual, a relative of the individuals spouse or civil partner, the spouse or civil partner of a relative of the individuals spouse or civil partner.
Relative is defined as brother, sister, ancestor or lineal descendant. Relative does not cover all relationships, in particular, nephews, nieces, aunts and uncles.
A company is connected with another person if that person has control of the company or that person and persons connected with him together have control of the company.
A person is connected to any person he is in partnership with, and the spouse or civil partner of any person he is in partnership with, and a relative of any person he is in partnership with.
Where a transaction takes place between a registered pension scheme and a connected party the transaction must be made at arms length terms.
Contracting Out
The facility to opt out of the state additional pension and build up benefits in a personal pension scheme.
Controlling Director
A director who owns or controls, either in his or her own right or with one or more associates, at least 20% of the ordinary share capital of the employing company.
Critical Yield
For pension income withdrawal plans; the amount your fund must grow to keep paying your chosen income.
Crystallisation Event
An event where pension benefits become payable i.e. annuity purchase, death, starting an unsecured pension etc, and at which time a test against the lifetime allowance is carried out.
D
Defined Benefit (DB) Scheme
An occupational pension scheme that provides benefits based on accrual rate, pensionable service and pensionable salary.
Defined Contribution (DC) Scheme
A scheme that provides retirement benefits based on the build up of a 'pot' of money, accumulated through the investment of contributions paid by both the employee and the employer.
Department for Work and Pensions (DWP)
The government department with overall responsible for the rules governing pension schemes and the administration of the state pension.
Dependant
An individual who is eligible to receive retirement benefits, i.e. pension and or lump sum, following the death of a pension scheme member. A dependant is defined as a spouse, civil partner, a child under 23 years of age, a child over 23 dependant on the grounds of physical or mental impairment or person who is financially dependent on the scheme member.
Designated bank account
This is the bank account which is opened when your pension scheme is established and from which your scheme provider conducts the administration of your scheme.
E
Earmarking
Provides a spouse with a share of a pension scheme member's pension rights on divorce. Spouse's share is paid when the member draws their benefits.
Enhanced Protection
If a member had exceeded or were likely to exceed their pension rights at 5 April 2006, they could safeguard them against a future tax charge.
Equities
Stocks and shares
Escalation
The increments applied to an annuity in payment.
Expression of Wish
Notification by a member to their pension scheme of how they wish their lump sum death benefits to be paid.
F
Final Salary Scheme
An occupational pension scheme that provides benefits based on accrual rate, pensionable service and pensionable salary.
Financial Ombudsman Service (FOS)
An independent, levy funded body that considers complaints between consumers and financial firms.
Financial Services Authority (FSA)
An independent, government funded body that regulates the financial services business in the UK.
Five Year Review
HMRC rules state the scheme administrator, your provider, must review the minimum and maximum amount you can take from your income withdrawal plan each year.
G
Genuine Diverse Commercial Vehicle (GDCV)
Indirect investments held through a GDCV will not be subject to tax charges when held as a scheme investment by an investment regulated pension scheme.
- UK REITS – UK Real Estate Investment Trusts
- The pension scheme and associates directly or indirectly own 10% or less of the taxable property and have no rights to personal use. The assets held by the GDCV must be in excess of £1 million pounds, the GDCV must hold at last 3 assets directly and no one asset can exceed 40% of the total value of the assets.
Government Actuaries Department (GAD)
A government department that provides actuarial advice and guidance to the government and public sector schemes.
H
HM Revenue and Customs (HMRC)
A government department, successor to the Inland Revenue and Customs & Excise, that handles the tax approval of pension schemes and taxation of contributions and benefits.
Hybrid Products
An alternative to lifetime annuity, without the investment risks of income withdrawals, and with a regular income and some guarantees.
I
Illiquid/ Non liquid asset
This refers to an asset which cannot be readily converted to cash e.g. property.
In specie transfer
The transfer of an asset other than cash from another pension scheme.
Impaired Life Annuity
An annuity on enhanced terms if an individual is suffering from poor health, such as as high blood pressure, diabetes, heart condition, kidney failure, certain types of cancer, multiple sclerosis and chronic asthma.
Income Drawdown/Withdrawal
Also known as an unsecured pension. Allows a pension scheme member to continue to invest a fund whilst drawing a limited income. Available to under 75s only.
J
K
L
Lifestyling
An investment strategy where a member's investments are switched automatically as they get older to more secure holdings, such as cash.
Lifetime Allowance (LA)
The maximum value of fund a pension scheme member can accumulate without incurring a tax charge.
Lifetime Annuity
A policy issued by an insurance company that converts all or part of your pension fund, into pension income that is paid to you for life. The income is taxable.
Lump Sum
The tax-free lump sum paid to a member of a pension scheme when their benefits come into payment.
M
Market Value Reduction (MVR)
A reduction to your with profits policy that could apply if you want to cash it in before or after its maturity date or other date(s) as specified in the policy.
Minimum Pension Age
Earliest date at which a member can take retirement benefits, other than on grounds of ill health. The minimum age is currently 50 and will be 55 from April 2010.
Money Purchase Scheme
A pension where your contributions are invested in, for example, the stock market. The size of your pension fund depends on how much is invested and how well those investments do. At retirement some, or all, of the fund may be used to buy an annuity or unsecured pension or alternatively secured pension.
N
National Insurance Contribution (NIC)
Payments deducted from pay or declared through self assessment, used by the DWP to fund the state pension and other state benefits.
O
Occupational Pension Scheme
A scheme set up by an employer to provide retirement and/or death benefits to employees.
OEIC
Open ended investment company, also known as a “collective” investment.
Open Market Option (OMO)
Your right to choose an annuity from the company offering the best deal for you.
P
Pension Commencement Lump Sum (PCLS)
The tax-free lump sum paid to a member of a pension scheme when their benefits come into payment.
Pension Earmarking
Provides a spouse with a share of a pension scheme member's pension rights on divorce. Spouse's share is paid when the member draws benefits.
Pension Guarantee
Incorporated into an annuity it ensures that pension instalments for a specified period are paid, even if the member dies before the period expires.
Pension Increases
The increments applied to an annuity in payment.
Pension Income
The income you get from your pension savings by buying an annuity, unsecured pension or alternatively secured pension. Pension income is taxable.
Pension Sharing
Provides a spouse with a share of a pension scheme members retirement benefits on divorce. Spouse is given a credit to put towards their own retirement benefits.
Pension Tracing Service
Operated by The Pension Service. Pension scheme members are able to trace lost pension schemes.
Pensioneer Trustee (PT)
A professional trustee that, prior to 6 April 2006, had to be appointed to carry out defined administrative functions for small self administered schemes.
Pensioner Member
A pension scheme member who has drawn their pension.
Pensions Credit
A means-tested benefit that boosts a pensioner's state pension to ensure they have a minimum level of income.
Pensions Ombudsman
An independent, levy funded individual who determines complaints by scheme members and beneficiaries about the way a pension scheme is run against scheme trustees, managers, administrators and employers.
Pensions Simplification
The name given to the changes introduced by HMRC on A-Day. One single tax regime was introduced to replace the previous eight.
Personal Accounts
A new low cost pension scheme being introduced in April 2012. Employers will be able to automatically enrol their employees into this arrangement.
Personal Pension Plan (PPP)
A money purchase pension from a pension provider into which you and/or your employer makes contributions.
Phased Retirement
With an Unsecured Pension; the ability for you to phase your retirement from your initial selected retirement date until you are 75. You can select the most suitable option each year to meet your current circumstances. At each phased retirement only part of your total pension fund is used to provide you with a pension income.
Up to 25% of each phased segment can be taken as a tax-fee cash lump sum and, once activated you can continue to draw income from the rest of the segment. Any segments not en cashed continue to be invested free of tax (except UK dividend income). By age 75 all of your pension fund must go into drawdown.
Primary Protection
A pension scheme member who has pension rights valued in excess of the lifetime allowance could safeguard against a tax charge.
Professional Trustee
Appointed to carry out defined administrative pension functions.
Protected Rights (PR)
This is the name given to the fund built up by contracting out of the state second pension.
Public Sector Scheme
An occupational pension scheme set up by the government to benefit those in government funded employment, i.e. teachers, police, civil servants.
Q
Qualifying Recognised Overseas Pension Scheme (QROPS)
An overseas pension scheme that meets HMRC rules that allow overseas transfers.
R
Reclaiming Basic Rate Tax
Pension contributions receive tax relief. The Pension Scheme Provider will reclaim basic rate tax from HMRC on the member’s personal gross contributions. This is added to the pension fund.
Retirement Annuity Contract (RAC)
The predecessor of the personal pension plan. Available before April 1988 to the self-employed and those in employment who did not have access to an occupational pension scheme.
S
Salary Sacrifice
An arrangement between an employer and an employee where the employee forgoes part of their pay for a corresponding employer contribution to the pension scheme.
Salary-Related Scheme
An occupational pension scheme that provides benefits based on accrual rate, pensionable service and pensionable salary. Also known as final salary scheme and defined benefits scheme.
Section 32 Plan
An insurance policy designed to accept transfers from defined benefit schemes.
Selected Pension Age (SPA)
The age chosen by a personal pension plan member to draw retirement benefits.
Self-Invested Pension Plan (SIPP)
A type of personal pension plan which gives an individual a wide choice of assets in which to invest, as opposed to just a selection of funds. SIPPs allow the individual to take full control of the underlying assets, or to appoint an authorised fund manager to do this on their behalf. The portfolio may include a range of collective investments from different managers, and may include individual shares holdings and commercial property. SIPPs also offer flexible retirement options.
Short Term Annuity
A temporary annuity that runs for no longer than 5 years. Allows an individual to draw an income whilst deferring purchasing a full annuity. Available between 50 and 75.
Single Lifetime Annuity
An annuity that will not pay out to your spouse, civil partner or dependant after your death.
SIPP Establishment Fee
This is the charge for preparing and processing the documentation to make you a member of the pension. It includes opening the bank account and processing any fees relating to the payment of contributions into the pension at the outset of membership.
Small Self-Administered Scheme (SSAS)
An occupational pension scheme, usually for small businesses, that gives members more investment control and flexible retirement options.
Stakeholder Pension Scheme
A type of personal pension plan, offering a low-cost and flexible alternative and which must comply with requirements laid down in legislation.
State Additional Pension
The earnings related part of the state pension, paid in addition to the basic state pension.
State Earnings Related Pension Scheme (SERPS)
Alternate name given to the state additional pension between April 1978 and April 2002.
State Graduated Pension Scheme
Alternative name given to the state additional pension between April 1961 and April 1975.
State Pension
Administered and paid by The Pension Service, this benefit is made up of the basic state pension and the state additional pension.
State Pension Age (SPA)
The earliest age that the state pension can be taken.
State Pension Date (SPD)
The earliest date that the state pension can be paid.
State Pension Deferral
On reaching state pension age, a pensioner can defer taking their state pension in exchange for a higher pension or lump sum in the future.
State Pension Forecast
An illustration provided by The Pension Service giving an estimate of what state pension an individual may receive at state pension age.
State Second Pension (S2P)
Alternate name given to the state additional pension since April 2002.
Statutory Money Purchase Illustration (SMPI)
Annual statements issued to personal pension scheme members, giving forecasts of benefits now and at retirement (in today's terms).
T
Tax Free Cash
The tax free lump sum paid to a member of a pension scheme when their benefits come into payment.
Tax Relief
Incentive given to those contributing to pension schemes. The government pays 20% (non-earners and basic rate tax payers) or 40% (higher rate tax payers) of a member’s gross contribution. 40% tax relief is only available to those with an income of less than £150,000 per annum.
Tax-Approved Scheme
A pension scheme that has been approved to operate by HMRC.
The Pension Service
A part of the DWP. Responsible for administering and paying the state pension.
TIP
Trustee Investment Plan
Transfer in
Transferring the value of pension benefits from an existing pension scheme to your SIPP or SSAS either in cash or in specie.
Transitional Protection
Comes in two forms - primary and enhanced. Allows an individual to protect accrued pension rights that may exceed the lifetime allowance, thereby avoid a tax charge on the excess.
Triviality
Allows a pension scheme member to withdraw all pension benefits as a lump sum. Member must be at least 60 and have total pension rights valued at less than 1% of the lifetime allowance.
Trust Deed & Rules
The legal document that sets up a pension scheme and defines how it should be operated.
U
Unauthorised Payment
A payment made to a member or employer by a pension scheme that is not authorised by HMRC. This is subject to a tax charge.
Unquoted shares
Shares in a private company which are not listed on any stock exchange.
Unsecured Pension
Also known as income drawdown or income withdrawal. Allows a pension scheme member to continue to invest a fund whilst drawing a limited income. Available to under 75s only.
V
W
Winding Up
The process of terminating an occupational pension scheme, usually by transferring member's benefits to individual arrangements.
Winding Up Priority Order
The order in which members' benefits are distributed on the winding up of a defined benefit scheme with an insolvent employer and a funding shortfall.
X
Y
Z
