From 6th April 2006 many new pension terms were introduced and some old ones are no longer as relevant. The right hand column below will say if this applies.
| 6th April 2006 - When many changes to pensions took place |
New term |
A pension term which means 'to earn' benefits in a scheme
e.g. You might 1/60th of your salary for each year in the scheme |
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| The person responsible for reporting certain events to the Inland Revenue and accounting for any tax due |
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| The (very clever and highly qualified) person appointed by Defined Benefit Occupational Pension Schemes to advise on funding and value the scheme |
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A series of regular payments received in exchange for a lump sum paid at the outset
Apart from the odd exception an annuity is guaranteed |
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A technical term used to describe 'Income Drawdown' after age 75
If surplus funds are left to non-spouse family members on death the total tax charge could be 82% |
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Additional Voluntary Contribution - see also FSAVC
A further saving into an Occupation Pension Scheme by an employee and member of the scheme |
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| Normally a member of a pension scheme but also includes potential beneficiaries in the event of the members death. e.g. spouse and children |
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An event which triggers a test against the whole value of a persons pensions to see if they exceed the 'Lifetime Allowance'
There are 9 such events. Click here to view them (opens separate window) |
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Cash Equivalent Transfer Value - A value calculated by the Actuary of a 'Defined Benefit' company pension scheme. In theory this represents the cash value of the pension rights earned to date. In practice the quoted figure is often considerably less than the true value
In divorce cases professional pensions advice must be sought on the implications of the discrepancies |
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The term used to describe sacrificing pension for a cash lump sum
It is very important to check the commutation factor or ratio of cash to pension as almost all schemes make a profit out of you taking cash |
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This is a technical term meaning an 'Annuity' where the funds have come from an 'Occupational Pension Scheme' rather than a 'Personal Pension'
See also Open Market Option |
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Swopping your rights to the State Second Pension (used to be called SERPS) for a rebate of National Insurance monies which are then invested into a Personal Pension with an insurance company
For more guidance on Contracting out download our leaflet |
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| The rate at which invested pensions funds have to grow to match the alternative of taking an annuity at the start of drawdown |
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| The rate at which a Personal Pension fund has to grow to match the guaranteed pension that was promised in a defined benefit/final salary scheme |
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A technical way of describing some types of company pension schemes - also known as Final Salary
The benefit is defined as a fraction of salary for each year of employment with the company. e.g. 1/60th or 1/80th
Defined Benefit schemes are now almost exclusively run by large employers |
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| See Trust Deed |
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Drawing an income directly from the pension fund which can remain fully invested
This is an alternative to an Annuity
Also know as 'Income Drawdown' and sometimes 'Pension Fund Withdrawal' |
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| Not a bizarre ritual. It means recording an interest against an existing pension benefit in favour of a former spouse. Always donme by court order. This isn't used so much now as it has been replaced with Pension Sharing |
Old
term |
Applies to individuals with large pension funds
If they registered before 5th April 2009 the certificate protects all future growth against the Lifetime allowance charge
Warning - This protection can be lost if any further pension savings are made or received
See also Primary Protection |
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| Applies to final salary schemes only following a European Court judgement. It means equalising the retirment ages of men and women |
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An occupational money purchase pension scheme for employed individuals often directors and/or senior employees
These almost always had higher charges than current levels so must be reviewed |
Old
term |
i) An alternative name for a 'defined benefit' company pension scheme
ii) Final Pensionable Salary is a term which descibes the salary figure used to calculate a pension on retirement. e.g. Average of last 3 years |
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| The Financial Services Authority |
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Free Standing Additional Voluntary Contribution
A sort of Personal Pension (before 2006) for people who were in Employers Occupational Schemes. It wasn't attached to the emplyers schemes so was called 'free standing'scheme |
Old
term |
| Funded Unapproved Retirement Benefit Schemes |
Old |
| A Chartered Insurance Institute (CII) qualification which identifies an adviser as having reached a standard by examination in order to advise on more complex pension matters including transferring pensions |
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| Government Actuaries Department - The GAD rates are applied to calculate the levels of income that may be taken from a pension fund during income drawdown |
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Guaranteed Minimum Pension - The equivalent of SERPS in an Occupational Pension Scheme that has been Contracted-out
Can also apply to a 'buy-out' or 'Section 32' policy if the pension was transferred out. Warning - these may now be worth a lot more so great care must be taken when reaching retirement |
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| The State Graduated Pension Scheme ran between 1961 and 1975. People who were employed during this period will have earned some of this. You can get an estimate of how much along with a basic state pension estimate. Download form BR19 from our downloads page |
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| The term used to describe personal pensions when gathered together by an employer |
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Many older Pension Policies have a built in guaranteed rate that was fixed when interest rates were much higher in the past
Some of these guarantees are worth double the current rate
STOP PRESS - Just found one at 247%
Many insurance companies will not tell you about this option and some will send retirement figures quoting the guaranteed 'annuity' which is based on current low interest rates. A current annuity is guaranteed but it is not the same as a 'guaranteed annuity rate'
Check the policy document or ask for help or you may be throwing away half the pension |
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| Independent Financial Adviser |
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Drawing an income directly from the pension fund which can remain fully invested
This is an alternative to an Annuity and allows the income to be varied each year. The capital value is not lost on death.
Also know as 'Drawdown' and sometimes 'Pension Fund Withdrawal' |
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The maximum amount of pension fund value that can be reached after 6th April 2006 beyond which tax is applied at 55%
Startied at £1.5m in 2006, then £1.6m in 2007, £1.75m in 2009
Increasing to £1.8m by 2010 and then frozen for 5 years
Pensions in payment are valued at 25 times the amount being received so £60,000 per annum is at the 2006/7 limit
Pension benefits earned before 6th April 2006 could have been 'protected' against the tax if the forms were completed correctly before 5/4/2009 as long as no more pension savings are made. (n.b. 30% of forms have been submitted wrong) |
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A technical term normally used to describe a company pension scheme whereby the pension at the end is based on how much money has been built up over time
The 'money' 'purchases' the pension
The alternative company scheme type is called 'defined benefit' |
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Market Value Reduction - Market Value Adjustment
Applied to a 'With-Profits' policy on transfer/vesting usually to reflect poor market conditions
Warning - There are specific dates or conditions when the penalty does not apply but you need to check you have these in writing and understand them |
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| Normal Retirement Age - Normal Retirement Date |
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In divorce cases where the value of a pension scheme members benefits are offset against other assets
An alternative to a Pension Sharing Order. Better for some people and not for others. If the two options are being considered then specialist advice should be sought as there is no correct answer |
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The right to take the proceeds of a Personal Pension Fund to a different insurance company with a better 'Annuity' rate
In 90% of cases a new company will have a better rate BUT you must check if your existing policy has a better 'Guaranteed Annuity Rate' before sacrificing it
WARNING - This right also exists if you have an old Occupational Pension Scheme (money purchase type) but most people will lose out unless the old trustees take the trouble to find you the best rate. You need an Independent Pensions Adviser to sort this one out for you |
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A technical term meaning a pension scheme or policy which is no longer receiving additional payments
Benefits held under a 'paid-up' policy should be investigated to ensure the funds are being properly managed as experience suggests that they are frequently not
Members of a 'paid-up' company pension scheme should also consider their options but professional advice is required (G60 qualified advisers required) |
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Pension Commencement Lump Sum - used to be called Tax-free cash
The payment received when pension benefits first start
Typically 25% of the fund for a Personal Pension or 'Money Purchase' company scheme
With a 'Defined Benefit' company scheme part of the pension is sacrificed to provide this. Calculations show that in most cases the retiree is far worse off taking the lump sum even though it is nice to have. Advice should be sought on this |
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Drawing an income directly from the pension fund which can remain fully invested
This is an alternative to an Annuity
Also know as 'Drawdown' and 'Income Drawdown' |
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The pensions ombudsman determines whether complaints made against those responsible for pension schemes can be upheld and if so the award that must be paid |
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| A fund designed by the government (but not guaranteed by it) to rescue final salary pension schemes which are in deficit when their sponsoring employer goes into liquidation |
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Part of a Divorce settlement whereby the Court orders a pension scheme to transfer benefits from one party to the other
Problems can arise if professional pensions advice is not sought prior to the Financial Settlement as the terms could mean the insurance company or company pension scheme gaining at the expense of both parties to the divorce |
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| An Inland Revenue approved person or company who primary task (prior to A-day) was to ensure a scheme did not breach the regulations |
Old
term |
| The new low cost 'compulsory' national pension fund planned for gradual introduction from 2012 |
New Term |
An individual Pension policy where the eventual benefits are based on how much money has been built up
Benefits are usually a cash lump sum then either an annuity or income drawdown |
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| A method whereby pension benefits are taken in stages over a period of years rather than all at once. This is normally a mixture of the cash lump sum plus some annuity or drawdown income each year |
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Applies to individuals with over £1.5m in pension funds on 6th April 2006 as long as they registered before 6/4/09
The certificate allows them to preserve the higher ratio between their own pension fund and the Lifetime allowance limit
See also Enhanced Protection
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| That part of the fund within a pension policy built up from the National Insurance rebates from Contracting-out of SERPS or S2P (yes read it again) |
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Qualifying Recognised Overseas Pension Scheme
Guidance definitely needed on these |
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| Any pension scheme recognised by the Inland Revenue and therefore able to benefit from the tax allowances |
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A Personal Pension before its name was changed in 1988
Many people still have these and they often have valuable guarantees built in
Some of them are poor value |
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| See Scheme Rules |
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| Abbreviation for State 2nd Pension. This replaced SERPS in 2002 and provides less benefit (for most people) |
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| An arrangement between employer and employee. The employees salary is reduced in exchange for an increase in pension contribution by the employer. |
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A specific agreed level of Income paid by an Occupational Pension Scheme
This can be an option under a SSAS |
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A comprehensive explanation of how a pension scheme must be operated by the 'trustees'
Normally between 30 and 80 pages of complex technical terminology
The scheme rules overide the simple explanation in the 'scheme booklet' in the event of a conflict
A member of a scheme is entitled to inspect the rules |
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A policy in the name of an individual set by when they transferred their benefits out of a Final Salary Pension Scheme
These can have valuable guarantees built in especially if a GMP applies
If 'With-profits' beware of the MVR when taking benefits
The Open Market Option may or may not be worth taking |
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State Earnings Related Pension Scheme - A top-up to the basic state pension scheme based on earnings. SERPS ran between 1978 and 2001 when it was replaced by the State 2nd Pension.
You can get an estimate of your entitlement by completing form BR19 from our downloads page
see also 'Contracting-out' |
Old
term |
Self Invested Personal Pension
A DIY alternative to having all your personal pension with an insurance company policy
Investments can include commercial property and shares |
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Small Self Administered Pension Scheme
The DIY alternative for company Directors instead of going to an insurance company
The Director's own company sponsors the scheme and the directors are the trustees as well
The company's own premises are a popular investment asset because Pension Funds are exempt from Capital Gains Tax (as well as tax on interest and rent) |
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Tax-free cash. Now called Pension Commencement Lump Sum (PCLS)
The payment received when pension benefits first start.
Typically 25% of the fund for a Personal Pension 'Money Purchase' company scheme.
With a 'Defined Benefit' company scheme part of the pension is sacrificed to provide this. Calculations show that in most cases the retiree is far worse off taking the lump sum even though it is nice to have. Advice should be sought on this |
Old
term |
| The term used to describe the cash value of a pension fund when it is moving from one scheme to another |
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A legal document which gives the scheme a legal existence in its own right, appoints the 'Trustees' and adopts the 'Scheme Rules'
A scheme member is entitled to inspect the Trust Deed |
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| A person with the authority to make decisions in connection with a pension scheme and the responsibility to act solely in the interests of the pension scheme beneficiaries even if that conflicts with outside influences |
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Payment of a pension (to someone under age 75) from the funds built up in a Personal Pension or Company Money Purchase scheme
see also Income Drawdown which is effectively the same thing |
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