Glossary

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
A

  1. Annuitant

    The person who receives the income from an annuity.

  2. Annuity protection

    Should you die without having received the full value of your fund, this benefit allows the balance of your pension fund, minus any income you have received, to be paid to your beneficiaries (net of tax, tax free if main annuitant is under 75 and marginal rate tax (20%, 40% or 45%) if the annuitant is 75 or over). Also known as value protection.

  3. APR

    Annual percentage rates - an indication of how much interest will be charged on a loan including known charges associated with taking out the loan. APR rates can be used to compare similar types of credit over similar periods.

B

  1. Beneficiary

    Someone who benefits from a will, a trust, a life insurance policy or death benefits from an annuity.

C

  1. Contract out

    You or your employer were given the option to opt out of the State Second Pension (formerly the State Earnings-Related Pension Scheme) in exchange for lower National Insurance contributions (and higher pension contributions) or a rebate into your pension. From 6 April 2012, this is only available in defined benefit (final salary) schemes.

  2. Conventional annuity

    A conventional annuity is an annuity purchased with the proceeds of a pension plan, which pays a guaranteed, regular income for life. The income payable from this type of annuity is not linked to the performance of investments.

  3. Credit agreement

    This is a written contract between the lender and the customer. The lender will allow the customer to borrow money under the agreed terms and conditions.

D

  1. Data Protection Act

    The Data Protection Act 1998 is designed to safeguard personal data. It requires anyone who handles personal information to comply with a number of important principles. It also gives individuals rights over their personal information.

  2. Defined benefit pension (also known as a final salary scheme)

    With this type of pension, the amount of retirement income an employee gets is set in advance. The amount of income they get is based on the number of years they have worked for their employer and their salary.

  3. Defined contribution pension

    Also known as a money purchase pension or scheme. This is a term given to a pension which you and/or your employer contribute into and can be either a personal pension or an occupational pension. The amounts you and your employer pay into your pension fund while you are working are set. The value of the pension fund at the time you plan to retire is not set and may carry investment risk.

  4. Dependant

    Someone who is financially dependent on you, typically a partner. Annuity providers often require proof of this - such as a joint utility bill or mortgage/bank statement.

  5. Dependant's pension annuity

    An option when buying an annuity that means, in the event of death, your annuity income may continue to be paid to a surviving spouse, civil partner or dependant. If you choose for your annuity to be paid to a dependant, they may be asked to prove that they are financially dependent upon you.

  6. Drawdown pension

    Drawdown in equity release terms is the process of taking an additional cash advance from your pre-agreed cash facility. This is done after the initial advance is paid. Only when drawdown is taken does the interest start being charged on that amount.

E

  1. Enhanced annuity

    An enhanced annuity is an annuity that pays a higher income to an individual if aspects of their lifestyle (such as smoking and drinking alcohol) or medical history may shorten life expectancy.

  2. Estate

    Your estate is the name for everything you own, including your home, possessions and any savings or investments.

  3. Executive pension plan (EPP)

    Executive pension plans are pension plans arranged with an insurance company which usually provide pension benefits for the controlling directors of a company. They are similar to Small Self Administered Schemes.

F

  1. Final salary scheme

    Also known as a defined benefit scheme. With this type of pension, the amount of retirement income an employee gets is set in advance. The amount of income you get is based on the number of years you have been a member of the scheme and your salary.

  2. Financial adviser

    A professional who provides financial advice to meet a customer's needs and objectives. In doing so, they will offer the most suitable and competitive product from the range of providers available to them.

  3. Flexible Annuities

    A flexible annuity is effectively a form of investment linked annuity. That means your money can be invested in a mix of assets including equities, but while this gives potential for growth, the income you are paid each year can fall (though some of these products offer a guarantee that your income can’t fall below a certain level).

  4. Financial intermediary

    A professional who provides financial advice to meet a customer's needs and objectives. In doing so, they will offer the most suitable and competitive product from the range of providers available to them.

  5. Fixed term annuity (FTA)

    A type of capped drawdown arrangement that offers a guaranteed income (within government limits) for a fixed term and a guaranteed maturity amount at the end of the term.

G

  1. Gilt

    A gilt is a bond issued by the UK government which provides a certain return over a set period.

  2. Gilt yield

    The level of interest payable to investors holding government bonds.

  3. Government limits

    The Government Actuary's Department (GAD) limits the maximum amount of income that can be taken from capped drawdown arrangements. This is to try to ensure that those who invest in these plans leave enough in their fund to support a reasonable level of income for the rest of their retirement.

  4. Guarantee period

    An annuity income is payable for as long as the annuitant - the person receiving the annuity - lives. If they die soon after purchasing an annuity, they may feel that they have not had the best value. They can, therefore, choose a guarantee period (typically five or ten years) which means that, if they die within that guarantee period, the annuity will continue to be paid for the remainder of that period. Annuitants can nominate anyone to receive the income from their guarantee period, either directly to the annuity provider or through their will.

  5. Guaranteed maturity amount

    The lump sum you receive at the end of the term of a fixed term annuity. You can reinvest this money into any appropriate pension product of your choice.

  6. Guaranteed minimum pensions (GMP)

    This is the part of pension benefit built up in defined benefit schemes, which relates to contracting out between 1978 and 1997 and is roughly equivalent to the amount of State Earnings-Related Pension Scheme (SERPS) which would have been paid for that period. This is the minimum pension payable under the scheme. As GMP is a replacement of a state benefit, certain restrictions apply to the income you receive from it.

H

  1. HMRC

    In 2005, the Inland Revenue and Her Majesty's Customs and Excise merged to form Her Majesty's Revenue & Customs.

I

  1. Immediate vesting pension (IVP)

    There are two different types of immediate vesting pensions: 1) A pension fund is transferred to an annuity provider's pension plan, where it is immediately converted into an annuity. The annuity follows the rules of the annuity provider's pension plan and any Pension Commencement Lump Sum (PCLS) is paid by the annuity provider. 2) An individual pays a lump sum of their savings outside of pensions into an annuity provider's pension plan, tax relief is added and the total is then converted into an annuity. The amount you can pay into this type of IVP is dependent on your earnings.

  2. Impaired annuity

    An impaired annuity is an annuity that pays a higher income than a standard/conventional annuity for those who have significantly lower life expectancy due to an existing medical condition.

  3. In advance/in arrears

    You can choose whether your annuity payments start as soon as your annuity has been set up (in advance) or at the end of your chosen payment frequency (in arrears).

  4. Income drawdown

    A type of retirement income product that allows you to draw an income directly from your pension fund.

  5. Inflation

    Inflation is a term used to describe the average increase in the price of goods and services.

  6. Inheritance

    This is the value of an estate that is left to beneficiaries upon a person's death.

  7. Inheritance tax

    Inheritance tax is a tax that is potentially payable upon death depending on the value of your estate.

  8. Insolvent

    If you are bankrupt and have insufficient assets to cover your debts, you are insolvent.

  9. Investment-linked annuity

    The income payments from this type of annuity may fluctuate in value as they are linked to the performance of an investment fund(s). Income from an investment-linked annuity has some guarantees attached to it so it's worth checking what these are and how these work with the provider. If investment returns are good, your annuity income payments may rise. If investment returns are poor, then your annuity income payments may fall, so they are not without risk. Two types of investment-linked annuity you may have heard of are the with-profits annuity and unit-linked annuity.

J

  1. Joint life annuity (also called dependant's pension/annuity)

    In the event of your death, your annuity income may continue to be paid to a surviving spouse, civil partner or dependant if you have selected a joint life annuity. If you choose this option, the dependant may be asked to prove that they are financially dependent on you.

K

  1. Key facts document

    Important information set out in a standard way, so you can compare service, product and costs.

  2. Key features illustration

    Important information set out in a standard way, so you can compare service, product and costs.

L

  1. Lump sum allowance and lump sum and death benefit allowance

    From 6 April 2024 there are two new allowances that limit the amount of tax-free cash that can be taken. The new allowances are the lump sum allowance (LSA) and lump sum and death benefit allowance (LSDBA). If you have taken lump sums that use up the new allowances, any further lump sums you then take will generally be subject to income tax.

  2. Lifetime annuity

    A lifetime annuity is an annuity, payable for life, purchased with the funds from a pension scheme.

M

  1. Money purchase pension

    Also known as a defined contribution pension. This is a term given to pensions which you and/or your employer contribute into, and can be either a personal pension or an occupational pension. The amounts you and your employer pay into your pension fund are set. The value of the pension fund at the time you plan to retire is not set and may carry investment risk.

N

  1. Normal retirement date

    This is the date at which your pension scheme expects you to retire. This is often your 65th birthday but it can vary from scheme to scheme.

O

  1. Occupational pension

    A pension provided by your current or previous employer(s). It can be either a defined benefit pension or a defined contribution pension - contact your employer(s) or pension scheme(s) for more information.

  2. Open market option

    The ability for you to shop around and buy an annuity from any annuity provider, not just the company that provides your pension. This option enables you to search for the best annuity rate for you.

  3. Opting out

    If an employee leaves an occupational pension scheme, or chooses not to join one, it is called opting out.

  4. Overlap

    Overlap is only relevant if you choose both a joint life option and a guarantee period option with your pension annuity. If you die within the guarantee period, the term with overlap means that your surviving spouse's, civil partner's or dependant's annuity income payments will start immediately and will be paid in addition to the annuity income payment due in the remaining guarantee period. Without overlap means that your surviving spouse's, civil partner's or dependant's annuity income payments will not start until after the guarantee period.

P

  1. Payment frequency

    You can choose to have your annuity income paid monthly, quarterly, half-yearly or yearly. The frequency of payments that you choose will depend upon your personal circumstances.

  2. Pension annuity

    A pension annuity, often referred to simply as an annuity, is a product purchased with the proceeds of a pension plan which pays a guaranteed, regular income for life. The income payable from this type of annuity is not linked to the performance of investments.

  3. Pension commencement lump sum (PCLS)

    You can normally take up to 25% of your pension fund as a lump sum, which is currently tax-free. This is now known as a pension commencement lump sum, but may also be referred to as a tax-free lump sum or tax-free cash. The pension commencement lump sum is yours to do with as you see fit.

  4. Pension fund

    The value of the pension plan that you have built up over the years from your pension contributions, those of your employer, tax relief that has been added to contributions and any National Insurance contribution rebates. At retirement your pension fund can be converted into retirement benefits, such as an annuity and/or tax-free cash or Pension Commencement Lump Sum (PCLS).

  5. Pension sharing order

    As part of a division of assets following a divorce or dissolution of a civil partnership, a pension sharing order allows a percentage of one party's pension benefits to be transferred to the other party. The benefit transferred is known as a pension credit.

  6. Personal illustration

    This is a quote tailored to your situation - showing you the potential costs and benefits of a financial product.

  7. Personal pension

    Within a personal pension, you build up a pension fund by investing your and/or your employer's pension contributions with an insurance company. Your contributions build up to provide you with an individual pot of money with which to secure a pension income, usually in the form of an annuity.

  8. Proportion

    Proportion is only relevant if you choose to receive your annuity income payments in arrears. If you choose with proportion, a final proportionate payment will be made to cover the period between your last payment and the date of your death. If you choose without proportion, your final annuity income payment will be the last normal payment before you die.

  9. Protected rights

    This is the part of a defined contribution pension fund which relates to contracting out of the State-Earnings Related Pension Scheme (SERPS) and State Second Pension (S2P). Protected rights ceased to exist from April 2012. Former protected rights are treated, after 6 April 2012, in the same way as ordinary pension funds.

  10. Purchased life annuity

    A type of annuity bought with savings, rather than your pension. It provides you with an income in a similar way to a pension annuity. They are sometimes purchased with money raised through an equity release scheme or using the Pension Commencement Lump Sum (PCLS) from a pension.

Q
R

  1. Retail Prices Index (RPI)

    This is a commonly used measure of inflation, published by the Office for National Statistics. You can link an annuity to this measure so each year your annuity is adjusted to ensure it is kept in line with inflation.

S

  1. Salary-related occupational pension scheme

    Also known as a defined benefit or final salary scheme. With this type of pension, the amount of retirement income an employee gets is set in advance. The amount of income you get is based on the number of years you have been a member of the scheme and your salary.

  2. Scheme administrator

    The person(s) who is responsible for the day-to-day running of the pension scheme.

  3. Scheme pension

    The pension provided by a registered pension scheme in the form of an annual income. It can be paid direct from the scheme or by an insurance company selected by the scheme. Defined benefit pensions are always paid as scheme pensions, but defined contribution schemes can also provide these.

  4. Small Self Administered Scheme (SSAS)

    Small Self Administered Schemes are occupational schemes usually with up to 11 members, generally set up for the controlling directors of a company. SSASs are subject to special rules surrounding investments and the benefits that can be taken from them.

  5. Stakeholder pension

    A type of personal pension that has to meet certain standards set by the government. They can be taken out by an individual or through an employer.

  6. State benefits

    The state provides some financial help for most situations. The amount of some state benefits eg pension credits is based on the amount of income received and capital held. As such, your state benefits could be affected if cash is released from your home. A financial adviser or the Department for Work and Pensions will be able to help you find out if this is the case.

  7. State Earnings-Related Pension Scheme (SERPS)

    The State Earnings-Related Pension Scheme is an additional state pension for employees on top of the basic state pension. It was launched in 1978 and was replaced by the State Second Pension (S2P) in 2002. The amount payable depends on National Insurance contributions.

  8. State pension age

    The age you have to reach to be entitled to draw your state pension. This is currently 65 for both men and women but can change depending on when you were born. Please visit https://www.gov.uk/browse/working/state-pension to calculate your state pension age.

  9. State Second Pension

    The State Second Pension is an additional state pension for employees on top of the basic state pension. It replaced the State Earnings-Related Pension Scheme (SERPS) in 2002. The amount payable depends on National Insurance contributions.

  10. Surrender value

    The cash amount offered to the policy owner by the insurance company upon cancellation of a policy outside of the cancellation period. Annuities do not normally have a surrender value.

T

  1. Tax code

    A tax code is used to calculate the amount of tax to deduct from your pay or pension. If you have the wrong tax code you could end up paying too much or too little tax. Tax codes are calculated by HMRC and if you think you have the wrong tax code, you should contact HMRC.

  2. Tax-free cash

    You can normally take up to 25% of your pension fund as a lump sum, which is currently tax-free. This is now known as a Pension Commencement Lump Sum (PCLS), but may also be referred to as a tax-free lump sum or tax-free cash. The Pension Commencement Lump Sum is yours to do with as you see fit.

  3. Tax year

    The tax year starts on 6 April and finishes on 5 April and is split up into 12 monthly periods with each month starting on the sixth and finishing on the fifth of the following month.

  4. Trivial commutation (Triviality)

    You may be able to take your entire pension as a lump sum, rather than buy an annuity. This applies as long as you are aged 60-75 years and the value of all your pension funds falls within the trivial commutation limit (£30,000 in tax year 2015/16). Trivial commutation payments from all your plans must be taken within a 12-month period. 25% of each payment is tax-free and the rest subject to income tax.

U

  1. UK registered pension scheme

    A pension scheme that has been registered with Her Majesty's Revenue and Customs (HMRC).

  2. Underwriting

    Annuity providers assess the annuitant's life expectancy and it is the underwriting process that uses this information to determine how much income to provide.

V

  1. Value protection

    Should you die without having received the full value of your fund, this benefit allows the balance of your pension fund, minus any income you have received, to be paid to your beneficiaries (net of tax, tax free if main annuitant is under 75 and nominal rate tax if the annuitant is 75 or over).

W

  1. Will

    A legal document that sets out what you would like to happen to your affairs after your death.

  2. Witness

    A person who oversees the signing of a document who must be over 18 years old and of sound mind, and not related to the policy/plan holder. The witness does not need to read the document, but does need to see it being signed. The witness should not be party to the transaction and needs to be sure that the signatory is not signing under duress.

  3. With/without proportion

    When you buy an annuity, if you select the payment in arrears option, and opt for 'with proportion', when you die your estate will receive the proportion still owed to you to the date of your death. In other words, if you're paid monthly, and you die in the middle of the month, half a month's income would be paid to your estate.

X
Y
Z