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You are here: Pension funds glossary
 

Pension funds 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

Accrual Rate

Annual amount by which you build up your pension in a Defined Benefit scheme.

ABI

Association of British Insurers.(www.abi.org.uk)

The ABI is a trade association of British Insurance Companies. It has more than 400 members, who provide over 97% of the insurance business in the UK.

Annuity

A contract made with an insurance company ensuring that they will provide you with a regular income for life, in return for part or all, of your pension. Under current legislation, you can postpone buying your annuity until you reach 75. You do not have to buy an annuity from the insurance company that built up your pension.

AVCs

Additional Voluntary Contributions

Concerns those with an occupational pension. A scheme, run by your employer, that enables you to pay extra money into your occupational pension in order to gain additional benefits on retirement. Your employer can take the contributions from your pay. Also see FSAVC.

Basic State Retirement Pension

The pension you receive from the Government at the age of 60 for women or 65 for men. This pension is reviewed annually by the Government. The amount you receive depends upon your National Insurance Contribution record.

Contracting-Out

Where you leave the State Second Pension (S2P) and set up a personal pension with a life assurance company or management group instead, or join an occupational scheme if your employer has one. The pension that is created from contracting-out is sometimes called a 'rebate-only personal pension'. The Government will pay the minimum contribution into your opt-out personal pension for you (a rebate on your National Insurance Contributions). If you are a member of a company pension the scheme may decide to collectively contract-out of S2P.

Defined Benefit

Type of occupational pension scheme, also known as a Final Salary Scheme. The value of the pension is guaranteed and is defined as a percentage of your final salary. If your employer does not have enough in the pension pot to issue your full pension, perhaps due to poorly performing investments, they have to make up the difference.

Defined Contribution

Type of occupational pension scheme, also known as a Money Purchase Plan. You and/or your employer contribute to the scheme, which is then invested. The value of the pension is based on the contributions paid and how well the investments have performed. Your pension value is not guaranteed as it partly depends upon investment performance.

Final Salary Scheme

See Defined Benefit.

General information about financial services is available from the Financial Conduct Authority (FCA). The FCA is an independent watchdog set up by the government to regulate financial services and protect your rights. It provides free and independent information about financial matters on its website.

FSAVC

Free Standing Additional Voluntary Contributions

This is a scheme that can be contributed to in addition and independent from your occupational pension scheme (i.e. the contributions are made to an outside pension provider, not in-house like AVCs). The maximum you can invest into your combined pension and FSAVC/AVC scheme is 15% of your taxable earnings. They can be more expensive than the AVC offered by your company pension.

FURBS

Funded Unapproved Retirement Benefit Schemes

Allows employers to provide pension benefits in excess of the limit allowed by an approved pension scheme. All approved schemes are restricted by the 'Salary Cap', which limits the amount of salary that can be pensioned. Unapproved schemes are suited to high earners that may be restricted by the earnings cap. They do not receive the same tax relief as approved plans.

GPP

Group Personal Pension

Where several employees from the same company join a Personal Pension Plan with the same pension provider. Each employee has a separate plan. Also called 'Portable Pensions'.

Income Drawdown

Also called pension fund withdrawal. This allows you to draw a taxable income from your pension, enabling you to delay purchasing an annuity until the maximum age of 75. Those planning to take up to 25% of their pension tax-free should do so before using the drawdown option.

IPA

Individual Pension Account

Introduced in April 2001. A wrapper through which you can save for a pension, much like an ISA. It is not a pension scheme in itself; instead it is available as another investment option to those that already have a personal pension, Defined Contribution company pension or Stakeholder. You can invest in many Unit Trusts, OEICs and Investment Trusts through an IPA, although very few companies currently offer it.

Provides some protection for members of occupational pension schemes. MFR requires companies to maintain a minimum level of funding to ensure that members can be paid if the scheme or company winds up, although employees are not necessarily paid their full entitlement if the company collapses. Unlikely to apply to those in a Defined Contribution scheme.

A means-tested benefit available to those with low incomes in retirement. If you have little or no income in retirement other than the Basic State Pension, you will be assessed and your benefits topped up to the minimum income level.

Money Purchase Plan

Type of occupational pension scheme, also known as Defined Contribution. You and your employer contribute to the scheme, which is then invested. The value of the pension is based on the contributions paid and how well the investments have performed. Your pension value is not guaranteed as it partly depends upon investment performance.

National Association of Pension Funds

The principle body representing the interests of employers with occupational pensions schemes through close liaison with Government Ministers, senior civil servants, regulators and the media.

They campaign to reduce the burden of complex pensions legislation, to keep costs down and to create an environment in which employers can continue to offer good pensions for their employees.

Occupational Pension Scheme

A pension plan organised by an employer to provide retirement benefits for their employees. This type of scheme may also offer a tax-free lump sum on retirement and additional benefits such as death-in-service insurance.

Occupational Pensions Advisory Service

An independent and voluntary organisation that offers free help and advice to those who have a problem concerning either an Occupational or Personal Pension Plan. As they now deal with complaints about Personal Pensions as well as Company Schemes the organisation is generally known as just 'OPAS'.

Open Market Option

The ability to shop around and buy an annuity from a different insurance company to the one that built up your pension.

Occupational Pensions Regulatory Authority

Established by the 1995 Pensions Act, OPRA is the official UK regulator of pension schemes offered by employers.

Pension Fund

The contributions you make to a pension scheme are invested in a pension fund or funds. The pension fund itself is usually invested in UK or overseas equities and bonds. In most cases you can select the pension funds you want to invest in within your pension plan, although the funds available to you may depend upon the plan chosen.

Personal Pension Plan

A regular savings scheme managed by a financial services company, such as a life assurance group, for an individual. Although you essentially set up the plan, your employer can also contribute to it. Most people will receive tax relief on contributions to this type of scheme, including non-tax payers.

Phased Retirement

Where a personal pension is arranged as a group of separate plans, instead of a single scheme. Annuities are then bought at different times with the different 'segments' of the pension.

Salary Cap

Introduced by the Government in 1989. It is a limitation on the amount of earnings that can be used when calculating pension contributions and benefits for approved pension schemes (such as Occupational Pension Schemes and Personal Pension Plans).

SERPS

State Earnings Related Pension Scheme

SERPS is now called the State Second Pension.

SIPP

Self-Invested Personal Pension

This type of pension allows you to make your own investment decisions and offers more investment choice. With a traditional pension plan your investment is made up of the funds offered by the pension provider, through a SIPP you can invest directly in shares or in commercial property for example. Although you receive similar tax benefits to normal personal pensions SIPPs have much higher charges.

Stakeholder Pension

A private pension scheme introduced in April 2001. Following Government standards, Stakeholder providers can only charge 1% for managing your money. Minimum contributions into the pension are £20 and you can make payments whenever you choose.

State Pension Age

Age at which you start receiving your Basic State Retirement Pension and State Second Pension, which is currently 60 for women or 65 for men. By April 2020, the state pension age will be 65 for both men and women.

State Second Pension (S2P)

The reformed version of SERPS. This new State Second Pension is paid in addition to the Basic State Retirement Pension. It benefits low and moderate earners (also offers a better pension to lower earners than SERPS), and for the first time, disabled people with broken work records, those with a long-term illness and certain carers. Like SERPS, the amount you receive depends upon the amount you earned when in employment, although the Government aims to make it a fixed-rate pension. Self-employed people do not qualify for S2P.

Unitised With-Profits Fund

Your money is used to purchase units in a With-Profits Fund, making it is easier to calculate the value of your investment. The unit price of the fund is not directly linked to the value of the fund's investments; instead it reflects the returns (or bonuses) you receive.

Unit-Linked

The value of the units in this type of fund increases and decreases in response to the performance of the fund's underlying investments. This fund is considered to be more transparent as investment returns are linked directly to performance, making it easier to understand charges.

With-Profits Fund

If your pension contains this type of fund, your money can be invested in a combination of shares, property, gilts and cash. In years where returns are exceptionally good, the fund manager retains a percentage of the profits so that in bad years you will be receive more than the investments have earned. The idea of the fund is to 'smooth' out the instability of the stock market. This type of fund can incur heavy exit penalties if you cash in early.


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