Accrual Rate
The rate at which a member builds up pension benefits in a defined benefit pension scheme.

Accrued Benefits
The benefits for service already completed.

See also: accrued rights.

Accrued Rights
The rights related to service already completed to which a member is entitled under an occupational pension scheme. The value of accrued rights for active members may be calculated on the basis of current salary or, alternatively, may include an allowance for future salary increases.

Active Fund Management
The management of assets (eg equities, gilts) in which the skill of the fund manager is used to select particular stocks at particular times, with the aim of achieving higher than average growth for the assets in question.

See also: passive fund management.

Active Member
A member of an occupational pension scheme who is at present accruing benefits under that scheme in respect of current service.

A professional adviser able to conduct an actuarial valuation, and to advise on policy issues eg transfer values, the drawing up of the statement of funding principles, and the choice of appropriate assumptions.

DB schemes are required to have a named scheme actuary appointed by the trustees or managers of the occupational pension scheme.

Additional Voluntary Contribution (AVC)
Contributions over and above a member’s normal contributions if any, which the member elects to pay to an occupational pension scheme in order to secure additional benefits.

A legal requirement until 2006, but still offered by many schemes.

See also: FSAVC.

Annual Allowance
The maximum amount of pension savings that can be built up in any one tax year before liability to an annual allowance charge, which is a tax charge levied by HMRC.

Annual Management Charge (AMC)
An investment manager is generally remunerated through receipt of an Annual Management Charge (AMC). The AMC is normally a percentage of the assets, but other pricing options can be used, such as a fixed fee, although this is relatively rare.

A series of payments, which may be level in payment or subject to increases, made at stated intervals until the end of the agreed period or the life of the annuitant. This is often achieved by means of an insurance policy underpinned by guarantees.

Annuity Conversion Risk
The risk that the amount of pension a member can buy is adversely affected by changes in annuity rates or investment markets. Also referred to as pension conversion risk.

Approved Scheme
The term used until recently by HMRC to describe those schemes meeting the requirements which entitle them to the tax privileges associated with pension funding. Now known as registered schemes.

Items such as equities, gilts, property and cash.

Assets Under Management
The amount of investor money that an investment firm manages, either in total or in a particular asset class – eg UK equity.

The provision of additional benefits offered to members of a DB scheme, normally where the cost is borne by the scheme and/or the employer.

Automatic Enrolment
Employers have legal duties to enrol eligible jobholders into a qualifying workplace pension scheme and make contributions towards it.

The jobholder cannot be required to take any action in order to become an active member of the scheme. A jobholder who has been automatically enrolled is free to opt out and get a refund of the contributions they have paid.


Base Rate
This is the interest rate at which the Bank of England lends money overnight to other banks in return for high quality collateral. The Bank of England moderates the supply of money to banks, and hence the economy, by raising or lowering the base rate. Short term interest rates for high quality borrowers typically remain close to this rate.

Basic State Pension
The flat rate (not earnings related) state pension paid to all who have met the minimum NI contribution requirements, their spouses, subject to certain conditions, and widow(er)s.

Basis Point
A basis point is one hundredth of one percent (ie 0.01%). For example, 0.30% is often described as 30 basis points.

A measure against which fund management performance is to be judged. A series of appropriate indices is chosen which reflects the requirements of the trustees. Usually a target is set which requires an agreed percentage better performance from the fund manager than the benchmark.

A member of a pension scheme who is entitled to a benefit from the scheme or a dependant who will become entitled on the death of the member.

Any payments made to a beneficiary, including tax-free lump sums, pension payments and death benefits.

Benefits Statement
A statement or estimate of benefits payable in respect of an individual’s membership of a pension scheme, eg annually during employment, on retirement, in the event of wind up.

Bid Price
This is the price at which an investor can sell an asset.

Bid to Offer Spread
This is the difference between the higher offer price that an investor pays to buy an asset and the lower bid price an investor receives when selling an asset. The wider the spread, the higher the cost of buying and selling a given investment. The most liquid investments, such as government bonds, have low bid to offer spreads whereas less liquid investments, such as property, have high bid to offer spreads. Other factors, such as taxes and commissions, also affect the size of the bid to offer spread.

Loans made to an issuer (often the Government or a company) which undertakes to repay the loan at an agreed later date.

The term refers generically to corporate bonds or government bonds (gilts). However, in common parlance, the term bond is more likely to be used with reference to a corporate bond, while the term gilt refers exclusively to government investments, including index-linked gilts.

The form submitted by an individual to the Benefits Agency requesting a statement, estimating their state pension entitlement. It can be submitted up to four months before retirement age.

The purchase of a bulk (ie one covering many individuals) annuity contract with an insurance company. This allows trustees to reduce their scheme’s risk by acquiring an asset (the annuity contract) whose cash flows are designed to meet ie ‘match’ a specified set of benefit payments under the pension scheme. The contract is held by the trustees and responsibility for the benefit payments remains with the trustees.

The purchase of an annuity for each member of a scheme which will guarantee pension benefits as nearly as possible equal to those which would otherwise be paid by the scheme.


Capital Risk
The risk that an investor may lose all or part of the amount invested.

Capital Markets
The markets in which capital is raised initially through the issue of shares (equities) and loans (bonds) and then subsequently traded. The stock market (dealing with the trading of equities) forms a significant, but by no means only, part of the capital market.

Capped Drawdown
Capped drawdown was introduced in April 2011 to replace the previous alternatives to an annuity. See Flexible Drawdown

Cash Balance Scheme
A type of scheme in which a percentage of salary is set aside each year for each member. The employer undertakes to ensure that each annual contribution will grow by a specified amount which is linked to prevailing interest rates. At retirement, the member’s minimum accumulated fund will be determined by the specified minimum rate of growth for each contribution. It may bear no relation to levels of pay and it may be considerably higher than the minimum, if investments have been successful.

Cash Flow
The amount of actual money being received and spent. In the case of a pension scheme, the amount of money being received into the scheme in contributions and investment returns and the amount of money being paid out by the scheme.

Cash Equivalent Transfer Value (CETV)
A cash equivalent transfer value (CETV) is the cash value placed on your pension benefits. This is the amount that is available to transfer to an alternative plan in exchange for giving up your rights under the scheme. It is necessary to apply for your CETV statement if you wish to transfer from the scheme.

Closed Scheme
A pension scheme which does not admit new members. Contributions may or may not continue and benefits may or may not be provided for future service.

The asset class comprising a range of physical goods. Examples include foodstuffs such as wheat, metals such as copper as well as energy sources such as oil.

Commutation Factors
Commutation factors dictate the extent to which pension benefits are increased or reduced by late or early retirement. They also determine the relationship between the lump sum taken (if any) and the level of the remaining pension.

Consumer Prices Index (CPI)
An index of UK price inflation. It is the UK’s version of the Harmonised Index of Consumer Prices (HICP), which is a Europe-wide standardised measure of inflation.

See also: Retail Prices Index (RPI).

Companies House
An executive agency of the department for business, enterprise and regulatory reform (BERR), which examines and stores company information delivered under the Companies Act and related legislation and makes this information available to the public on request. This includes annual financial statements from every limited company, whether or not it is quoted on any exchange.

Contracted In
Commonly used to describe a scheme which is not contracted out of the State Second Pension (S2P, previously SERPS) – ie where the members continue to be entitled to S2P.

See also: contracted out.

Contracted Out
Commonly used to describe a scheme which provides benefits in place of the State Second Pension (S2P, previously SERPS).

Currently these benefits from the scheme are paid for by means of a rebate of the relevant NI contributions.

See also: contracted in, contracting out certificate.

Contracting Out Certificate
The certificate issued by HMRC, in respect of an occupational pension scheme which satisfies the conditions for contracting out.

See also: contracted out.

Contributory Scheme
A scheme which requires contributions from active members (even if such contributions are temporarily suspended during a contribution holiday).

Corporate Bonds
A bond with a fixed interest rate issued by a company for a fixed period of time.

The fixed rate of interest paid at prescribed intervals to the owner of a bond. The value of index-linked gilts increases each year with inflation, which has the effect of increasing the amount of the interest paid.

See also: Consumer Prices Index

Critical Yield
If you were to transfer your pension, this is the percentage that your fund would need to grow per year, in order to achieve the same return as if it were left in the original scheme.

Crystallisation Event
An event where pension benefits become payable i.e. lump sum, annuity purchase, death before age 75, starting an unsecured pension etc, and at which time a test against the lifetime allowance is carried out.


Data Protection Act
The Data Protection Act controls how your personal information is used by organisations, businesses or the government.
Everyone who is responsible for using data has to follow strict rules called ‘data protection principles’. They must make sure the information is:

  • used fairly and lawfully
  • used for limited, specifically stated purposes
  • used in a way that is adequate, relevant and not excessive
  • accurate
  • kept for no longer than is absolutely necessary
  • handled according to people’s data protection rights
  • kept safe and secure
  • not transferred outside the UK without adequate protection

Death In Service (DIS)
Death which occurs while a member of a pension scheme is still employed by the sponsoring employer. Benefits may be payable to dependants.

The process of taking an income from a pension fund, for example by purchasing an annuity with a DC pension pot, or by using income drawdown.

Decumulation Phase
Typical within a lifestyle strategy within a DC scheme. The period of switching a member’s investment from growth asset into bond like assets in anticipation of decumulation.

Deferred Annuity
An insurance policy which guarantees a series of payments, which may be subject to increases and which will start at retirement. The payments are made regularly until the death of the policy holder. The policy can be set up to provide benefits for dependants after the death of the policy holder.

Deferred Member
A member entitled to a deferred pension (sometimes known as ‘preserved benefits’).

See also: deferred pension.

Deferred Pension
A benefit relating to the past service of members of an occupational pension scheme who are no longer active members but have not yet retired. The benefits are payable at retirement or earlier death.

The amount by which a scheme’s liabilities exceed its assets.

Defined Benefit Scheme (DB Scheme)
A scheme in which the benefits are defined in the scheme rules and accrue independently of the contributions payable and investment returns. Most commonly, the benefits are related to members’ earnings when leaving the scheme or retiring, and the length of pensionable service.

Also known as ‘final salary’ or ‘salary-related’ scheme.

Defined Contribution (DC Scheme)
A scheme in which a member’s benefits are determined by the value of the pension fund at retirement. The fund, in turn, is determined by the contributions paid into it in respect of that member, and any investment returns.

Also known as ‘money purchase’ scheme.

Department for Work and Pensions (DWP)
The government department with overall responsibility for the rules governing pension schemes and the administration of the state pension.

A person who is financially dependent on a member or pensioner or was so at the time of death or retirement of the member or pensioner. Scheme rules will define a dependant precisely, eg age at which children cease to be dependants.

This typically means reducing exposure to investment risks such as equity risk or interest rate risk, or non-investment risks such as longevity.

A generic term to describe a contract for the exchange of an asset at a given price on (or not later than) a given date. They are used when there is a risk that movement in a market between now and that future date could result in loss to the investor.

The process of investing in a number of different asset classes, and individual investments within those asset classes, so as to limit exposure to any single source of risk.


Early Retirement
The payment of retirement benefits from a pension scheme before a member’s normal retirement date.

Earmarked Scheme
A DC scheme where all the benefits are secured by an insurance policy. Under the umbrella of the policy, each member accumulates an individual (earmarked) pension fund.

The application of a court order made when a member of a pension scheme divorces, directing the trustees to pay some or all of the member’s benefits to the ex-spouse at the time they would otherwise have become payable to the member. Civil partners are treated in the same way.

Emerging Markets
These are developing nations such as China, Russia, India and Brazil. Their investment markets are characterised by higher levels of risk and often higher investment returns (than developed markets).

Engagement Letters
Used by accountants, investment banks and other advisers to set out the terms under which they are giving advice, they are now used by a wide range of advisers and suppliers. The precise form of the document will vary greatly depending on which type of adviser you are appointing. The professional bodies that regulate your advisers will have their own requirements.

Usually drawn up by the adviser in question, the document should reflect everything you have agreed with your adviser including their liability limit, agreed fees and charges, their conflict of interest policy and arrangements for terminating their appointment.

Also known as: terms of appointment, letter of engagement, letter of appointment, signed agreement, contract.

Shares in a company which are bought and sold on a stock exchange. Owning shares makes shareholders part owners of the company in question and usually entitles them to a share of the profits (if any), which are paid as dividends.

The increments applied to a pension in payment.

Executive Pension Scheme (EPP)
An occupational pension scheme for selected directors and senior staff.

Expression of Wish
A means by which a member can indicate to the trustees a preference as to the recipient of any lump sum death benefit.


Final Salary Scheme
See DB scheme.

Final Salary Underpin
The entitlement of a DC scheme member to a minimum level of salary related pension if the member’s accumulated pension pot is not sufficient to fund it.

Financial Adviser
Advises individual members about the options that are best for them and how they should organise their investments. See Independent Financial Adviser (HMRC)

Advises the trustees of small schemes, who are often directors of the sponsoring employer, especially when the scheme is being set up.

Financial Assistance Scheme (FAS)
A government funded scheme, operated by the DWP, set up in 2005 to pay compensation to wound up occupational pension scheme members who have lost pension rights following an employer’s insolvency.

Financial Conduct Authority (FCA)
On 1 April 2013 the Financial Services Authority (FSA) split into two regulatory bodies – the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA).

The FCA is responsible for regulating the standards of conduct in retail and wholesale, financial markets and for supervising the infrastructure that supports those markets. The FCA also has responsibility for the prudential regulation of firms that are not regulated by the PRA.

See also: Prudential Regulation Authority.

Financial Ombudsman Service (FOS)
An independent, levy funded body that considers complaints between consumers and financial firms.

Financial Services and Markets Act. (FSMA)
This act, passed in 2000, sets out the framework under which the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) operate.

See also: Prudential Regulation Authority and Financial Conduct Authority.

Financial Services Authority (FSA)
On 1 April 2013 the Financial Services Authority (FSA) split into two regulatory bodies – the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA).

See also: Prudential Regulation Authority and Financial Conduct Authority.

Financial Services Compensation Scheme (FSCS)
An independent, levy funded body that compensates consumers who cannot complete claims because their provider is insolvent.

Fixed Interest
A generic term covering all investments which pay interest at a pre-agreed rate for a fixed term, including corporate bonds, gilts and index-linked gilts.

Flexible Drawdown
Flexible drawdown was introduced in April 2011. This operates in a similar way to the capped drawdown option although with no upper limit on the amount of income that the member can take. The member can only use this if they meet the flexible drawdown conditions in the tax year in which they make the declarations required These declarations are made to the scheme which provides the flexible drawdown option and for flexible drawdown to be available that declaration must be accepted by the scheme. The declarations to access the flexible drawdown option are that:

  • The member has other secure pension income above a prescribed threshold.
  • No relevant money purchase contributions are paid by the member or on behalf of the member in the tax year that the declaration is made.
  • At the time of the declaration the member is not an active member of any schemes with defined benefit or cash balance arrangements.

Fixed Term

See: fixed interest.

FSAVC Free-standing additional voluntary contribution
Contributions to an individual pension policy separate from an occupational pension scheme, made by an active member of that scheme. Benefits are provided from that policy using contributions from the member only.

It is possible to contract out using an FSAVC scheme in which case the rebate of the relevant national insurance contributions Will be added to the pension policy.

FTSE Indices
Financial Times Stock Exchange indices.

Various indices, published by the Financial Times, showing the movement of share prices of the companies which are included in any particular index.

The FTSE100 index shows the movement in share prices of the top one hundred companies (by capital value) listed on the London Stock Exchange.

Other FTSE indices include the FTSE all-share index (which includes all the shares listed on the London Stock Exchange). There is also a range of FTSE indices for UK Gilts.

Fully Insured Scheme
Where the benefits to which each member is entitled under the scheme rules are secured exclusively by an insurance company taken out by the trustees.

Fund Manager
An individual (or company) to whom the trustees delegate the management of all or part of the scheme’s assets.

Also known as investment manager.

Funding Level
The relationship (normally expressed as a percentage) between the actuarial value of a scheme’s assets and liabilities at a specified date (usually the valuation date).

Funding Position
The absolute amount of any surplus or deficit.

Fund Value (FV)
The value of benefits you have accrued in your pension.


Bonds issued by the UK Government, which have a fixed interest rate. If they are index-linked, the value of the gilts increases each year with inflation, which has the effect of increasing the amount of the interest paid.

Glide Path
A framework or plan, typically to reduce investment risk in future as a pension scheme matures, and/or the funding position improves.

Guaranteed Minimum Pension (GMP)
The minimum pension which an occupational pension scheme must provide as one of the conditions of contracting out of SERPS for service before 6 April 1997 (unless it was a DC scheme contracted out through the provision of protected rights).

Government Actuaries Department (GAD)
A government department that provides actuarial advice and guidance to the government and public sector schemes.

Group Personal Pension (GPP)
An arrangement made for the employees of a particular employer, to participate in personal pension schemes with the same pension provider. Each member has a separate pension policy (contract) with the pension provider, although contributions are collected by the employer who then pays them to the provider.

Because of the contractual arrangements, a group personal pension scheme is referred to as a contract-based scheme, rather than a trust-based scheme, and there is no board of trustees.

Growth Asset
Assets which can, broadly speaking, be expected to grow in value in line with the economy as a whole over the long term. Examples include equities or property.

Gross Performance
Performance returns that are quoted before the deduction of investment management fees.

See also: net performance.


HM Revenue and Customs (HMRC)
Formed in April 2005, following the merger of Inland Revenue and HM Customs and Excise Departments, HMRC determines the tax environment within which pension schemes operate.


Ill Health Early Retirement
If an occupational pension scheme member is unable to work as a result of a medical condition, they may be entitled to draw retirement benefits early (sometimes enhanced) at any age (no later than 75).

Impaired Life Annuity
A member of a defined contribution scheme may be able to claim an immediate annuity on enhanced terms if they are suffering from poor health, such as high blood pressure, diabetes, heart condition, kidney failure, certain types of cancer, multiple sclerosis and chronic asthma.

Income Drawdown
Mechanism for the withdrawal of retirement income from an approved money purchase pension arrangement in order to defer the eventual purchase of an annuity. Now largely replaced by unsecured pension arrangements introduced by tax changes with effect from April 2006 (usually Self-Invested Pension Plans: ‘SIPPs’).

See also: unsecured pension arrangement. Flexible Drawdown

Independent Financial Adviser (IFA)
or IFAs are professionals who provide independent advice on financial matters to their clients and recommend suitable financial solutions and products from the whole of the market. The term was developed to reflect a United Kingdom (UK) regulatory position and has a specific UK meaning, although it has been adopted in other parts of the world, such as Hong Kong.

The term “Independent Financial Adviser” was coined to describe the advisers working independently for their clients rather than representing an insurance company, bank or bancassurer. At the time (1988) the UK government was introducing the polarisation regime which forced advisers to either be tied to a single insurer or product provider or to be an independent practitioner. The term is commonly used in the United Kingdom where IFAs are regulated by the Financial Conduct Authority (FCA) and must meet strict qualification and competence requirements.

Typically an Independent Financial Adviser will conduct a detailed survey of a client’s financial position, preferences and objectives; this is sometimes known as a ‘factfind’. The adviser will then recommend appropriate action to meet the client’s objectives; and if necessary recommend a suitable financial product to match the client’s needs.

See financial adviser.

Index-linked Gilts
Bonds issued by the UK Government for a fixed term, which have a fixed interest rate. Because they are index-linked, the value of the gilts increases each year with inflation, which has the effect of increasing the amount of the interest paid.

Often known as inflation-linked gilts.

See also: gilts, corporate bonds.

Show the average movement of the value of a compilation of assets. Different indices apply to different assets, eg shares in smaller companies, shares in larger companies, property, gilts and corporate bonds.

Overseas assets have their own indices, eg the Dow Jones and the Nasdaq in the US.

See also: FTSE indices.

An offer made by an employer to encourage members to transfer out of the scheme. This usually takes the form of an upfront cash payment, but could be a one-off contribution to an alternative (probably DC) pension arrangement.

This is a measure of the change in the general level of prices of goods. In the UK it is measured chiefly by the Consumer Prices Index (CPI) and the Retail Prices Index (RPI). Pension payments are often linked to inflation.

Inflation Risk
The risk that inflation, or the expectation for future inflation, increases, thereby increasing the value of inflation-linked liabilities. This can be managed by investing in inflation-linked assets, for example index-linked gilts or inflation swaps.

The transfer of assets from one fund or portfolio to another in the form of actual securities (eg BT shares) rather than cash. This avoids the round-trip costs of selling assets with one manager and buying the same assets with another manager, and reduces out-of-market risk.

Interest Rate
Effectively, the amount paid by a borrower to a lender to borrow money. The interest rate can be fixed or variable and can be set for a very short (eg overnight) or for a very long (eg 50 years) period of time. It is normally expressed as a percentage of the amount borrowed, or this amount increased in line with some agreed measure.

Insolvency Event
When a company goes into administration, liquidation or is wound up.

Investment Portfolio
A collection of assets owned by a particular person, people or organisation, eg a trustee board.


Journey Risk
The risk of a pension scheme’s funding position worsening in the short-term as a result of investment market movements.


Amounts which a pension scheme has an obligation to pay now or in the future. The value of liabilities payable in the future can not be accurately determined, and will be dependent on the use of assumptions.

Liability Driven Investment (LDI)
An investment approach which focuses on matching the sensitivities of a pension scheme’s assets to those of its underlying liabilities in response to changes in certain factors, most notably interest rates and inflation expectations.

LIBOR (London Interbank Offered Rate)
A benchmark for short term interest rates between banks world wide, which is published daily.

Life Policy
A life policy is a type of pooled investment vehicle offered as an investment option under a life insurance policy. Access to this type of arrangement is restricted typically to certain types of investors, for example pension scheme trustees.

An asset allocation strategy used mainly in defined contribution schemes whereby a member’s investments are adjusted depending on age and length of time to retirement. Typically assets are switched gradually from equities to bonds and cash as retirement approaches.

Lifetime Allowance
The lifetime allowance is an overall ceiling on the amount of tax-privileged savings that any one individual can draw.

Liquid Asset
An asset which is relatively easy and quick to buy or sell, eg equities, fixed interest investments.

Limited Price Indexation (LPI)
The minimum annual rate of indexation which must be applied to pensions in payment or deferred pensions, where they relate to service after 5 April 1997.

LPI is the lesser of the actual rate of inflation and either 5% or 2.5% depending upon the date when the service was accrued and whether the pension is in payment or deferred.

However, schemes are can make increases in pension payments over and above LPI if they wish and the rules allow.

See also: RPI.

Longevity Risk
The risk that the members of a pension scheme will live longer than expected, and hence payments from the scheme will be greater than budgeted for.

See also: Limited Price Indexation

Lump Sum
A sum of money that members can choose to take at retirement. It is currently paid free of tax. If this option is chosen the member then receives a reduced pension.

See also: tax-free lump sum.


Market Value Reduction (MVR)
A market value reduction is sometimes applied to a with-profits policy if the policy is cashed-in before the maturity date. It reduces the value of the policy.

Also known as: market value adjustment.

A person who has been admitted to membership of a pension scheme and is entitled to benefit under that scheme.

Sometimes narrowly used to refer only to an active member.

See also: active member; deferred member; pensioner.

Money Purchase Scheme
See DC scheme.

Mortality Rates
Statistics relating to the ages at which people die.

Multi-asset Investment
A fund which has a remit to invest across a range of asset classes, such as equities and bonds.


National Employment Savings Trust (NEST)
NEST is the name for the personal accounts scheme that was established following the Pensions Commission’s review of the UK pensions system.

It is run by NEST Corporation, which is a public body accountable to the government via the Secretary of State for Pensions and the Department for Work and Pensions. NEST will be the default pension scheme for those employees whose employer does not offer an appropriate alternative arrangement.

Net Performance
Performance returns that are quoted after the deduction of investment management fees.

National Insurance contributions (NIC)
Payments deducted from pay or declared through self assessment, used by the DWP to fund the state pension and other state benefits.

National Insurance Contribution Class 1
Contribution paid by the employed (not self employed), calculated as a percentage of pay.

National Insurance Contribution Class 2
Flat-rate contribution paid by the self-employed.

National Insurance Contribution Class 3
Voluntary contribution paid to improve basic state pension entitlement.

National Insurance Contribution Class 4
Profit-based contribution paid by the self employed in addition to the Class 2 contribution.

National Insurance Contributions Office (NICO)
Part of HMRC, responsible for the collection and recording of national insurance contributions.

National Insurance Services to Pensions Industry. (NISPI)
A team within the National Insurance Contributions Office (NICO), dealing with occupational pension schemes and appropriate personal pension schemes which are contracted out of the state additional pension scheme (SERPS, State Earnings Related Pension Scheme or S2P, the State Second Pension).

Non-contributory Scheme
A scheme which does not require contributions from its active members.

Normal Pension Age (NPA)
Earliest age at which a member can receive full pension benefits. It is not necessarily the same as normal pension date or normal retirement age.

Normal Retirement Age (NRA)
The contractual age that retirements benefits are paid from an occupational scheme.

Normal Retirement Date (NRD)
The date that an occupational pension scheme member reaches normal retirement age.


Occupational Pensions Regulatory Authority (OPRA)
Established by the Pensions Act 1995, OPRA was responsible for supervising occupational pension schemes. OPRA was superseded by The Pensions Regulator with effect from April 2005.

See also: Pensions Regulator.

Occupational Pension Scheme
A scheme set up by an employer to provide retirement benefits to employees (excluding death-in-service only arrangements).

A member’s pension rights are offset against other assets as part of a divorce settlement.

On Risk Date
In an annuity purchase, this is the date deemed to be the date at which the risk for a particular set of members is transferred to a provider in exchange for a premium.

Open Market Option (OMO)
A provision of defined contribution schemes allowing members to transfer funds at retirement to draw an immediate annuity with another provider.


Passive Fund Management
The management of assets, eg equities, gilts, by holding an exact replica of a given index, eg FTSE100, FTSE350, with the result that the assets in question move exactly in line with the chosen index.

See also: active fund management.

Paid Up
The status given to a personal pension plan when a member chooses to cease contributing.

Payments Schedule
Tells the trustees of defined benefit schemes how much the employer and employees will contribute.

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 Conversion Risk

The risk that the amount of pension a member can buy is adversely affected by changes in annuity rates or investment markets. Also referred to as annuity conversion risk.

Pension Guarantee
Incorporated into a pension once put into payment. It ensures that pension instalments for a specified period are paid, even if the member dies before the period expires.

Pension Offsetting
A member’s pension rights are offset against other assets as part of a divorce settlement.

Pension Protection Fund (PPF)
Established to pay compensation to members of eligible defined benefit pension schemes, whose sponsoring employers become insolvent. The PPF is funded by a levy on all eligible DB schemes.

The PPF became operational on 6 April 2005.

Pension Release
Pension Release or Unlocking, is the term for taking up to 25% as a tax free lump sum from a deferred pension scheme before your normal retirement date. You must be aged 55 or over.

Pension Sharing
Provides a spouse with a share of a member’s pension scheme 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.

Pension Transfer
Pension Transfer is the term for transferring your pension from an existing registered pension scheme to another provider.

See transfer value.

A person who is currently receiving a pension from a pension scheme.

Pensions Administration
The day-to-day running of the scheme, including the collection and allocation of contributions, the routine calculation of the benefits of individual members on retirement, in deferment, on death or ill-health. It also includes the maintenance of accurate and up-to-date member records and the management of operational risks.

Administration is sometimes performed internally by employees of the sponsoring employer, sometimes contracted-out to a third party administrator, and sometimes carried out by the pension provider, in the case of fully insured schemes.

Pensions and Lifetime Savings Association
UK body providing representation and other services for those involved in designing, operating, advising and investing in all aspects of pensions and other retirement provision. Replaced the National Association of Pension Funds in October 2015.

Pensions Credit
A means-tested benefit that boosts a pensioner’s state pension to ensure they have a minimum level of income.

Pensions in Payment
Pensions that are currently being paid.

Pensions Ombudsman Service
Deals with:

  • disputes about entitlement and complaints of maladministration from individual members of occupational pension schemes
  • disputes between trustees of occupational pension schemes and employers
  • disputes between trustees of different occupational pension schemes

Pensions Regulator
Regulates work-based pension schemes in the UK.

Personal Pension Scheme (PPP)
A type of defined contribution scheme. Provides retirements benefits based on the build-up of a ‘pot’ of money, accumulated through the investment of contributions.

Platform Provider
In the context of a defined contribution pension scheme, a platform is an investment structure established by a pension provider (eg an insurance company) which offers a wide range of investment funds. The platform provider is the firm that administers the platform.

A collection of securities (eg UK equities / shares) or asset classes (eg Global equities, UK bonds, and UK property).

Pre & Post 97
Refers to benefits that were accrued either before or after 1997

Preserved Benefits
Benefits arising on an individual ceasing to be an active member of an occupational pension scheme, payable at a later date (eg a member who leaves that employment before retirement date).

Protected Rights Basis
Applies where a scheme is contracted out of S2P (or SERPS) on a money purchase basis, funded by NI rebates plus any incentive payable in the early years of contracting out.

Prudential Regulation Authority (PRA)
On 1 April 2013 the Financial Services Authority (FSA) split into two regulatory bodies – the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA).

The PRA is responsible for the authorisation, in conjunction with the FCA, and prudential supervision of individual deposit takers (including banks, building societies and credit unions), insurers (including friendly societies) and certain designated investment firms.

See also: Financial Conduct Authority.

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.


Qualifying Recognised Overseas Pension Scheme (QROPS)
An overseas pension scheme that meets HMRC rules that allow overseas transfers.

Qualifying Year
A year in which an individual has paid, or is treated as having paid National Insurance Contributions.


Real Returns
The difference between the rate of return of an investment and a selected measure of inflation (eg RPI) over the same period.

See also: returns.

Adjusting a portfolio to bring it back into line with the benchmark or with the investment strategy.

Retail Price Index (RPI)
The index of retail prices (for all items) published by the Office of National Statistics, which is used to determine the rate of inflation over the previous 12 months. Increase to state pensions and index-linked gilts are equal to the rate of change in the RPI, while increases to private pensions in payment are dependent on the rate of change in the RPI.

See also: Limited Price Indexation (LPI)

Retirement Annuity Contract (RAC)
The predecessor of the personal pension plan. Available before April 1998 to the self-employed and those in employment who did not have access to an occupational pension scheme.

The amount by which an investor benefits from owning an asset (interest, dividends and any change in value less any charges levied).

See also: real returns.

The increase, normally in line with inflation, of a deferred pension between the date the member leaves service and their Normal Retirement Age

In broad terms, this is the chance that the actual outcome is different from what was expected. For example, one definition of risk is the chance that an investment will return less than anticipated. In general, financial markets offer a risk / reward balance, whereby the greater the potential reward, the greater the level of risk that must be assumed.

Risk Appetite
The level of risk that a member or set of trustees is willing to take. A member is said to have a high risk appetite if they wish to invest more in risky investments.

See Retail Prices Index.


Salary Sacrifice
A written agreement between the employer and employee whereby the employee forgoes part of his/her future earnings in return for a corresponding contribution by the employer to a pension scheme.

NB. This is not the same as an AVC, which is paid by the employee.

Schedule of Contributions
Specifies the contributions payable by the employer over a given period of years, and includes any special contributions paid under a recovery plan.

Scheme Actuary
The individual appointed by the trustees of an occupational pension scheme to carry out valuations and advise on funding matters.

Scheme Booklet
A booklet for members which should clearly set out the benefits offered by the scheme and how the scheme is run. The scheme booklet is given to all members of the scheme when they join.

Section 32 Plan
An insurance policy designed to accept transfers from defined benefits schemes.

Selected Pension Age (SPA)
The age chosen by a personal pension plan member to draw retirement benefits.

Short Term Annuity
A temporary annuity that runs for no longer than 5 years. It allows an individual to draw an income whilst deferring purchasing a full or lifetime annuity. Available between 50-75.

Small Self-Administered Scheme (SASS)
An occupational pension scheme, usually for small businesses, that gives members more investment control.

Stakeholder Designation
The process followed by an employer who is not exempt from the employer access requirements. The employer must choose a stakeholder pension scheme and provide access to their employees.

Stakeholder Pension Scheme
A type of personal pension plan, offering a low-cost and 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)
Alternative 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 age 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)
Alternative name given to the state additional pension since April 2002

Stock Exchange
A marketplace in which equities / stocks / shares are traded. Its purpose is to ensure fair and orderly trading as well as efficient distribution of price information for any securities trading on that exchange.

The pension paid to retired members of an occupational pension scheme.


Tax-free Lump Sum
A sum of money available to pension scheme members at retirement in exchange for a reduction in pension payments. It is currently paid free of tax.

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.

Terminal Bonus
The bonus paid when a with profits insurance policy matures. Such a bonus is customary but not guaranteed.

The Pension Service
A part of the DWP. Responsible for administering and paying the state pension.

The Pensions Advisory Service (TPAS)
An independent organisation which gives free advice to the public about occupational or personal pension scheme. It does not give financial advice or advice on state scheme benefits.

Formerly known as the Occupational Pensions Advisory Service (OPAS) when its remit was restricted to occupational pensions.

The Pensions Regulator (TPR)
A government body that regulates the running of occupational pension schemes.

Total Expense Ratio (TER)
The Total Expense Ratio (TER – sometimes known as ‘ongoing charges’) is another way of expressing the costs and charges that apply to an investment fund or pension scheme. The TER will always include the AMC but it is worked out on a historic basis for the previous year and is therefore also able to include other fees and charges such as legal and audit costs, custodial fees and investment administration fees which have been applied. However, and despite the name, the TER does not include all the costs that an investor has been charged. It does not include the transaction costs incurred when buying and selling investments or the taxes associated with those transactions. Nor does the TER capture other costs such as those associated with entering or exiting from a fund or a scheme.

Transfer Value
The amount of money which a scheme will pay to another pension arrangement in lieu of benefits which have accrued to a member. Sometimes referred to as a CETV (cash equivalent transfer value).

Treating Customers Fairly (TCF)
All firms that are regulated by the Financial Conduct Authority, have to support the FCA’s Handbooks principal that firms “must pay due regard to the interests of its customers and treat them fairly”.

Trivial Commutation
The conversion of a pension, which is below a prescribed level, into a cash sum (commutation).

An individual or company appointed to carry out the purposes of a trust in accordance with the provisions of the trust instrument and general principles of trust law.

Trustee in Bankruptcy (TIB)
Responsible for administering the assets and liabilities of a bankrupt.


Unauthorised Payment
A payment made to a member of an employer by a pension scheme that is not authorised by HMRC. This is subject to a tax charge.

Unsecured Pension Arrangement
An arrangement which allows a DC scheme member of retirement age to defer the purchase of an annuity and instead invest the fund in assets of his choice. The member may or may not draw down an income, subject to certain limits.

This arrangement can usually only be maintained up to the age of 75.

See also: income drawdown.


This is a measure of the variability of the returns an investment generates. The greater an asset’s volatility, the greater the expected changes (up and down) in price, and the greater the uncertainty the investor will have as to the value of the investment in future. Volatility is measured using statistical measures such as standard deviation.


White Labelling
White labelling is the practice of applying a ‘wrapper’ to a fund or collection of funds within a DC scheme, often giving the white label fund a simple name (eg ‘UK equity fund’) which may describe the fund’s objective. This enables trustees or employers to change the underlying funds more easily, and without extensive member communication, and the fund is not associated with or tied to a particular investment manager.

Winding Up
The process of closing down an occupational pension scheme. In the case of a DB scheme this is usually achieved by applying the assets to the purchase of insurance policies (annuities) for the beneficiaries, or by transferring the assets and liabilities to another pension scheme, in accordance with the scheme documentation or statute.

In the case of a DC scheme wind up is usually achieved by transferring members’ funds to a new pension arrangement.

With-Profits Funds
With-profits funds are a type of investment with a life assurance provider. The funds you pay in are pooled with other investors’ money and invested in a mixture of shares, bonds, property and cash. If the investment performs well, you should get an annual bonus each year, as well as a ‘terminal’ bonus when your policy comes to an end.

Arrangements required to ensure that, in the event of a bulk transfer, the pension rights of all members are protected.

This is a facility that allows an investor to hold all details of their investments in one place for administration and organisation.


A measure of the annual income earned on an investment.

For shares this is normally the annual value of the dividends expressed as a percentage of the market price of the share.

For bonds, the yield will be the annual interest rate divided by the price paid for the bond, which may be more or less than the nominal value.

In the case of inflation-linked gilts the value of the gilt will increase with inflation, leading to increased yield.

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