Accrual Rate
The factor used to calculate benefits in a defined benefit scheme. For example, a scheme with an accrual rate of 1/60th will provide 1/60th of pensionable salary for each year of pensionable service.
Active Member
An occupational pension scheme member who is earning new defined benefit scheme benefits or paying defined contribution scheme contributions.
Actuarial Reduction
A reduction made to a pension paid early to the member of a defined benefit scheme.
Actuarial Valuation
An assessment of a defined benefit scheme’s ability to meet its liabilities. Carried out by the scheme actuary at least once every three years.
Actuary
The individual appointed by the trustees of an occupational pension scheme to carry out valuations and advise on funding matters.
A-Day
6 April 2006 – the effective date of pension’s simplification, when HMRC introduced a single tax regime for all UK pension schemes.
Added Years
A provision of some defined benefit scheme for building extra pensionable service in return for additional contributions.
Additional Pension
The earnings-related part of the State pension paid in addition to the basic State pension.
Additional Voluntary Contribution (AVC)
A facility provided by occupational pension schemes for members to boost retirement savings.
Alternatively Secured Pension (ASP)
Allowed a pension scheme member to defer purchasing an annuity at age 75. A defined level of income could be drawn on the invested funds until the member decides to purchase an annuity or dies.
Annual Allowance (AA)
The maximum pension input (earned in a defined benefit scheme and contributions paid into a defined contribution scheme) a pension scheme member is allowed each year without giving rise to a tax charge.
Annual Management Charge (AMC)
The administration fee levied each year on a defined contribution scheme, a personal pension plan or a Stakeholder pension scheme.
Annuity
A policy that provides an income in retirement.
Basic State Pension
The benefit provided at State pension age to those with a sufficient National Insurance Contribution record.
Career Average Revalued Earnings (CARE) Scheme
A type of defined benefit scheme that calculates retirement benefits using the average of revalued pensionable salaries over the member’s pensionable service.
Cash Equivalent Transfer Value (CETV)
The amount offered to a member of an occupational pension scheme who wants to transfer to another pension scheme.
Class 1 National Insurance Contribution
Contribution paid by the employed (not self-employed), calculated as a percentage of pay.
Class 2 National Insurance Contribution
Flat-rate contribution paid by the self-employed.
Class 3 National Insurance Contribution
Voluntary contribution paid to improve basic State pension entitlement.
Class 4 National Insurance Contribution
Profit-based contribution paid by the self-employed in addition to the Class 2 contribution.
Closed Scheme
An occupational pension scheme where the membership is no longer open to new employees.
Combined Pension Forecast (CPF)
A Statement that shows both estimated pension scheme and State pension benefits. Issued voluntarily by pension schemes.
Commutation Factor
Used to calculate how much pension from a defined benefit scheme is given up in exchange for a tax-free lump sum.
Concurrency
The principle allowing someone to pay into more than one pension scheme at the same time.
Contracted-Out Deduction (COD)
The deduction applied to a person’s SERPS entitlement for the period they were contracted out between 1978 and 1997.
Contracted-Out Employments Group (COEG)
A part of the DWP, it administers pension scheme members’ contracting out records.
Contracting Out
The facility to opt out of the State additional pension and build up benefits in a pension scheme.
Crystallisation Event
An event where pension benefits become payable, i.e. annuity purchase, death, starting an unsecured pension etc, and at which time a test against the Lifetime Allowance is carried out.
Deferred Member
An occupational pension scheme member who has left service with a deferred pension or fund.
Deferred Pension
The benefit awarded to a defined benefit scheme member who has left service early..
Defined Benefit (DB) Scheme
An occupational pension scheme that provides benefits based on accrual rate, pensionable service and pensionable salary.
Defined Contribution (DC) Scheme
A scheme that provides retirement benefits based on the build up of a ‘pot’ of money, accumulated through the investment of contributions paid by both the employee and the employer.
Department for Work and Pensions (DWP)
The Government department with overall responsible for the rules governing pension schemes and the administration of the State pension.
Dependant
An individual who is eligible to receive retirement benefits, i.e. pension and/or lump sum, following the death of a pension scheme member.
Early Leaver
An occupational pension scheme member who leaves service before reaching their normal retirement age.
Early Retirement
The payment of retirement benefits from a pension scheme before a member’s normal retirement date.
Earmarking
Provides a spouse with a share of a pension scheme member’s pension rights on divorce. Spouse’s share is paid when the member draws their benefits.
Employer Access
Employers with five or more staff but with no pension arrangement in place must designate a Stakeholder pension scheme and offer access to qualifying employees.
Employer Funded Retirement Benefit Scheme (EFRBS)
Previously known as FURBS and UURBS. These are unapproved schemes with no tax reliefs that an employer funds to provide a member with a lump sum and/or income.
Enhanced Protection
If a member is worried their pension rights exceed, or may exceed, the Lifetime Allowance, they can safeguard them against a tax charge.
Equivalent Pension Benefit (EPB)
A non-revaluing pension built up while contracted out of the State graduated pension scheme through an occupational pension scheme.
Escalation
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
Notification by a member to their pension scheme of how they wish their lump sum death benefits to be paid.
Final Salary Scheme
An occupational pension scheme that provides benefits based on accrual rate, pensionable service and pensionable salary.
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 Services Authority (FSA)
An independent, Government-funded body that regulates the financial services business in the UK.
Financial Services Compensation Scheme (FSCS)
An independent, levy-funded body that compensates consumers who cannot complete claims because their provider is insolvent.
Fraud Compensation Fund (FCF)
Levy funded and operated by the PPF, this fund compensates occupational pension schemes that have suffered financial injustice as a result of dishonesty.
Free-Standing Additional Voluntary Contribution (FSAVC)
A facility provided by insurance companies for members to boost their occupational pension scheme savings.
Funded Unapproved Retirement Benefits Scheme (FURBS)
Now known as an EFRBS. These are unapproved schemes with no tax reliefs that an employer funds to provide a member with a lump sum and/or income.
Group Personal Pension Plan (GPP)
A collection of personal pension plans provided by an employer to its staff.
Guaranteed Minimum Pension (GMP)
The benefit built up in a defined benefit scheme as a result of being contracted out of the State additional pension.
Home Responsibilities Protection (HRP)
Available to carers and those looking after children, this benefit reduces the number of qualifying years required for the basic State pension.
Hybrid Scheme
An occupational pension scheme that calculates retirement benefits as some combination of two alternatives, defined benefit scheme or defined contribution scheme.
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 (now known as Capped Drawdown)
Also previously known as an unsecured pension. Allows a pension scheme member to continue to invest a fund while drawing a limited income. Available to under 75s only.
Income Withdrawal
Also known as an unsecured pension. Allows a pension scheme member to continue to invest a fund while drawing a limited income. Available to under 75s only.
Late Retirement
The payment of retirement benefits from a pension scheme after a member’s normal retirement date.
Lifestyling
An investment strategy on defined contribution schemes where a member’s investments are switched automatically as they get older to more secure holdings, such as cash.
Lifetime Allowance (LA)
The maximum value of fund a pension scheme member can accumulate without incurring a tax charge.
Limited Price Index (LPI)
The change in the Retail Price Index between 1 October and the following 30 September, capped at 5 per cent (from April 1997 to April 2005) and 2.5 per cent (since April 2005). Used by pension schemes for pension increases and revaluation.
Lump Sum
The tax-free lump sum paid to a member of a pension scheme when their benefits come into payment.
Market Value Reduction (MVR)
An adjustment made to the value of a With-Profit fund to reflect the difference between the market and actuarial values of the fund.
Money Purchase Scheme
A scheme that provides retirement benefits based on the build up of a ‘pot’ of money, accumulated through the investment of contributions paid by both the employee and the employer.
National Employment Savings Trust (NEST)
A new, simple, low-cost pension scheme to be introduced from 2012 as part of the workplace pension reforms.
National Insurance Contribution (NIC)
Payments deducted from pay or declared through self assessment, used by the DWP to fund the State pension and other State benefits.
National Insurance Contributions Office (NICO)
A part of HMRC. They administer the collection of National Insurance Contributions.
Normal Retirement Age (NRA)
The contractual age at which retirement benefits are paid from an occupational pension scheme.
Normal Retirement Date (NRD)
The date that an occupational pension scheme member reaches normal retirement age.
Occupational Pension Scheme
A scheme set up by an employer to provide retirement and/or death benefits to employees.
Offsetting
A member’s pension rights are offset against other assets as part of a divorce settlement.
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.
Paid Up
The status given to a personal pension plan when a member chooses to cease contributing.
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 Credit
A means-tested benefit that boosts a pensioner’s State pension to ensure they have a minimum level of income.
Pension Earmarking
Provides a spouse with a share of a pension scheme member’s pension rights on divorce. Spouse’s share is paid when the member draws benefits.
Pension Guarantee
Incorporated into 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)
An independent, levy-funded body that compensates members of occupational pension schemes who have lost pension benefits as a result of an employer’s insolvency.
Pension Sharing
Provides a spouse with a share of a pension scheme member’s retirement benefits on divorce. Spouse is given a credit to put towards his or her own retirement benefits.
Pension Simplification
The name given to the changes introduced by HMRC on A-Day. One single tax regime was introduced to replace the previous eight.
Pensionable Salary
Earnings used to calculate retirement benefits in a defined benefit scheme.
Pensionable Service
Length of qualifying time in a defined benefit scheme used to calculate retirement benefits.
Personal Pension Plan (PPP)
A type of defined contribution scheme. Provides retirement benefits based on the build-up of a ‘pot’ of money, accumulated through the investment of contributions.
Preserved Member
An occupational pension scheme member who has left service with a preserved pension or fund.
Preserved Pension
The benefit awarded to a defined benefit scheme member who has left service early.
Protected Rights (PR)
The fund built up in a defined contribution scheme from rebates paid as a result of being contracted out of the State additional pension.
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.
Record of Payments Due
Produced by an employer, it records how much they and their employees will contribute to the designated Stakeholder pension scheme.
Retail Price Index (RPI)
Used by pension schemes to calculate pension increases. It is the average measure of change in the prices of goods and services bought in the UK.
Retirement Annuity Contract (RAC)
The predecessor of the personal pension plan. Available before April 1988 to the self-employed and those in employment who did not have access to an occupational pension scheme.
Revaluation
The increase, normally in line with inflation, of a deferred pension between the date the member leaves service and their Normal Retirement Age (NRA).
Salary Sacrifice
An arrangement between an employer and an employee where the employee forgoes part of their pay for a corresponding employer contribution to the pension scheme.
Salary-Related Scheme
An occupational pension scheme that provides benefits based on accrual rate, pensionable service and pensionable salary.
Schedule of Contributions
Produced by the scheme actuary, it shows the trustees of a defined benefit scheme how much the employer and employees will contribute.
Section 32 Plan
An insurance policy designed to accept transfers from defined benefit schemes.
Selected Pension Age (SPA)
The age chosen by a personal pension plan member to draw retirement benefits.
Self-Invested Pension Plan (SIPP)
A type of personal pension plan that gives an individual more investment control.
Short-Term Annuity
A temporary annuity that runs for no longer than five years. Allows an individual to draw an income while deferring purchasing a full annuity.
Small Self-Administered Scheme (SSAS)
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 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 at which the State pension can be taken.
State Pension Date (SPD)
The earliest date that the State pension can be paid.
State Pension Deferral
On reaching State pension age, a pensioner can defer taking their State pension in exchange for a higher pension or lump sum in the future.
State Pension Forecast
An illustration provided by The Pension Service giving an estimate of what State pension an individual may receive at State pension age.
State Second Pension (S2P)
Alternative name given to the State additional pension since April 2002.
Tax Relief
Incentive given to those contributing to pension schemes. The Government pays tax relief at the investor’s highest marginal rate; that is, a basic rate taxpayer will receive 20 per cent tax relief, a higher rate tax payer 40 per cent and a 50 per cent tax payer 50 per cent relief of a member’s gross contribution.
Tax-Approved Scheme
A pension scheme that has been approved to operate by HMRC.
The Pension Service
A part of the DWP. Responsible for administering and paying the State pension.
The Pensions Advisory Service (TPAS)
An independent, Government-funded body that provides general information about pensions to the public and also helps resolve pension disputes through mediation and conciliation.
The Pensions Regulator (TPR)
A Government body that regulates the running of occupational pension schemes.
Transitional Protection
Comes in two forms – primary and enhanced. Allows an individual to protect accrued pension rights that may exceed the Lifetime Allowance, thereby avoiding a tax charge on the excess.
Unfunded Unapproved Retirement Benefits Scheme (UURBS)
Now known as an EFRBS. These are unapproved schemes with no tax reliefs that an employer funds to provide a member with a lump sum and/or income.
Unsecured Pension
Also known as Income Drawdown or income withdrawal. Allows a pension scheme member to continue to invest a fund while drawing a limited income. Available to under 75s only.
Winding Up
The process of terminating an occupational pension scheme, usually by transferring member’s benefits to individual arrangements.
Winding Up Priority Order
The order in which members’ benefits are distributed on the winding up of a defined benefit scheme with an insolvent employer and a funding shortfall.
