Annual Allowance

The maximum amount of pension saving 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.

​

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 that they have made.

​

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.

​

Beneficiary

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.

​

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.

​

DB Scheme

Defined benefit scheme - also known as ‘final salary’ or ‘salary-related’ 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.

​

DC Scheme

Defined contribution scheme – also known as ‘money purchase’ 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 in in respect of that member, and any investment returns.

​

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.

​

Deferred Member

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

​

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A benefit relating to the past service of members of an occupational pension scheme who are no longer active members but have not yet retired.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 retirements or earlier death.

​

Dependant

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 dependent precisely, e.g. age at which children cease to be dependents.

​

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.

​

Fixed Protection 2016

A pension protection scheme launched by HMRC to protect private pension savings up to a limit of £1.25 million. However, to be eligible for fixed protection, no other form of personal pension protection is permitted.

​

Flexi-access Drawdown (FAD)

With FAD, you can choose to take up to 25% of your pension pot as a tax-free lump sum. The rest then moves into one or more funds that allow for taxable income to be withdrawn at times to suit you. Once the tax-free lump sum has been taken income can be taken straight away or at a later date.

​

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.

​

Income Drawdown

Income drawdown is a way of using your pension pot to provide a regular retirement income by reinvesting it in funds specifically designed and managed for this purpose. The income received will vary dependent upon the fund’s performance and isn’t guaranteed for life.

​

Individual Protection 2014

Individual protection 2014, gives members a protected lifetime allowance equal to the value their pension savings on 5 April 2014, subject to an overall maximum of £1.5 million. Members must have pension savings of at least £1.25 million on 5 April 2014 to apply.

​

Individual Protection 2016

Individual protection 2016 provides a personal lifetime allowance between £1 million and £1.25 million, based on the collective value of your pension holdings at 5 April 2016.

​

In-specie

The transfer of assets from one fund or portfolio to another in the form of actual securities (e.g. 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.

​

Lifetime Allowance

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

​

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

​

Pension Commencement Lump Sum (PCLS)

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.

​

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.

​

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).