Compulsory purchase annuity
The name given to an annuity bought at retirement with pension funds from an Occupational Pension Scheme.
This is the process of electing to have National Insurance contributions, which would have been credited to S2P, redirected into a Personal Pension Plan.
The amounts paid into a pension plan. Sometimes called premiums.
The term given to an arrangement provided by an employer. It is a lump sum payable on death usually as a multiple of salary with a maximum of 4 x salary. The benefit is tax-free.
Deferred Pension (also called a Preserved Pension)
The pension benefit accumulated and remaining with an ex employer. Usually applies to benefits from a final salary pension scheme.
Income withdrawals or a short term annuity before age 75. An alternative option to taking a full annuity. The pension fund remains invested and the planholder draws down an amount of between 35% and 100% of the amount broadly equivalent to 120% of an annuity.
The maximum earnings level that used to be used when calculating pension contribution limits. No longer applies since A-Day.
Enhanced Lifetime Allowance**
Enhances the normal lifetime allowance.
Protection of pre A-day pension rights provided no further contributions are made.
Final Salary Scheme
An employer pension scheme, the benefits of which are linked to length of company service and the final salary of the member.
Free Standing Additional Voluntry Contributions (FSAVC's)
An AVC plan arranged outside of the Occupational scheme with a pension provider of your own choice.
Funded Unapproved Retirement Benefit Scheme (FURBS)
A rarely used employer paid scheme usually for higher paid employees paid in excess of the earnings cap. The tax treatment of FURBS is significantly less favourable than for standard occupational schemes and Personal Pensions. There are also Unfunded Unapproved Retirement Schemes (UURBS) which are even rarer.
Gross and Net Contribution
Pension contributions attract tax relief. Gross means the amount before tax relief and net means after tax relief.
Group Personal Pension Plan
A collection of Personal Pensions administered by an employer with the contributions deducted from pay and paid collectively to the pension provider by the employer.
The rates of investment return achieved by the plan.
Guaranteed Minimum Pension (GMP)
The portion of an Occupational Pension Scheme that must provide a minimum amount as a replacement for the State Earnings Related Pension Scheme (SERPS)/State Second Pension (S2P)
IFA- Independent Financial Adviser
An adviser who has no connection with any pension product provider or other institution. He/She is bound by law to provide best advice and recommend the product that is in his/her opinion, most suited to your requirements.
The maximum available pension fund not subject to tax charges when a BCE occurs.
A mixed fund of various investments eg. stocks and shares, government securities, property, managed between the sectors by the fund manager.
Money Purchase Scheme
An employer pension or a personal pension, the benefits from which are subject to contribution levels, investment performance and annuity rates.
Normal Retirement Date/Age
The date/age your pension plan reaches the maturity date set by the employers scheme or by the individual with a PPP.
Occupational Pension Scheme
A company/public sector scheme in which individual employees have membership.
Open Market Option
The term given to funds from a Personal Pension Plan or Retirement Annuity which are available for Annuity Purchase using a different Annuity Provider than the one with whom the original pension was built up.
Paid up Values
The amount of the accumulated pension fund assuming no further contributions are made.
Personal Pension Plan
An individual pension owned by the planholder.
A regular income payable for life.
The amounts paid out from a pension plan usually as a tax free lump sum and/or a regular pension.
The amounts accumulated through contributions made and interest/growth on those contributions.
The partial 'phased' encashment of segments of a Personal Pension Plan to provide a tax free cash sum and a pension, which together will satisfy the income requirement for the pension holder.
Protection of pre A day pension rights in excess of £1.5 million where further contributions or benefit accrual are allowed.
The name given to the benefits accumulated from contracted out personal pension contributions, which have replaced the SERPS/S2P benefits.
Rebate Only Personal Pension
A Personal Pension Plan funded entirely by National Insurance contribution' rebates' when contracting out of SERPS/S2P.
Reduction in Yield (RIY)
The cost of the charges in investment reduction terms. E.g. investment performance 7% pa, RIY 1%, equals a net return of 6% per annum.
A tax approved pension scheme post 06 April 2006.
Amounts committed at the outset to be made on a regular monthly/annual basis.
A Personal Pension taken out before July 1988. Contribution limits for RAs are less than for post-July 1988 Personal Pension Plans but the earnings cap does not apply. The Tax Free Cash Sum from an RA is calculated differently to a PPP although if the Open Market Option is taken the formula for calculating the Tax Free Cash Sum comes under the Personal Pension Plan rules.
The pension paid by an Occupational Pension Scheme either as an annuity or directly by the pension scheme.
A lifetime annuity or scheme pension
State Earnings Related Pension Scheme/State2nd Pension. The top up scheme to the Basic State Pension.Introduced in 1978.
Section 32 Policy
Short Term Annuity
An individual pension plan used for the purpose of transferring benefits from an Occupational Pension Scheme benefits at retirement (but not on death before) must reflect the rules from the transferring occupation scheme.
An annuity with a maximum term of 5 years which must end by a member’s 75th birthday.
One off contributions made as well as or instead of regular contributions.
SIPP - Self Invested Personal Pension
Standard Lifetime Allowance**
A Personal Pension which allows wider investment freedom.
The standard amount of available pension not subject to tax charges when a BCE occurs.
A personal pension that qualifies for Stakeholder status by satisfying the set requirements of charges and surrender values etc.
(see stakeholder pensions).
Tax Free Cash Sum
The portion of the pension fund which can be taken in this form.
The amount available if the fund is transferred to a different pension provider.
Each contribution buys a number of units at a price, which reflects the value of the assets in the fund, which could be stocks and shares, property etc.
Waiver of Premium Benefit (WOP)
A facility within a PPP so that should the pension holder be unable to work through illness or injury the contributions will be paid by the pension provider. There is usually a six month deferred period before this benefit is paid. For PPPs taken out since 2001 it has not been possible to include WOP.
The pension payable (usually at a reduced rate) to the spouse on the death of the pension holder after retirement.
A method of calculating the fund returns by smoothing out the investment performance. In effect, 'skimming off' the good years as reserves and using these to 'prop up' returns in the bad investment years. Stakeholder pensions offer smoothed managed funds in place of With Profit funds.
5 Year/10 Year Guarantee
The minimum term the pension will be payable for regardless of death of the annuitant.