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Glossary

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The rate at which pension benefits build up 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.

A member of a pension scheme who is building up new benefits or new money in their pension pot, normally by contributing to the scheme.

A reduction made to a defined benefit pension when a member takes their pension early.

A shorter version of the actuarial valuation, it tends to be done in between actuarial valuations.

A full and formal assessment of a defined benefit scheme's ability to meet its liabilities. Carried out by the scheme actuary at least once every three years.

See scheme actuary.

Extra service in a defined benefit scheme in return for additional contributions.

The additional state pension is the 'earnings-related' part of the state pension.  The amount you get depends on your earnings, and the national insurance contributions paid, during the whole of your working life.

The option for members to boost their pension savings by making extra contributions. Schemes do not have to offer the option to pay  AVCs.

Helps resolve disputes between workers and employers.

The practice, no longer legal, of employers, trustees and managers of pension schemes treating members or prospective members differently than other members on the basis of their age.  

Annual payment from the Government to a defined contribution pension scheme which is contracted out of the additional state pension.  This stopped in April 2012.

Allows a pension scheme member to put off buying a retirement income. Instead the member can take a defined level of income from the pension pot (which remains invested) until they die or decide to buy an annuity. See also income drawdown.

You don't pay income tax on the money that you pay into your pension.  However, there is a limit on how much tax-free money you can build up in your pension in any one year.  This limit is set by the Government and is called the 'annual allowance'.  It is £40,000 until 6 April 2015.

The amount each year charged to a member of a defined contribution scheme (including personal and stakeholder pensions) to cover the cost to the provider of investing and administering the member's pot.

An annuity is a type of retirement income which provides you with a regular payment, usually for life. In most defined contribution schemes you would use your pension pot to buy an annuity. There are different types of annuity to choose from, and usually you can shop around to choose which provider you want to buy it from.

The investments and other property a person or a scheme owns that provide an income.

The formal set of accounts that the trustees of a workplace pension scheme have to have prepared each year. They show what's been happening to the scheme's money.  

See scheme auditor.

Where an employer pays a pension scheme member additional retirement benefits, over the amount stated in the scheme rules.

The Government has introduced a new law designed to help people save more for their retirement. It requires all employers to enroll their workers into a workplace pension scheme if they are not already in one.

The first part of the state pension, payable at state pension age. The amount paid depends on the person's national insurance record.

People dependent on a member who may receive benefits from a scheme on the member's death. Normally includes spouses, civil partners, and children.

An insurance policy designed to accept transfers from defined benefit schemes. Also known as Section 32 or Section 32A policies.

A type of defined benefit scheme where the retirement benefits are worked out using the average of a member's revalued pensionable salaries over their pensionable service.

A type of defined contribution scheme which has some features of a defined benefit scheme. See also hybrid schemes.

The amount offered to a member of a scheme who wants to transfer to another pension scheme.

The cash lump sum a member of a workplace pension scheme can take at retirement or on opening their pot.

Give free, independent, confidential and impartial advice to everyone on their rights and responsibilities.

A person in a same-sex relationship who has entered into a civil partnership under the Civil Partnership Act 2004.

Contribution paid by those in employment, worked out as a proportion of pay.

Flat-rate contribution paid by the self-employed.

Voluntary contribution paid to improve basic state pension entitlement.

Profit-based contribution paid by the self-employed in addition to the Class 2 contributions.

A workplace pension scheme which is closed to new employees. It may also no longer allow existing members to build up benefits.

A statement provided, on a voluntary basis, by a workplace pension scheme showing an estimate of benefits from both the workplace pension scheme and the state scheme.

It is a factor, used in a defined benefit scheme, to work out how much pension is to be given up in exchange for a cash lump sum.

An employee whose responsibilities include ensuring that the company complies with its outside regulatory requirements and internal policies.

The ability to pay into more than one pension scheme at the same time.

Putting together a number of small pension pots, to get a better deal when buying a retirement income.

It measures the average changes month-to-month in the price of consumer goods and services in the UK.  Pension schemes use it to calculate pension increases.

Employers can decide that they would like their defined benefit pension scheme to contract out of the additional state pension.  If they do this, it will apply to all members of the scheme.  The employer's scheme must meet certain minimum standards which are broadly similar to the additional state pension.  The member pays lower national insurance contributions in return for having given up some or all of their additional state pension.From 6 April 2012, it has not been possible for an individual to contract out of the additional state pension if they are saving in a defined contribution pension scheme.

The deduction applied to a person's SERPS entitlement for a period they were contracted out between 1978 and 1997.

An event that means that pension benefits become payable - for example buying an annuity, death, taking an unsecured pension and a test against the lifetime allowance is carried out.

Benefits for dependants if a member dies while working for the employer who supports the workplace pension scheme. Similar to a life assurance policy.

A member of a workplace pension scheme, personal or stakeholder pension, who is no longer building up new benefits or new money in their pension pot, but has not yet taken their benefits or opened their pot.

A pension in a scheme you have left, which you can claim when you reach the scheme's normal retirement age. This definition does not apply to state pension deferral.

Examples include 'final salary' or 'career average' earnings-related pension schemes.  The amount you get at retirement is based on a number of things.  These could include your earnings and how long you have been a member of the pension scheme.  In most schemes, when you retire you can take some of your pension as a tax-free cash lump sum.  The rest you get as a regular income, on which you might pay tax.

Additional voluntary contributions that provide defined contribution benefits.

Your pension pot is put into various types of investments, such as shares (shares are a stake in a company).  The amount in your pension pot at retirement is based on how much has been paid in and how well the investments have performed.  Normally, when you retire, you can take some of your pension pot as a tax-free cash lump sum.  You can use the rest to buy yourself an income, on which you might pay tax.  These are also known as 'money purchase' schemes.

The Government department with overall responsibility for pension schemes and, through The Pensions Service, the administration of the state pension.

People who are eligible to receive retirement benefits following the death of a pension scheme member.

See deferred member.

The payment of retirement benefits or the opening of a pension pot before the scheme's normal retirement age or the member's selected retirement date.

See pension earmarking.

No longer generally used, it was a limit on the level of earnings that could be used to work out pension benefits. Some schemes may still use a notional earnings cap when working out the benefits.

See impaired life annuity.

A member could apply for enhanced protection against a tax charge if they believed their pension rights may or will exceed the lifetime allowance.

See age discrimination.

A non-revaluing pension built up whilst contracted out of the state graduated pension scheme through a workplace pension scheme.

The way a pension increases once in payment.

A workplace pension scheme for selected directors and senior staff.

A notification by a scheme member to their pension scheme to show how they would like any lump sum or pension benefits to be paid on their death.

Earnings close to retirement, which are used to work out pension benefits, in a defined benefit scheme.

Earnings close to retirement, which are used to work out pension benefits, in a defined benefit scheme.

See defined benefit scheme.

This was set up to pay compensation to people who lost pension rights because their workplace pension scheme was unable to pay the benefits promised.  It is now overseen by the Pension Protection Fund.

An independent service that oversees the conduct of individuals and companies who provide financial services. Replaced the Financial Services Authority.

An independent service for settling disputes between businesses providing financial services and their customers. It is funded by a levy from the financial services businesses.

An independent service that used to regulate the financial services business in the UK. Replaced by the Financial Conduct Authority and the Prudential Regulation Authority.

An independent body, funded by a levy. It compensates consumers who lose money because their provider becomes insolvent.

Operated by the Pension Protection Fund, the FCF compensates workplace pension schemes that have suffered financial loss due to dishonesty.

A contract with an insurance company that offers members the chance to boost their retirement savings by making extra contributions.

The benefit built up in a defined benefit scheme, as a result of being contracted out of the additional state pension.

The Government department that gives actuarial advice and guidance to the Government and public sector schemes.

The name for the additional state pension between April 1961 and April 1975.

A type of personal pension, set up by an employer to give a group of workers a retirement income.

A type of personal pension scheme set up by an employer on behalf of its workers. Self invested personal pensions give workers more choice over how their pots are invested. Although the scheme is arranged by an employer, each pension contract is between the pension provider and the worker. The employer may also pay into the scheme, adding money to each worker's pension pot.  

A collection of stakeholder pensions, set up by an employer to give a group of workers a retirement income.

The period during which your pension will continue to be paid to your beneficiaries, after your death.

Her Majesty's Revenue and Customs, the Government department that handles the tax approval of pension schemes and the taxation of contributions and benefits.

Now obsolete, it was available to carers and those looking after children, this benefit reduced the number of qualifying years required for the basic state pension.

A workplace pension scheme that has elements of defined benefit and defined contribution schemes. See also cash balance schemes.

If a member of a workplace pension scheme cannot work due to a medical condition, they might be able to take their benefits early.

A type of retirement income which may pay you a higher regular retirement income if your life expectancy could be shortened because of your lifestyle (for example if you smoke) or your medical history.

Some defined contribution pension schemes allow you to take an income directly from your pension fund rather than using it to buy a regular retirement income. Your pension fund stays invested, so its value can go up and down. There are upper and lower limits on the amount of income you can take. These limits are set by the Government and are reviewed regularly. The income you get is taxable.

Some defined contribution pension schemes allow you to take an income directly from your pension fund rather than using it to buy a regular retirement income. Your pension fund stays invested, so its value can go up and down. There are upper and lower limits on the amount of income you can take. These limits are set by the Government and are reviewed regularly. The income you get is taxable.

A trustee with no links to the pension scheme, employer or the members. The trustee is a professional, performing this role for a living.

An event or series of events that forces a company to go out of business.

The procedure for a member to make a formal complaint against the trustees of their workplace pension scheme.

Where a member puts off taking their benefits until after the scheme normal retirement date.

The benefits promised under a defined benefit scheme.

A policy that provides benefits to dependants or other beneficiaries in the event of the member's death.

As you get near retirement, the money invested for your pension pot is moved gradually to investments that have less chance of going down in value in the short term. For example, the money could be moved from shares to cash.

The limit on the total income you can receive from your pensions without having to pay tax other than income tax.  It is £1.25m until 6 April 2015.

A method used by pension schemes to increase pensions in line with inflation. The Limited Price Index is the change in the Retail Price Index between 1 October and the following 30 September, capped at 5% from April 1997 - April 2005, and 2.5% from then.  In the case of giving pension increases to deferred pensions, the Consumer Price Index is used.

An extra charge taken from a with-profits policy or with-profits fund, if the member takes the policy or fund before the agreed end date of the policy, for example to transfer it to another pension policy.

An extra charge taken from a with-profits policy or with-profits fund, if the member takes the policy or fund before the agreed end date of the policy, for example to transfer it to another pension policy.

A trustee of a workplace pension scheme chosen  by the scheme members or nominated by them,  according to the scheme rules. At least 1/3 of trustees should be member nominated trustees.

See defined contribution scheme.

A trust-based workplace pension scheme designed to meet the needs of most people. NEST must accept any employer who wants to use the scheme for automatic enrolment. Employers can use NEST as their only pension scheme or alongside other pension schemes.

Contributions taken from pay or via self-assessment, used by the DWP to fund state benefits including the state pension.

The reduction in national insurance contributions received by schemes or individuals who contracted out of the additional state pension.

The age under the scheme rules that you get to open your pension pot.

The date under the scheme rules that you get to open your pension pot.

See pension offsetting.

The option for members of a defined contribution scheme to open their pot and take the money to another provider to buy a retirement income.

See deferred pension.

Agreed with the employer, it tells the trustees of a defined benefit scheme how much the employer and employees will contribute.

The cash lump sum a member can take when they take their retirement benefits or open their pension pot.

This gives an ex-spouse or ex-civil partner a share of scheme member's pension rights on divorce. The share is paid when the member takes the benefits.

A guarantee that starts when a retirement income is bought, to make sure that the pension is paid for a specified period, even if the member dies within that period.

The increases given to a pension, once in payment, to help it keep pace with inflation.

Where a member's pension rights are valued and offset against other assets as part of a divorce settlement.

An independent body, funded by a levy, set up by Government to protect the benefits of members of workplace pension schemes.

Provides an ex-spouse or ex-civil partner with a share of a pension scheme member's benefits on divorce. The ex-spouse or ex-civil partner is given a pension credit that they can take and put towards their own retirement benefits.

A service, operated by the Government, which helps scheme members get back in touch with previous pension schemes.

The part of your pay that is used to work out your pension and pension contributions.

The length of service, in a defined benefit scheme, which is used to work out retirement benefits.

A member of a defined benefit scheme who is receiving their pension.

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

An independent individual, funded by a levy, who decides complaints by scheme members and beneficiaries about the way a pension scheme is run.

The annual amount that an individual can earn in a tax year before paying income tax.

A pension you set up yourself direct with a pension provider. You pay regular monthly amounts or a lump sum to the pension provider who will invest it on your behalf. The fund is usually run by financial organisations such as building societies, banks, insurance companies or unit trusts.

An independent individual, paid for by a levy, who determines complaints against the PPF and the FAS.

The right for early leavers with short service (over 2 years) to receive a deferred pension from their workplace pension scheme.

See deferred member.

See deferred pension.

A member of a workplace pension who believed their pension rights would be more than the lifetime allowance, could apply for primary protection to protect some or all of their benefits from a tax charge.

Where a member of a workplace pension has the right to take their benefits early, before the age of 55.

The part of the pension pot built up in a defined contribution scheme from rebates paid as a result of being contracted out of the additional state pension. Protected rights were abolished from 6 April 2012 and became ordinary rights.

A workplace pension scheme set up by the Government to benefit those in Government-funded employment, for example teachers, police, civil servants.

A pension scheme that is approved by HMRC and regulated by the Pension Regulator.

An overseas pension scheme that meets HMRC rules and so can accept transfers from the UK.

A year in which a person has paid national insurance contributions or received national insurance credits.

Produced by an employer, it records how much they and their employees will contribute to the designated stakeholder pension scheme.

The comparison of the benefits provided by a contracted out defined benefit scheme with those under a model 'reference scheme'.  The benefits provided by the scheme must be at least equal to those of the reference scheme. The scheme actuary must certify that the scheme complies with the reference scheme test.

A pension scheme that is approved by HMRC for tax relief purposes.

One of the ways used to measure how much prices change. It measures the change in the cost of a 'basket' of products and services including energy, food, transport and housing. It covers more housing costs than the consumer price index, including mortgage interest. The way it is worked out is different from the consumer price index. It is used by pension schemes to work out pension increases.

A non-revaluing pension built up whilst contracted out of the state graduated pension scheme through an occupational pension scheme.

The increase added to a deferred pension between the date the member becomes a deferred member and the date they retire, to help it keep pace with inflation.

See defined benefit scheme.

An occupational pension scheme that provides benefits based on accrual rate, pensionable service and pensionable salary.

Produced by the scheme actuary, it shows the trustees of a defined benefit scheme how much the employer and employees will contribute.

The qualified person appointed by the trustees of a defined benefit scheme to carry out valuations and advise on funding matters.

A qualified person appointed by the trustees of a workplace pension scheme to check the accuracy of the annual accounts.

The requirement that a defined benefit scheme must have sufficient and appropriate assets to meet its liabilities.

The age chosen by a member of a personal pension to open their pension pot.

The date chosen by a member of a personal pension to open their pension pot.

A type of personal pension, which gives the members more choice over how their pots are invested.

A temporary annuity for a period less than 5 years, which allows a member of a defined contribution pension the chance to take an income while putting off buying a full annuity.

A workplace pension scheme where the members are normally company directors or key staff.

A type of personal pension, offering a flexible alternative to a regular personal pension.

See additional state pension.

The name for the additional state pension between April 1978 and April 2002.

See graduated state pension.

A regular payment from the government you can receive when you reach state pension age. The amount varies and is based on national insurance contributions .

The earliest age that the state pension can be claimed. It is based on your date of birth and gender. You can use our state pension age calculator to find your state pension age.

The earliest date that the state pension can be claimed. It is based on your date of birth and gender. You can use our state pension age calculator to find your state pension date.

State pension deferral is where you put off (decide to delay) claiming your state pension until a time that suits you.

An illustration provided by The Pension Service that gives an estimate of the total state pension a person may get at state pension age.

The name for the additional state pension since April 2002.

A statement in which the trustees of a defined benefit scheme set out how the statutory funding objective will be met.

The trustees of a defined benefit scheme must ensure that the scheme's liabilities can be funded by the employer's money, property or other suitable assets.

An annual statement given automatically to members of defined contribution schemes, showing an estimate of the benefits their pot could buy now and at retirement (in today's terms).

Tax relief means that some of your money that would have gone to the Government as tax, goes into your pension instead.

The financial year, running from 6 April to 5 April.

The part of the DWP that is responsible for administering and paying state pensions.

The Government body that oversees workplace pension schemes, with the aim of protecting members' benefits.

Responsible for making sure that financial services companies are run properly. Replaced the Financial Services Authority.

Provides an element of pension protection for workers whose employment is transferred from one employer to another.

The amount you get if you move your pension pot from one scheme to another.

If your total retirement savings are less than an amount set by the Government, you might be able to take this money as a cash lump sum instead of buying a retirement income.

A lump sum that can be paid in full exchange for your pension if the value of all your private pensions are no more than a certain amount and if certain other conditions are met.

The legal document that sets up a workplace pension scheme and how it should be run.

Responsible for the administering the assets and liabilities of a bankrupt.

A payment, not authorised by HMRC, that is made to a member or employer by a pension scheme. The payment is subject to a tax charge.

Also known as income drawdown or income withdrawal. A pension member can continue to invest their retirement pot while taking a limited income.

The process of terminating a workplace pension scheme, usually by transferring members' benefits to individual arrangements.

A pension scheme set up by an employer to give their workers a retirement income.

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