Glossary
The maximum an individual can pay into all of their pension plans in any one tax year, with tax relief applying and before a tax charge might apply.
Allows a beneficiary to take withdrawals directly from a pension fund they have inherited whilst leaving the residual fund invested.
That part of a pension fund from which benefits have been or are being taken.
A type of occupational pension that provides guaranteed benefits in retirement that are predetermined by a formula based on the individual's earnings history, length of service and age.
Allows an individual to take withdrawals directly from a pension fund whilst leaving the residual fund invested.
A retirement product that converts an individual's pension fund into a guaranteed income that is paid for the rest of their life.
The guaranteed minimum pension that a pension scheme must provide for those employees who contracted out of SERPS between 6 April 1978 and 5 April 1997.
A feature of certain pension plans that provides the individual with a pre-determined fixed income for the rest of their life. This could take the form of a guaranteed annuity rate or a GMP.
Contributions automatically increase each year by a fixed percentage or in line with an index e.g. National Average Earnings or Retail Price Index.
The lifetime allowance was abolished from 6 April 2024. Lifetime allowance protection now only has implications for the amount of tax-free lump sum or lump sum death benefits that can be taken from a pension.
The amount of money an individual can withdraw from a pension fund free of Income Tax. The maximum is typically 25% of the pension fund, limited by the Lump Sum Allowance of £268,275 unless any form of lifetime allowance protection applies.
The Lump Sum Death Benefit Allowance (LSDBA) places a cap on how much of a money purchase pension plan can be paid tax-free, both during the planholder's lifetime and on death. The current amount of LSDBA is £1,073,100, less any tax-free lump sums already taken.
A type of pension that provides benefits in retirement based on the contributions made and the investment returns achieved within the pension fund.
A reduced annual allowance that applies to individuals who have taken benefits from their pension fund 'flexibly'.
The minimum age that an individual can ordinarily take benefits from their pension fund.
The age at which an individual is expected to start taking benefits from their pension fund.
A type of insurance that ensures regular contributions continue to be credited to the individual's pension plan if they are unable to work due to sickness or injury.
The entitlement to retain a lower normal minimum pension age than that set out in current legislation.
A UK government pension arrangement which 'contracted in' employees and their employers contributed to between 06/04/1978 and 05/04/2002 to accrue additional State Pension benefits.
A UK government pension arrangement which 'contracted in' employees and their employers contributed to between 06/04/2002 and 05/04/2016 to accrue additional State Pension benefits.
The amount of money an individual can withdraw from a pension fund free of Income Tax. The maximum is typically 25% of the pension fund, limited by the Lump Sum Allowance of £268,275 unless any form of lifetime allowance protection applies.
That part of a pension fund from which no benefits have been taken.
Allows an individual to access their pension fund as a single or series of lump sum payments (part tax-free, part taxable).
A pension plan that is arranged by the individual's employer to help the individual save for their retirement.
Pensions
A process introduced by the FCA in October 2020 as a quicker and more cost-effective way of identifying those individuals who are not suited to transferring their defined benefit pension and those who need further analysis.
Part of the formula used to determine the benefits payable from a defined benefit pension scheme. It is typically expressed as a fraction e.g. 1/80th.
The value of the benefits accrued within a defined benefit pension represented as a cash lump sum that is available for transfer to a money purchase pension plan.
The estimated annual return a money purchase pension fund needs to achieve to replicate the benefits provided by a defined benefit pension.
The rate at which defined benefit pension benefits will increase by once in payment.
The rate at which preserved benefits accrued within a defined benefit pension will increase by between the date the individual leaves the scheme and the date they start to draw benefits.
The process of comparing the benefits being given up from a defined benefit pension scheme with those that could be available from a money purchase pension.
A mandatory process prescribed by the FCA used to estimate the money purchase pension fund that would be required to replicate the benefits provided by a defined benefit pension.
Defined Benefit Pension
The individual who is entitled to the income from an annuity.
An option that allows the annuitant to protect up to 100% of their pension fund. The lump sum payable on death is the percentage of the pension fund protected, less any lump sum payments and the total income (before tax) already paid.
An income paid to a dependant (spouse, registered civil partner or financially dependent partner) for the rest of their life following the death of the annuitant. The amount of income the dependant receives will be a percentage of the income paid to the annuitant and is selected by the annuitant at outset.
A minimum period during which income will continue to be paid even if the annuitant dies.
The right to buy an annuity from a different provider than that which the original pension was held with.
Dictates when a dependant's pension will start to be paid if a guarantee period has also been selected. The dependant's pension will start immediately if the annuitant dies during the guarantee period and 'with overlap' has been selected. Whereas the dependant will have to wait until the end of the guarantee period if 'without overlap' is selected.
A partial income payment for the period between the death of the annuitant and the next pension payment where an annuity is paid 'in arrears'. If 'With proportion' is selected, a partial payment will be made. If 'without proportion' is selected, it will not.
Annuities
The average annual return the pension fund will need to achieve to provide and maintain the selected level of income.
Investment-linked Annuity
The estimated age at which the crystallised pension fund will run out, assuming the stated income is maintained and the mid growth rate shown in the provider's illustration is achieved.
The guaranteed lifetime annuity that could be purchased with the crystallised pension fund.
The average annual return the crystallised pension fund needs to achieve to provide and maintain an income equal to that which could be obtained by purchasing a guaranteed lifetime annuity.
This only applies where an income is being taken. It represents the average annual return the crystallised pension fund needs to achieve to provide and maintain the selected level of income (both in drawdown and on subsequent annuity purchase).
The maximum and minimum income an individual can withdraw from a capped drawdown plan as set by the Government Actuary Department. The minimum is £0, and the maximum is broadly equivalent to 150% of a single life level annuity.
The maximum income an individual can withdraw from a capped drawdown plan before the plan has to be converted to flexi-access drawdown and the individual becomes subject to the money purchase annual allowance.
Drawdown
The charge that the client agrees should be paid by the provider to the adviser for the service the adviser is delivering to the client. This charge can be stopped by the client at any time.
Much like the OCF and TER, the AMC provides an indication of the annual costs involved in managing an investment. It is typically expressed as a percentage of the value of the investment.
The percentage that different asset classes (e.g. cash, bonds, equities etc) have been allocated within an investment strategy in order to meet the individual investor's objectives and risk profile.
The level of risk an individual is willing to accept in return for the potential for growth on their investments.
A measure of the individual's ability to absorb falls in the value of their investments without having a detrimental impact on their standard of living.
Other costs incurred such as performance fees and interest payments.
The charges paid to the investment manager(s) for managing and administering the underlying investment(s) that make up the investment strategy.
The name given to the underlying investment(s) (e.g. fund) that the individual invests into via the plan.
Much like the AMC and TER, the OCF provides an indication of the annual costs involved in managing an investment. It includes a broader range of expenses and charges than the AMC or TER and therefore provides the most accurate measure of the costs affecting an investment. An OCF is not paid in addition to an AMC, the AMC is included within the OCF.
The charge paid to the platform provider for administering the plans and investments held on the platform. It is typically expressed as a percentage of the value of the investments.
The act of adjusting the allocation percentage of the underlying investments of an investment strategy to maintain a target asset allocation.
Much like the AMC and OCF, the TER provides an indication of the annual costs involved in managing an investment. It includes a broader range of expenses and charges than the AMC and therefore provides a more accurate measure of the costs affecting an investment than the AMC does. TER is gradually being superseded by OCF. A TER is not paid in addition to an AMC, the AMC is included within the TER.
The costs incurred in trading the assets held within a fund.
The average charge of an investment strategy given the relative weighting (allocation %) of the underlying investments.
Investment-related
The individual requiring care on whose life benefit payments are based.
An option that can be added at outset at an additional cost that guarantees a minimum percentage of the original sum invested (less any benefit payments made up to that point) is returned on the death to the annuitant's estate.
The benefits payable will increase each year by a fixed percentage or in line with an index e.g. Retail Price Index.