Pesnion Sorter - UK Pensions Jargon Made Easy

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Earlier service component

This is the part of a member’s pension benefit that was earned under a final salary scheme before limited price indexation was brought in.

Early leaver

This is a person who stops being an active member of a pension scheme but who does not start to get a pension straightaway.

Early retirement

This is when a member retires before their normal retirement date and gets their pension immediately.

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Earmarked benefits

These are the pension benefits set aside by a court for a member’s husband or wife after a divorce.

Earmarked money purchase scheme

This is a type of occupational pension scheme. It means all the benefits are paid by insurance policies or annuities. Each of these policies or annuities is set up for one particular member, their dependants or both.

Earmarked policy

This is a policy held by a pension scheme to provide life assurance cover, or an annuity for a particular member.

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Earnings cap

This is a limit on how much of a member’s earnings may be used to work out the limits on contributions and benefits in an approved scheme. This limits the amount that a high earner can put into a pension scheme and still get tax relief. The earnings cap affects Class A members only. It is similar to final remuneration, which can affect all members.

Earnings factor

This is a theoretical earnings figure that is used for working out state pensions or guaranteed minimum pensions.

Eligibility

These are certain conditions that somebody must meet to be a member of a pension scheme and to receive pension scheme benefits.

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Emoluments

These are a member’s earnings and they include benefits in kind (such as company cars).

Employer

This is the organisation the member works for.

Employer's pension scheme

This is a pension scheme organised by the employer to provide pension benefits for employees. It is most often called an occupational pension scheme.

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Endowment policy

This is an insurance policy which will pay out a single amount on a fixed date in the future or when the policyholder dies (whichever happens first).

Enhanced commutation factor

A commutation factor is something which decides how much pension needs to be given up so that the member can get a one-off amount instead. An enhanced commutation factor takes account of the member’s pension increasing in the future.

Entry date

This is either the date an employee can join a pension scheme, or the date they actually do join.

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Equal access

This is the term used to describe the requirement that members of both sexes have identical entry conditions to pension schemes.

Equal treatment

After a European ruling, Britain’s pension laws were changed to say that each sex must be treated the same.

Equivalent pension benefit (EPB)

This is the benefit which an employer must give an employee who was contracted out of the old graduated pension scheme.

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Escalation

This is an automatic increase in the amount of pension a member gets (or will get in the future). The amount goes up at regular times, and usually at a fixed rate.

Ex gratia benefit

This is something that an employer gives to an employee, even though they do not have to.

Executive pension plan (EPP)

This is another name for an executive scheme.

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Executive scheme

This is a pension scheme for specially chosen employees. It is also known as a top hat scheme.

Exempt approved scheme

This is an approved scheme that is not a personal pension scheme, and is set up under a trust that cannot be changed.

Experience deficiency

This is the deficit (loss) when the pension scheme’s actual performance is compared with what the actuary originally predicted.

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Experience surplus

This is the surplus (profit) when the pension scheme’s actual performance is compared with what the actuary originally predicted.

Expression of wish

If a scheme pays death benefits, this is where the member tells the trustees who should get this benefit if the member dies. The trustees do not have to follow the member’s wishes. This is also called nomination or form of request.

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Final average earnings

These are the member’s earnings used to work out their pension in a final salary scheme. The amount used could be the member’s earnings in the last few years before they retire.

Final earnings scheme

This is another name for a final salary scheme.

Final pensionable earnings

This is another name for final average earnings.

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Final remuneration

This is a limit that affects how much of a member’s earnings are taken into account when the Pension Schemes Office (PSO) works out the highest amount of benefit they can get from an approved scheme.

Final salary scheme

This is the most common type of defined benefit scheme. It means that the pension paid to the member is based on how much they are earning when they retire. This amount could be an average over their last few years of work.

Financial Services Authority (FSA)

This is a new organisation that deals with financial business, such as pensions. It makes sure the rules on financial business are followed. It has replaced the Securities and Investments Board. The FSA’s phone number is 0171 676 1000.

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Flat rate scheme

In this type of scheme a member’s pension depends on how long they have been in the scheme. The member’s earnings do not affect the amount of the pension. This is a type of defined benefit scheme.

Forgoing

This is a written agreement between the member and their employer where the member agrees to have their wages cut by a certain amount. The employer then puts this amount into the pension scheme for the employee.

Form of request

This is another name for expression of wish. If a scheme pays death benefits, this is where the member tells the trustees who should get this benefit if the member dies. The trustees do not have to follow the member’s wishes. This is also called nomination.

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Franking

This is the name given to taking any increase in the guaranteed minimum pension off the other pension benefits.

Free cover

An insurance company may agree to cover a group of people for death benefits without asking for proof that they are in good health. For example, this group could be members of a pension scheme. Free cover is the highest amount of benefits that the insurance company will pay out for any one person under this system.

Free-standing additional voluntary contributions

These are payments into a free-standing additional voluntary contribution (FSAVC) scheme.

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Free-standing additional voluntary contribution (FSAVC) scheme

An active member of an occupational pension scheme can pay extra amounts into a separate scheme, called a free-standing additional voluntary contribution (FSAVC) scheme. These are run by pension firms. The benefits they get from the scheme will be based only on these extra amounts.

It is possible to contract out by joining a free-standing additional voluntary contribution (FSAVC) scheme.

Frozen benefits

These are the benefits a member has already earned from a scheme when they stop being an active member (or the scheme closes). The member will get these benefits when they retire. These are also called preserved benefits.

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Frozen scheme

This is a scheme which has been closed. No more contributions will be paid and the members will get their frozen benefits when they retire.

Fully insured scheme

With this type of scheme, the trustees take out an insurance policy for each member. The policies guarantee that each member will get all the benefits that the scheme rules say they should get.

Fund account

This is part of the accounts that a scheme must produce each year. It shows how the scheme has dealt with members, income from investments, and what the scheme has bought and sold during the year.

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Funded unapproved retirement benefits scheme (FURBS)

This is an occupational pension scheme that is not designed to be approved. This type of scheme saves up assets to pay members’ benefits, unlike an unfunded scheme. Most FURBS are top-up pension schemes.

Funding

This is setting assets aside (saving up) so that money is available to pay future liabilities.

Funding level

This is a comparison of a scheme’s assets and liabilities.

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Funding plan

This is a plan to make sure that money is available at the right time to pay out pension benefits. It usually involves setting the contributions at a certain level, such as the standard contribution rate.

Funding rate

This name is sometimes used to describe the recommended contribution rate. This is how much the actuary says the standard contribution rate should be to make sure the scheme has enough money to pay the necessary benefits.

Funding ratio

This is the funding level, written as a percentage.

Futures contract

This is a contract to buy goods at a fixed price and on a particular date in the future. Both the buyer and the seller must follow the contract by law.

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General levy

This is paid by all occupational and personal pension schemes covered by the Pension Schemes Registry. It pays for the Pension Schemes Registry, the Pensions Ombudsman and the Occupational Pensions Regulatory Authority (OPRA).

On 6 April 2005 the Pensions Regulator took over from Opra (the Occupational Pensions Regulatory Authority). The Pensions Regulator is the new regulatory body for work-based pension schemes in the UK.

Graduated pension scheme

This was a version of SERPS which was used up to 5 April 1975.

Graduated retirement

This was the pension paid by the graduated pension scheme. The benefits depended on how much had been paid in contributions.

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Group personal pension (GPP)

This is a system where several employees at one company join a personal pension scheme with the same pension firm. Each member has a separate scheme with the pension firm, but contributions are collected together. The member may get better terms with a GPP than with a normal personal pension scheme. The employer may be more likely to pay contributions, because there will be less paperwork than with each employee dealing with a separate pension firm.

Group policy

This is an insurance policy which covers more than one person.

Guaranteed annuity

This is an annuity that is paid until the person getting it dies. If they die before a certain date, the annuity is then paid to their dependants until that date.

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Guaranteed annuity option

This gives a person the right to use the money they get from their insurance policy to buy an annuity, with the annuity rate guaranteed in the insurance policy. It can apply to a pension scheme as well as an insurance policy.

Guaranteed minimum pension (GMP)

A member of a contracted out occupational pension scheme will get at least this much pension unless:

The member’s service is all after 5 April 1997. Their benefits would then come under limited price indexation (LPI).

Some of the member’s service is after 5 April 1997. They would have some of their benefits affected by GMP and some by LPI.
The scheme is a contracted out money purchase scheme. The member’s benefits are then affected by protected rights.

Guaranteed pension

This is the name for the minimum pension a particular insurance policy will pay.

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Headroom check

There are Inland Revenue limits on how much money can be paid into a free-standing additional voluntary contribution scheme. A headroom check may be carried out to make sure that these limits are kept.

Historical cost

This is one way of measuring the value of assets. It uses what the assets originally cost, but an amount is often taken off for wear and tear and age.

Hybrid scheme

This is an occupational pension scheme where the pension benefits can be worked out in two ways. The way that gives the higher benefits will be used. This name is also used for an occupational pension scheme that pays both final salary and money purchase benefits.

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