Jargon Buster

Introduction

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I

Ill-health early retirement

This happens when a member retires early because of ill-health. They may get higher pension benefits than a member normally gets when they retire early.

Immediate annuity

This is an annuity which starts to pay out straightaway.

In-house AVC scheme

This is an additional voluntary contribution (AVC) scheme offered by an occupational pension scheme to its members.

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Incapacity pension

If a member’s illness means they cannot work as normal, they may get an extra pension. This depends entirely on the rules of their scheme.

Incentive payment

This is a payment the DSS used to make to certain personal pension schemes or contracted out occupational pension schemes. This was sometimes called the 2% incentive.

Income withdrawal

This is when a member retires, but chooses not to buy an annuity straightaway. Until the member buys an annuity, they take an income from the scheme.

Independent financial advisor (IFA)

This is a qualified person or firm that can give people independent advice on how they could save with life assurance and pensions. An independent financial advisor is not tied to a particular company.

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Independent trustee

This is a trustee who has no connection with the pension scheme, the employer or the members. For example, an independent trustee might be appointed if an employer goes out of business.

Indexation

This is a way of measuring changes in prices or earnings, and adjusting pensions in line with these changes. For example, if a pension was linked to a price index, and prices rose by five per cent, then the pension would also rise by five per cent.

Index linking

This is another name for indexation.

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Individual arrangement

This is an occupational pension scheme with only one member.

Inflation proofing

This is when a pension scheme uses price rises for indexation. It means that the pension a member gets will not be worth less if prices have gone up.

Inland Revenue

This is the Government department that deals with taxes.

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Inland Revenue limits

These figures set the largest amount of benefits and contributions allowed in an approved occupational pension scheme. There are different limits for class A, class B or class C members. As a rough rule, a member’s benefits are often limited to two thirds of the wages they got in the year before they retired.

Insured scheme

This is a pension scheme where the only way the assets are invested is in an insurance policy. It does not include schemes that use a managed fund policy.

Integration

This is reducing a member’s benefits by part or all of the amount that they will get from the basic state pension. State pension offset is one type of integration.

Interim trust deed

This is a trust deed which allows a pension scheme to be set up with very general terms. The detailed rules are usually set up later in a definitive trust deed.

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Internal dispute resolution (IDR)

This is the system an occupational pension scheme must have to deal with member’s concerns or complaints. If a member is not happy with what happens through this system, they can take their case to OPAS or the Pensions Ombudsman.

Investment

This is when the money paid into a pension scheme is used to buy things like stocks and shares, bonds and properties. These are called investments.

Investment income

This is the income earned by the pension fund’s investments.

Investment Management Regulatory Organisation (IMRO)

This is an organisation that deals with investment management companies. It makes sure that the rules and laws on investment are followed. IMRO’s phone number is 020 7676 1000.

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Investment manager

This is someone the trustees appoint to manage the investment of the scheme’s assets.

Investment report

This gives details of investments held by the pension fund, and the buying and selling of them. It explains why the investments were chosen and the reasons for any changes.

Investment trust

An investment trust is a company which invests money in different securities. It is listed on the stock exchange.

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J (Ja, there is no jargon starting with J.)

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K

Key features document

This is a document that people offering a life insurance policy or pension scheme must give to anyone thinking of buying a policy or joining a scheme.

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L

Late retirement

This is when a member retires and takes their pension after the normal retirement date.

Later earnings addition

When a member is still in pensionable employment and:

the minimum benefit may be increased.

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Letter of exchange

This is a letter from an employer to an employee, which is all or part of the individual arrangement document. The employee signs a copy of the letter to show that the terms are agreed.

Level of funding

This is the how much the actuarial valuation says a scheme’s assets are worth compared to its liabilities. It is usually a percentage figure, meaning that a scheme with a 100 per cent level of funding would have assets and liabilities worth the same amount.

Levy

This is an amount that a pension scheme has to pay each year. The amount depends on how many members are in the scheme. There are two types, the general levy and the compensation levy.

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Liabilities

These are amounts which the pension scheme will have to pay now or at some time in the future. The most common liability is paying members’ pensions.

Life assurance scheme

This is an insurance policy which will pay out if a member dies. When used in pensions, the policy may only pay out if the member dies before they retire or leave their employer.

Lifelong Individual Savings Account (LISA)

This was a name some people suggested for a new Government idea for a pension investment system. But the Government chose the name Pooled Pension Investment (PPI).

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Limited price indexation (LPI)

This is a part of the law that says pensions paid by an occupational pension scheme, and protected rights paid by an appropriate personal pension scheme must increase by at least a certain rate each year. This rate is five per cent, or the increase in the Retail Price Index, whichever is less.

LPI does not affect additional voluntary contribution (AVC) or free-standing additional voluntary contribution (FSAVC) schemes. It only applies to pension benefits earned after 5 April 1997. Any benefits earned before this come under the guaranteed minimum pension (GMP).

A member who worked both before and after this date would have some of their benefits affected by GMP and some by LPI.

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Linked qualifying service

Linked qualifying This is when a member used to belong to another scheme and the pension benefit earned in it has been transferred into the member’s new scheme. The qualifying service in the two schemes is linked together.

Long service benefit

This is the term used for a member’s benefits which will be paid at their normal pension age. This figure is used when working out short service benefit.

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Lower earnings limit (LEL)

This is the least amount someone must earn before they have to pay national insurance.

Lump sum certificate

This is a certificate which a pension scheme must supply in some cases when a member transfers to another scheme. The certificate shows the largest one-off amount available from the transfer payment given to a new pension scheme.

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