Jargon Buster

Introduction

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M

Managed fund

This is a fund, run by an insurance company, that people can invest in. With pensions, this can be where somebody from outside the scheme is employed to invest the scheme’s assets, usually in a range of investments.

Mandatory approval

This is when an occupational pension scheme meets all the normal rules for contracting out, so the Pension Schemes Office(PSO) has to automatically make it an approved scheme.

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Market value

This is the price an asset should fetch if it is sold on the open market.

Master policy

This is an insurance policy which covers more than one person. It is also called a group policy.

Maximum approvable benefit

In an approved scheme this is the largest pension benefit a member can receive. This does not apply to personal pension and simplified defined contribution schemes. The size of the maximum approvable benefit depends on whether the member is a Class A, Class B or Class C member.

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Member

This usually means someone who has joined a pension scheme.

Member-nominated director (MND)

This is a director of a corporate trustee that is chosen by the members of an occupational pension scheme.

Member-nominated trustee (MNT)

This is a trustee chosen by the members of an occupational pension scheme. Usually, at least a third of the trustees of an occupational pension scheme will be member-nominated trustees.

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Member participation

This is the term used to describe members having a say in how their pension scheme runs.

Member’s normal contribution

This is the member’s regular payment to the pension scheme as set out in the scheme’s rules.

Minimum benefit

A scheme may set a minimum benefit. This means that the member will get at least this much, even if their pension works out to be less. This is also called a minimum pension.

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Minimum contributions

These are contributions the DSS pays to an appropriate scheme when a member decides to contract out.

Minimum funding requirement (MFR)

This is part of the law on pensions. It says that a defined benefit scheme should not have an actuarial deficiency.

Minimum payments

This is the smallest amount an employer is allowed to pay into a contracted out money purchase scheme.  This amount will give the protected rights.

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Minimum pension

A scheme may set a minimum pension. This means that the member will get at least this much, even if their pension works out to be less. This is also called a minimum benefit.

Mis-selling

This is a word used to describe the problems of firms selling pensions to people who would have been better off staying with the scheme they were already in. One example is somebody leaving an occupational pension scheme to join a personal pension scheme, but losing out because their employer no longer paid money into their pension fund.

Modified premium value

This is a way the actuary of an occupational pension scheme works out how much an insurance policy is worth to the scheme. It bases the value on how much the scheme pays to the insurer for each member, but does not include anything the insurance firm charges for setting up the policy, such as commission or expenses.

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Modification order

This is an order made by the Occupational Pensions Regulatory Authority (OPRA). It means that an occupational pension scheme must make a particular change, even though this is normally against the scheme rules.

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.

Money purchase

This is when a member’s benefits are based on the contributions paid by them and for them, and any increase in this amount from investments. In most cases, this involves using the member’s share of the pension fund to buy an annuity.

Money purchase scheme

This is where the size of the member’s pension is worked out by the money purchase method. The size of the member’s pension will be affected by how much money is put into the pension fund for the member, how much the pension fund has grown, and what annuity rate is available when the member retires. This is also called a defined contribution scheme.

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N

National Insurance

This is money that the Government takes from both workers and employers. The amount depends on how much the worker earns. Some Government benefits, such as the basic state pension and SERPS, depend on how much national insurance you have paid.

Net assets statement

This is a statement showing the difference between an occupational pension scheme’s assets and liabilities.

Net book value (NBV)

This is what an asset originally cost to buy (called historical cost) less a sum for wear and tear and ageing.

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Net relevant earnings

These are earnings of self-employed people or earnings of employees who are not in an employer’s pension scheme. Net relevant earnings are used to work out the highest amount which can be paid into a pension scheme where contributions get tax relief.

Nomination

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 expression of wish or form of request.

Non-approved scheme

This is a scheme which is not designed to be approved by the Pension Schemes Office (PSO). It can be used to provide extra pension benefits over the earnings cap (limit) on approved schemes. Tax relief is not usually available for these schemes.

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Non-contributory

This is a type of pension scheme where the members do not have to pay into the scheme themselves.

Non-pensionable earnings

These are earnings that are not used when working out contributions or benefits. They could include overtime or bonuses.

Non-pensionable employment

This is employment where either a worker chooses not to join an occupational pension scheme, or there is no occupational pension scheme that they can join. Earnings from non-pensionable employment can be counted towards net relevant earnings.

Normal pension age (NPA)

This is the earliest age that a member can usually take their full pension benefits. Somebody retiring before this age will usually get a lower pension, but this may not apply with ill-health early retirement.

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Normal pension date (NPD)

This is the date when a member can normally start to get their pension benefits. It will usually be the date that they reach normal pension age.

Normal retirement age (NRA)

This is when employees doing a particular job usually retire. It is usually the same as the normal pension age.

Normal retirement date (NRD)

This is the date that the scheme rules say a member should normally retire. In most cases, it is the date that they reach normal pension age.

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O

Occupational pension scheme

This is a scheme organised by an employer to provide pension benefits for their employees. It is sometimes called a company pension scheme.

Occupational Pensions Advisory Service (OPAS)

This is an independent body which advises pension scheme members about their rights under their schemes. It can deal with complaints about pension schemes, but cannot force a scheme to do something. The body is now usually known as OPAS because it now covers personal pension schemes. OPAS’ phone number is 020 7233 8080.

Occupational Pensions Regulatory Authority (OPRA)

This is the official organisation that makes sure trustees of occupational pension schemes follow the law.  OPRA’s helpline number is 01273 627600.

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Offset

This is sometimes used to mean state pension offset. This is when a member’s pensionable earnings or a member’s pension are reduced to take into account the amount of state pension the member will get. It is a type of integration.

Open market option

This is the option to use the money from an insurance contract to buy an annuity from any insurance company at whatever annuity rate they offer. It could apply to a member’s share of a pension fund, meaning they can shop around for the best deal.

Opting out

This is when an employee leaves an occupational pension scheme or chooses not to join one.

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Option

This is the name for a contract where somebody pays a sum of money for the right to buy or sell goods at a fixed price by a particular date in the future. However, the goods do not have to be bought or sold.

Ordinary annual

These are the contributions an employer pays regularly into an occupational pension scheme.

Overfunding

This is where a scheme has an actuarial surplus.

Overlap

This is where a dependant’s pension is paid as well as a pension guarantee payment.

Overriding legislation

This is where the law overrides a pension scheme’s rules.

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P

Paid up benefit

This is a type of preserved benefit that will be paid by an insurance policy. This policy has been fully paid for.

Partially approved scheme

This is a pension scheme where only part of it can be approved by the Pension Schemes Office (PSO). For example, this could be a scheme where some of the benefits are paid to overseas employees who do not pay British taxes.

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Passive investment management

This is a method of investment that tries to limit risk by following a market. As an example, it might involve buying a number of shares in the 100 biggest companies on the stock exchange, rather than buying and selling particular shares. This could involve using a tracker fund.

People often choose passive investment management because they believe it is safer than active investment management.

Past service

This is service before a member has joined the pension scheme or before a particular date.

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Past service benefit

This is a pension benefit which a member has earned for past service or for service before the pension scheme was formed.

Pay as you go (PAYG)

This is where pension benefits are paid out of present day income. There is nothing set aside to pay future pension benefits. This is a type of unfunded scheme. The basic state pension and SERPS are both pay as you go schemes, with the benefits paid from taxes.

Payment schedule

These are a set of details saying when contributions should be paid and how much they will be. A money purchase scheme must have a payment schedule.

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Pension cost

This is the amount expected to be charged to the employer’s profit and loss account for pension contributions over the period that scheme members are expected to work.

Pension fraction

This is a fraction (or part) of earnings used to work out benefits in a scheme where the benefits depend on earnings, such as a final salary scheme.

For example, if the pension fraction is a sixtieth, then a member will earn benefits at a sixtieth of their final salary for each year worked. If they work for 40 years, their pension will be 40 sixtieths, or two thirds, of their final salary.

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Pension fund

This is the money saved and turned into assets of the pension scheme.

Pension guarantee

This is when the pension scheme pays extra money to reach a guaranteed total, if the pensioner dies early. The money is usually paid to the pensioner’s dependants.

Pension increase

This is when a pension which is already being paid is increased.

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Pension provider

A personal pension scheme or free-standing additional voluntary contribution (FSAVC) scheme must be set up by an special organisation. This organisation is called a pension provider.

Pension scheme statement of recommended practice (SORP)

These are the rules that say how the accounts of an occupational pension scheme must be worked out and written.

Pension Schemes Office (PSO)

This is the part of the Inland Revenue that decides whether a pension scheme can be approved. Before 1 April 1992, it was called the Superannuation Funds Office.

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Pension schemes registry

This is a list of occupational and personal pension schemes kept by the Occupational Pensions Regulatory Authority (OPRA). It can be used so that members can find schemes they have lost touch with, and so that OPRA can check that every scheme has paid the levy. You can ask about the register by calling 0191 225 6393.

Pension splitting

This is when a member gets divorced and their benefits are split between them and their ex-husband or ex-wife. Rules to allow or order pension splitting may become law during 1999. These rules may also affect what happens if one of the couple remarries, or they die before retiring.

Pension tax relief at source (PTRAS)

This is a way of giving members tax relief. People in occupational pension schemes have their contributions taken out of their pay before their tax is worked out.

Pensionable age

This is the age when people can start to get the basic state pension and SERPS.

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Pensionable earnings

These are the earnings used to work out benefits and contributions that depend on a member's earnings.  They might not include overtime.  The amount may be affected by state pension offset.

Pensionable employment

This is the period of employment which is taken into account when working out pension benefits.

Pensionable service

This is another name for pensionable employment.

Pensioner

This is someone who is getting a pension at the moment.

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Pensioneer trustee

This is someone (or a company) appointed to act as a trustee of a small self-administered pension scheme.

Pensions Compensation Board (PCB)

This is the organisation that deals with the pensions compensation scheme.

Pensions compensation scheme

This is a system set up by law. It can pay compensation to members of occupational pension schemes when the assets have been affected by dishonesty and the employer is insolvent. It covers most approved occupational pension schemes, but there are some exceptions. It does not cover unfunded schemes.

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Pensions Ombudsman

The Pensions Ombudsman is an independent person who settles disputes between pension scheme members and the pension schemes. Pension schemes must follow the Ombudsman’s rulings, but they can challenge them in court.

Permanent health insurance

This is an insurance policy which pays an income to someone who has been taken ill with a long-term illness or disability. A pension scheme might buy this policy as part of a member’s benefits. The policy may stop paying out when the member reaches normal retirement age. This can also be called prolonged disability insurance.

Permitted investments

These are the types of investments that trustees can make under trust deed rules.

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Permitted maximum

Particular laws use this name for the earnings cap. This is a limit on how much of a member’s earnings are counted when the Inland Revenue works out their maximum approvable benefits.

Personal Investment Authority (PIA)

This is the organisation that deals with the rules on how firms can advertise and sell financial products, such as pensions. It will eventually be taken over by the Financial Services Authority (FSA). The PIA’s phone number is 0171 676 1000.

Personal pension

This is someone’s personal pension arrangement. It can also mean a retirement annuity set up before July 1988.

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Personal pension arrangement

This is the agreement somebody has with a pension firm about their personal pension scheme.

Personal pension contributions certificate  (PPCC)

This is a certificate, prepared by a pension provider, for a member to send to the Inland Revenue. It proves that they are a member of the scheme, and how much their contributions are.

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Personal pension Scheme (PPS)

This is a scheme run by a private company for one person. It can be for someone who is self-employed, or an employed person who is not in an occupational pension scheme.

Somebody who is part of an occupational pension scheme that only pays death in service benefit (which means there is no pension paid) can also join a personal pension scheme.

Pivotal age

When a contracted out member reaches this age, they should be better off if they go back to SERPS. The age will depend on the member’s situation.

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Pooled Pension Investment (PPI)

This is an idea that the Government is considering. It is not a pension scheme itself, but a system of investing a pension fund in a range of stocks, shares and so on. The idea is that it will be more flexible, and that members will have a better idea of how much their pension is worth.

Before the Government chose the name PPI, some people suggested it would be called a Lifelong Individual Savings Account (LISA).  If the Government goes ahead with the PPI system, it may be delayed until stakeholder pensions start.

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Post 89 member

This is another name for a class A member. This is somebody who is:

Post 89 regime

This is the system of maximum approvable benefits allowed for class A, class B or class C members.

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Postponed retirement

This happens when a member stays employed after their normal pension date and does not start to take a pension.

Pre-award dynamism

This is the change in value of a member’s preserved benefits between when they leave the scheme and when they retire. It could be because of indexation, escalation or a discretionary increase.

Pre- 1 June 1989 continued rights

These are the rights of an occupational pension scheme member who comes under the Inland Revenue limits on maximum approvable benefits which applied between 17 March 1987 and 31 May 1989.

Pre- 17 March 1987 continued rights

These are the rights of an occupational pension scheme member who comes under the Inland Revenue limits on maximum approvable benefits which applied before 17 March 1987.

Pre- 87 member

This is someone who joined an occupational pension scheme before 17 March 1987. This is another name for a class C member.

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Pre-scheme service

This is a member’s service before becoming a member of the pension scheme.

Premium value

This is a way of valuing a long-term insurance policy for a pension scheme’s accounts. It is based on how much the scheme has to pay for each member. The actuary or accountant may chose to use a modified premium value, which does not include the insurance firm’s charges for setting up the policy.

Prepayment

With pensions, this is when an employer pays more contributions than the actuary has worked out are needed. The extra amount, called prepayment, is shown as an asset in the employer’s accounts (rather than those of the pension fund).

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Prescribed rules

These are rules that give a system for choosing a member-nominated trustee. Unless the scheme has a system decided by the trustees or the employer, or if this system does not work, the scheme must use the prescribed rules.

Present value

This is how much future payments or income are worth now. It is worked out by taking off an amount for interest, and taking into account how likely it is that the money will be paid. It is sometimes called capitalised value.

Preservation

This is when a pension scheme gives a member preserved benefits.

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Preserved benefits

These are the benefits an occupational pension scheme member has already earned from the scheme when they stop being an active member (or the scheme closes) before their normal pension age. The member will then get these preserved benefits when they retire. These are also called frozen benefits.

Principal employer

This is a name sometimes used when a particular employer has special rights or responsibilities, such as appointing trustees. For example, if several employers run a scheme together, the one who set it up might be the principal employer.

Priority liabilities

If a pension scheme is wound up, some of its liabilities come before others to be paid. For instance priority might be given to guaranteed minimum pensions.

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Priority rule

The priority rule is used if a pension scheme has to be wound up and there aren’t enough assets to cover all the liabilities. The trustees look at the scheme rules to see in what order they should settle the liabilities.

Proceeds of policy scheme

This is a type of money purchase scheme that buys an insurance policy for each member. The money that the policy pays is the member’s pension.

Prohibition order

This is an order made by the Occupational Pensions Regulatory Authority (OPRA). It means that a certain person is banned from being a trustee of one particular occupational pension scheme.

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.

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Prolonged disability insurance

This is an insurance policy which pays an income to someone who has been taken ill with a long-term illness or disability. A pension scheme might buy this policy as part of a member’s benefits. The policy may stop paying out when the member reaches normal retirement age. This can also be called permanent health insurance.

Protected rights

This is the lowest amount of benefits that a contracted out money purchase scheme (COMPS) can pay to a member. This amount is worked out by using the money purchase method with the money paid into the scheme as minimum contributions or minimum payments.

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Protected rights annuity

This is a pension bought with the money from protected rights.

Provision

This is an amount set aside in accounts for liabilities which are known about, but which cannot be measured accurately.

Provisional approval

This is when the Inland Revenue:

Public sector pension scheme

This is an occupational pension scheme for employees of:

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Public sector transfer arrangements

This is the system used by a transfer club made up mainly of public sector pension schemes. A transfer club is where several schemes deal with transfer payments in the same way.

Public service pension scheme

This is a public sector pension scheme where the rules are set up by law, for example the Civil Service scheme.

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Q

Qualifying period

This is the length of time an employee has to work for an employer before they can join the employer’s pension scheme. It is also called a waiting period.

Qualifying service

This is the member’s service which is used when working out if the member can have short service benefit. This is done when somebody stops being an active member of a scheme before they die or reach normal retirement age.

Qualifying year

This is a year when somebody has paid national insurance every week. If they have missed some weeks, they can sometimes pay a single amount to make up those weeks. They may have some weeks credited (counted as paid) for time when they were getting certain social security benefits.

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R

Rate of return

This is the income from an investment, including any change in value of the investment over a period.

Real rate of return

This is the rate of return on an investment with an amount taken off to account for inflation. This rate of inflation could measure rises in prices or earnings.

Recognised occupation

The Pension Schemes Office (PSO) does not normally allow a scheme to pay a pension before a member is 50 (or 60 with a retirement annuity). With some jobs, the PSO may allow a lower pension age. One example might be professional footballers, whose earnings are mostly early in their life. The list of these jobs is called the approved occupations list.

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Recommended contribution rate

This is how much the actuary says the standard contribution rate should be.

Reference scheme

This is a system to work out the benefits that a theoretical scheme would pay. Since 5 April 1997, a contracted out salary-related scheme should now pay at least as much in benefits to a member as they would get under the reference scheme.

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Register

This is a list of occupational pension schemes and personal schemes kept by the Occupational Pensions Regulatory Authority (OPRA). It can be used so that members can find schemes they have lost touch with, and so that OPRA can check that every scheme has paid the levy. The list is officially called the Pension Schemes Registry.

Reinstatement

This is when a member joins an occupational pension scheme when, in the past, they have either chosen not to join, or joined a personal scheme instead. In some cases, the member may get pension benefits for work they did before joining the occupational pension scheme. These are called past service benefits.

Reinsurance

This is where an insurance company has insured a particular event (such as a policyholder dying), and takes out a policy for the same event with another insurance company. The idea is to limit the risk that the original insurance company is taking.

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Relevant benefits

This is a name used in law for all the benefits affected by tax rules for occupational pension schemes. As a rough guide, it covers any benefit connected to retiring, leaving a job or dying. It does not cover benefits that are only paid when somebody dies while they are still working for the employer.

Relevant earnings

These are earnings of self-employed people or earnings of employees who are not in an employer’s pension scheme. They are used to work out the highest amount which can be paid into a pension scheme where contributions get tax relief.

Requisite benefits

Until November 1986, these were the pension benefits which contracted out occupational pension schemes had to provide.

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Retained benefits

These are benefits earned from a member’s past jobs, including self-employment. They are sometimes taken into account when working out the maximum approvable benefits.

Retirement annuity

This was a way that self-employed people, or people whose job did not offer an occupational pension scheme, could save for retirement. It was not a pension scheme, but an agreement with an insurance company or friendly society (a special type of financial firm). The agreement could be approved by the Inland Revenue, meaning the member got tax relief. No new retirement annuity agreements have been allowed since 1 July 1988.

Retirement benefits scheme

This is an arrangement where somebody is paid benefits that include relevant benefits. The term ‘pension scheme’ does not always cover this type of scheme.

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Revaluation

Revaluation This is the name used for increases in pension benefits.

Revaluation is also an accounting term used to describe a change in an asset’s value listed in a set of accounts.

Revalued earnings

Sometimes earnings are used to work out benefits. If the figures for these earnings have been index-linked (for example, changed to take account of price rises), they are called revalued earnings.

Revalued earnings scheme

This is a scheme where the benefits are based on revalued earnings over a certain time. SERPS is a revalued earnings scheme.

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Revenue limits

These are the Inland Revenue’s figures that set the largest amount of benefits and contributions allowed in an approved occupational pension scheme. There are different limits for class A, class B and class C members.

Revenue undertaking

This is an undertaking given to the Inland Revenue by pension scheme administrators. Under it the administrators agree to tell the Inland Revenue about any changes and get permission, if necessary, before taking action.

Reversionary annuity

This is an annuity which starts to pay benefits to someone when someone else dies. For example, it could give benefits to a pensioner’s widow.

Rules

The rules of a pension scheme are set out in the trust deed. They tell the trustees what they should do.

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