UK Pension Defintions Glossary

AVCs (Additional Voluntary Contributions)

People in company/occupational pension schemes can pay in extra money to increase their pension benefits. The extra money they pay in is called an additional voluntary contribution.

Aka

Also known as.

Annuity

This is what people normally mean by a pension ie it's the weekly or monthly payment you get when you're retired. When you retire you use your pension fund to buy the annuity. the regular payment you negotiate is usually guaranteed for the rest of your life. Read more

Assets

Basically anything of value, usually referring to what's owned e.g. by you or a pension fund…

Best advice.

Your IFA has to give you "Best Advice" by law. This means gaining a complete understanding of your particular circumstances before deciding which pension plan is the best for you. After the pension selling scandals it is now law for anyone selling a pension to ensure they have fulfilled various criteria including a detailed questionnaire (known as the "factfinder") completed with the pension buyer.

Capital Gains Tax

This is a tax made on any "gains" i.e. profits you make when you sell assets i.e. things like shares, a rare collection of antique toys and so on.

Company pension plan/scheme

This is simply another term for an occupational pension.

Contributions

These are payments made into pensions e.g. the regular or perhaps one off payments you make into your pension.

Contributions holiday

Some pension providers may let you take a contributions "holiday" where you stop the regular payments / contributions for an agreed period. You would need to discuss this with your provider. However the new Stakeholder pensions should allow for these without any problem

Current value of your pension fund

Your savings are being invested. As the value of the investments change - with the daily rise or fall in the share prices etc - so the value of your savings (ie pension fund) will change on a daily basis.

DSS

The UK Government's Department of Social Security.

Features

The word given to describe the various benefits that a particular pension has. These are outlined in the Key Features document which should come with every pension. A typical list of features would be varying contributions, waiver of contributions benefit, flexible retirement age etc.

FSAVCs (Free Standing Additional Voluntary Contributions

If someone is in an employer's scheme, which is not contracted out of SERPS, they can contract  themselves out and pay into a free-standing additional voluntary contribution scheme (FSAVC) instead.

Front-end Loaded Charges

These refer to "up front charges". Until recently most pension plans tried to take most of the charges you have to pay in the first year or two, both as a way of getting the money quickly, but also to encourage you to stay with them. If you stopped your pension within two or three years, most of your payments would have gone on charges and you would be left with very little to show for your investment. This practice is termed "Front-end Loaded charges" and should be avoided.

Fund managers

These are the people who control how the pension fund's money is invested.

IFA

An IFA (Independent Financial Advisor) is a personal finace specialist. S/he has to give truly independent financial advice on all types of financial products - in this case, pensions. If they don't they'll be in trouble and you should be able to claim compensation.

An IFA is supposed to assess your circumstances carefully. They then make recommendations from all the pension providers in the market. There are a huge number of products to choose from, but it isn't as difficult as it sounds because there are several computer programmes the IFAs can subscribe to which do all the research for them. For more see Independent Financial Advisors and Why using an IFA is best etc.

ISA / Individual Savings Account

A type of savings/ investment where you benefit from tax breaks. Very basically the government allow you to invest a certain amount of your earnings on a tax free basis. This is to encourage savings (or is it to help the big financial institutions. No shurely not).

There are several types of ISAs: Maxi ISAs, Mini ISAs and each type has its own rules and investment limits. In other words it's just fascinating (stifled yawn) but too complicated to get into just here. ISAs replaced TESSAs and PEPs a couple of years ago.

If you want to know more about ISAs go to www.moneysorter.co.ukand follow the links from there.

Investing & investment growth

This is putting money into investments thus buying a share of, typically, a company, which will use the money to expand its operation and then give back a corresponding share of the increased profit to the investors. This increase would be called the investment growth.

Gross earnings

This is your total earnings i.e. salary, wages or whatever, BEFORE TAX.

Gross salary

This is your total salary, BEFORE TAX.

Mortgage advisors

These are salespeople who give you advice on and sell you Mortgages. They're not as well regulated as IFAs

Mortgage providers

Any financial institution that offers and/or arranges mortgages. These could be insurance companies, friendly societies, building societies, banks, unit trust managers and, nowadays, even supermarkets.

NI (National Insurance) contributions

These are payments into your National Insurance "account" which covers your future pension, unemployment benefit, NHS service etc. They are usually held back from your pay along with your PAYE (pay as you earn) tax.

Net earnings

This is your earnings AFTER TAX. So if you've earned say £100 and have been taxed at, say, 22% the £78 you have left is your net earnings.

Net salary

This is your earnings (e.g. salary, wages) AFTER TAX. So if your gross salary is say £100 and have been taxed at, say, 22% the £78 you have left is your net salary.

Ombudsman

An independent person who settles disputes and acts as a standards "watchdog".

Pension fund

This is the value of the money saved. It could mean an individual's pension fund or a pension provider's total pension fund.

Pension Plan

Another term for a Pension scheme i.e. operated by a pension provider.

Pension Provider

Any financial institution that offers and/or arranges pensions. These could be insurance companies, friendly societies, building societies, banks, unit trust managers and nowadays even supermarkets.

Pension scheme

Another term for a Pension plan i.e. operated by a pension provider

PEPs and TESSAs

These were the tax exempt savings vehicles that have been replaced by ISAs.

Personal allowance

This is the "first amount" of money you earn which is not taxed. The basic personal allowance for the financial year 2000/2001 was £4,385. This meant that the first £4,385 of your salary would not be taxed.

Personal finance

The term given to anything to do with arrangements made for people's money eg mortgages, pensions, insurance, bank accounts etc.

PIA

Personal Investment Authority The UK Governments regulatory agency. Tel - 020 7676 1000

Personal Pension

This is where an individual has an agreement with a pension provider to save money for their retirement. Anyone who's not in line to get a pension from an occupational pension scheme is eligible to have a personal pension. Read more about Personal Pensions

Premiums

These are payments into an insurance or assurance policy/plan.

Private pensions

Any form of pension that is not a state pension e.g. personal, company / occupational pension and stakeholder pension.

Pro rata basis

"For the equal amount of time" e.g. if you were earning £400 a month and worked for one week, pro rata, you would earn £100.

Tax benefits, Tax relief, Tax incentives, Tax breaks

The Inland Revenue gives you an incentive to save money, in this context for retirement, by not taxing you if you spend your money in certain ways. For example, if you put your money into a personal pension you are not taxed on any of it.

If you have already been taxed on the money you're putting into a private pension the government will put the tax you paid on that money back into your pension plan.

Waiver of Contribution Insurance (aka Waiver of Premiums)

This may be worth taking out if you have any doubts about your ability to continue paying. It will pay your pension contributions, for example throughout the term of the policy, (up to retirement) if you can't pay due to ill health etc.