Getting to grips with the language of retirement

Additional State Pension
The earnings-related part of the State Pension built up in the State Second Pension and/or the State Earnings Related Pension Scheme (SERPS).

Additional Voluntary Contributions (AVCs)
Employee contributions payable to a salary related occupational scheme that are over and above the normal contributions required by the scheme rules. This can be a useful way for people to get additional benefits from their occupational scheme.

Annuity
Purchased with an individual pension pot built up in a money purchase arrangement to provide a pension that is usually payable for life.

Appropriate personal / stakeholder pension
This is a term used to describe a personal pension or stakeholder pension that is contracted out.

Basic State Pension
The flat rate part of the State Pension that is paid to everyone who has enough qualifying years through having paid or been treated as having paid or been credited with National Insurance (NI) contributions.

Beneficiary
Usually used to describe a person entitled to benefit under a pension scheme.

Bonds
In general, ‘Bonds’ fall into two main categories. ‘Fixed-interest securities’ are investment vehicles issued by public companies, local authorities, government and also private companies (corporate bonds) which carry a fixed rate of interest normally payable over a specified period. UK government fixed interest securities are called ‘gilts’ and can be bought and sold on the market. Their value generally rises when interest rates are low and falls when interest rates are high. Corporate bonds tend to pay a higher rate of interest than those issued by public bodies because of the higher risk of default. ‘Index-linked securities’ were devised specifically for pension schemes and were first introduced in the UK in 1981. The index link refers to the amount of capital invested and a fixed rate of interest is also payable on the current capital value and so is itself indexed.

Combined Pension Forecast
Provides members of private pension schemes with an estimate of how much they are likely to receive from both their State and their current private pension.

Contracted out
Someone is contracted out if they join a pension scheme that provides benefits in place of the State Second Pension (formerly SERPS).

Contracted-out rights
Rights held in a pension fund that derive mainly from the National Insurance (NI) contribution rebate and its investment return.

Contracted-in
Any private pension scheme that provides benefits in addition to, and not replacing, the State Second Pension (formerly SERPS) is commonly referred to as being “contracted-in.”

Defined benefit scheme
A scheme that provides benefits that are usually related to the scheme member’s salary rather than how much is paid into the scheme and how well the payment has been invested.

Earnings threshold
This is an amount of earnings stipulated within certain tax rules that allow you to invest in excess of this figure in to a personal pension if you meet other requirements relating to your age and your earnings.

Employment service
The length of time you have worked for an employer. This should not to be confused with Pensionable service.

Equities
Equities are investments in a stock exchange listed company, where the value of the investment (shares) is dependent upon the performance of the company and the general state of the stock market. They also, normally, generate income through the payment of dividends. Equities held in UK pension funds generally fall into two categories, those listed on the London Stock Exchange (UK equities) and those listed on a foreign stock exchange (overseas equities).

Final Salary scheme
A type of Defined Benefit scheme where the pension payable is based on the length of time that someone has been a member of the scheme and his or her earnings in the final years leading to retirement.

Free-standing Additional Voluntary Contribution (FSAVCs)
Employee contributions that are made to a pension provider under the terms of an existing occupational pension contract but are entirely separate from the occupational pension scheme.

Group Personal Pension scheme
An arrangement with a personal pension provider that allows a group of individuals to take out a personal pension on a group basis. They are usually set up by an employer on behalf of its employees but can also be set up by a group of self-employed individuals. The main advantage of such an arrangement is that it can result in the scheme making lower administration charges.

Home ResponsibilitiesProtection (HRP)
This helps protect a person’s entitlement to the basic State Pension if they are unable to undertake regular employment due to caring for a child or children or a sick or disabled person at home. It may also help a person qualify for additional State Pension, via the State Second Pension. From April 2010, HRP will be replaced by a system of credits for parents and carers and periods of HRP awarded before 2010 will be converted to credits for people reaching the state pension age (SPA) after this date.

Lower Earnings Limit
The minimum amount that someone must earn in a tax year in order to build up a sufficient entitlement to State benefits, including Incapacity Benefit, Jobseeker’s Allowance and State Pension.

Mixed benefit scheme
A type of hybrid scheme that allows an employer to run a salary-related and money-purchase section under the same scheme.

Money-Purchase scheme
A private pension scheme providing benefits on a Money-Purchase basis, with the exception of death benefits. The amount payable is based upon the amount paid in and how well that money has been invested.

National Insurance (NI) contributions
Regular payments to the State to help build up entitlement to benefits including Jobseeker’s Allowance, Incapacity Benefit and State Pension.

Normal Retirement Age
The earliest age at which a member of an occupational pension scheme can be paid a pension without a reduction in benefits.

Occupational Pension scheme
A type of private pension scheme run by some employers to provide a pension for their employees. Sometimes referred to as a works pension, a company pension or superannuation scheme.

Occupational Pension scheme managers
The people responsible for ensuring that occupational pension schemes operate effectively and within the law.

Occupational Pension scheme trustees
The people who represent the interests of scheme members. They must act independently from the employer. Where one of the trustees is also the employer, the trustee duties and the responsibilities arising from the role as employer must be kept separate.

Pension Credit
Pension Credit is an income-related benefit for people aged 60 or over living in Great Britain that provides, or contributes to, a guaranteed level of income. It also means that for the first time, people aged 65 and over will be rewarded for some of their savings and income they have for their retirement.

Pension Protection Fund
This compensates members of eligible Defined Benefit schemes when there is a qualifying insolvency event in relation to the employer and there are insufficient assets in the pension scheme to cover Pension Protection Fund levels of compensation.

Pensionable service
The length of time that someone has been a member of a pension scheme. This is not to be confused with Employment service.

Personal Pension scheme
A type of private pension scheme, including a stakeholder pension scheme, run by banks, investment companies and building societies.

Private Pension scheme
This can be a personal pension scheme, including a stakeholder pension, or an occupational pension scheme.

Qualifying year
A tax year in which you have sufficient earnings upon which you have paid, are treated as having paid or have been credited with, National Insurance contributions.

Retirement age
This is the age when you choose to leave work. It can also be used in reference to the Normal Retirement Age stated under certain private pension schemes, which relates to when you can start collecting your private pension. It is not necessarily the same as your State Pension age.

SERPS (State Earnings Related Pension Scheme)
The State Earnings Related Pension Scheme reformed by the State Second Pension in 2002.

Stakeholder Pension scheme
A type of personal pension scheme that has to meet minimum standards set down in law. Stakeholder pensions are flexible and portable with a cap on annual management charges.

State Pension
The pension payable by the State, which is based on an individual’s National Insurance contribution record.

State Pension age
The earliest age at which someone can receive the State Pension.

State Pension deferral
A term used to describe the decision to put off claiming the State Pension. People who do this may receive a higher State Pension or a one-off taxable lump sum payment.

State Pension forecast
The State Pension forecast gives details of the State Pension already built up and the amount that someone is likely to receive at State Pension age.

State Second Pension
The additional State Pension which reformed the State Earnings Related Pension Scheme (SERPS) pension in April 2002 to provide a more generous pension for low and moderate earners.

Tax relief
Generally, contributions payable to a pension scheme that is approved by the HM Revenue & Customs for tax purposes, are not subject to Income Tax.

Tracker funds
Tracker funds, sometimes referred to as index funds, aim to replicate or copy the performance of a given share index or sector of the market.

Unit-linked
A type of personal pension where contributions are used to buy shares in funds chosen from a wide range of investments. The value of these investments can fall as well as rise but over the longer period they may offer higher returns. Costs are normally deducted from the fund.

War Disablement Pension
A pension for people who have been injured or disabled during wartime, or as a result of their service in Her Majesty’s Armed Forces, subject to certain conditions.

War Widow’s/Widower’s Pension
A pension for people whose husband’s, wife’s or surviving civil partner’s death was caused by, or happened sooner because of, service in Her Majesty’s Armed Forces.

With-Profits
A type of personal pension with contributions that are invested in equities and gilt-edged securities. Investments have the potential to grow as bonuses are added. Bonuses reflect stock market performance and other factors, such as administration charges. The provider smoothes returns so that some gain in a good year is held back to boost performance in a lower performing year.

Additional State Pension
The earnings-related part of the State Pension built up in the State Second Pension and/or the State Earnings Related Pension Scheme (SERPS).

Additional Voluntary Contributions (AVCs)
Employee contributions payable to a salary related occupational scheme that are over and above the normal contributions required by the scheme rules. This can be a useful way for people to get additional benefits from their occupational scheme.

Annuity
Purchased with an individual pension pot built up in a money purchase arrangement to provide a pension that is usually payable for life.

Appropriate personal / stakeholder pension
This is a term used to describe a personal pension or stakeholder pension that is contracted out.

Basic State Pension
The flat rate part of the State Pension that is paid to everyone who has enough qualifying years through having paid or been treated as having paid or been credited with National Insurance (NI) contributions.

Beneficiary
Usually used to describe a person entitled to benefit under a pension scheme.

Bonds
In general, ‘Bonds’ fall into two main categories. ‘Fixed-interest securities’ are investment vehicles issued by public companies, local authorities, government and also private companies (corporate bonds) which carry a fixed rate of interest normally payable over a specified period. UK government fixed interest securities are called ‘gilts’ and can be bought and sold on the market. Their value generally rises when interest rates are low and falls when interest rates are high. Corporate bonds tend to pay a higher rate of interest than those issued by public bodies because of the higher risk of default.

‘Index-linked securities’ were devised specifically for pension schemes and were first introduced in the UK in 1981. The index link refers to the amount of capital invested and a fixed rate of interest is also payable on the current capital value and so is itself indexed.

Combined Pension Forecast
Provides members of private pension schemes with an estimate of how much they are likely to receive from both their State and their current private pension.

Contracted out
Someone is contracted out if they join a pension scheme that provides benefits in place of the State Second Pension (formerly SERPS).

Contracted-out rights
Rights held in a pension fund that derive mainly from the National Insurance (NI) contribution rebate and its investment return.

Contracted-in
Any private pension scheme that provides benefits in addition to, and not replacing, the State Second Pension (formerly SERPS) is commonly referred to as being “contracted-in.”

Defined benefit scheme
A scheme that provides benefits that are usually related to the scheme member’s salary rather than how much is paid into the scheme and how well the payment has been invested.

Earnings threshold
This is an amount of earnings stipulated within certain tax rules that allow you to invest in excess of this figure in to a personal pension if you meet other requirements relating to your age and your earnings.

Employment service
The length of time you have worked for an employer. This should not to be confused with Pensionable service.

Equities
Equities are investments in a stock exchange listed company, where the value of the investment (shares) is dependent upon the performance of the company and the general state of the stock market. They also, normally, generate income through the payment of dividends. Equities held in UK pension funds generally fall into two categories, those listed on the London Stock Exchange (UK equities) and those listed on a foreign stock exchange (overseas equities).

Final Salary scheme
A type of Defined Benefit scheme where the pension payable is based on the length of time that someone has been a member of the scheme and his or her earnings in the final years leading to retirement.

Free-standing Additional
Voluntary Contribution (FSAVCs) Employee contributions that are made to a pension provider under the terms of an existing occupational pension contract but are entirely separate from the occupational pension scheme.

Group Personal Pension scheme
An arrangement with a personal pension provider that allows a group of individuals to take out a personal pension on a group basis. They are usually set up by an employer on behalf of its employees but can also be set up by a group of self-employed individuals. The main advantage of such an arrangement is that it can result in the scheme making lower administration charges.

Home ResponsibilitiesProtection (HRP)
This helps protect a person’s entitlement to the basic State Pension if they are unable to undertake regular employment due to caring for a child or children or a sick or disabled person at home. It may also help a person qualify for additional State Pension, via the State Second Pension. From April 2010, HRP will be replaced by a system of credits for parents and carers and periods of HRP awarded before 2010 will be converted to credits for people reaching the state pension age (SPA) after this date.

Lower Earnings Limit
The minimum amount that someone must earn in a tax year in order to build up a sufficient entitlement to State benefits, including Incapacity Benefit, Jobseeker’s Allowance and State Pension.

Mixed benefit scheme
A type of hybrid scheme that allows an employer to run a salary-related and money-purchase section under the same scheme.

Money-Purchase scheme
A private pension scheme providing benefits on a Money-Purchase basis, with the exception of death benefits. The amount payable is based upon the amount paid in and how well that money has been invested.

National Insurance (NI) contributions
Regular payments to the State to help build up entitlement to benefits including Jobseeker’s Allowance, Incapacity Benefit and State Pension.

Normal Retirement Age
The earliest age at which a member of an occupational pension scheme can be paid a pension without a reduction in benefits.

Occupational Pension scheme
A type of private pension scheme run by some employers to provide a pension for their employees. Sometimes referred to as a works pension, a company pension or superannuation scheme.

Occupational Pension scheme managers
The people responsible for ensuring that occupational pension schemes operate effectively and within the law.

Occupational Pension scheme trustees
The people who represent the interests of scheme members. They must act independently from the employer. Where one of the trustees is also the employer, the trustee duties and the responsibilities arising from the role as employer must be kept separate.

Pension Credit
Pension Credit is an income-related benefit for people aged 60 or over living in Great Britain that provides, or contributes to, a guaranteed level of income. It also means that for the first time, people aged 65 and over will be rewarded for some of their savings and income they have for their retirement.

Pension Protection Fund
This compensates members of eligible Defined Benefit schemes when there is a qualifying insolvency event in relation to the employer and there are insufficient assets in the pension scheme to cover Pension Protection Fund levels of compensation.

Pensionable service
The length of time that someone has been a member of a pension scheme. This is not to be confused with Employment service.

Personal Pension scheme
A type of private pension scheme, including a stakeholder pension scheme, run by banks, investment companies and building societies.

Private Pension scheme
This can be a personal pension scheme, including a stakeholder pension, or an occupational pension scheme.

Qualifying year
A tax year in which you have sufficient earnings upon which you have paid, are treated as having paid or have been credited with, National Insurance contributions.

Retirement age
This is the age when you choose to leave work. It can also be used in reference to the Normal Retirement Age stated under certain private pension schemes, which relates to when you can start collecting your private pension. It is not necessarily the same as your State Pension age. by the State Second Pension in 2002.

Stakeholder Pension scheme
A type of personal pension scheme that has to meet minimum standards set down in law. Stakeholder pensions are flexible and portable with a cap on annual management charges.

State Pension
The pension payable by the State, which is based on an individual’s National Insurance contribution record.

State Pension age
The earliest age at which someone can receive the State Pension.

State Pension deferral
A term used to describe the decision to put off claiming the State Pension. People who do this may receive a higher State Pension or a one-off taxable lump sum payment.

State Pension forecast
The State Pension forecast gives details of the State Pension already built up and the amount that someone is likely to receive at State Pension age.

State Second Pension
The additional State Pension which reformed the State Earnings Related Pension Scheme (SERPS) pension in April 2002 to provide a more generous pension for low and moderate earners.

Tax relief
Generally, contributions payable to a pension scheme that is approved by the HM Revenue & Customs for tax purposes, are not subject to Income Tax.

Tracker funds
Tracker funds, sometimes referred to as index funds, aim to replicate or copy the performance of a given share index or sector of the market.

Unit-linked
A type of personal pension where contributions are used to buy shares in funds chosen from a wide range of investments. The value of these investments can fall as well as rise but over the longer period they may offer higher returns. Costs are normally deducted from the fund.

War Disablement Pension
A pension for people who have been injured or disabled during wartime, or as a result of their service in Her Majesty’s Armed Forces, subject to certain conditions.

War Widow’s/Widower’s Pension
A pension for people whose husband’s, wife’s or surviving civil partner’s death was caused by, or happened sooner because of, service in Her Majesty’s Armed Forces.

With-Profits
A type of personal pension with contributions that are invested in equities and gilt-edged securities. Investments have the potential to grow as bonuses are added. Bonuses reflect stock market performance and other factors, such as administration charges. The provider smoothes returns so that some gain in a good year is held back to boost performance in a lower performing year.