Term

Meaning

Reference

Accrual rate

The fraction of earnings for each year of service which forms the basis of entitlement under a final salary scheme, commonly ¹/₆₀ or ¹/₈₀  for each year of pensionable service.

Accrued benefits

The benefits of service up to a given point in time. They may be calculated in relation to the current earnings or projected earnings and will include any transfer credits allowed under the scheme.

Actuarial assumptions

The set of assumptions as to rates of return, inflation, increase in earnings and mortality used by the actuary in an actuarial valuation or in other actuarial calculations. Sometimes called actuarial basis.

Actuary

An advisor on financial questions involving probability relating to mortality and other contingencies.  In the UK this term automatically includes those who are Fellows of the Institute of Actuaries and of the Faculty of Actuaries.  Those with other actuarial qualifications may be approved by the Secretary of State for a specific purpose.

Additional pension

The earnings related element of the state pension which is in addition to the basic pension comprising SERPS and S2P.

Additional voluntary contributions (AVCs)

Contributions over and above a member's normal contributions which a pension scheme member chooses to pay into the scheme in order to secure additional benefits which may be through adding years or through money purchase. These can be within the scheme or through a freestanding scheme (Free Standing AVCs).

Administrator

The person or persons regarded by the Inland Revenue and the Contributions Agency as appropriate as being responsible for the management of a pension scheme.  The term is sometimes used also t refer to the person who manages the day to day administration of the scheme.

Allocation

The ability for a pension scheme member to give up (or allocate) a part of his pension in exchange for a pension payable to his spouse or other dependants.

Alternatively secured pension (ASP)

A variation on unsecured pension formulated originally to accommodate religious objections to risk pooling.

Annual allowance (AA)

The maximum amount of tax relievable pensions that can be built up in any one tax year.

Annuity

A specified sum, whether immediate or deferred, which may be subject to increases, payable at stated intervals for a number of years and/or until a particular event occurs (most commonly the death of the annuitant).

Attachment orders

A court order commonly known as a pension attachment order ordering a third party to pay to the beneficiary of the order rather than the creditor.

Average earnings scheme

A scheme where the benefit for each year of membership is related to the pensionable earnings for that year.

Basic state pension

The flat rate state pension paid to individuals who have met the minimum national insurance contribution requirements.  A widow, widower or in some cases a married woman may also claim a basic state pension on the contribution record of their spouse.

Beneficiary

A person entitled to benefit under a pension scheme or who will become entitled on the happening of a specified event.

Benefit crystallisation

The term for either drawing benefits in the form of pension, ASP [define] , lump sum or transfer to an overseas scheme.

BR19

Form to be submitted to the Benefits Agency to obtain a forecast of the expected basic state pension and additional pension based upon contributions made to date and likely future contributions.

BR20

Form to be submitted to the Benefits Agency to obtain a lump sum valuation of SERPS/S2P.

Bridging pension

An additional pension sometimes paid from a pension scheme between the scheme member's retirement from employment and his state pensionable age.  Once the state pension comes into payment, the bridging pension will cease.

Buy-out plans

The purchase by pension scheme trustees of an insurance policy (with or without dependant's rights) to replace the benefits to which a member is entitled under the pension scheme and which are given up by the member when he leaves the scheme.

Cash equivalent transfer value (CETV)

The sum which represents the value of the benefits which have accrued to, or in respect of, a member of a pension scheme, calculated in accordance with Part IV of Pension Schemes Act 1993 on the basis of a transfer out of the scheme.  If the member is in active service, it assumes he/she will leave service immediately.

Charges

These will exist on personal pension policies and money purchase funds. Typically they will consist of an annual management charge, which is a percentage of the fund deducted, and a policy fee, which is a flat fee applied to every policy/fund, usually monthly. This policy fee will usually increase each year.

Commutation

The exchange of all or part of pension benefits for a tax-free single lump sum payment.

Contracted-in pension scheme

A defined salary or defined contribution pension scheme which provides benefits in addition to those provided in SERPS/S2P.

Contracted-out rights

Rights which emerge under a scheme which is contracted out of the SERPS/S2P pension scheme (safeguarded rights).

Contracting out

The ability to contract out of the State Earnings-Related Pension Scheme (SERPS)/State Second Pension (S2P), which forms part of the state pension. If an occupational pension scheme is contracted out, the scheme must provide members with a guaranteed minimum pension.  Contributions to the state scheme in respect of employees who have contracted out are reduced (contracted-out rebate)

Death benefit

Benefit payable to the spouse or dependants of a deceased scheme member, or to that member's estate, on death-in-service or after retirement.  It may take the form of a lump sum, a return of contributions or a survivor or dependant's pension.

Death-in-service benefit

Benefit available on the death of an employee before retirement. Typically, a lump sum payment or return of contributions.

Deferred member

A person entitled to preserved benefits having left a pension scheme.

Deferred pensioner

A person entitled to preserved benefits.  Deferred pensioners are sometimes referred to as deferred members.

Defined benefit scheme

An alternative term for a final salary scheme.

Defined contribution scheme

An alternative term for a money purchase scheme.

Dependant

A person who is dependant on a pension scheme member or pensioner or was at the time of the member or pensioner's death or retirement.  A spouse qualifies automatically as a dependant for the purposes of the Inland Revenue.  A former spouse may not.  A child of the member is always regarded as a dependant until the child reaches the age of 18 or ceases to receive full-time education or vocational training.

Discount rate

The interest rate which is assumed to apply over the period to retirement.  It is used to give a present value to future payments. It can be applied with mortality rates to give a discount factor.

Early leaver

A person who ceases to be a member of a pension scheme, other than on death, without becoming entitled to an immediate retirement benefit. This usually happens because the member's employment has been terminated.

Early retirement

Retirement of a pension scheme member before his normal retirement date who has received retirement benefits immediately upon retirement and is not, therefore, a deferred member.

Earmarking

The original term for pension attachment.

Escalation

The term for how pensions increase after the member has retired.  The escalation to pensions in payment can be different for the GMP accrued before 6 April 1988 (pre 88 GMP), the GMP accrued after 5 April 1988 (post 88 GMP), the remaining pension accrued before 6 April 1997 and the remaining pension accrued after 5 April 1997.

Executive Pension Plan (EPP)

Occupational pension schemes designed for individuals or small groups of senior executives and directors.  They are usually money purchase schemes. Contributions grow in investment funds earmarked for each scheme member.

Final pensionable earnings/pay/ salary

The pensionable earnings, at or near retirement or leaving service, on which the pension is calculated in a final salary scheme.

Final remuneration

[Is this term still valid post-A Day?]

Final salary scheme

An occupational pension scheme (also known as a defined benefit scheme) where the benefits are calculated by reference to the member's pensionable earnings at or near the time of retirement or upon leaving service.  The benefits are usually ¹/₆₀ or ¹/₈₀ of the pensionable earnings for each year of pensionable service.

Financial Services Authority (FSA)

The FSA is the regulator for the financial services industry with effect from 30 November 2001 under the Financial Services & Markets Act 2000.

Fixed benefit

This is a pension scheme where the benefit is not related to contributions or service.

Flat rate (accrual) scheme

This is a pension scheme where benefits are provided for each year of service and are not related to earnings.

Form P

The Pension Inquiry Form which may be directed at a First Appointment

Form P1

Pension sharing annex

Form P2

Pension attachment annex

Group personal pension scheme

An arrangement made for the employees of a particular employer to participate in a personal pension scheme on a group basis with the effect of administrative savings.

Guaranteed minimum pension

The pension (or part of pension) payable to a member of a contracted-out scheme;  it is normally equal to that part of the state pension which is given up by virtue of the contracting-out arrangement.

Hancock annuity

A type of immediate annuity purchased by an employer when an employee retires.

Implementation period

For a pension credit the period of four months beginning with the later of (a) the day on which the relevant order takes effect, and (b) the first day on which the person responsible for the pension arrangement to which the relevant pension sharing order relates is in receipt of (i) the relevant matrimonial documents, and (ii) such information relating to the transferor and transferee as is prescribed by regulations.

Indexation

An annual increase in pension benefits, subject to the Pension Schemes Act 1993, s 109 and the Pensions Act 1995, s 51.

Lifetime allowance (LTA)

The maximum amount of tax relievable pensions that can be built up.

Limited price indexation (LPI)

The statutory requirement to increase pensions once in payment by the lower of five per cent per annum or the RPI.

Lower earnings limit (LEL)

The minimum amount which must be earned before national insurance premiums become payable. 

Member

An employee or former employee entitled to benefit from a pension scheme.  Sometimes, the term member is used to refer only to an active member. For some statutory purposes, the term member may include an employee who is a prospective member.

Money purchase scheme

A scheme (also known as a defined contributions scheme) where benefits are determined by the level of contributions paid and the performance of investments, as opposed to a scheme which provides benefits related to earnings (final salary scheme).

Normal pension/retirement date

The date at which a member of a pension scheme normally becomes entitled to receive his retirement benefits.

Occupational pension scheme

A pension scheme organised by an employer or a group of employers or on behalf of an employer or group of employers to provide pensions and other benefits in respect of one or more employees on leaving service or death or retirement. Contributions must be made by employers and may be made by employees, depending upon the terms of the scheme.

Off-setting

The use of a lump sum order or a property adjustment order against non-pension assets to "off-set" the losses sustained by the party without pension rights.

Paid up benefit

This is a preserved benefit which his irrevocably secured for an individual member under a policy of insurance under which premiums have ceased to be payable in respect of that member.

Pay as you go

A type of unfunded pension scheme where benefits are paid out of revenue and no monies are put aside to fund future liabilities. Often associated with public sector pensions.

Pension

The term pension is commonly understood to mean a recurring payment made at fixed intervals beginning after the employment from which the pension is derived has come to an end.  The payments will usually continue until the death of the recipient.

Pension attachment order

An attachment order against a pension scheme member's pension payments when they fall due previously known as earmarking.

Pension credit

The amount of money (expressed as a percentage of the CETV) which the ex-spouse is awarded in a pension sharing order.

Pension debit

The amount of money by which a scheme member's rights are reduced.  A pension debit will not necessarily diminish the member's rights by the percentage expressed in the order.  [?]

Pension Protection Fund (PPF)

The PPF (introduced on 6 April 2005 by the Pensions Act 2004, Part 2) acts as a form of insurance to ensure the payment of certain defined benefit occupational schemes and the defined benefit elements of hybrid pension schemes up to a certain level, if the scheme is of insufficient funds to pay them and the employer is insolvent (where there is no prospect of corporate rescue, or business rescue with pension liabilities attached).

Pension sharing

An order whereby the court will order the split of a pension at the time of divorce so that the wife either becomes a member of the husband's scheme in her own right (internal transfer) or, alternatively, takes a transfer of a designated amount into her own pension scheme (external transfer).

Pension splitting

The former term for pension sharing.

Pensionable earnings

The earnings on which benefits and/or contributions are calculated.  Pensionable earnings may differ from actual remuneration in that they may exclude various items such as bonuses, overtime and commission.

Pensionable service

Employment which qualifies as years of service, by reference to which a member's benefit entitlement under a pension scheme is normally calculated.  It is defined in the Pension Schemes Act 1993 in relation to preservation, revaluation and transfer payment requirements.

Pensions Regulator

The Pensions Regulator is the regulatory body for work-based pension schemes in the UK set up by the Pensions Act 2004 with effect from 6 April 2005 replacing the Occupational Pensions Regulatory Authority (OPRA).

Preserved benefits

Benefits which arise when an individual ceases to be an active member of a pension scheme and which are payable at a later date.

Protected pension age

The age at which a member has a right to take pension earlier than age 55.

Protected rights

Benefits under an appropriate personal pension scheme or money purchase contracted out scheme deriving from the minimum contribution or payments.

Public sector pension scheme

An occupational pension scheme for employees of central or local government, a nationalised industry or other statutory body.

Public service pension scheme

A public sector pension scheme, the particulars of which are defined by statute, for example, the schemes for the armed forces and the police.

Retail Prices Index (RPI)

An index which tracks the prices of a set group of retail goods.  The increase in RPI over the last year is often called the inflation rate.

Retained benefits

Retirement or death benefits in respect of an employee deriving from an earlier period of employment or self-employment.

Revaluation

The indexation of benefits or the awarding of discretionary increasing.

Revalued earnings

The term used to describe index linking of earnings for calculating benefits.

Scheme member

In relation to a pension scheme, a person who is or has been in pensionable service under the scheme.

Self-administered scheme

A pension scheme where the assets are invested by the trustee, an in-house manager or an external investment manager other than wholly by payment of insurance premiums.

Self-invested personal pension (SIPP)

SIPPs are increasingly attractive to higher earners since they offer the facility of choosing investments (including commercial property), charges by way of fees rather than hidden overheads and the right to income drawdown.

Small self-administered scheme (SSAS)

A self-administered occupational pension scheme with a small number of members usually fewer than 12.

Stakeholder pensions

All employers (with 5 or more relevant employees) must offer access to stakeholder pensions from October 2001; they do not have to make contributions and employees do not have to make contributions. For divorce purposes, there is little or no difference with any other kind of personal pension, except that they are available to accept contributions from those without any earnings, such as carers and housepersons.

Standard lifetime allowance

£1.65m for the tax year 2008/09.

State Earnings Related Pension Scheme (SERPS)

The State Earnings-Related Pension Scheme forming part of the state pension now known as the State Second Pension.  The scheme adds an earnings related component to the basic flat-rate pension based upon contributions on earnings between the lower and upper earnings limits.

State pension

Payable from national insurance contributions made by employees and employers.  Provision is in the form of a flat-rate pension and a State Earnings-Related Pension Scheme (SERPS)/State Second Pension (S2P) which, taken together, aim to provide an individual with a pension equal to one-half of his average earnings.

State pensionable age

The date from which pensions are normally payable by the state scheme.  At present the age for men is their 65 birthday and for women, their 60 birthday.  The ages are presently being equalised and will each be 65 by the year 2020.

State Second Pension (S2P)

This is the state pension scheme introduced with effect from 6 April 2002 to replace SERPS and to supplement the basic state pension.

Statutory scheme

A retirement benefits scheme set up by statute or statutory instrument for public sector employees and approved for the purpose by a minister or government department.

Survivor's benefit

Pension or lump sum payments made to a scheme member's qualifying dependant in respect of the member's death.

Term assurance

A policy having only a specified duration and providing for a lump sum to be payable if the insured dies within the specified period. Premiums are payable throughout the term.

Transfer credit

The benefits purchased by a transfer payment.

Transfer day

The transfer day establishes the relevant benefit to be valued for implementation purposes under a pension sharing order and is the date the pension sharing order takes effect.

Transfer value

The amount of a transfer payment which pension scheme trustees will make to another pension scheme or insurance company.

Trivial commutation lump sum

Lump sum paid where the total rights from registered schemes are less than 1% of the LTA.

Trivial pension

A pension which is so small that its entire value can be commuted in full.

Uniform accrual

The treatment of retirement benefits as being earned equally over the period of potential pensionable service and normal retirement date, especially for the purposes of the preservation requirements.

Upper earnings limit (UEL)

The maximum amount of earnings approximately equal to 7 times the lower earnings limit on which national insurance contributions are payable by employees.

Valuation day

The valuation day is the date chosen for actual implementation purposes on which the relevant benefits are revalued to take account of market fluctuations since the transfer day.

Vested rights

These are:

For active members, the benefits to which they would unconditionally be entitled on leaving service;

For deferred pensioners, their preserved benefits;

For pensioners, pensions to which they are entitled.

Widow's (pension) option

An alternative term for nomination in favour of a spouse.

Winding-up

The process of terminating a pension scheme. Usually by applying the assets to the purchase of immediate and deferred annuities for beneficiaries or by transferring the assets and liabilities to another pension scheme in accordance with the scheme documentation.

With profits annuity

An annuity bought from an insurance company which includes rights to bonuses, their level  depending on the investment success of the company’s underlying assets