…or Glossary of Terms to get rid of jargon! We know that money text is usually full of jargon from ‘planet financial’ and to help SaidSo has collated a glossary of some of the terms which are commonly used in financial planning. This is designed to help you with your understanding of some of the jargon that you may encounter when looking at existing plans, statements and the like. This is not an exhaustive list and if there are terms that are not included then please let the team at SaidSo know and we may be able to add them in.
We have produced these in alphabetical order to help speed the process:
Additional State Pension
The earnings-related part of the State Pension built up in the State Second Pension (S2P) and/or the State Earnings Related Pension Scheme (SERPS). If you were working in the mid-1970s, you may also have a small Graduated Pension included in your State Pension benefits.
Additional Voluntary Contributions (AVCs)
Employee contributions payable to a salary-related occupational pension 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. Also see free-standing additional voluntary contributions (FSAVC).
Annual Allowance (Pensions)
The maximum gross contribution from all sources that can be made to a pension arrangement in a tax year without a tax charge being applied. In the tax year 2023/2024, the annual allowance is £60,000 gross per annum. Lower limits (£10,000 gross per annum) may apply to those that have already drawn tax free cash and income from their pensions. Also, tapering of this allowance can occur for those who have higher earnings/income (above £260,000 pa gross) reducing down to £10,000 pa gross as a minimum.
Annual Gift Allowance
Each tax year you are normally allowed to gift away up to £3,000. Any part of this which is unused from the last tax year can be carried forward to the next one. So you may give away £6,000 if you have not used the previous year's £3,000 allowance.
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 was contracted- out.
Property, or resources, which have a monetary value. These might be in the form of cash, investments, property, shares or bonds.
Auto-Enrolment (Workplace Pension)
An employer’s pension scheme established to meet legislative requirements to allow all qualifying employees to save for their retirements, receiving tax relief and employer contributions at the same time.
See Additional Voluntary Contributions
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 being treated as having paid, or been credited with, National Insurance (NI) contributions. A new single-tier, flat rate State Pension has replaced the former system of basic and additional State Pension for individuals reaching State Pension age from 06 April 2016.
Usually used to describe a person entitled to benefits under a pension scheme. The term can also refer to an individual or organisation for whom a trust is created, and who will benefit from the trust, or to an individual or organisation eligible to receive distributions from a will.
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.
Capital Gains Tax Allowance
You only have to pay Capital Gains Tax on your overall gains above your tax-free allowance (called the Annual Exempt Amount). In the tax year 2023/2024, the annual tax-free allowance is £6,000. Tax above this limit is currently charged at a flat rate of 10% for basic rate tax payers and 20% for higher rate tax payers, with a surcharge of 8% for residential property and carried interest. The allowances are different for trusts – in the tax year 2023/2024, the annual tax-free allowance for a trust is £3,000.
Child Trust Fund (CTF)
A Child Trust Fund (CTF) is a long-term, tax-free savings or investment account for children. Most children born between 1 September 2002 and 2 January 2011 were entitled to open a CTF. CTFs are now closed to new accounts and have been replaced by Junior ISAs.
Combined Pension Forecast
Provides members of private pension schemes with an estimate of how much they are likely to get from both their State and their current private pension.
It is our intention to always provide the highest quality level of advice and service. If however you become dissatisfied with our provision of, or our failure to provide, a financial service, and you wish to register a complaint please contact Keith G Churchouse FPFS, at Chapters Financial Limited, Shaw House, 2-3 Tunsgate, Guildford GU1 3QT, telephone (01483) 578800. Your complaint will be investigated in accordance with the firm’s complaints handling procedure, a copy of which will be supplied to you. If you are not happy with the way we have carried out our investigation or the result, you may be entitled to refer it to the Financial Ombudsman Service (FOS). Further information about the FOS is available from their website www.financial-ombudsman.co.uk.
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". Also see Contracted-out.
Someone may have been contracted-out if they joined a pension scheme that provided benefits in place of the State Second Pension (formerly SERPS). Contracting-out within a pension scheme has now ended. Also see Contracted-in.
Rights held in a pension fund that derive mainly from the National Insurance (NI) contribution rebate and its investment return.
Investments offered by corporate institutions by selling packaged debt providing a return to the bond holder, subject to the companies’ ability to pay.
Critical Illness Insurance
A protection policy that usually provides a fixed lump sum on diagnosis of a Critical Illness, typically after a 28 day period, subject to the definitions within the plan.
A non-taxable benefit provided to an employee to protect their dependants, usually 3 or 4 times basic salary.
A failure to make agreed payments of interest or principal.
Deferral (State Pension)
See State Pension deferral.
Defined benefit scheme (DB pension scheme)
An occupational pension 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. See also Final salary scheme.
Defined contribution scheme (DC pension scheme)
See Money Purchase scheme.
SaidSo would normally recommend that you diversify your investments across a range of funds / assets to meet your attitude to investment risk. We can make recommendations to suit your needs and your attitude to risk.
This is an amount of earnings stipulated within certain tax rules that allow you to invest more than £3,600 gross per annum in a personal pension if you meet other requirements relating to your age and your earnings.
The length of time you have worked for an employer. This is not to be confused with ‘pensionable’ service.
A policy usually issued by an insurance company which offers life cover and an investment return over a fixed period, say 25 years. Historically used to protect and repay a mortgage loan.
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 (pension)
A type of defined benefit pension 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. These types of scheme usually have significant value.
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.
Financial Conduct Authority (FCA)
A body which is operationally independent of the Government but accountable to the Treasury which regulates the financial services industry, promotes understanding of the UK’s financial systems and helps protect consumers.
Financial Services Compensation Scheme (FSCS)
We are covered by the FSCS. You may be entitled to compensation from the scheme if we cannot meet our obligations. This depends on the type of business and the circumstances of the claim. Most types of investment business are covered up to a maximum of £85,000, per authorised firm.
Group personal pension scheme (GPP)
An arrangement with a personal pension provider that allows a group of individuals to take out a personal pension on a group basis. GPP schemes 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.
Guarantee period (Annuity purchase)
Usually purchased at the time of buying an annuity to protect future income payments in the event of death, commonly seen as 5 or 10 year protection periods.
Help to Buy ISA
For people who are saving to buy their first home. The Help to Buy ISA closed to new accounts on 30 November 2019. If you have already opened a Help to Buy ISA before that date, you will be able to continue saving into your account until November 2029. If you save money into a Help to Buy ISA, the Government will boost these savings by 25% (conditions apply). The maximum that can be invested is currently £200 per month, with an initial additional deposit of £1,000 in the first month being allowed. No bonus is available until at least £1,600 is invested and the maximum Government bonus you can receive is £3,000. The Government bonus is only paid once it is certain that the house purchase transaction will go ahead and to qualify for the bonus, the cost of the property must be below a certain level (see here for more details: https://www.helptobuy.gov.uk/help-to-buy-isa/how-does-it-work/)
Home Responsibilities Protection (HRP)
HRP was a scheme to help protect a person's entitlement to the basic State Pension if they were unable to undertake regular employment due to caring for a child/children or a sick or disabled person at home. In some circumstances, it could also have helped a person qualify for additional State Pension, via the State Second Pension. From April 2010, HRP was replaced by a system of National Insurance credits for parents and carers and periods of HRP awarded before 2010 will be converted to credits for people reaching State Pension age after this date.
HM Revenue & Customs (HMRC)
A Government department formed on 18 April 2005 following the merger of Customs and Excise and the Inland Revenue.
See Mixed benefit scheme.
A flexible way of drawing taxable income from your private pension arrangements, usually after the withdrawal of tax free cash.
Income Protection (PHI)
A protection cover that provides income to the beneficiary in the event of the inability to work through accident or illness after a set period (e.g. six months).
Independent financial adviser (IFA)
A financial adviser that is not restricted in the pension or investment providers and products that can be recommended.
The process of steadily rising prices resulting in the diminishing purchasing power of a given nominal sum of money. Measured by an over-all price index which follows the price changes of a basket of goods and services through time.
Inheritance Tax (IHT)
A tax of 40% charged to an estate, usually in the event of death, on the value of the estate which falls above the nil rate band for inheritance tax, which is currently £325,000 (2023/2024 tax year). This individual threshold can be amalgamated by spouses to a current level of £650,000 in total. See also Residence Nil Rate Band.
A rate which is charged or paid for the use of money. An interest rate is often expressed as an annual percentage of the principal. It is calculated by dividing the amount of interest by the amount of principal. Interest rates often change as a result of inflation and Bank of England monetary policies. For example, if a lender (such as a bank) charges a customer £90 in a year on a loan of £1000, then the interest rate would be 9% per annum (p.a.).
The process by which income or capital is used to secure holdings in a variety of asset classes, such as equities, fixed interest stocks, bonds and property.
ISA (Individual Savings Account)
This is a tax efficient investment with an annual allowance limit on the amount you can invest each tax year. The allowance for the 2023/2024 tax year is £20,000. ISAs are now sometimes called NISAs (New ISAs) and can invest in either cash or stocks & shares or a combination of both. Existing ISAs can be transferred to other providers if needed/prudent. ISAs replaced Personal Equity Plans (PEPs), which were tax-efficient investment accounts available in the 1980s and 1990s.
Junior ISA (JISA)
Children (under 18) can also have ISA investments in the form of a Junior ISA (or JISA for short), with a limit on contribution to £9,000 in the 2023/2024 tax year. This contribution may be subject to existing Child Trust Fund arrangements
An insurance policy that, in return for the payment of regular premiums, pays a lump sum on the death of the insured.
Lifetime Allowance (LTA)
Before the tax year 2023/2024, there was an HMRC Lifetime Allowance (LTA) for the maximum amount of all your pension savings. The LTA limit was £1,073,100 in the tax year 2022/2023. It is nil tax rated in the tax year 2023/2024 with legislation to abolish the LTA entirely in the tax year 2024/2025. Those with HMRC protection may have had higher LTA limits applicable.
Lifetime ISA (LISA)
The Lifetime ISA is a longer-term, tax-free savings account that gives a government bonus of 25% of the money you pay in, up to a maximum of £1,000 per year. To open a LISA, you must be aged over 18 and under 40. You can save up to £4,000 a year and you can continue to pay into it until your age of 50. The £4,000 LISA limit forms part of your overall annual ISA limit. If you withdraw funds held in a LISA before your age of 60, unless you are using it towards the purchase of your first home, a penalty charge of 25% of the amount withdrawn is likely to apply.
Lower Earnings Limit (£6,396 for 2023/2024)
The minimum amount that someone must earn in a tax year in order to build up entitlement to State benefits, including Incapacity Benefit, Jobseeker's Allowance and the basic State Pension.
Member (Pension scheme)
A person who has joined a pension scheme and is entitled to benefit under the scheme.
Money Helper (formerly Money Advice Service (MAS))
The Money Helper service helps people manage their money. The organisation achieves this directly through its own free and impartial advice service. It also works in partnership with other organisations to help people make the most of their money. The Money Helper service is an independent service set up by government.
Money purchase scheme
An occupational 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, along with the prevailing annuity terms at the time of purchase of pension benefits.
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.
NISA (New ISA)
Normal Retirement Age (sometimes known as NRA/NRD)
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 of 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.
Regular payments from a pension scheme run by the State, a former employer, private financial company or annuity that are usually payable for life. These payments are subject to income tax.
Pension Credit is an income-related benefit for people aged over 65. It is made up of two parts: Guarantee Credit and Savings Credit. Guarantee Credit will top up weekly income if it is below £201.05 (for single people) or £306.85 (for couples). Savings Credit is an extra payment for those who have saved towards their retirement. It is important to note that you may not be eligible for Savings Credit if you reached State Pension Age on or after 6 April 2016.
You may also receive a ‘Pension Credit’ in the situation of a divorce settlement from a previous spouse.
Residence Nil Rate Band
This is an extension to the normal Inheritance Tax Nil Rate Band and is intended to help people pass on the family home to direct descendants. The maximum available amount has increased yearly and is now £175,000 per individual in the tax year 2023/2024. It will not apply to everyone and there are strict restrictions in place on how this additional IHT allowance can be used.
Pension Protection Fund (PPF)
Will compensate 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.
A type of savings account set up to provide an income in retirement.
The Pensions Advisory Service (TPAS)
TPAS was a voluntary independent organisation that provided information about occupational pensions, personal pensions and stakeholder pensions. This was replaced by the Money and Pensions Service.
The Pension Service (Newcastle)
Part of the Department for Work and Pensions (DWP) which provides information about State pensions to both existing and future pensioners.
Pension Sharing Order
Sometimes applied by court order for the transfer of pension benefits between spouses in the event of a divorce.
The length of time that someone has been a member of a pension scheme. This is not to be confused with ‘employment service’.
A person who is claiming or receiving money from his pension scheme. They do not have to be retired.
PEPs (Personal Equity Plans)
The Pensions Regulator (TPR)
The Pensions Act 2004 introduced a new independent body, The Pensions Regulator, to help protect members of occupational pension schemes by focusing on those schemes it considers to be at most risk from either fraud or poor management and administration.
Permanent Health Insurance (PHI)
See Income Protection.
Personal pension scheme
A type of private pension scheme, including a stakeholder pension scheme, run by banks, investment companies and building societies.
Offered by National Savings & Investments (NS&I) with a maximum investment limit of £50,000. They offer the potential to receive tax efficient winnings after the first month, whilst also offering security of capital.
Private pension scheme
This can be a personal pension scheme, including a stakeholder pension, or an occupational pension scheme.
Protected rights were the value of National Insurance contributions paid into your own pension plan if you contracted-out of the State Earnings-Related Pension Scheme (SERPS) or the State Second Pension (S2P). Non-protected rights were the value of the contributions that you and/or your employer paid into your pension plan. Contracting-out of SERPS/S2P ended in April 2012 and protected and non-protected rights are now treated in the same way.
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. In 2023/2024 you need to have £6,396 gross pa or more of such earnings if you are an employee or £6,725 gross pa (Class 2) / £11,908 gross pa (Class 4) or more if you are self-employed.
See State Pension deferral.
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.
Investment risk is the possibility that an investment’s actual return will not match the expected return. There are a range of risks that can affect the value of an investment, such as interest rate risk, inflation risk or default risk.
Where a pension plan is subject to a pension sharing order in a divorce situation, the member’s pension will be subject to a pension debit in favour of the member’s ex-spouse or civil partner. If the scheme was contracted-out of SERPS/S2P at any point, part of this pension debit would relate to contracted-out, or protected, rights. Safeguarded rights is the term used to define the portion of the member’s contracted-out rights which becomes part of the ex-partner’s pension credit. Special rules applied to safeguarded rights. Safeguarded rights were abolished in April 2009 and there is now no difference between these and other shared rights.
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 Earnings Related Pension Scheme (SERPS)
The State Earnings Related Pension Scheme was replaced by the State Second Pension in 2002. Continued accrual in SERPS ended with the introduction of the Second State Pension (S2P), which has now also ceased further accrual.
The pension payable by the State, which is based on an individual's National Insurance contribution record. See additional State Pension and basic State Pension
State Pension age
The earliest age at which someone can receive the State Pension. Currently available to those aged over 65, this minimum age is increasing.
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 (after a year of deferral).
State Pension forecast
The State Pension forecast gives details of State Pension already built up and the amount that someone is likely to get at State Pension age.
State Second Pension (S2P)
The additional State Pension which replaced the State Earnings Related Pension Scheme (SERPS) pension in April 2002 to provide a more generous pension for low and moderate earners.
The amount of cover agreed within a protection policy for a set term. This may stay level, increase or decrease dependent on the plan used.
Tax Free Cash (Pension)
Paid from a pension policy at a time of drawing benefits. The amount can vary between occupational schemes and is usually restricted to 25% of a fund value from a personal pension plan. Also referred to as a pension commencement lump sum.
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, sometimes referred to as index funds, aim to replicate or copy the performance of a given share index or sector of the market. Because they do not involve time consuming research by analysts and expensive stock selection and company visits, it ought to be possible for the charges levied on investors to be lower than is ordinarily the case.
Additional flexibility is currently available to those with total pension benefits under £30,000. This flexibility has been extended to all pension plans from April 2015.
A life assurance or investment may be placed or assigned into a legal trust to provide benefits to that trust in the future in the event of a death as an example. This may be tax efficient for inheritance tax purposes.
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.
When making investments or pension contributions, investors need to understand that the value of the funds invested can fall as well as rise and is not guaranteed. Your fund is likely to see volatility in its value over the investment term.
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 civil partner's death was caused by, or happened sooner because of, service in Her Majesty's Armed Forces.
A type of personal pension with contributions that are invested in equities and gilt-edged securities. Investments grow as bonuses are added. Bonuses reflect stock market performance and other factors, such as administration charges. The provider smooths returns so that some gain in a good year is held back to potentially increase returns in a low return year.
An employer’s pension scheme established to meet legislative requirements to allow all qualifying employees to save for their retirements, receiving tax relief and employer contributions at the same time.
As suggested at the start, this is not an exhaustive list and if there are terms that are not included then please let the team at SaidSo know and we may be able to add them in.