Glossary
Just click on the appropriate letter of the alphabet below to find the word, acronym or term that you'd like explained.
A B C D E F G I L M N O P R S T V
Active investment
Active investment is where stocks and shares are actively traded, usually with the intention of trying to beat a particular benchmark or index.
Active member
A member of an occupational pension scheme who is building up pension benefits from their present job.
Additional Voluntary Contributions
Contributions over and above normal scheme contributions that a member chooses to pay in order to secure extra pension benefits.
Alternative Secured Pension
A scheme to be introduced in April 2006 which offers retirees an alternative to annuity purchase after age 75.
Annualised return
The average annual return over a given period. For example, if a fund has produced a total return of 75% over 5 years, on average the fund would have produced an annualised return of 11.8% each year.
Annuity
A means of turning a pension fund into a regular retirement income. The pension scheme member uses capital from their pension to buy an annuity contract from a life insurance company. In return, the insurer promises to pay them an income for the rest of their life.
Asset allocation
The proportion of investments or assets that an investor chooses to hold in various countries, geographic areas, industry sectors, or type of securities.
Balanced fund
A type of investment fund that aims to reduce investment risk by holding a combination of shares, bonds and cash.
Basic state pension
A pension paid by the state based on an individual’s National Insurance Contribution record.
Benefit statement
A statement or estimate of benefits payable in respect of a person’s membership of a scheme on the occurrence of specific events.
Benchmark
A yardstick - such as a stock market index - against which performance of an investment fund can be compared. Some funds may aim to outperform their given benchmark by a certain amount each year.
Bond
A security issued by a company or government, which pays a fixed income and promises to return capital on maturity. Also known as a fixed-income security.
Contributions
This is the money paid into a pension fund for a member. It can be paid by both a member and their employer.
Contributory scheme
A pension scheme where both the employer and the members contribute.
Corporate bond
A fixed income security issued by a company to raise money that pays a fixed income and promises to return capital on maturity. Called corporate bonds to distinguish them from government bonds.
Death benefit
The assets from a pension scheme that can be paid to a member’s dependants if the member dies. Depending on the terms of the pension scheme, death benefits may be paid out as an income, a one-off payment or a combination of the the two.
Deferred member
A member who has left a pension scheme (typically because they have changed jobs) but will get benefits when they retire. These are called preserved benefits.
Defined Contribution (DC) Pension Scheme
A type of occupational pension scheme in which the level of contributions and the benefits will vary, depending on contributions to the plan and the return from the investments. Also known as money purchase schemes.
Defined Benefit (DB) Pension Scheme
A type of occupational pension scheme where pension is based on years of service and level of salary at or near retirement. Can provide a maximum pension of two-thirds final salary. Also known as a final-salary pension scheme.
Employer’s Pension Scheme
A pension scheme organised by the employer to provide pension benefits for employees. Also called an occupational pension scheme.
Equity
Another name for ordinary company shares, which give the holder part-ownership in the company that issues them, including the right to vote on company issues. A general term for share-based investments.
Escalation
An automatic increase in the amount of pension a member gets (or will get in the future ). The amount goes up at regular times and usually at a fixed rate.
Expression of wishes
A means by which a pension scheme member can indicate who should receive any death benefits from the scheme if they – the member - dies. The trustees, however, have full discretion and are not obliged to adhere to the member’s expression of wishes.
Final-salary pension scheme
Another name for a defined benefit pension scheme.
Freestanding Additional Voluntary Contributions (FSAVCs)
A facility for making additional contributions into a company pension scheme. An FSAVC is offered by an outside company as opposed to an in-house AVC, which is managed by the pension scheme itself.
Fixed income securities
Another term for bonds issued by governments and companies that pay a fixed rate of interest (known as a coupon). Normally the investor receives the return of the original money lent when the bond matures. Includes corporate bonds and gilts issued by the British government.
In-house AVC
A scheme running alongside a company pension scheme that allows members to make additional voluntary contributions (AVCs) in order to secure greater pension benefits at retirement.
Independent financial adviser (IFA)
This is a qualified financial professional who can advise on pensions, investments and other personal financial-planning matters. An independent financial adviser is not tied to a particular product provider and is therefore obliged to give totally impartial advice.
Index
A measure that tracks the ups and downs of a particular stock market or collection of shares. Well-known indices include the FTSE 100, which tracks the value of the 100 largest companies on the London Stock Market or the Dow Jones Industrial, which follows leading US companies.
Many pension funds may benchmark their performance against a particular index. The most common benchmark for UK equity funds is the FTSE All-Share, which tracks around 90% of shares on the London market.
Index-linked gilts
UK government bonds that link their return to inflation; designed as a means for investors to keep pace with the rising cost of living.
Index-tracking
A form of investment, where a fund or portfolio simply follows the ups and downs in a stock market index, rather than being actively managed. Also called passive management.
Investment manager
The investment professional who manages the investments in a pension fund – such as J.P. Morgan Asset Management. The trustees of an occupational pension scheme can change their choice of investment manager at any time. Often a scheme will use the expertise of a number of different investment management houses.
Life fund
An investment fund that qualifies for inclusion in a pension and therefore receives preferential tax treatment. So-called because they are generally offered by life insurance companies.
Lifestyling
An option on a Defined Contribution Pension Scheme that aims to reduce investment risk towards retirement by gradually moving the scheme member out of higher-risk equity investments into lower-risk bond and cash funds.
National Insurance
This is money the Government takes from both workers and employers. The amount depends on how much the worker earns. Some government benefits, such as basic state pension and SERPS, depend on how much national insurance you have paid.
Non-contributory pension scheme
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.
Normal retirement age
The age at which a member of an occupational pension scheme can retire and start to receive pension benefits.
Passive investment
Another name for index-tracking, where an investment fund tracks the value of a stock market index, rather than being actively managed by an investment manager.
Pensions Advisory Service
An independent body which advises pension scheme members about their rights under their scheme. It can deal with complaints about pension schemes, but cannot enforce a scheme to do something. www.opas.org.uk
The Pensions Regulator
The authority that monitors work-based pension schemes. It focuses on protecting scheme member benefits and encouraging high standard and good practice in running pension schemes. www.thepensionregulator.gov.uk
Pooled fund
An investment fund that pools investors' money and invests in a portfolio of investments, of which each investor owns a share of all the investments in the fund.
Securities
The name given to any financial asset that can be traded on the stock market, notably equities and bonds.
State Second Pension
An additional state pension linked to your average earnings over all or part of your working life. Replaced SERPS in 2002 in order to provide a better additional pension for low earners, carers and disabled people.
SERPS
The forerunner to the State Second Pension, designed to help working people boost their state pension with additional benefits linked to their earnings. Although no longer available, any existing SERPS benefits are still protected.
Trustee
A person or a company appointed to look after the interests of pension scheme members.
Total expense ratio
The total charges that investor bear on an investment fund, including all operating expenses of the fund and the fund's annual management fee.
Total return fund
An investment fund that aims to produce positive returns in all market conditions.
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