Jargon Buster

Cut through the waffle with our easy to understand Jargon Buster.


Is an investment held with an insurance company, purchased with the proceeds of a pension fund to secure an income for the remainder of the annuitants life.

Is the individual receiving the annuity income.

The rates offered by annuity providers on the open market to attract investment.

Funds built up from "Opting out" from SERPS (State Earnings Related Pension). These funds no longer carry the same restrictions since legislation changed in April 2012 but some funds might carry some restrictions over the ability to transfer to another provider.

The financial loss associated with the delayed purchase of an annuity whereby income is lost in the time taken to make the purchase.

Is the name given to an annuity purchased with the funds from a money purchase pension scheme whereby the purchaser is obliged to buy an annuity with the proceeds.

Consumer Price Index is a measure by which an annuity income can increase.

Income paid after the death of the annuitant. If selected the dependents pension can be paid to a spouse, civil partner or financial dependent of the annuitant.

Is an annuity where additional income is paid due to the annuitants poor health. The annuity company takes the view that the health and lifestyle problems could shorten the life expectancy of the annuitant.

Is where the annuitant has selected to have their pension annuity income increased each year. The rate of escalation can be from zero up to 5% or CPI or RPI.

Often referred to as Defined Benefit pension, is typically linked to a pension provided through the work place. The amount of pension income is based on final or average earnings of the member rather than the size of funds at retirement. The benefits are usually higher for a Final Salary pension and for this reason they are becoming more rare.

Is an individual or a company who is authorised by the Financial Conduct Authority to give advice on a range of financial products and services. Independent Financial Advisors (IFA) can provided quotes and give advice on the whole of the market place.

Is someone who is fully or partially dependent on the financial income of another. Where a dependent's income is chosen and the dependent is not married or in a civil partnership the annuity company may need proof of financial dependency, typically a joint bank account or shared mortgage.

The Financial Conduct Authority is responsible for regulating the Financial Services industry.

A financial compensation scheme in the event of the failure of authorised firms. Covers insurance companies, deposit-takers and investment firms. Annuities are covered to 90% of the value of the investment without any upper limit.

Some pension contracts promised to pay the policyholder a guaranteed annuity rate at a set age. Because these rates were secured at a time when annuity rates were generally much higher they remain very attractive when compared to what is available on the open market today.

Some pension contracts include GMP which is a minimum pension income at a set age irrespective of the size of the funds at retirement.

The period of time that the pension income from an annuity will be paid from inception irrespective if the annuitant is alive. Zero to 40 year periods can be selected.

Is the average rise (or fall) of a set number of goods and services within the UK economy. When the average price of the measured goods and services is higher than the previous period, this will give rise to inflation. (RPI) is the primary measure of inflation in the UK.

An annuity where past or present health problems can potentially give a higher annuity income. The annuity company take the view that certain health problems will lead to a shorter life expectancy so will pay a higher income.

The LTA is currently set at £1.25 million, however there are proposals in the works to lower it to £1 million in April 2016.

Market Value Reduction (MVR) is a penalty that pension companies apply to funds that are transferred out at a time of volatile market conditions where their policy terms allow this.

A free service established by the FCA to help people understand complex financial products and services.

Can be private or through employment. The funds are built up during the member's working life and used to secure a pension income at retirement. The level of income depends wholly on the value of the funds accumulated. Also referred to as defined contribution schemes.

The right set by legislation to 'shop around' for the best annuity rates at retirement with accumulated pension funds.

See Annuity above

The payment of income from the date of death to the next income payment where the annuity income is paid in arrears. If the plan has proportion the time between death and the next due payment is paid to the estate of the deceased. Particularly important when income payment periods are longer i.e. annually.

see Tax Free Cash above

Also referred to as the Pension Commencement Lump Sum this is the ability to take up to 25% of the pension fund at retirement as a tax free cash sum. Some restrictions can apply to certain schemes. Care should be taken when deciding to take the PCLS as the option will not be available again with certain retirement options.

Is a type of death benefit that can be selected with different types of retirement plans. Value protection can be between 0% and 100% and will pay out the value of the invested funds less income taken to the date of death.

A type of invested pension annuity where the income paid is a variable amount depending on ongoing fund performance. The income is paid for life and will come with a minimum income guarantee.

About Pense