The highest rating assigned by a number of credit rating agencies indicating the financial security of a lender.
Absolute return funds aim to achieve positive returns in all market conditions, typically over rolling one-year periods.
A type of unit that reinvests the income it earns, instead of paying it out immediately to the investors.
Actively managed is the use of a fund manager to actively manage a fund's portfolio. Active managers rely on analytical research, forecasts, and their own judgment and experience in making investment decisions on what securities to buy, hold and sell. See also Passively managed and Aggressively managed.
Additional State Pension
An extra amount of money you could get on top of your Basic State Pension if you’re:
- a man born before 6 April 1951
- a woman born before 6 April 1953
You get the new State Pension if you were born on or after this date.
An investment approach where the fund manager decides where to invest in order to outperform an index, market average or benchmark. Their investment choice can vary more significantly from that of the average or benchmark than a typical actively managed fund.
The rate at which units are bought by contributions to a pension scheme. It's normally shown as a percentage of the contribution being paid, for example 103%. Part of the charging structure.
Measures a fund manager's ability to add or subtract value to or from a portfolio. It's the portion of a fund's return that can't be explained purely by moves in the market.
An investment in assets considered to be outside of normal shares, bonds and cash, for example hedge funds or commodities.
An annuity is a product designed to accept and grow funds from an individual and then pay out regular payments to the individual at a later point in time.
A limit on the amount that can be contributed to your pension each year, while still receiving tax relief. It's based on your earnings for the year. Special rules applied for 2015/16, please speak to a financial adviser for more details. The annual allowance for the 2016/2017 year onwards is capped at £40,000.
From tax year 2016/17 the amount of the annual allowance depends on whether: the individual has flexibly accessed a money purchase arrangement, the tapered annual allowance applies because the individual’s income is over £150,000.
If your yearly pension savings on all of your registered pension schemes are more than the limit set by the government, plus any unused allowance you can carry forward, there may be a tax charge to pay on the excess. You can carry forward unused annual allowance from the previous three tax years.
This tells you the mix of investments that your fund holds. For example, it can tell you the regions of the world, types of investment (shares, bonds and cash) or industries it's invested in.
Different types of investment; for example shares, bonds and cash.
A firm or individual who manages (buys, sells and monitors) a portfolio of assets.
Securities backed by debts payable on financial products such as credit cards or mortgages.
Set up when contributions are being collected from two different bank accounts, for example your bank account and your employer's bank account. Although there are two plans, they're treated as one pension and only one set of pension charges will be deducted.
Auto-enrolment was introduced by the government to encourage workers to save more for their future. Employers need to automatically enrol workers who meet certain conditions into a workplace pension scheme if they’re not already in one and make contributions too. Other workers also have the right to join, or opt in to the pension scheme if they want.
An auto enrolment scheme can be:
- A defined contribution scheme with a minimum contribution level; or
- A defined benefit or hybrid scheme providing a minimum benefit level.
In both cases, other conditions have to be met.
Bank Base Rate
The Bank of England sets the bank interest rate, known as the Bank Base Rate each month. It's the rate at which the Bank of England lends to other financial institutions and is set by the Monetary Policy Committee in response to economic conditions.
Basic State Pension
A regular payment from the government that you can get if you reached State Pension age before 6 April 2016.
One hundredth of one per cent, usually applied to interest rates. For example, 0.01% equals 1 basis point. The abbreviation bps is commonly used for basis points.
Period of sustained stock market decline. The opposite of a bull market.
This is the index, fund or market average that we measure a fund against.
Measures the sensitivity of a financial security to market movements.
This is the price you can sell units at (the selling price).
The difference between the bid price and the offer price.
A credit rating on a bond. It's an indicator of the financial strength of the government, company or institution issuing the bond.
The difference between the yield (income), also known as the coupon, for different types and durations of bond.
These are also known as fixed interest investments. These are loans issued by the government (also called gilts), local authorities, financial institutions and companies (also known as corporate bonds). In return for an investment, they'll pay interest for a given period and return the money at the end of the agreed period of the loan. The price of the loan will vary during its lifetime so there is some element of risk, although not as extreme as for shares (equities).
An investment management style that concentrates on picking the right selection of stocks rather than the region or sector. As opposed to top-down investment which starts by allocating investment to regions or sectors and then selects stocks.
A period of sustained stock market growth. The opposite of a bear market.
Capital Gains Tax
A tax on the increase in the value of things you own (like a second home or shares for example) during the time you have owned them. Any tax is due when you ‘dispose’ of them (usually by selling them or giving them away). The rate of tax you pay depends on your personal tax position. Tax is only payable on gains in excess of the annual allowance.
An increase in the value of the underlying investment.
A type of pension. That allows you to take an income, or to choose not to take an income, without ever buying an annuity. However the maximum income you can receive is limited to roughly 150% of income you would have received if you had bought an annuity. This limit on income only applies up to April 2015 when a new alternative form of drawdown called flexi-access drawdown was introduced which doesn't restrict the amount of income that can be taken.
A type of occupational pension scheme, where people saving for retirement pay for a benefit after retirement where they'll receive a sum that is calculated according to their average earnings over their career.
Generally considered the least volatile of all the main investment types. This means its price doesn't tend to move much either up or down on a daily basis. The downside is that cash tends to have far less potential to grow than other investments and it can actually fall in value in real terms because of inflation. This is why it's most suited to investors as a shorter-term investment. Cash generally includes money, typically held in bank deposits, and other types of money market investments, which pay the investor regular interest.
Certificate of deposit
A deposit is made in a bank and a certificate confirming that deposit is given to the lender. The certificate has a set maturity date and level of interest.
Fund with a fixed number of shares, which means you can only buy from existing investors willing to sell. Changes in demand for these shares are reflected in the share price. For example, investment trusts.
The price of the last transaction at the end of a trading session.
Collective investment scheme
An investment vehicle that allows the average investor to pool their money with other investors. Collective investment schemes include unit trusts, investment trusts and open-ended investment companies (OEICs).
Issued by corporations or banks promising the holder (lender) a sum of money to be paid in at an agreed date in the future (average maturity 40 days).
Includes shops, retail warehouses, offices and industrial storage and distribution centres.
Includes any raw material, for example, oil, gold and livestock.
This is the rate at which you can exchange pension for tax-free cash in a defined-benefit scheme. For example, if your pension scheme offers you a commutation rate of 15:1 that means for every £15 of cash you take you’ll lose a £1 of pension.
If you have two or more pension pots it can make sense to bring them together into one pension pot.
Consumer Price Index
Tracks the change in the price of a basket of goods and services that a typical household might buy or use. The CPI is the key measure of inflation for the UK and is used by the Bank of England in making interest rate decisions.
If you were contracted-in to the State Second Pension then you paid the full, contracted-in rate of National Insurance contributions and were entitled to full benefits from the State Second Pension for the period that you were contracted in.
When you opt out of the additional State Pension you no longer build up benefits in the scheme (though there are some instances where you would have be entitled to part of the additional State Pension). This was only available to defined benefit scheme until April 2016 and was removed from all other schemes in 2012.
An investor who takes the opposite position to the majority of those investing in the market.
These are the earnings used to calculate amounts of contributions. The figure shown is the last amount notified to us by the employer/trustees. This may not reflect actual earnings at this point in time.
Pays a guaranteed income for life that can never fall below the amount payable initially.
A type of financial security that can be changed into another type of security at a given time.
A bond issued by a company.
A measure of the relationship between two variables. A correlation of 1 indicates perfect positive correlation, a correlation of -1 indicates perfect negative correlation and a correlation of 0 indicates no correlation. For example, a correlation of 1 between a fund and an index would indicate the fund was perfectly tracking the performance of that index.
An attachment to a bond that may be separated and used as evidence of the holders' entitlement to interest paid on the bond. More commonly used to describe the amount of interest or yield attached to the bond.
Ratings given by credit rating agencies based on their view of the financial strength of an institution.
Current plan value
The current value of the policy excluding any applicable withdrawal charge, final bonus, market value reduction or smoothing adjustment.
Current transfer value
If you want to move the value of your retirement benefits from one pension scheme to another, the scheme you're moving your benefits away from will quote you a transfer value. This is their estimate of the cash equivalent of the value of the benefits you built up during your membership of the scheme.
Shares closely linked to economic conditions which tend to rise when the economy is recovering and fall markedly in an economic downturn.
The failure of a bond issuer to pay the interest (coupon) or repay the loan capital when it's due.
A default fund is the fund that an employer or scheme trustee has chosen for scheme members who don't make an active fund choice. Any members who don't choose a fund will automatically be put into this fund. It's usually a lifestyle fund.
Defined benefits scheme
Often called 'final salary' pensions as they commonly provide a proportion of your earnings when you choose to retire. This is because they commonly provide a proportion of your earnings when you choose to retire. For example, they may pay 1/60th or 1/80th for each year of service. Some plans calculate benefits based on the average salary you receive over the time you worked for the employer.
Defined contribution scheme
These schemes are often called 'money-purchase' plans. Money is usually paid into the plan by you and/or your employer. At the point of retirement, you'll have a pot of money, based on how much has been paid in, plus any growth on the money (less the costs of running the scheme).
Someone who relies on another person to support them financially. There's a precise definition of who qualifies as a dependant for the purposes of receiving a pension or lump sum on your death.
Prolonged downturn in economic activity, usually characterised by high unemployment and low production of consumer goods.
Types of financial instruments whose performance is derived from the value of underlying assets such as commodities, equities or bonds. Derivatives are contracts that give the right, and sometimes obligation, to buy or sell a quantity of the underlying asset. Futures, options and warrants are types of derivative.
Disclosable yearly charge/expenses
This is an indication of the actual charges applying to a fund as part of the management process. All funds are required to disclose the charges and expenses applying to the fund to prospective investors, although these are estimates and depend on the actual day to day costs incurred by the fund. They include things like bank charges, transaction fees, overdraft interest and safe custody fees.
A way of spreading and potentially reducing risk by investing across a range of different asset classes, sectors and markets.
A sum of money paid regularly (typically annually) by a company to its shareholders out of its profits (or reserves).
Allows you to take an income from your pension while it's still invested.
A measure of risk, expressed in years, that takes into consideration factors such as the expected regular income, maturity value, current yield and term of a bond. The longer the duration, the greater the risk.
Ethical Investment Research Service. A UK charitable organisation aiming to produce information required to apply ethical criteria to investment and to identify alternative investments for ethical investment.
Emerging market debt
Debts issued by governments and corporations within developing economies.
Financial markets in newly industrialised countries in the early stages of development.
Sometimes called lifestyle annuities, these annuities usually pay a higher income each year if your lifestyle is likely to shorten your life expectancy. For example, smoking or poor diet.
Equities, or shares, offer part-ownership in a company, unlike bonds, which are loans. Equities are generally considered the most risky type of investment as their value tends to go up and down more than other investment types, in some cases quite dramatically. However, shares are widely considered to offer the greatest potential for returns. Due to the potential for significant gains or losses in value, shares are better suited to investors who are prepared to invest for the medium to long term.
Investment in securities that don't benefit from unethical activities (for example tobacco, pornography, armaments and so on).
The price of one currency expressed in terms of another.
Exchange traded funds (ETFs)
A fund that tracks an index but can be traded like a stock.
The amount of a portfolio invested in a particular asset class, region or stock.
This is a bonus which may be given to policyholders with with-profits units in their pension plan when the plan matures. Final bonuses aren't guaranteed and vary from year to year depending on investment performance.
A type of defined benefits pension scheme that are offered by employers. The benefits you receive at retirement are based on your earnings and your length of membership in the scheme.
Bonds are issued by governments, local authorities or companies to raise capital. They're generally issued for a fixed time period, during which investors are usually paid interest.
Fixed or increasing annuity
A fixed annuity will pay you the same amount every year. An increasing annuity, as the name suggests, will increase each year usually by a percentage (say 3% or 5%), or in line with the movement in an index like the Retail Prices Index (RPI). When you buy a conventional annuity, you'll be asked to choose between a fixed annuity and an increasing annuity.
These products aren't strictly annuities. They pay an income, but only for a limited number of years – not for life. Usually, they are sold for periods of 5 or 10 years. At the end of the fixed period, an amount of money is payable (called the 'maturity value'), that can be used to buy an annuity that pays an income for life or, alternatively, to buy another fixed term annuity or, depending on your circumstances, you could choose one of the drawdown options.
Effectively a form of investment linked annuity. That means your money can be invested in a mix of assets including equities, but while this gives potential for growth, the income you're paid each year can fall (though some of these products offer a guarantee that your income can’t fall below a certain level).
Lets you take as much income from your drawdown pension fund as you like, as and when you need it. Your savings remain invested. This gives them the potential to grow, but your savings may go down as well as up in value, and may run out completely. But you need to keep at least £1,000 in your plan to keep it open. Any drawdown income paid to you will be taxed at your marginal rate of income tax. If you take any income withdrawals from a flexi- access drawdown you’ll be subject to the money purchase annual allowance (MPAA) rules.
Floating rate notes
Notes with variable interest rates, usually reviewed every three to six months, which are linked to a money market index like the London Inter Bank Offered Rate (LIBOR). They're used mainly in euro market lending as a medium-term debt instrument and generally have maturities ranging between 5 and 15 years.
Free sum assured
The highest amount of death or disability benefits that an insurance company will pay out to any one person without production of evidence of health. It doesn't mean free life assurance.
The 100 biggest companies in the UK listed on the London Stock Exchange.
Full replication approach
A passive investment approach where the fund manager invests in exactly the same assets in the same proportion as the index or benchmark they're aiming to track.
The name given to the place your money is held while invested. There are many different types of fund and you can choose one or a number to invest your money in.
The person responsible for managing the money in the fund and choosing where to invest it, with the aim of meeting the fund objective.
Fund of funds
A fund that invests in a number of other funds with the aim of meeting the overall fund's objective.
A type of derivative contract that obliges the purchaser to buy an asset (or the seller to sell it) at a pre-determined future date and price.
General Investment Account (GIA)
This general purpose investment account gives you the flexibility to invest in a wide range of assets. There are no upper limits to the amount of money you can invest. You can invest lump sums or make regular payments and make withdrawals whenever you need to, though these may be liable to tax. All contributions are made by you, and can’t be facilitated by your employer.
Loan stocks with varying maturity dates issued by the UK government to fund the public sector cash requirement that pay a fixed rate of interest until their repayment date. Gilts are traded in the bond market and their value will be influenced by a number of underlying economic factors such as interest rates and inflation.
Group Money Purchase Pension
A scheme established by an employer to provide retirement benefits for its employees. Death benefits may also be provided. Also known as an occupational pension scheme.
Group Personal Pension plan (GPP)
A plan that helps you save for retirement, in a tax efficient way. It’s arranged for you by your employer, but you’ll have your own plan in your own name.
Where the emphasis is put on selecting companies whose earnings are expected to grow at an above-average rate.
Guaranteed annuity rate (GAR)
When your retirement income is guaranteed to be at a certain percentage of the accumulated fund.
Gives you the security of a guaranteed income for life (like an Annuity) but still gives you maximum flexibility and control of your capital (like a Drawdown pension).
A type of investment fund in which the fund manager can use a number of specialist investment techniques, including the use of derivatives, short-selling and debt to generate a higher return or make gains even in a falling market.
An attempt to reduce risk by offsetting one investment by carrying out another opposing investment.
High yield bond
Generally regarded as higher risk than gilts or investment grade bonds as they're issued by companies with lower credit ratings. They pay a higher level of interest but also carry a higher risk of default.
Her Majesty's Revenue and Customs (HMRC)
HMRC is responsible, among other things, for the collection of taxes (previously known as the Inland Revenue).
Common term for the opinion formed on a particular market, sector or economic issue by an asset management company, investment house or other financial institution as a whole.
Investment company with variable capital (ICVC)
An open-ended collective investment vehicle, similar to a unit trust. The only difference is that ICVCs are companies and not trusts.
An asset that can't be quickly converted into cash, for example, property.
Investment Management Association (IMA)
IMA represents the interests of the UK investment management industry by engaging in consultation with the UK government and other bodies on issues that affect the industry. It also maintains a system of classifying funds by sector, designed to help investors and their advisers.
Impaired life annuities
If you suffer from a medical condition like cancer, diabetes or high blood pressure, for example, you qualify for an impaired life annuity. This will usually pay you a higher because of reduced life expectancy.
A method of withdrawing benefits from a UK Registered Pension Scheme. The pension fund remains invested and income is taken from it as required. In theory, it's available under any money purchase pension scheme. However, it's, in practice, rarely offered by occupational pension schemes and is generally only available to those who have, or transfer to, a Personal Pension.
Income guarantee period
When you buy an annuity you may be able to elect for the income payable to continue to be paid for a fixed period after your death. Commonly, people select either 5 or 10 years. This means if you choose a 10 year guarantee period, and die 3 years after buying the annuity, the remaining 7 payments would continue to be made.
A type of unit that pays out the income it earns to investors, instead of reinvesting it.
Tracks the rises and falls in value of a particular market over time. Indices are commonly used as a benchmark for investors to compare the performance of their investments against similar types of investments.
A type of fund that aims to perform in line with a particular index by investing in the same shares and in the same proportions as those reflected in the index.
Bonds, issued by the UK government, that provide protection against inflation. The redemption value rises with inflation over the life of the bond.
In economics, inflation is a sustained increase in the general price level of goods and services in an economy over a period of time.
The risk that your investment loses value by providing returns below the rate of inflation.
Insured benefits on death
This might be paid to a member's dependants if the member dies.
Insured element transfer value
The current value of the insured element of the plan if the plan was to transfer from us, including any applicable withdrawal charge, loyalty bonus, final bonus, market value reduction or smoothing adjustment.
Insured element value
The current value of the insured element of the plan, excluding any applicable withdrawal charge, final bonus, market value reduction or smoothing adjustment.
The insured element of a plan is invested in insured funds. Insured funds are funds managed by a life assurance company, or an investment partner that it selects.
Interest rate risk
The risk that movements in the interest rate will have an adverse effect on an investment.
Investment grade bond
A bond with a high credit rating and generally regarded as 'safer' than bonds with a lower credit rating, as it has a lower likelihood of default. Investment grade bonds generally pay less than high yield bonds and generally have a rating of BB or above.
The person/company who manages a fund.
Designed to give investors an understanding of the style and aims of the investment management employed by a fund and to outline the regions, sectors and asset classes a fund invests in.
Individual Savings Account (ISA)
An account where you can build up tax-free savings as it invests in stocks and shares. Any gains on your investments are free of capital gains tax and personal income tax. You can invest lump sums or make regular payments, up to the maximum limits set by the government, and take regular or one-off withdrawals at any time. Your employer can facilitate your contributions, if they offer this, or you can arrange this yourself or through an adviser.
Joint life option
When you buy an annuity, you'll be offered the choice of ‘joint life’ or ‘single life’. If you choose ‘joint life’ part or all of your annuity payments can continue to be paid after your death to your spouse, partner, dependant or nominee.
A bond (also known as high yield bond) with a poor credit rating, below that of an investment grade bond. Considered high risk, but offers higher yields as a result.
Refers to large companies as measured by market capitalisation (the value of its issued shares).
Investment terms refers to borrowing with the aim of increasing gains. Derivatives are a common way for fund managers to increase leverage in a fund. Also known as gearing in the UK.
LIBID (London Inter-Bank Bid Rate)
The rate of interest that banks bid to secure deposits from other banks.
LIBOR (London Inter-Bank Offered Rate)
The rate of interest offered on loans to other banks in the London inter-bank market.
A fund that invests in various asset types for growth when the owner is still some way off retirement. The fund gradually switches into investments that prepare the saver for retirement in the final years before the event.
The limit on the amount of money you can build up in pension funds before tax penalties apply.
The extent to which an asset can be bought and sold quickly and easily without loss of value.
London Stock Exchange (LSE)
The London market in which stocks and shares are bought and sold.
A bond that has more than 10 years to maturity.
UK government bonds with more than 15 years to maturity date.
Holding an asset with the expectation that its price will rise in the future as opposed to short-term trading to take advantage of short-term market movements or investing in derivatives.
In investment terms, this refers to a period that is longer than a market cycle, typically considered at least five years. This is relevant if you're investing in higher risk assets like equities (shares) which may lose value over shorter periods as they don't have time to recover from market falls.
Lower Earnings Limit
The minimum level of earnings that an employee needs to qualify for benefits, such as State Pension benefits.
A fund where managers make all the decisions on how, where and when to invest. Managed funds usually invest across the main asset classes. Some may include other asset types like property. Managed funds generally give access to bond and stock markets worldwide. The Association of British Insurers (ABI) has categorised managed funds, depending on how much they invest in equities, as follows: Mixed Investment 0-35% Shares, Mixed Investment 20-60% Shares, Mixed Investment 40-85% Shares and Flexible Investment (which can invest up to 100% in shares).
The tax payable on your last pound of income. For practical purposes it could be thought of as the highest rate of tax you'll pay on your income. This isn't strictly true if your income in one year is over £120,000 but for the most part this definition should work.
The value of a company based on the price of its shares multiplied by the number of shares in issue.
Market value reduction
If you invest in one of our with-profits funds (including deposit administration) and the money is taken out at any time other than at your chosen retirement date or on earlier death, it may be necessary to reduce the value of your fund by what's referred to as a ‘market value reduction’ (MVR). This applies when your fair share of the total fund growth is less than the regular bonuses added to date. The purpose of the MVR is to make sure that investors get a fair share if they leave with-profits funds early and to protect the interests of the continuing investors. You can get more details are provided in the With-Profits summary.
The time when a financial security, for example a bond, is redeemed and the par/face value is paid to the lender.
The contributions that you personally pay to your Group Pension Plan (GPP) as regular and/or single contributions, or any contributions that somebody else (but not your employer) pays on your behalf. Also called Personal contributions.
Companies with a market capitalisation smaller than large-cap companies but larger than small-cap companies. Stock exchanges will usually define the financial size ranges for capitalisation.
Market for short-term loans and debt instruments.
Money market funds
Typically invest in safe, short-term money market instruments such as commercial paper, bank deposits and other short-term financial instruments. They're considered low risk relative to other investible assets and typically provide lower returns than riskier assets such as corporate bonds and shares.
Money purchase annual allowance
If the value of pension savings made by or for you to registered pension schemes in the 2016/17 tax year is more than the annual allowance, a tax charge will apply to any excess (unless you have unused allowance you can carry forward). For the tax year 2017/18, your annual allowance will be £40,000 unless you’re a high earner (broadly, your income including the value of pension contributions is more than £150,000). If you’re a high earner, your annual allowance will be an amount between £10,000 and £40,000, depending on your income amount. Whatever your annual allowance level, the amount that can be paid by or for you into money purchase arrangements (like this one) without a tax charge arising may be restricted to the money purchase annual allowance, which for the 2017/18 tax year is £10,000. The restriction applies if you had a flexible drawdown plan at any time before 6 April 2015. It also applies if you take (or have already taken) certain types of pension benefit, including an uncrystallised funds pension lump sum or income from a flexi-access drawdown plan.
The government has proposed that the money purchase annual allowance be reduced from £10,000 to £4,000 with effect from 6 April 2017. Any reduction in the money purchase annual allowance and any consequential changes will be set out in legislation that the government will introduce, effective from 6 April 2017. You should speak to your financial adviser if you think this may impact on any plans you may have.
Special rules apply in the year that the money purchase annual allowance provisions first apply to you. Please speak to your financial adviser for more information.
Money purchased pension
A pension arrangement where the pension benefits at retirement are determined by agreed levels of contributions paid into the fund by the member and employer as well the performance of the investment funds. They are often called defined contribution schemes.
An investment fund that allocates assets to a number of investment managers in order to meet the overall fund objective.
An investment programme funded by shareholders that trades in diversified holdings and is professionally managed.
National Insurance Contributions
You pay National Insurance contributions when your earnings reach a certain level. Your contributions build up your entitlement to benefits, including the State Pension. How much you will pay depends on how much you earn and whether you're employed or self-employed. You stop paying National Insurance contributions when you reach State Pension age.
National Insurance Credits
If you're unable to work, and therefore unable to pay National Insurance contributions, you could receive National Insurance weekly credits for the basic State Pension and the Second State Pension. To qualify you need to meet certain conditions.
Net asset value (NAV)
The book value of a company's assets, divided by the number of shares in issue.
Deposits or investments with similar characteristics to cash.
Funds built up from pension contributions paid by you, your employer or by any third party on your behalf. Protected rights were funds that built up from contracting-out contributions paid to your pension plan. The contributions were made as a result of you contracting-out of the State Second Pension (formerly the State Earnings Related Pension Scheme). There used to be a difference in the benefits available from non-protected rights and protected rights funds. However, contracting-out for money purchase schemes ended on 6 April 2012 so non-protected rights and former protected rights funds are now treated the same.
Occupational pension scheme
A scheme set up by an employer under trust, with trustees appointed to run the scheme. The day-to-day administration is likely to be done by a pension provider.
This is the price you can buy units at (the buying price).
Open-ended investment company (OEIC)
A type of collective investment vehicle that can issue more units if demand increases from investors.
A contract giving one party the right, but not the obligation, to buy or sell a financial instrument, commodity or underlying asset at a given price, at or before a specified date.
An asset a fund manager perceives to be worth less than its current market price based on specific criteria.
When a fund invests in a particular asset, sector or country to a greater degree than its relevant benchmark index.
Far Eastern markets and markets bordering the Pacific.
Passive managed fund
The fund manager aims to match the performance of a benchmark index or fund by investing in the same, or highly comparable, assets in the same proportions as the index. See full replication approach and stratified sampling.
Your employer will contribute into your retirement savings plan – automatically taking your contributions from your salary and sending them to us. You can choose to increase your contributions at any time.
Fund(s) set up for a pension plan.
Pension commencement lump sum
The lump sum you can take from a part of your Self-Invested Personal Pension (SIPP) when you first start taking pension benefits from that part of your SIPP. If it satisfies certain conditions, this lump sum can be paid free of income tax. The conditions are set out in Paragraphs 1 to 3 of Schedule 29 of the Finance Act 2004.
Confirmed in your policy schedule and is the date your GPP employer set as being appropriate for your policy for the purposes of estimating benefits and, possibly, fixing certain terms as described in this booklet. You can ask us to change the pension date (before you reach the pension date confirmed in your policy schedule) if, for example, you don't intend to take benefits and will want to continue contributions after the pension date confirmed in your policy schedule.
Announced in April 2015 these were the most significant changes to the UK’s pension system for a generation. A complete transformation of the UK’s pensions system enabled all of us to have more control and flexibility over our retirement savings, and the way we use them.
These are the savings you've made over the years into a pension. Most people will have built up their pension savings through schemes run by the companies they’ve worked for, but some people may have paid into individual pension plans such as personal pensions (PP) during their career.
This is the amount of income you can earn year without having to pay tax. Almost everyone in the UK qualifies for a personal allowance.
A type of defined contribution pension. You choose the provider and make arrangements for your contributions to be paid. If you haven't got a workplace pension, getting a personal pension could be a good way of saving for retirement.
Personal Protection policy
A policy that can help protect you and your family financially if the insured person:
- meets our terminal illness definition;
- meets one of the listed critical illness definitions;
- becomes totally permanently disabled; or
- is unable to work due to accident or sickness, leading to a loss of taxable earned income.
Which of the above are covered by your policy will depend on the benefits you choose.
If you don’t assign the policy to a lender or place the policy in trust, the benefits will be paid directly to you or your estate and can be used as you see fit.
See mutual fund.
A collection of investments, for example funds, shares, bonds, mutual funds, savings accounts or property.
Annuities that pay more if you live in certain parts of the country.
Pound cost averaging
An investment strategy where money is invested at regular intervals rather than as a single lump sum. The strategy works best when the price of units is fluctuating up and down a lot as it 'averages' out the price at which you buy units and returns will generally be smoother.
A specific product provided by us being a General Investment Account (GIA), an Individual Savings Account (ISA) or a Self Invested Personal Pension (SIPP), where you can buy, sell and hold a variety of available investments and cash and to which these Terms and conditions apply. You can receive some form of tax relief, this will depend on your personal circumstances and the type of product wrapper being chosen. You can have more than one type of product wrapper, and more than one of each type.
A written promise to pay an amount of money to someone at a given time or on demand.
Physical property (bricks and mortar) or securities linked to the value of physical property.
Protected rights/Former protected rights benefits
Funds that built up from contracting-out contributions paid to your pension plan. The contributions were made as a result of you contracting out of the Second State Pension (formerly State Earnings Related Pension Scheme) under a previous plan. They're often referred to as former protected rights now as contracting-out for money purchase schemes ended on 6 April 2012.
Protected rights contributions
This term relates specifically to contracting out and means the contributions the National Insurance contributions office pays to an appropriate scheme when a member decides to contract out. They're also known as Rebates.
Please note that the option to contract out on a money purchase basis is no longer available.
Purchased Life Annuity
This is an annuity you can buy with your non-pension savings. It can be a very tax efficient product. Each income payment is assumed to represent partly the return of your original capital (the amount you paid for the annuity) and partly the growth the insurance company make by investing your money. Only the latter is taxable.
An option giving the holder the right, but not the obligation, to sell a specific quantity of an asset for a fixed price during a specific period.
Qualified Recognised Overseas Pension Scheme (QROPS)
A Qualifying Recognised Overseas Pension Scheme, or QROPS, is an overseas pension scheme that meets certain requirements set by Her Majesty's Revenue and Customs (HMRC). A QROPS must have a beneficial owner and trustees, and it can receive transfers of UK Pension Benefits. The QROPS programme was part of UK legislation launched on 6 April 2006 as a direct result of EU human rights requirements with regards to freedom of capital movement.
An approach to investment management based on subjective information such as the quality of a company's employees, business strategies and systems.
An approach to investment management based on statistical or numerical methods to assess potential investments.
Every three months.
A measure of a fund's performance against its relevant sector or universe if the funds within that sector or universe are divided into four.
A small rise in a market that has been generally falling.
Provided by independent rating agencies based on a range of investment criteria. The best known ratings agencies are Moody's, Standard & Poor's, Citywire and Morningstar OBSR. The first two provide credit ratings on debt issued by governments, corporations and other institutions while the latter rate fund managers and funds respectively.
Real estate investment trust (REIT)
A business that aims to buy and manage income producing properties or mortgages on income producing properties, and pays a high proportion of that income as a dividend.
The inflation-adjusted return on an investment.
Making regular adjustments to a portfolio to maintain the desired split between the different types of investment, which will change over time due to differences in the performance of each. Without rebalancing a portfolio may end up being riskier or less risky than an investor intended, which may lead to returns that aren't in line with their expectations among other things.
The repayment of the par/face value of a security at the maturity date.
The payment of a contribution on a regular basis. This payment will be made into the cash facility of a product wrapper using a Direct Debit instruction.
Regular periodic withdrawal from funds within the cash facility of a product wrapper. Regular withdrawals may be made monthly, quarterly or yearly. There may be restrictions on how much you can withdraw from your SIPP, your adviser will provide you with details of these.
Relevant UK earnings
Earnings as defined in Section 189 of the Finance Act 2004. It includes:
- employment income such as salary, wages bonus, overtime and commission providing it's chargeable to tax;
- income derived from the carrying on or exercise of a trade, profession or vocation that is chargeable to tax;
- income arising from patent rights and treated as earned income; and
- general earnings from an overseas Crown employment which are subject to tax.
Where relevant UK earnings are not taxable in the United Kingdom due to a double taxation agreement, those earnings are not regarded as chargeable to income tax and so will not count towards the annual limit for tax relief on pension savings.
The return of an asset or fund over a period of time comparative to a benchmark or peer group (other similar funds or assets).
Retail Price Index
Like the Consumer Price Index (CPI), the Retail Price Index (RPI) tracks the change in the price of a basket of goods and services that a typical household might buy or use. However, there are differences between the two. For example, the RPI includes mortgage interest which is not included in the CPI.
Retail warehouses, shops, distribution centres etc.
This is the selected retirement age. This is the age the member expects to retire at.
Any one or more of pension commencement lump sum, drawdown pension or any annuity purchased by your SIPP.
This is the selected retirement date. This is the date the member expects to retire at.
A measure of how much the performance of an investment fluctuates in comparison with a relevant indicator. Generally measured by standard deviation. The higher a fund's risk, the greater the likelihood that its performance will fluctuate.
An investor who would prefer to accept lower returns rather than lose money.
This is an entitlement to a lifetime pension provided for you under a registered pension scheme that can’t be reduced year on year (except in certain very limited circumstances).
Investors use sectors to place stocks and other investments into categories such as technology, healthcare, energy, utilities and telecommunications. Grouping them in this way can make it easier to compare their performance. The two main bodies that determine sector classifications in the UK are the Association of British Insurers (ABI) and Institute of Money Advisers (IMA). They stipulate various requirements that funds must meet in order to be part of that sector. In the UK for example, since 1 January 2012 the ABI and IMA managed sectors have been known as:
- Mixed Investment 0-35% Shares
- Mixed Investment 20-60% Shares
- Mixed Investment 40-85% Shares
- Flexible Investment
A financial asset, for example a share or a bond.
Secure retirement income (SRI)
An investment option designed for investors who are approaching or in retirement. It offers a secure level of retirement income with an optional Guaranteed minimum death benefit (GMDB). It pays a minimum secure income for life from the time you choose, this can be from age 55 onwards.
SRI offers secure minimum income for life. To start income payments from your SRI account, it must be moved to the drawdown part of your SIPP. You can select the SRI option on its own or along with the GMDB option. When you switch on the income payments you decide whether the income will be payable for your lifetime only or for it to continue after your death to a nominated joint life dependant if they so choose. You have access to two funds designed for use with SRI. You can make a switch out of SRI at any time. However, this will reduce proportionately all your SRI benefits.
Stock Exchange Daily Official List (SEDOL)
A unique code that allows investors to identify the correct fund.
Self-invested element value
The current value of the self-invested element of the plan. This only includes trades that have been settled. If there are any pending transactions, these won’t show until the transaction is complete.
When part of the pension fund is invested in assets used in connection with the employer's business. For example, this could include buying property to lend to the employer's or member's business. There are limits on the amount that can be self-invested under certain types of scheme.
Self-invested Personal Pension (SIPP)
In this type of personal pension scheme the member has a say in the scheme's investments. They may employ somebody to make these decisions for them. The member can have freedom to control investments if they want.
Our SIPP gives you the flexibility to save for your retirement in a tax efficient way. A SIPP allows you to choose and tailor your investments to be as easy or as complex as you wish. When the time comes for you to take your benefits, you’ll be able to either buy an annuity, or take a variable income by moving into income drawdown within your SIPP. You can pay single or regular contributions, which can be facilitated through your employer, or you can make your own online. Its aim to build up a sum of money, in a tax-efficient way, that can give you flexibility as you grow your savings or as you take an income in retirement, subject to HM Revenue & Customs (HMRC) regulations.
You can make single and regular contributions and transfer funds in from another registered pension scheme.
Shares, or equities, offer part-ownership in a company, unlike bonds, which are loans. Shares are generally considered the most risky type of investment as their value tends to go up and down more than other investment types, in some cases quite dramatically. However, shares are widely considered to offer the greatest potential for returns. Due to the potential for significant gains or losses in value, shares are better suited to investors who are prepared to invest for the medium to long term.
The sale of a borrowed commodity, currency or security in anticipation that the value will fall in the future.
A policy that will help protect you and your family financially if you:
- die, or
- are diagnosed as having a terminal illness.
If you don’t assign the policy to a lender or place the policy in trust, the benefit amounts will be paid directly to you or your estate and can be used as you see fit. For example, the benefit may be used to pay off a mortgage. You can set up your policy to cover one or two people, known as the life or lives assured. The benefit can be taken out on a single life basis, which means it covers one person, or on a joint life first death/first event basis, which means two people are covered but the benefit amount is only paid out once on the first death or terminal illness.
Single life option
An option when you buy an annuity.The income payments will stop on your death. They'll not continue to be paid for the life of any spouse or partner after your death.
The same price applies for buying, selling and valuing units.
Companies with a market capitalisation smaller than large-cap and mid-cap companies. Stock exchanges will usually define the financial size ranges for capitalisation.
A smoothing adjustment might be applied in certain exceptional circumstances. To maintain fairness between all with-profits investors, it might be necessary to apply a 'smoothing increase' or a 'smoothing decrease' to the sums paid out on withdrawal. Any adjustment might vary according to the nature of the withdrawal (for example switches, regular income, death). This might happen, for example, when a large number of investors leave the fund at a time when the (smoothed) unit value is significantly different from the actual value of the underlying assets.
Socially responsible investment (SRI)
Ethical investing in companies which are seen to contribute to the well-being of society.
This is the other partner in the marriage who can either be the husband or the wife. Please note that 'common-law spouse' isn't a spouse except in very limited circumstances in Scotland.
Standard & Poor's
An organisation that publishes independent credit ratings for debt issued by sovereign, municipal, corporate and financial sector entities based on their financial strength.
A statistical measure of the volatility (how much returns deviate up and down from its average return) of a portfolio or asset based on its historical performance. It's the main measure of risk used by the investment industry. The larger the standard deviation, the more volatile the fund over the period measured and therefore the riskier it's considered to be.
State Earnings Related Pension Scheme
As well as the basic State Pension, you may have qualified for an additional pension from the State. Any additional pension was payable from a scheme called the State Second Pension. This was introduced in April 2002. Before that it was known as the State Earnings Related Pension Scheme.
A regular payment from the government that you can get if you reached State Pension age before 6 April 2016. To get it you must have paid or been credited with National Insurance contributions. The most you can currently get is £122.30 per week.
State Second Pension
As well as the basic State Pension, you may qualify for an additional pension from the State. Any additional pension is payable from a scheme called the State Second Pension.
A market for stocks and shares. Organisations can raise capital by selling securities through a stock exchange.
Method used in active investment management where the manager selects stocks (company shares) they believe will outperform.
Another word for equities or shares. See shares.
Any investment vehicle where the return is linked to the performance of an underlying asset.
Moving money from one fund to another.
The costs incurred by performing a switch.
You can take a proportion of the pension funds you’ve built up as a tax-free lump sum after age 55. This is usually limited to 25% of the total fund (though it may be less than this if the total fund exceeds the Lifetime Allowance). If you’re in a defined benefit scheme the formula is different.
You can get tax relief on private pension contributions worth up to 100% of your annual earnings.
You get the tax relief automatically if your:
- employer takes workplace pension contributions out of your pay before deducting Income Tax
- pension provider claims tax relief for you at a rate of 20% and adds it to your pension pot (‘relief at source’)
- you get relief at source in all personal and stakeholder pensions, and some workplace pensions.
A UK tax year runs from 6 April to the following 5 April.
The bonus paid on a with-profits plan at the end of its life. Also known as final bonus.
Top 10 holdings
The 10 largest holdings within a portfolio expressed as a percentage of the overall portfolio.
An investment approach that looks to identify trends in the overall economy and then selects investments that could potentially benefit from those trends.
The sum of all gains and losses (capital plus income) of an investment over a period of time.
See index tracker.
The extent to which a tracker fund's return differs from the benchmark fund or index it's aiming to track.
If you want to move the value of your retirement benefits from one pension scheme to another, the scheme you're moving your benefits away from will quote you a transfer value. This is their estimate of the cash equivalent of the value of the benefits you built up during your membership of the scheme.
If the total value of all your pension fund savings is below a certain level, and you meet the other conditions to take a small lump sum, you can take the whole amount as cash. Only 25% of it is tax free.
When the money in a pension fund hasn't been taken, or it's undrawn.
Uncrystallised pension (UFPLS)
Another way of taking pension benefits without going into drawdown or buying an annuity. It can be used to deplete the fund in one go, taking 25% tax free and the remaining 75% taxable (as indeed can flexi-access drawdown).
The assets (for example, shares or other funds) a fund invests in.
Value of a pooled fund unit. May be expressed as the 'bid', 'mid', or 'offer' price.
An open-ended pooled fund which creates new units as demand from investors increases.
Term used by investment professionals to describe the total number of assets available from which a portfolio can be constructed. So, for example, a traditional UK equity fund can generally invest in all companies listed on the UK stock market whereas an ethical equity fund investing in UK equities has a smaller universe to choose from because it can only invest in companies in the UK that meet its ethical criteria.
Upper Earnings Limit
The maximum amount of earnings on which National Insurance contributions are payable by employees at the main rate.
An investment style that aims to buy assets that are felt to be undervalued in relation to the market and take the profits when they appear overvalued.
An option that returns a lump sum if the policy holder dies without having received the full value of their pension fund. This gives your client the ability to protect up to 100% of their original pension fund used to purchase the retirement income.
These products offer a number of features, but usually pay a guaranteed income (commonly around 3% of your capital at age 65) and still allow you to invest in a mix of equities and other investments. However, please note that the construction of these products does vary considerably from one insurance company to another.
The extent to which an investment fluctuates in value. Usually measured by standard deviation.
Waiver of contribution
An insurance benefit which will pay a member's contributions to their pension plan if the member is unable to work due to illness or injury. The member will pay an additional premium along with the pension contribution to pay for this benefit.
Securities issued by a company (often an investment trust) which give their owners the right to purchase shares in the company at a specific price at a future date.
Whole of Life Protection policy
Life insurance that lets you leave some money behind when you die or are diagnosed with a defined terminal illness. For example to help:
- meet inheritance tax due on your estate
- protect your family against the financial impact of your death
Annuities that are invested in the company's with-profits fund. With-profits funds generally invest in a mix of assets (including equities). To try and avoid sharp increases or decreases in the value of the fund, one of the distinctive features of with profits is ‘smoothing’. This simply means the insurance company will hold back some of the gains from investment returns in the good years to subsidise returns when investments perform poorly. Like all lifetime annuities, these products will pay you an income for life.
Pension schemes that are set up by employers to provide their employees with retirement benefits.
The income from an investment given as a percentage of its price.
Zero coupon bond
A bond that doesn't pay regular interest but is instead issued at a discount below its par/face value. However, it is redeemable at par/face value, giving a capital gain.