MyCompanyPension.co.uk - Helping members of occupational pension schemes to better understand their benefits.

24th August 2017
:: Scheme Member | Glossary

Glossary
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  A

 
A-Day
6th April 2006: the date on which most of the changes to the taxation of pension schemes and their benefits detailed in the Pensions Act 2004 and the Finance Act 2004 came into effect. Also became known as ‘Pensions Simplification’.
 
 
Accrual rate
The rate at which benefits build up for members of defined benefit schemes. It is commonly expressed as a fraction of final pensionable salary for each year (or part year) of pensionable service completed.
 
 
Active member
A member of an occupational pension scheme who is presently building up pension benefits in their current scheme.
 
 
Actuary
An expert in matters involving the financial management of assets and liabilities of pension schemes.
 
 
Additional Voluntary Contributions (AVC)
An extra contribution a member can make to their occupational pension scheme to increase their future benefits. AVCs are usually 'kept' under a separate arrangement, but are subject to the rules of the scheme which it is running alongside.
 
 
Administrator
The person or persons who are responsible for the day to day running of a pension scheme. The Scheme Administrator is defined by HMRC as the person or persons notified to them as being responsible for the management of the scheme.
 
 
Alternatively Secured Pension (ASP)
As an alternative to a lifetime annuity, an Alternatively Secured Pension is a form of income withdrawal for members of money purchase arrangements aged over 75, developed initially for members who have religious objections on how funds are ‘pooled’ for the benefit of other members. The amount of income taken can be changed annually, subject to minimum incomes set by the Government each year. On the death of a member, the balance of the fund must be used to provide an income for any dependants, rather than a lump sum. If there are no dependants, a charity lump sum death benefit can be made.
 
 
Annual Allowance
The amount set by the Treasury each tax year on which an individual can receive tax relief from his contributions to any registered pension scheme.
 
 
Annual allowance charge
The tax charge on contributions which exceed an individual’s annual allowance.
 
 
Annuity
An annuity is a set amount of money paid to a person each year. A pension is an annuity, which may be split into more convenient regular monthly payments. When a scheme member retires, a money purchase pension scheme, for example, may use the member’s ‘pot’ or pension fund to purchase an annuity from an insurance company, who then pay the annuity to the member in the form of a pension.
 
 
Annuity rate
The cost or rate applied by an insurance company to a pension fund to cover their commitment to pay the pension.
  
  B

Basic State Pension
The core State Pension paid to all who have paid full rate National Insurance Contributions for a specific period or have received contribution credits.
 
 
Beneficiary
The person entitled to receive benefit under a pension scheme when a particular event occurs.
 
 
Benefit Crystallisation Event (BCE)
An event or occurrence that triggers a test of the benefits at that point against your available Lifetime Allowance. There are 8 types of crystallisation events, such as when retirement benefits are paid from a registered pension scheme after 6th April 2006.
 
 
Buyout
The purchase of an insurance policy in a member’s own name by the trustees of an occupational pension scheme, to replace the member’s entitlement to benefits under the scheme.
 

C

 
Career Average Revalued Scheme (CARE)
(see Career Average Scheme)
 
 
Career Average Scheme
Is a type of defined benefit scheme that builds up benefits each year (or part year) based upon the pensionable salary earned during that year. It effectively averages the member’s earnings from the whole of his membership period, not just the final years, as happens in a traditional final salary scheme, before applying an accrual rate and increasing by an inflation-linked index (revaluing).
 
 
Cash Balance arrangement
Is a type of money purchase arrangement where the employer undertakes all or part of the investment risk. The benefits payable from a cash balance arrangement may not relate directly to the contributions made by you or your employer. The scheme could for example, be based on a promise that when you retire, a specific amount will be made available to provide benefits for each year (or part year) of pensionable service. Alternatively, a percentage of pensionable salary may be promised for each year of pensionable service. Either way, you end up with money in your ‘pot’ from which you can take a pension and tax-free lump sum.
 
 
Contracted In Money Purchase Scheme (CIMPS)
A defined contribution scheme which is not contracted-out.
 
 
Civil partnership
A civil partnership is a formal legal status allowing same-sex couples to benefit from the same entitlements and responsibilities which exist for married couples.
 
 
Commutation
Where part of a pension fund is converted into a lump sum payment at the time benefits are due to commence, thereby reducing the amount available for payment as a pension.
 
 
Commutation Rate
The conversion rate which determines how much of the pension fund will be exchanged to provide the agreed lump sum (e.g. 10:1, £10 of lump sum for each £1 of pension given up).
 
 
Company pension scheme
A trust based pension scheme sponsored by your employer; a phrase often used to describe an occupational pension scheme.
 
 
Contract based scheme
A phrase often used in money purchase arrangements; The employer selects a provider – an investment company – who will administer the arrangement and set up individual contracts with each member. The contract is a regulated product which requires the provider to set up the contract and disclose information about the arrangement directly to the member
 
 
Contracted-out /contracted-in
 
A pension scheme is ‘contracted-out’ where it agrees to provide benefits to replace the Additional State Pension (SERPS & S2P). Both you and your employer pay reduced rate National Insurance Contributions. A scheme which is not contracted-out is commonly called contracted-in.
 
 
Contracted Out Money Purchase Scheme (COMPS)
A defined contribution scheme which, after April 1988, is used to contract members out of the Additional State Pension SERPS/S2P.
 
 
Contributory scheme
A pension scheme where members are required to pay into, or contribute to, the scheme.
 
 
Covenant
The promise by the sponsoring employer of a trust based pension scheme to pay scheme benefits when they become due.
  
 
 
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