ABI - Association of British Insurers
The ABI represents the collective interests of the UK's insurance industry, including those of all the major pension providers. In addition, it provides an advisory service on corporate governance to those members who are active shareholders. The role of the ABI is stated on its website as: "The Association speaks out on issues of common interest; helps to inform and participate in debates on public policy issues; and also acts as an advocate for high standards of customer service in the insurance industry.
AVC - Additional voluntary contribution
A contribution paid by a member of an occupational pension scheme, in addition the that member' normal contribution, to secure additional benefits. The possibility of such payments was a legal requirement until 2006 and is still offered by many schemes.
This is an investment strategy that aims to produce a positive return regardless of the direction of financial markets. The return should have lower volatility than traditional funds and aims to deliver positive returns in all market conditions.
Benefits that an employee has earned for service already completed with an employer.
The rights related to service with a company that have been established and to which a member is entitled under an occupational pension scheme. The value of accrued rights is usually calculated on the basis of current salary but may also include a provision for future salary increases.
Is the acquisition or gradual gathering of something. In this instance, the accumulation of funds in one's pension.
Active fund management
A portfolio management strategy where the manager relies on his skill to make specific investments with the goal of achieving returns over and above the benchmark and sector.
An active member is a participating member of any of the pension schemes associated with that employment and who is building up pension benefits in that scheme and from that employment.
An actuarial valuation is an investigation by an actuary to determine whether a defined benefit pension scheme has sufficient assets to meet its liabilities. The valuation assesses the funding level and recommends a contribution rate.
A business professional who deals with the financial impact of risk and uncertainty. Actuaries provide assessments of financial security systems and advise on policy issues for pension funds and insurance companies. It is a requirement for defined benefit schemes to have a named actuary who is appointed by the managers or the trustees of the occupational pension scheme.
Refers to the management of a pension scheme including the payment of benefits, the collection of contributions and keeping detailed records of all transactions. An insolvent company, or a company likely to become insolvent, can enter administration. When a company goes into administration, an administrator, appointed by a court, takes over the control of the company' affairs from its directors to administer the payment of the company's debts with the objective of selling the company as a going concern.
Administrative Receivership is a form of insolvency in which position an insolvent company may find itself when debenture holders appoint an Administrative Receiver to recover money that is owed. The company's assets are realised and the proceeds are used to pay any preferential creditors and the debenture holders.
Those persons or companies appointed by the board of trustees to give advice. It is a legal requirement for the board of trustees to appoint certain advisers.
Employees save into a pension scheme throughout their working life, building up a pension pot. At some point during the early years of retirement they will usually use the money they have saved to buy an annuity from an insurance company; this is a transaction that will occur only once. An annuity can provide a guaranteed income payable for either the rest of the person's life or for a fixed number of years. However, in the 2014 Budget, the chancellor said he planned to scrap the requirement for those with defined contribution pensions to buy an annuity. Instead they will get free advice to decide what is best for them with regards to their pension pot.
The accrued pension pot will usually be used to purchase an annuity from an insurance company. An annuity is a guarantee from an insurer that they will pay an annual income for the agreed period or the rest of the life of the annuitant and, in effect, the annuitant is insured against a very long life and running out of income. For more information on annuities including the pros and cons, click here.
HMRC described as approved schemes those schemes which met the requirements which entitled them to the tax privileges associated with pension funding. Approved schemes are now known as registered schemes.
Articles of association
This is a document that contains the purpose of the company as well as defining and recording the duties and responsibilities of its members. It is an important document which needs to be filed, along with the memorandum of association, with the Registrar of Companies. In this case, the term companies also includes trust companies set up for the purpose of running a pension scheme.
Process of assessing all employees age and earnings to check whether any employees who were previously not eligible and therefore not auto enrolled (and didn't wish to opt in) have now become eligible i.e they turned 22 or are now earning above the threshold. Assessment needs to take place each payroll for employees who are not members of an employers pension scheme. For more information on assessment using Smart Pension's free to use tools, click here.
The date of the employer's declared insolvency and also the date on which the assessment of the Pension Protection Fund will start.
Entry to the assessment period is triggered by a qualifying insolvency event and before a scheme can enter the Pension Protection Fund (PPF) it has to go through a period of assessment that lasts for a minimum of a year from the assessment date. During assessment a valuation is carried out of the scheme's assets and liabilities by the PPF and the scheme's trustees.
Assets are items such as stocks, bonds, property and bank deposits that have inherent value.
Additional benefits may be offered to members of a defined benefit scheme; the cost of this provision may be borne by the scheme and/or the employer.
Employers have a legal duty to enrol all eligible employees into a qualifying workplace pension scheme and to make contributions towards their employees' pension. The employee cannot be required to take any action to become an active member of the pension scheme. An employee who has been enrolled automatically is entitled to choose to opt out and to get a refund of the contributions they have paid. If you are thinking about opting out of auto enrolment, here are a few things to think about before you do.
See Re-enrolment below.
Form BR19 is used to request a Retirement Pension Forecast from the Pensions Service to find out what is the projected state pension benefits at retirement and also what steps can be taken to increase the state pension entitlement. A statement can issued if the individual is at least 30 days away from the State Pension age when the application is looked at.
Back end loading
Back end loading is an arrangement between an employer and trustees that allows the employer to pay the extra contributions needed to make good a deficit in unequal instalments. The later instalments will be larger than the earlier ones. Back end loading is a term used in relation to a recovery plan.
Banded earnings relate to contributions made to a banded earnings pension scheme and are earnings between the lower earnings threshold which currently sits at £6,136.00, (for the tax year 2019-2020), but below the upper limit earnings threshold, which is currently £50,000.00. Earnings between these two amounts are eligible for the minimum percentage contributions as stipulated by auto enrolment. Banded earnings will also include overtime and bonuses, not just basic pay. For more information on this and how it relates to employee classifications and qualifying earnings, visit this page.
This refers to a judgment in the Barber case made by the European Court of Justice (ECJ) 17 May 1990 which established that men and women should be treated equally in relation to their pension rights. This is now the reference date for all changes to scheme benefit rules made to comply with the ruling. To the current date, state benefits remain unequal and will remain so for the foreseeable future; this creates difficulties for schemes with guaranteed minimum pensions (GMPs) in relation to equalisation and the administrative costs and complexities involved could be massively onerous.
The time elapsed between the Barber judgement made by the European Court of Justice (ECJ) 17 May 1990 and the date on which the scheme complied (or is due to comply) with the ruling that required that scheme benefits be equalised between men and women.
Basic state pension
The flat rate state pension payable to men and women who fulfil the National Insurance (NI) contribution requirements. The basic state pension is also paid to spouses, subject to certain conditions, and to widows/widowers. The basic state pension is not earnings related.
A bear market is a market condition in which the prices of securities are falling over a period of time. It is a transition from high investor optimism to widespread pessimism which causes the negative sentiment to be self-sustaining. In a bear market, sellers are many and buyers few and it is the opposite of a bull market.
A standard that can be used to measure an investment and put its performance in context; with the choice of a series of appropriate indices, it forms an objective test of the effectiveness of an investment strategy. It is usual to set a target which requires the performance of the fund manager to outperform the benchmark by an agreed percentage.
A member of a pension scheme, or a dependant who is entitled to receive money or other benefit from the scheme following the death of the member.
A schedule, usually drawn up when there is a change of administration, for example when a scheme is being transferred to the Payment Protection fund, which is prepared by the administrators. It lists all members of the scheme, including entitled dependants, and the benefits to which they are entitled.
All payments made to a beneficiary including pension payments, tax-free lump sums and death benefits.
Benefits consultants may be retained by the employer or the trustees of a scheme, or both. They may be scheme actuaries and advise on pension benefits and remuneration.
Information from your pension provider setting out the benefits payable in respect of a person's membership of a pension scheme. A statement is usually provided annually during the period of employment, on retirement or in the event of a wind up.
The returns on a portfolio which track movements in the market and which are not attributable to the particular skills of a fund manager. These returns are usually a result of a portfolio which precisely mirrors a particular index.
Bonds are loans made to an issuer – a company or the Government – which accepts to repay the loan at an agreed later date. Government bonds are usually known as gilts and the term bond is more likely to be used to refer to a corporate bond.
Breach of trust
All trustees must act in good faith in the best interests of the beneficiaries. Any breach of their duties by any act or omission that is inconsistent with the terms of the trust agreement is known as a breach of trust.
A bull market is a period when the prices of securities are generally rising. The start of a bull market is usually marked by a feeling of widespread pessimism which changes to hope and then to optimism. It is the opposite of a bear market and there are more buyers than sellers, forcing up the price of equities.
A type of financial transfer whereby an annuity is purchased for each member of a pension scheme which will guarantee pension benefits which will, as nearly as possible, match those which would otherwise have been paid by the scheme.
Also referred to as a debt on the employer or a section 75 debt, this is the amount of money that is required for an annuity to be purchased for each member of a pension scheme which will guarantee pension benefits which will match those which would otherwise have been paid by the scheme.
A call option is a financial contract between two parties that is paid for up front and which will allow the investor to buy specified assets at an agreed price at a certain time in the future.
Capital markets are financial markets in which capital is raised through the issue of equities and bonds and then traded. The stock market, which deals with the trading of equities, forms a major, but by no means only, part of the capital market.
Cash balance scheme
Cash balance plans work in a similar way to defined contribution schemes and are sometimes called hybrid schemes. A percentage of salary is set aside each year for each member and the employer undertakes to guarantee that the annual contribution will grow by an amount linked to current interest rates. If investments have been successful the fund upon retirement may be considerably higher than the guaranteed minimum.
A cash flow statement shows inflows and outflows of funds over a given period of time and cash flow is sometimes called flow of funds. It is the money being received into a pension scheme in investment income and contributions and the money that is being paid out by the scheme.
Any pension scheme that will not admit new members. Depending on circumstances, contributions may or may not continue and benefits may or may not be provided for any future service.
Codes of practice
The Pensions Regulator' codes of practice give practical guidelines on how trustees can comply with the legal requirements of the regulation of pensions.
A combined code on corporate governance devised by the Financial Reporting Council. Standards of good practice are laid out in relation to issues such as remuneration, board composition, audits and relations with shareholders.
These factors determine to what extent pension benefits are affected by early or late retirement. If a lump sum is taken, different schemes set different commutation factors to calculate by how much the retirement income is reduced by the taking of the lump sum.
Companies House is the registry for companies incorporated in England and Wales and has three main functions: the incorporation, re-registration and striking-off of companies; the registration of documents that are required to be filed under company, insolvency and related legislation; the provision of company information to the public on request.
A written agreement, regulated by statute, whose effect is to reduce the amount of debt due from a sponsoring employer to a scheme under section 75 of the Pensions Act 1995 (to which act almost all defined benefit (or final salary) pension schemes are subject). Once a compromise agreement has been reached, a scheme will not normally be eligible for PPF compensation, with the exception of when the PPF agreed to that compromise at the time it was made.
Conflicts of interest
The management of conflicts of interest is key to good scheme governance. A conflict may arise in various circumstances, for example: A finance director who is also a trustee; there is a possible conflict of interest with the position of employee and that of being a trustee. A professional who is acting for both an employer and the trustees; there is a possible conflict of interest in such a situation.
Contingent assets are assets which remain with the employer unless and until certain 'trigger' events occur, at which time they are transferred into the pension scheme (or the assets are realised and the monetary proceeds paid into the scheme).
A phrase commonly used to describe a pension scheme which is not contracted out of the State Second Pension (S2P, previously known as SERPS). That is a scheme where the members continue to be entitled to S2P.
A phrase commonly used to describe a pension scheme which provides benefits in the place of the State Second Pension (S2P, previously known as SERPS). A rebate of the relevant National Insurance contributions currently pays for these benefits from the scheme.
Contracting out certificate
A contracting out certificate, issued by HMRC, provides evidence that an employer has contracted out of an occupational pension scheme and that the conditions for contracting out have been met.
A period of time during which the normal employer contributions are temporarily not being paid into a pension; this is usually when the fund is in surplus. Very unusually, members' regular contributions may also be suspended.
A contributory scheme is one which requires contributions to be made by active members.
Corporate bonds have a fixed interest rate and are issued by a company for a fixed term. The risk of a corporate bond depends on the creditworthiness of the issuing company.
A corporate lawyer ensures the legality of commercial transactions and advises corporations on their legal rights and duties, including the duties and responsibilities of corporate officers.
A corporate trustee is a company whose role is to act in the interests of investors by being an independent supervisor of security and a custodian of assets.
The coupon is the fixed rate of interest that the issuer must pay at prescribed intervals to the owner of a bond. The value of index-linked gilts increase each year with inflation, having the result of increasing the amount of interest paid.
Current unit method
Technical provisions are calculated without taking into account possible future salary increases which are over and above inflation.
A financial institution set up as a corporate trustee being independent of the investment management function and having responsibility to hold and safeguard the scheme's assets for each individual member. Independent custodians may collect income and also provide other financial services where required.
Custody of assets
The holding and safeguarding of a scheme's assets along with the maintenance of accurate records of ownership and the financial management of the securities.
DB Scheme - Defined Benefit scheme
A defined benefit pension scheme - sometimes called a final salary pension scheme - is one in which the benefits are defined in the scheme rules and accrue independently of the contributions payable and the investment returns. The benefits on retirement are determined by rules set out by the scheme and are, most usually, related to members' earnings when retiring or leaving the scheme and the length of pensionable service.
DC scheme - Defined Contribution scheme
With a defined contribution pension – also known as a 'money purchase' scheme - a member's benefits are determined by the value of the pension fund at retirement. A pension pot is built up using the contributions paid into it, in respect of that member, plus any investment returns and tax relief.
Data interface file
Trustees are required to provide a schedule of members and their benefits to the PPF at the end of the assessment period in a specified data format (see the PPF website).
Death in service (DIS)
When a member of a pension scheme dies while still employed by the sponsoring employer, it is known as 'death in service'. Death in service is usually provided by your employer as part of a benefits package and pays a lump sum to dependants.
A notice served on an employer by the trustees of a scheme which is in windup which sets out the debt owed to the scheme by the employer. The debt is the difference between the value of the liabilities and the assets.
Declaration of compliance
All employers are required to submit a declaration of compliance with the Pensions Regulator. This declaration tells the Pensions Regulator what has been done to comply with their automatic enrolment duties. The duty to complete a declaration of compliance rests with the employer but they are able to authorise someone else to do this on their behalf. Employers have five months from their staging date to complete their declaration of compliance. For more on declaration of compliance, click here. To see our video on how to submit your declaration of compliance, click here.
A decrease in amount or value over time. In this instance it pertains to the rate at which an individual expends their pension savings.
Deed of appointment
A deed to be used for appointing one or more new trustees to an occupational pension scheme.
A deferred annuity policy, often referred to as a Section 32 contract or buyout policy, is an annuity that commences at a future date, typically at retirement, guaranteeing a series of payments. The payments are then made regularly until the death of the policy holder. Such policies may be set up to provide benefits for dependants following the death of the policy holder.
A member who has left service or opted out and is currently entitled to a deferred pension in an occupational pension scheme. Deferred members are also known as early leavers.
Benefits relating to the past service of members of an occupational pension who are no longer active members but who have not yet taken retirement. The benefits built up during the service period are payable at retirement or an earlier death.
Please refer to deferred member.
The deficit is the amount by which a scheme's liabilities exceed its assets.
Defined accrued benefit method
A system used for calculating technical provisions which, for most schemes, is the same as the current unit method but any departure from expected benefits, in the event of the wind up of the scheme, are taken into account.
Someone who is financially dependent upon the member or pensioner, or was so at the time of retirement or death of the member or pensioner. The rules of a scheme will define the term dependant precisely.
Derivatives can be used to help pension schemes implement an appropriate risk management framework. It is a term used to describe a contract for the exchange of an asset at a certain price on a given date, or no later than that date. They are used when movement in a market between the date of the contract and that future date could result in a loss to the investor.
As the final element in the wind up process, benefits are distributed usually by means of annuities.
Informs members about the benefits they may expect from the wound up scheme including any deviation from expected benefits, options available to members and the time period available for making a decision.
The purpose of disclosure is to make available the information, which trustees must provide, about a scheme and the benefits for members. Some of this information must be given automatically and more extensive disclosure than standard disclosure must be provided on request.
The discount rate is an interest rate (the term discount does not refer to the common meaning of the word but to the meaning in computations of present value) which is the assumed investment return that is used in a calculation of present value of assets.
A dividend is a payment made by a company to its shareholders, usually as a distribution of profits. A company may retain a portion of its earnings for re-investment in the business and usually has total discretion as to whether a dividend will be paid and to the size of the dividend.
Duties Start Date
Every new employer that hires staff for the first time on or after 1st October 2017 will have a date when their new automatic enrolment duties come into force; this is known as the employer's duties start date and is the date that their first employee starts work. For more information on your duties start date, click here. To find out what an employer needs to do by their duties start date and thereafter, our employer's automatic enrolment duties checklist can be accessed here.
An employer-nominated trustee is a trustee who is chosen by the sponsoring employer.
A Defined Contribution scheme in which all benefits are secured by an insurance policy. Each member accumulates an earmarked (individual) pension under the policy.
When a member of a pension scheme divorces, a court order will require that the trustees pay some or all of the member's benefits to the ex-spouse, or ex-civil partner, at the time that these benefits would have been liable to be paid to the member.
The effective date is the date at which the assets and liabilities of a pension scheme are calculated for the purposes of a valuation.
For an employee to be eligible for auto enrolment they must be: Aged between 22 years and state pension age. Ordinarily working in the UK under their contract of employment. Has qualifying earnings payable by the employer in the relevant pay reference period that are above the earnings trigger for auto enrolment. Current tax year 2019-2020 is £10,000.00 per annum. For more details on employee classifications, click here.
The employer's legal obligation and its ability to fund the scheme now and in the future; trustees should review the covenant regularly.
Engagement letters are also known as terms of appointment, letters of appointment, letters of engagement, signed agreements or simply contracts." They are used by accountants, solicitors, investment banks and other advisers to set out the exact terms under which they are giving advice and to limit their liability when giving advice. The form of the document will vary depending upon which type of adviser is being appointed. There are statutory requirements prescribing how scheme actuaries and scheme auditors should be appointed and professional bodies that regulate the scheme's advisers will have their own requirements. The engagement letters are drawn up by the adviser in question and the document should reflect everything that has been agreed with the adviser including their liability limit, their conflict of interest policy, agreed fees and charges and arrangements for the eventual termination of their appointment.
An entitled worker is someone who does not have qualifying earnings to fit the jobholder description but is entitled to join a workplace pension scheme, usually without employer contribution if they choose, though an employer can choose to make contributions if they wish, it is entirely at their discretion for 'entitled' workers. The following requirements must be met to be considered an entitled worker: Work in the UK. Aged between 16 and 74. Earn less than the qualifying lower earnings threshold (less than £6,136.00 annually, £512.00 monthly, or £118.00 weekly for the 2019-2020 tax year). For more details on employee classifications, click here.
As of 17 May 1990, following the Barber judgement, benefits accrued after that date were to be modified so that one sex was treated no less favourably than the other.
The stock of a company is partitioned into shares, the total of which are stated at the time of the formation of the business. Shares in a company are traded on a stock exchange. Shares represent a fraction of ownership of a company and owning shares in a company usually entitles shareholders to a share of the profits, if any, which are then paid as dividends.
Exemption clauses in a trust document give trustees a degree of protection in the event of a breach of trust.
Exoneration and indemnity clauses in a trust document which give trustees protection in the event of a breach of trust.
Expression of wish
An expression of wishes is a means by which a member of a pension scheme can indicate to the trustees a preference as to the recipient of any lump sum death benefit.
An external auditor is appointed by the trustees or managers of an occupational pension scheme to examine the financial statements of the scheme. The results of this examination are then incorporated in the auditor's report.
FSAVC refers to a free-standing additional voluntary contribution. These contributions to an individual pension policy, separate from an occupational pension scheme, are made by an active member of that scheme. Benefits are provided from the policy and are calculated only from the contributions made by the member. If a member contracts out using an FSAVC scheme, the rebate of the relevant National Insurance contributions are added to the pension policy.
FSMA - Financial Services and Markets Act
The Financial Services and Markets Act, passed in 2000, is an Act of the Parliament of the United Kingdom. The act outlines the framework under which the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) operate.
FTSE indices - Financial Times Stock Exchange indices
The Financial Times publishes various indices which show the movement of the share prices of the companies which are included in a particular index. The best known index is the FTSE 100 (known informally as the "Footsie") which is an index composed of the 100 largest companies listed on the London Stock Exchange (LSE). These are often referred to as 'blue chip' companies, and the index is seen traditionally as a good indication of the performance of major companies listed in the UK. There are many other FTSE indices including the FTSE all-share index which includes all shares currently listed on the LSE.
Final salary scheme
Please refer to DB scheme
Final salary underpin
Defined contribution scheme members are entitled to a minimum level of salary-related pension should their accumulated pension pot be insufficient to fund it.
Financial Conduct Authority (FCA)
The Financial Services Authority split into two regulatory bodies on 1 April 2013; these are the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA). The role of the FCA is to regulate the standards of conduct of financial firms providing services to consumers and maintains the integrity of the UK's financial markets. The FCA also has responsibility for the prudential regulation of those firms that are not regulated by the PRA.
Financial Services Authority (FSA)
The Financial Services Authority split into two regulatory bodies on 1 April 2013 - the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA).
All financial advisers are authorised and regulated by the Financial Conduct Authority (FCA). They advise individual members about the investment options that are most suitable for their personal situation and how their investments should be best organised. They also advise the trustees of small pension schemes during the set-up of such schemes.
A fixed interest is a term covering all investments where the interest is fixed at a pre-agreed rate for a fixed term and includes gilts, corporate bonds and index-linked gilts.
Please refer to fixed interest.
Front end loading
The practice of charging higher annual charges on contributions that are made at the beginning of a contract than are charged on contributions that are paid later in the life of the contract.
Fully insured scheme
Whereby the benefits to which each member of the scheme is entitled are secured by an insurance policy taken out by the trustees of the scheme.
A company, or an individual, to whom the trustees of a scheme delegate the management of all, or a part of, the scheme's assets. Fund managers are also known as investment managers.
The actuarial value of a scheme's assets compared to the scheme's liabilities at a specified date, which is usually the valuation date. The relationship is usually expressed as a percentage.
The absolute amount of any liabilities or assets.
The desired level of funding, usually 100% on an ongoing basis.
Funnel of doubt
The funnel of doubt is the shape of a graph which is drawn to illustrate a range of possible outcomes of a given investment strategy. If the investment return is plotted on the y axis against time on the x axis, the desired outcome is represented by a straight line halfway up the y axis and parallel to the x axis. The range of possible outcomes around the centre near the y axis is very small but widens with time to make a funnel shape. Some conservative investment strategies, for example UK Government bonds, will have a very narrow funnel which represents a narrow range of possible outcomes whereas other, more risky, strategies will result in a much wider range ie a much wider funnel shape.
A standardised contract between two parties to buy or sell a specified asset at a specified future date at a price agreed at the time the contract is agreed.
GMP - Guaranteed Minimum Pension
The minimum pension which a United Kingdom pension scheme has to provide for those employees who were contracted out of the SERPS for service before 6 April 1997 (unless it was a DC scheme contracted out through the provision of protected rights). The amount is said to be 'broadly equivalent' to the amount the member would have received had they not been contracted out.
Gilt-edged securities, known as gilts, are bonds issued by the UK Government which have a fixed interest rate. They may be index-linked which means the value of the gilts increases with inflation resulting in an increase in the amount of interest paid.
Group personal pension
Group personal pensions are personal pensions that are linked to an employer. An employer can establish a group personal pension scheme as a way of providing all employees with access to a pension plan run by a single provider. Although each member has a separate pension policy, contributions are collected by the employer who pays them to the provider. There is no board of trustees and, because of the contractual arrangements, a GPP scheme is referred to as a contract-based scheme rather than a trust-based scheme.
Asset which, over the long term, may be expected to grow in value in line with the economy. Property and equities are examples of growth assets.
Growth managers are fund managers who invest in shareholdings which are expected to increase in value but not necessarily to pay dividends. Their preference is usually to favour shares with a high price to earnings ratio. This investment strategy tends to work best in a rising market when such shares tend to perform strongly.
The Pensions Regulator issues regulatory guidance that is intended to help trustees, employers and others understand what the law requires with regard to regulating pension provision. The guidance is not a statement of law and, as such, carries less weight than a Code of Practice before courts or tribunals.
HMRC - HM Revenue and Customs
HMRC was formed in April 2005 by the merger of the Inland Revenue and Her Majesty's Customs and Excise Departments. It is HMRC that determines the tax environment within which pensions schemes operate and assists in the understanding of the tax rules on pension schemes and their management.
IDRP - Internal disputes resolution procedure
IDRP is a formal complaint procedure which all occupational pension schemes are required to put in place; the written procedure deals with disputes between trustees and beneficiaries.
Independent Financial Advisers, or IFAs, are those professionals who offer independent advice on matters of the financial nature and work with their clients to recommend the most appropriate financial products available on the market for them.
A means for the withdrawal of retirement income from an approved money purchase pension scheme as 'drawdown income' while leaving the rest of the fund invested in order to defer the purchase of an annuity. This is now largely replaced by unsecured pension arrangements that were introduced by tax changes that took effect from April 2006.
Indemnity clauses are clauses in the trust document that protect trustees from personal liability to scheme members and beneficiaries for breach of trust and negligence.
An independent trustee can be a useful adjunct to many trustee boards as the demands on lay trustees increase. It may be an individual, or company, who performs the duties of a trustee but provides an independent source of opinion where other board members might have conflicts of interest to manage. When an insolvency practitioner has been appointed to an employer, the regulator may appoint an independent trustee to monitor the company's occupational pension scheme.
The UK was one of the earliest economies to issue inflation-indexed bonds with the first index-linked gilt being issued in 1981. The value of index-linked gilts, also known as inflation-linked gilts, increases each year with inflation (in line with the General Index of Retail Prices, also known as the RPI) which results in an increase in the amount of interest paid.
Indices show the average movement of the value of a compilation of assets and pension funds often use indices as benchmarks. There are different indices which apply to different types of asset, for example property, gilts, corporate bonds and shares in companies. Overseas assets have their own indices, for example the Nasdaq and Dow Jones in the USA and the Nikkei in Japan.
Offers made by an employer to encourage (induce) members to transfer out of a scheme. Such inducements usually take the form of a cash payment but may also be a one-off contribution to another pension arrangement.
Please refer to index-linked gilts.
An initial notice is a formal communication from a scheme's trustees to members where the scheme is in wind up or entering into the Payment Protection Fund (PPF) assessment period. It is issued within one month of the date of winding up or the PPF assessment date.
A company or individual authorised by the Financial Services Authority to arrange and negotiate insurance on behalf of clients; such policies include those to cover death in service benefits, life insurance, pensions etc.
An internal audit is undertaken on behalf of the administrators of the scheme. The purpose of an internal audit is to provide independent assurance that within the organisation risk management; governance and internal control process are all operating effectively and are being correctly managed.
The work of an investigating accountant encompasses not merely the numbers and documents of a financial institution, but the business environment as well. The accountant is often called in where there is the possibility of corporate restructuring and specialises in the detailed examination of a company's financial statements.
An adviser who helps trustees with their long-term investment planning usually after the scheme actuary has worked with the trustees on the division of assets between fixed interest and more volatile investments. An investment consultant may also advise the trustees on appropriate fund managers for the assets in question.
Investment management agreement
A document of agreement between the trustees of a scheme and a fund manager laying out the basis upon which the fund manager will manage a portfolio of investments for the trustees.
A collection of assets that is owned by a person or organisation which is frequently diversified so as to diminish the risk inherent in investments in certain markets.
LIBOR - London Interbank Offered Rate
A benchmark for short-term interest rates that some of the world's leading banks charge each other for short-term loans. The rate is published daily.
LPI - Limited Price Indexation
A method of providing capped annual increases for members of a pension scheme where they relate to service after 5 April 1997. LPI is usually the lesser of the annual increase in the Retail Prices Index and either 5% or 2.5%, although the percentage limit can vary if that is the wish of the scheme, depending when the service was accrued and whether the pension is in payment or has been deferred.
Please refer to scheme lawyer.
A lay trustee is an employee who voluntarily sits on the board of his or her company pension fund. They may be nominated the employer (Employer-nominated trustee) or elected by members (Member-nominated trustee) and are not paid except for incidental expenses. A lay trustee is tasked with making decisions based on the scheme' objectives and, at the same time, they must ensure that the scheme members' interests are well protected.
Letter of appointment
A letter that officially appoints an adviser to the trustees of the scheme.
Leverage, sometimes referred to as gearing in the UK, involves using borrowed money to increase the size of an investment holding in the belief that the income from the asset will be more than the cost of borrowing. Because of the larger holding, the risk is increased and, while gains are potentially higher, so are losses.
A liability is an obligation that legally binds a pension scheme to settle a debt now or in the future. Current liabilities are debts payable within one year whereas long-term liabilities are debts payable over a longer period and the value of those liabilities cannot be accurately determined.
A strategy used mainly in defined contribution schemes whereby the allocation of a member's assets is adjusted depending on their age and time until retirement. Assets are usually gradually moved from equities to bonds and cash as the date of retirement approaches.
An asset that can be converted into cash quickly and with minimal impact on the price achieved. Liquid assets are generally regarded in the same light as cash because their prices are relatively stable when they are sold on the open market
If a company becomes insolvent, liquidation is the process by which the company is brought to an end and the assets and property of the company are realised and redistributed. If the company is insolvent the directors' primary duty is to act in the interests of the creditors before those of the shareholders.
The Listing Rules are a set of regulations that apply to any company listed on a United Kingdom stock exchange and are subject to the overview of the UK Listing Authority (part of the Financial Services Authority). The listing rules lay out mandatory standards for any company wishing to list its shares or securities for sale to the public including matters such as the requirements of information in a prospectus before an initial public offering of shares, new share offers, rights issues, disclosure of price sensitive information, or takeover bids for companies.
A lump sum is a single payment of a sum of money, as opposed to a series of payments made over time, that members can choose to take on retirement; such payments are currently free of tax. If a lump sum is paid then the member's pension is reduced accordingly.
MFR - Minimum funding requirement
A statutory requirement under earlier legislation, imposed on most defined benefit schemes, dictating that a scheme's assets must cover its liabilities, assessed on a prescribed set of actuarial assumptions. Since 30 December 2005, the MFR has been superseded by the scheme-specific funding provisions of the Pensions Act 2004.
Member-nominated director. Usually referred to as a member-nominated trustee (MNT) "A person, director or corporate trustee, appointed or elected by employees, or members of an occupational pension scheme, in accordance with the Pensions Act 2004." For very small schemes, where the sponsor is a private company, the corporate trustee may be the board of directors of the company, providing the legal requirements for member-nominated trustees are met.
MNT - Member-nominated trustee
A trustee of an occupational pension scheme appointed or elected by the members in line with MNT requirements.
That part of an investment management agreement which lays out the authority given and which stipulates the target return and other matters such as the distribution of the assets in question between different types of investment eg property, bonds, equities.
An investment strategy that seeks to avoid market risk and to give the same return regardless of market conditions. The return on investment should not follow the rise and fall in UK equities but will usually offer a fixed percentage return that is above inflation, bank rates or some other objective measure.
A person who is a member of a pension scheme and is thus entitled to benefits under than scheme. The term member is sometimes used to refer only to an active member of a scheme. For more on active members, see our Members' Guide.
Memorandum of association
A document which must be submitted to the Registrar of Companies at Companies House, with the articles of association, when the company is formed. Details required include the name of the company, the registered address of the company and an objects clause stating the purpose and range of activities of the company.
Money purchase allowance
Ordinarily, in a normal tax year you are able to contribute £40,000, receiving tax relief on this amount. If you've accessed pension benefits flexibly, the the total amount of pension contributions that you can make in the same year, is £4,000. Previously, this was £10,000 - but as of 6 April 2017, the government made the decision to reduce this amount to £4,000.
Money purchase scheme
Money purchase schemes, also known as defined contribution pension schemes, can be schemes that are set up by your employer as a workplace pension or a private one arranged by an individual. Payments made into money purchase schemes are then put into investments by the pension provider, which is designed to yield benefits upon retirement based on how the investment performs.
The Morris review, published on 16 March 2005, focused on three main areas: the extent of choice and competition in the market for actuarial services, the current regulatory framework for members of the actuarial profession and the role and future institutional status of the Government Actuary' Department. The review' central recommendation was that the regulation of the actuarial profession should be subject to independent oversight by the Financial Reporting Council (FRC) .
Mortality rates are a statistical measure of the number of deaths, and age at death, in a population, scaled to the size of that population, per unit of time.
NAPF - National Association of Pension Funds
The NAPF is the main UK body that represents the interests of the occupational pensions movement and provides representation and other services for those involved in designing, operating, advising and investing in all aspects of pension schemes and other types of retirement provision.
National Insurance Contributions.
NICO - National Insurance Contributions Office
NICO is part of HMRC and is responsible for safeguarding and maintaining accurate national insurance records and, in particular, NICO oversees the system relating to the collection of National Insurance contributions.
NISPI - National Insurance Services to Pensions Industry
NISPI is a directorate of the National Insurance Contributions Office and is responsible for supervising pension schemes that are contracted-out of the state second pension (S2P). It ensures that contracted-out schemes maintain correct records of individuals' contracted-out rights. NISPI is divided into three main business areas, relating to early leavers, pension payments, and schemes that cease to be contracted-out.
NPA - Normal Pension Age
This is defined by section 180 of the Pension Schemes Act 1993 as the age at which a member of a pension scheme normally becomes entitled to receive his or her pension under the scheme rules, most often 60 or 65. This is not necessarily the same as normal retirement age or normal pension date.
A pension scheme which does not require contributions from its active members. You can find out more information here.
A non-eligible jobholder is someone who is not eligible for automatic enrolment but has the choice to opt-in to a workplace pension scheme with employer contribution. The following requirements must be met to be considered a non-eligible jobholder: Work in the UK. Aged between 16 and 74. Earn less than the amount required to be eligible for automatic enrolment but more than the lower earnings threshold (more than £6,136.00 annually, £512.00 monthly, or £118.00 weekly but less than £10,000.00 annually for 2019-2020). OR Work in the UK. Aged between 16 and 21 OR aged between State Pension Age and 74. Earn the minimum amount eligible for automatic enrolment (more than £10,000.00 annually, monthly, or weekly for 2019-2020 tax year). For more details on employee classifications, click here.
Someone who has limited investment expertise and knowledge-bank. Pension scheme trustees often fall into this category but they may have considerations other than investment returns to take into account, such as the employer covenant, company's attitude to risk etc. Fund managers and advisers are required to allow trustees the opportunity to declare themselves as non-professional and thus in need of extra protection. This is likely to involve higher costs for advice and management.
Notice (of wind up)
A formal written notification between the employer and the trustee that a scheme wind up has been started and that the scheme will cease to exist. This notice must be formally acknowledged in writing. The scheme lawyer will advise on the exact format which will vary from scheme to scheme.
OPRA - Occupational Pensions Regulatory Authority
The statutory UK regulator established by the Pensions Act 1995 to enforce the provisions of that Act and to supervise occupational pension schemes. OPRA was replaced by The Pensions Regulator in April 2005.
On risk date
The date, in an annuity purchase, that is deemed to be the date on which the risk for a particular set of members is transferred to the provider in exchange for a premium.
Where a non-eligible employee or entitled employee decide to join a pension scheme. For more information on opting in, click here.
The process by which the employee terminates their membership of the employer pension scheme and can only happen once they have been enrolled into the pension scheme and NOT before. For more information on opting out, click here or here.
A contract with a bank which is paid for upfront and gives the investor the right, but not the obligation, to buy or sell certain specified assets at a specified price on or before a specified date. The market value of the assets may have moved in such a way that the contract is disadvantageous for the bank at the time the option is exercised.
PAYE stands for Pay As You Earn and is a HM Revenue and Customs' (HMRC) system that collects both Income Tax and National Insurance from employment. Employers who operate a PAYE system will receive a letter notifying them of auto enrolment and how it will affect them. This letter will include their PAYE reference number (as seen here) along with their staging date.
Please refer to Pension Protection Fund.
PPF - Pension Protection Fund
A statutory fund, established with effect from 6 April 2005 by the Pensions Act 2004. The PPF pays compensation at a prescribed level to members of defined-benefit (DB) schemes that are eligible for entry. A scheme may be eligible if its sponsoring employer has experienced an insolvency event and the scheme is underfunded to a specified level. The PPF is funded by a levy on all eligible defined-benefit schemes.
PPF buy-out quote
A quote obtained by the trustees when their scheme is in the PPF assessment period. The quote gives the cost of providing the benefits on the basis of the PPF levels of compensation.
PPF credit rating
A credit rating used by the Pension Protection Fund to estimate the risk of insolvency of a sponsoring employer as part of the calculation of the risk-based element of the levy. A single credit-rating agency provides the credit ratings for all sponsoring employers of DB schemes, thus ensuring consistency.
The PPF is funded by levies on all eligible defined benefit schemes; the levy is calculated on a combination of scheme-based and risk-based elements. The number of members in a scheme determines the scheme-based element. The risk-based element takes into account the funding level of a scheme and the risk of insolvency for the sponsoring employer. The value of certain contingent assets, guarantees and other commitments to the scheme from the sponsoring employer may also be taken into account.
The value of a loan at the time it is made by the original investor. It is also known as maturity value, nominal value or face value. It is the amount which the issuer will pay to the current owner of a bond at the agreed maturity date. For index-linked gilts, the par value is the value of the original loan increased to take into account inflation over the period.
Partial projected unit method
A method used for calculating technical provisions that takes some account, but not full account, of future salary increases.
An employer who contributes, or has contributed, to a multi-employer or industry-wide occupational pension scheme and has been admitted to participate under the scheme's rules. Unless a scheme is winding up, participating employers must pay contributions to the scheme, as required by the scheme' governing trust deed.
Passive fund management
A financial strategy in which a fund manager invests in accordance with a pre-determined strategy that requires no forecasting. The most popular method is to mimic the performance of an externally specified index, e.g the FTSE100, with the result that the assets move exactly in line with the chosen index.
Pension scheme SORP (statement of recommended practice)
Pension transfers are the movement of pension assets from one pension scheme to another. A member may want to transfer the benefits they have accrued from their pension, upon leaving their current employer, to the scheme of a new employer. To find out more about pension transfers and what Smart Pension can offer, visit our pension transfers page.
Any person who is currently receiving a pension from a pension scheme.
The Pensions Ombudsman investigates and decides complaints and disputes about the way that pension schemes are run. Funded by registration levies on all occupational pension schemes, the Ombudsman will rule on any grievances or injustice as a result of maladministration. The Ombudsman's decision is final and binding on all the parties to the complaint or dispute. It can be enforced in the courts. His decision can only be changed by appealing to the appropriate court on a point of law. The Pensions Ombudsman deals with: disputes from individual members of occupational pension schemes about entitlement and complaints of maladministration disputes between employers and trustees of occupational pension schemes disputes between trustees of different occupational pension schemes
The Pensions Regulator has responsibility for all work-based pension schemes in the UK. The Regulator may investigate schemes, issue improvement notices and take action to recover unpaid employer contributions. It aims to give better protection to members of work-based schemes.
Pensions Regulator Tribunal
An independent body that was set up to hear appeals (references) on rulings (determinations) that were made by the Determinations Panel. The tribunal issues guidance on the content and form of an appeal and may consider any evidence available in relation to the subject to the appeal, including evidence that was not available at the time of the original determination.
Refers to the day-to-day running of the pension scheme including: the collection and allocation of contributions, the calculation of the benefits owed to members on retirement, on death or ill-health or in deferment. Accurate and up-to-date member records are to be kept and operational risks are to be managed. Administration of pension schemes may be performed internally by employees of the sponsoring employer, contracted out to a third party administration or may be carried out by the pension provider, in the case of fully insured pension schemes.
Please refer to pensions administration
Pensions in payment
Pensions that are currently being paid.
The pensions manager may be the chief executive of the pension scheme, may act as the secretary to the trustees or may be the manager of a pensions administration area.
Also known as pooled arrangement. A fund in which many investors hold units as part of a pooled investment. The assets of this pooled fund are managed by a fund manager and are not directly owned by the investors.
If an employee wishes to opt in and join the pension scheme during postponement, the employer must enrol them immediately irrespective of postponement. For more information on postponement, click here. For a step by step guide on how to postpone your staging date on the Smart Pension platform, watch this video.
In insolvency, those creditors whose claims rank in priority to other unsecured creditors. These preferential creditors include: HMRC (income tax deducted at source, VAT) and National Insurance contributions occupational pension schemes (members' contributions for the four months prior to the insolvency event, and employers' contracted out contributions for the 12 months prior to that date) wages for employees in the four months prior to the insolvency event
Present value is a future amount of money, made by future pension payments and future receipts from investment returns and contributions, that has been discounted to reflect its current value. Present value is also known as present discounted value.
A benefit for an individual who ceases to be an active member of an occupational pension scheme which is payable at a later date ( for example, a member who leaves that employment before retirement date). It remains the case that a full preserved benefit need not be offered unless a member had two years' service in the scheme but, in practice, schemes may well offer more than the statutory minimum.
Price earnings ratio
One of the most commonly used methods of measuring how highly investors value the earnings of a company and therefore how expensive a share is. It demonstrates how a company's shares are priced compared to its historical earnings. The P/E ratio is calculated by dividing the company's share market price by its earnings per share. Traditionally, a high price/earnings ratio suggests a growth company; a low price/earnings ratio suggests a company with a modest profits outlook or a company in a high-risk area.
Provisions that are contained in the documentation of a scheme, or in overriding legislation, laying out the order of precedence of liabilities that must be followed if the scheme is in wind up.
Having a good knowledge of financial theory and a clear understanding of their own requirements, such clients are not in need of the extra protection given to non-professional clients. Many boards of trustees will consider themselves to be professional clients.
Projected unit method
An actuarial funding method for calculating technical provisions which takes account of any future salary increases.
When a scheme is in wind up, or in an assessment period for the PPF, protected liabilities represent the cost of securing members' benefits in an amount equal to the compensation level from the PPF, plus any other liabilities and the estimated costs of winding up the pension scheme.
Protected rights basis
This applies when a scheme is contracted out of S2P (or SEPRS) on a money purchase basis, funded by National Insurance rebates and any incentive payable in the early years of contracting out.
Prudential Regulation Authority (PRA)
The Financial Services Authority was split, on 1 April 2013, into two regulatory bodies – the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA). The PRA is a subsidiary of the Bank of England. The PRA is the UK regulator, in conjunction with the FCA, responsible for the prudential regulation of systemically important financial institutions, including banks, building societies, credit unions, certain designated investment firms and insurers.
A contract which is paid for upfront and gives the investor the right, but not the obligation, to sell certain specified assets at an agreed price on or before a specified date. The market value of the assets may have moved in such a way that the contract is disadvantageous for the bank at the time the option is exercised.
A company whose equity share capital is listed on an exchange (eg. the London Stock Exchange, the New York Stock Exchange etc).
RPI - Retail Prices Index
One of two consumer price indices used as the domestic measure of inflation in the UK, the RPI is published by the Office for National Statistics. It measures the average change from month to month in the prices of goods and services purchased by most households in the UK. The government uses the RPI for the uprating of pensions, state benefits, tax allowances and index-linked gilts and increases in private pensions in payment are usually dependent on the rate of change of the RPI.
Re-enrolment (or automatic re-enrolment) is a cyclical process that happens every three years (approximately three years after your automatic enrolment staging date/duties start date) whereby an employer must re-enrol certain eligible employees back into an automatic enrolment pension scheme. For more information and a step-by-step guide to automatic re-enrolment, click here.
The difference between the rate of return on an investment and a selected measure of inflation (such as the RPI, which is published by the Office for National Statistics) over the same period.
The rebalancing of investments is the action of bringing a portfolio, that has deviated away from the target of the investment strategy, back into line.
That debt due from the employer, ie the difference between the liabilities and the assets, that the trustees of a scheme in wind up can expect to recover from the insolvent company.
Applies to DB schemes only. The trustees of a scheme that has a funding shortfall must agree a recovery plan with the scheme's employer who undertakes to make up the deficit over a specified period of time.
The record of all occupational pension schemes that is maintained by The Pensions Regulator.
An occupational pension scheme or personal pension scheme that is registered with HM Revenue & Customs under the Finance Act 2004. A registered scheme must comply with statutory provisions relating to the amounts of contributions and benefits that can be paid without incurring a tax charge. Registered schemes were previously known as approved schemes.
Scheme specific information required by The Pensions Regulator and held on the register of all occupational pension schemes.
The particular manager of a fund management company who develops and maintains the relationship with trustee clients.
When a scheme is in the PPF assessment period, it is the date at which the assets of the scheme must be valued for PPF purposes. It is the day immediately preceding the assessment date.
Returns are the amounts by which an investor benefits from owning an asset – interest, dividends and any increase in value less any charges.
The risk premium refers to the amount by which an asset's expected rate of return exceeds the risk-free interest rate. This is demanded by investors as compensation for the higher risk of such investments.
A formal register established and maintained by trustees of an occupational pension scheme as a means of implementing a risk management procedure within the scheme. The risk register will record specific risks within the scheme and document the controls the trustees have used to address them. The register should be regularly reviewed, and its effectiveness monitored.
S2P - State Second Pension
A top-up state pension that replaced the State Earnings Related Pension Scheme (SERPS) from 6 April 2002. S2P is an additional state pension based on an employee' National Insurance contributions and earnings.
Please refer to S2P.
SFP - Statement of funding principles
Introduced by the Pensions Act 2004, the trustees of a salary-related scheme must prepare and maintain a statement of funding principles (SFP). The SFP must set out the trustees' policy for meeting the statutory funding objective and contain other prescribed information. The trustees must agree its contents with the scheme' principal employer.
SIP - Statement of investment principles
The trustees of an occupational pension scheme must put in place and maintain a statement of investment principles (SIP). This must set out the basis on which the trustees plan to invest the scheme assets. The scheme' sponsoring employer has a right to be consulted on the contents of the SIP, and any revisions the trustees periodically make, but may not dictate the scheme' investment policy.
SLA - Service level agreement
An agreement negotiated between two parties where one is the customer and the other the service provider. The SLA records a common understanding about services, priorities, responsibilities, guarantees and warranties. It will also lay out the action that will be taken if the agreed requirements of the SLA are not met.
SMEs - Small and medium size enterprises
The main factors determining whether a company is an SME are the number of employees and either turnover or balance sheet total. In the UK, sections 382 and 465 of the Companies Act 2006 define an SME for the purpose of accounting requirements. This indicates that a small company is one having no more than 50 employees, an annual turnover of no more than £6.5 million and a balance sheet total of no more than £3.26 million. A medium-sized company is defined as having no more than 250 employees, an annual turnover of no more than £25.9 million and a balance sheet total of no more than £12.9 million.
SMPI - Statutory Money Purchase Illustrations
We are required to issue annual statements to our members, these include a projection of the fund value at retirement age based on a number of factors. This is known as a SMPI calculation.
SORP - Statement of recommended practice
Recommended accounting practices for specialised sectors. SORPs are issued by the appropriate bodies for the relevant industries or sectors – in this case occupational pensions. SORPs supplement accounting standards and other legal and regulatory requirements in the light of the special factors prevailing or transactions undertaken in a particular sector.
SRI - Socially responsible investment
Investments that accord with the ethical, social and environmental principles adopted by the trustees. Occupational pension schemes are obliged to disclose the extent, if any, to which ethical, social or environmental considerations are considered in the selection and retention of investments.
A written agreement between employee and employer where the employee agrees to forgo part of their future earnings in return for a corresponding contribution to a pension scheme by the employer on the employee's behalf. This is different from an AVC where the contributions are paid directly by the employee.
Schedule of contributions
The trustees of a salary related pension scheme must ensure that a schedule of contributions is in place. This must be agreed with the participating employers and must show separately the contributions payable by the employers and scheme members. If the trustees and employers have agreed a recovery plan, the schedule should also show the additional contributions that are required from the employers. The schedule must be certified by the scheme actuary. Also please refer to recovery plan..
Please refer to Actuary.
Please refer to external auditor.
A legal adviser to the pension scheme who advises trustee boards on details of trust and pension law and their own scheme's required trust deeds and rules.
Scheme statutory discharge
On completion of a wind up, this is the official discharge of the trustee liabilities.
Guidance published by the Pensions Regulator listing matters of which trustees of defined benefit schemes should show knowledge and understanding, and documents of which they should have a working knowledge-bank.
Section 143 valuation
An actuarial valuation of a salary-related pension scheme, in accordance with section 143 of the Pensions Act 2004. The section 143 valuation is carried out within an assessment period to ascertain whether the scheme has sufficient funds to pay at least the Pension Protection Fund levels of compensation and will determine if the PPF should assume responsibility for a scheme. The valuation is usually carried out by the scheme actuary upon the instruction of the PPF.
Section 179 valuation
An actuarial valuation of a salary-related pension scheme, in accordance with section 179 of the Pensions Act 2004. The Pension Protection Fund (PPF) will take the results of a section 179 valuation into account when calculating a scheme' risk-based levy.
Section 61 Trustee Act 1925
This states that a court can excuse a trustee for a mistake made if the trustee acted honestly and reasonably in the circumstances and should not necessarily have asked for the court's directions at an earlier stage.
Section 75 debt
Please refer to buy-out debt.
Someone who owns shares in a company.
The practice, by fund managers, of selling securities not owned by the seller in the hope that the price subsequently falls and they can then be bought back at a lower price. The seller may have borrowed the necessary securities on a temporary basis in order to deliver the stock to the buyer, or may not hold them at all (referred to as a naked short). In both cases, the related security must be purchased at a later stage to close out the transaction and the fund manager's profit is the difference between the selling price and the subsequent reduced purchase price.
The sponsoring employer is the employer who is responsible for meeting the liabilities of a DB pension scheme. In DC schemes, it is typically the employer who sets up and/or assumes the responsibility for the running of the scheme and meeting the expenses who is the sponsoring employer.
Every employer will have a date when the new automatic enrolment duties come into force for their business; this is the employer's staging date. The staging date is determined by the number of persons in the largest PAYE scheme used by the business, based on the data from HM Revenue and Customs held by The Pensions Regulator on 1 April 2012. The more people in the in the PAYE scheme on 1 April 2012, the earlier the staging date. Your staging date will also be printed on the letter you would have received from The Pension Regulator to notify you of the impending changes of auto enrolment. For more information on staging dates or to find out when your staging date is, click here.
Tax paid on the acquisition of certain assets, for example property and equities, which have a value above a certain threshold that is determined by the treasury.
Statutory funding objective
Introduced by the Pensions Act 2004, the statutory funding objective (SFO) requires that a salary-related occupational pension scheme must have sufficient assets to cover its technical provisions.
Statutory independent trustee
An independent trustee, who must be chosen from the regulator's register of approved independent trustees, who is appointed at the discretion of the regulator to a scheme where the employer has become insolvent.
In the Pensions Act of 2004, The Pensions Regulator set out three specific objectives: to protect the benefits of members of work-based pension schemes to promote good administration of work-based pension schemes to reduce the possibility of situations arising that might lead to compensation claims from the Pension Protection Fund
Also known as securities lending, this is a temporary transfer of securities by an owner (often a pension scheme) to a borrower (typically a fund manager) against a promise by the borrower to re-transfer equivalent securities at a later, pre-agreed date.
Strategic investment is carried out by trustees as a part of their Statement of Investment Principles. It is the practice of making long-term decisions on asset allocation to enable the payment of pension benefits as they fall due.
The pension that is paid to retired members of an occupational pension scheme.
An insolvency practitioner who is appointed to oversee the carrying out of creditors' or members' voluntary arrangements.
Organisations or individuals who provide services for the trustees, such as IT, administration, custody arrangements etc.
Arrangements where one type of income stream is exchanged (swapped) for another. These arrangements are frequently made by investment banks; for example, an income stream with a fixed rate of interest may be swapped for an income stream with a variable rate of interest. Although interest rate swaps are the most usual type of swap, other types are available, such as currency swaps.
TPAS - The Pensions Advisory Service
An independent, non-profit organisation that provides free advice to members of the public about occupational or personal pension schemes. They also assist members who have failed to resolve a pensions dispute with the trustees or providers of their scheme. Previously known as the Occupational Pensions Advisory Service (OPAS) when its responsibility was limited to occupational pensions
Standard day to day investment decisions, such as stock selection, for which the responsibility may be assigned to fund managers.
Tail risk is the residual risk of a very large loss of an asset or portfolio of assets outside the normal range of probability (moving more than 3 standard deviations below the current price).
A specific absolute return agreed between the fund manager and the trustees.
Tax-free lump sum
A lump sum is a single sum of money paid to pension scheme members at retirement in exchange for a reduction in pension payments. Such payments are currently free of tax.
Technical provisions were introduced by the Pensions Directive and incorporated into UK law by the Pensions Act 2004. They measure the extent of the liabilities to cover the pension benefits as they fall due in relation to past service.
A terminal bonus is that bonus paid when a with-profits insurance policy reaches maturation. Such bonuses are customary but are not guaranteed.
The term used to describe an occupational pensions scheme that has been wound up.
The Pensions Regulator
Please refer to Pensions Regulator.
Please refer to Pensions Regulator.
Traffic light principle
The Pensions Regulator' system was developed to help trustees decide whether a breach of the law was of material significance and, therefore, serious enough to report. A breach is category red when: it is caused by dishonesty, deliberate contravention of the law, poor advice or poor scheme governance it is a significant breach steps are not being taken to correct the situation it has wider implications "Amber" breaches are harder to define because they are less serious breaches than red breaches when taken individually, but may have a deleterious cumulative effect. They might consist of several failures of administration that, although not noteworthy in themselves, have a cumulative significance because steps are not taken to correct the situation. "Green" breaches are considerably less important. They are those breaches that are not caused deliberately or dishonestly, by poor governance or poor advice; they are not significant, steps are being taken to put them right and they do not have any wider implications.
Sometimes referred to as a CETV (cash equivalent transfer value), this is the amount of money that a pension scheme must pay to another registered pension scheme when requested by a qualifying member. The amount of the transfer payment is calculated on a prescribed basis. This CETV is a statutory right for a member of an occupational pension scheme with more than 12 months to go before reaching the scheme's normal pension age or for a member of a personal pension scheme.
The trigger is the situation that puts a pension scheme into wind up. Knowing the trigger enables trustees to pinpoint the exact moment when this occurred which then becomes the 'as at' date for all benefit calculations. A trigger may also be a feature in a scheme's recovery plan that alerts the regulator to verify that members' benefits are not threatened.
A member of a registered pension scheme who has reached the age of 60 and whose total pension rights from all pension schemes do not exceed £30,000 may convert these rights for a lump sum of money – a trivial commutation lump sum.
A trust corporation is a company that satisfies certain criteria under UK law and that is empowered by trust law to act as a custodian for pension scheme assets and will provide professional expertise in the management of trusts.
A standard legal document, in the form of a deed, which establishes, regulates and amends a trust (pension scheme).
A legal document, which may be a deed, that creates a trust The trust document appoints the trustees and states the terms of the trust, including naming the beneficiaries and the trust property that will be subject to the trust. In England and Wales the trust document usually takes the form of a trust deed.
A document, usually attached to the trust deed, which sets down the rules under which the trust (pension scheme) will operate.
A company, or an individual, appointed to carry out the business of a trust in accordance with the provisions of the trust and with the general principles of trust law. For more information on this and how it relates to employee classifications and qualifying earnings, visit this page.
Unbanded earnings refers to the total pay components (Total Gross Qualifying Earnings) , regardless of the upper earnings limit of £50,000.00 and the lower earnings threshold of £6,136.00, as defined under Qualifying Earnings of the Pensions Act 2008. For more information banded and unbanded earnings, click here.
Unsecured pension arrangement
An arrangement whereby a DC scheme member of retirement age is allowed to defer the purchase of an annuity and instead to invest the fund in assets of his own choosing. The member may or may not draw down an income subject to scheme rules. This arrangement is normally only possible up to the age of 75.
An asset that should achieve high income returns in relation to price. A value asset is expected to do relatively well in falling markets as it should hold its value better than other types of asset.
A fund manager whose aim is to achieve results by investing in companies offering high income returns compared to the value of the shares. Value managers normally do well in falling markets because low price/earnings ratio, ie 'cheap', shares tend to hold their value better than other shares.
The process of closing an occupational pension scheme. In the case of a DB scheme, this is normally achieved by using the assets to purchase annuities (insurance policies) for the beneficiaries or by transferring the assets and liabilities to another pension fund, in accordance with the scheme's statute or documentation. Wind up for a DC scheme is normally achieved by transferring members' funds to a new pension scheme.
Winding up lump sum
A member of a registered pension scheme that is winding up may have his benefits converted for a winding-up lump sum. Currently amount of this lump sum must not exceed £18,000 when it is paid.
With profits annuity
An annuity that is purchased through a 'with profits' insurance policy. The income in the early years may be less than a normal annuity but there is the expectation that the income will increase over the years with investment returns.
Arrangements that are required to be in place to ensure that, in the event of a bulk transfer, the members' pension rights are protected
The term yield describes the annual income that is earned on an investment. In the case of stocks and shares, this is normally the annual value of the dividends expressed as a percentage of the market price of the shares. For bonds, the yield is the annual interest rate divided by the price paid for the bond; this may be more or less than the nominal value. In the case of inflation-linked gilts, the value of the gilt will increase in line with inflation which leads to an increased yield.