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Welcome to our jargon buster section.
Here we explain all the complicated Pension terminology:
Active member: A member of their employment pension scheme using their employment to contribute to their pension plan.
Additional voluntary contributions: These are extra contributions that you make towards your Self Invested Personal Pension to help increase the funds value.
Actuary: A qualified expert who can asses and predict the probabilities which may effect a pension scheme, insurance policy etc. For example, the likely hood of someone making a claim throughout the term of their insurance policy or calculating whether or not you are paying enough money into your protected rights pension scheme.
Accumulated contributions: The total amount of contributions including any contributions your employer has paid into your pension plan.
Beneficiary: A person / people or legal entity who will receive benefits or money from a benefactor.
Two examples are with an insurance policy or pension scheme. Should the policy holder dies then the policy pays out to the beneficiary who could be their partner / children etc.
Basic state pension: A none earnings related pension which is paid to UK residents from the government when they retire. Qualification for a state pension is based on the amount of years and level of National Insurance contributions you have made..
Contracting out / Contracted out: This is the term given to when you opt out of the UK’s second pension scheme and use that portion of your NI contributions to pay into your own personal pension such as a Self Invested Personal Pension or stakeholder pension.
Cash equivalent: When you transfer one pension into another, it’s value is know as the ‘Cash Equivalent’.
IFA / Independent financial advisor: A qualified professional who can give independent & none biased advice. Here at SelfInvestedPersonalPension.org we use a team of friendly chartered independent financial advisors who are professionally qualified, offer a higher level of service and who also have access to exclusive services & products which are simply not available directly to the public or to a standard none chartered IFA.
Lifetime annuity: The conversion of your pension plan into a taxable income. When you come to retire, you use your pension to purchase an annuity.
NI / National insurance: Money that the government takes from both employers and employees and uses to build up a state pension or to go towards any benefits should they be required.
Occupational pension / Employment pension: A personal pension scheme which is run through your employer.
Protected Rights Pension: A personal pension fund where you opt out of the governments second pension scheme and pay the NI contributions in to a protected rights pension. This means that you no longer rely on the promise of a state pension when you retire and it also gives you more control as it is very similar to a Self Invested Personal Pension plan in that you have a much larger range of investment opportunities, flexibility and control.
Stakeholder pension: Very similar to but a much more basic version of a SIPP. The minimum contribution amount and maximum management fee are lower than that of a SIPP pension plan but your investment choices are much more limited.
S2P / State second pension: An additional state pension which is paid extra to your normal state pension. You can opt out (contract / contracted out) of this pension and use the NI contributions to pay into a personal pension such as a SIPP.
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