Pension Glossary

Description Of Pension Technical Terms

Capitalised values

The value of any lump sum and spouse and other dependant’s pensions at the date shown.

 

 

Commutation

Giving up part of the pension entitlement for a cash sum.

 

 

Contracted out service

A period of service for which you were ‘contracted-out’ of the State Earnings Related Pension Scheme (SERPS) and/or the State Second Pension as a member of a pension scheme and do not accrue earnings related benefit from the State. The pension scheme is responsible for providing a minimum level of benefits in respect of your contracted-out service, known as Guaranteed Minimum Pension (GMP) for service up to 5 April 1997.

 

CPI

Consumer Prices Index as published by the Office for National Statistics.

 

 

Discretionary Increases

Increases that are not guaranteed and are agreed at the discretion of the trustees of the pension scheme.

 

 

Excess over GMP

The amount of pension to which you are entitled that does not represent Guaranteed Minimum Pension benefits.

 

 

Final Pensionable Salary

The earnings on which your pension benefits are based.

 

 

Fixed at x%

Under this basis of revaluation, benefits, in excess of any GMP, are increased each year between leaving and retirement at a fixed rate of increase.

 

 

Fixed Rate Revaluation

A basis on which a contracted out pension scheme revalues GMP benefits between the date of leaving service and age 60, females, or age 65, males. The rate depends on the date of leaving contracted our service.

 

 

Guaranteed Minimum Pension (GMP)

The minimum pension benefits, which the pension scheme must provide for you as a condition of contracting out of the State Earnings Related Pension Scheme in respect of service before 6 April 1997.

 

 

Higher of LPI and x%

Under this basis of revaluation, benefits, in excess of any GMP, are increased each year between leaving and retirement in line with RPI with an upper limit of 5%, but subject also to a minimum rate of increase each year.

 

 

Higher of RPI and x%

Under this basis of revaluation, benefits, in excess of any GMP, are increased each year between leaving and retirement in line with RPI or at a given fixed rate if this is higher.

 

 

Limited Cumulatively to x% (Revaluation)

Under this basis of revaluation, benefits, in excess of any GMP, are increased each year between leaving and retirement in line with RPI but subject to an upper annual percentage limit over the period.

 

LPI (Limited Price Indexation)

Pension increases each year in line with the Retail Prices Index (RPI), subject to a limit of 5% each year.

 

 

Limited Revaluation

A basis on which a contracted out pension scheme revalues GMP benefits between the date of leaving service and age 60, females, or age 65, males. Increases are in line with section 148 orders limited to 5% p.a. A payment has to be made to the State to provide revaluation in excess of 5% p.a.

 

 

Lower of CPI and x%

Under this basis of revaluation, benefits, in excess of any GMP, are increased each year between leaving and retirement in line with CPI or at given fixed rate if this is lower.

 

 

Lower of RPI and x%

Under this basis of revaluation, benefits, in excess of any GMP, are increased each year between leaving and retirement in line with RPI or at given fixed rate if this is lower.

 

 

Non Protected Rights

The part of the pension benefits that on transfer to a personal pension are not treated as Protected Rights (see below).

 

 

Normal Retirement Age

The age when members of the pension scheme are normally expected to retire.

 

 

Partial Transfer

A Partial Transfer is where only a proportion or “part” of your benefits are transferred out of the Scheme.

 

Pension Conversion

A Pension Conversion is an internal transfer of benefits from your employer’s defined benefit scheme to their defined contribution (money purchase) scheme.

 

 

Protected Rights

On a transfer to a personal pension, the parts of the transfer value representing any GMP benefits and all benefits in respect of contracted out service from 6 April 1997 are treated separately as ‘Protected Rights’.

 

 

Required Investment Yield

The investment yield required from a transfer to a personal pension or section 32 contract to match the benefits that would be payable from the pension scheme.

 

 

Revaluation Basis

The basis used by the pension scheme to increase benefits between the date of leaving the scheme and retirement. The options are ‘Fixed Rate’, ‘Limited’ and ‘S148’ in respect of GMP benefits; ‘Social Security Act Revaluation’, ‘Limited Cumulatively to x%’, ‘RPI’, ‘LPI’, ‘Higher of RPI and x%’, ‘Lower of RPI and x%’, ‘Higher of LPI and x%’, ‘Fixed at x%’, CPI, RPI then CPI for benefits in excess of any GMP. Descriptions of each of these options are given in this appendix.

 

 

RPI

The Retail Prices Index published by the Office for National Statistics.

 

RPI then CPI

Some accrued pension benefits are revalued to retirement using increases in line with the Retail Prices Index until a given date then in line with Consumer Prices Index.

 

 

S148 – Section 148 Orders (previously Section 21 Orders)

The Secretary of State publishes the rates of revaluation of GMP benefits, which are approximately in line with increases in the National Average Earnings.

 

 

Section 32 Contract

A policy established under Section 32 of the Finance Act 1981 (now Section 591 of the Income and Corporation Taxes Act 1988) for transfers from occupational pension schemes.

 

 

Social Security Act Revaluation

Under this revaluation basis, benefits in excess of any GMP are revalued between leaving and retirement in line with increases in the RPI until 2010 and in line with CPI thereafter. The increases are also limited to 5% p.a. over the revaluation period for benefits accrued before 2009 and 2.5% pa over the revaluation period for benefits accrued from 1 January 2009.

 

Tax-free Cash

Except where the pension scheme provides a defined cash sum, pensions can normally be partially commuted for cash, subject to HMRC limits, which is free of tax.

 

 

Transfer Value

The amount calculated as the value of the benefits from the pension scheme on the date quoted and which can be transferred to an alternative pension arrangement.

 

Uncrystallised Fund Pension Lump Sum (UFPLS)

If you are over 55 and do not wish to designate your entire PP funds for drawdown (or purchase an annuity) you can still access part of your PP fund via an Uncrystallised Fund Pension Lump Sum (UFPLS).