Looking to learn more about the world of pensions? Feeling confused about all the different terminology, acronyms, and industry jargon?
In this three-part series, we have put together a pensions glossary, and jargon buster covering some of the most common expressions, terminology, and phrases used by pensions advisers.
In the first part of this series, we cover letters A-E.
Let’s get started with our pensions glossary and jargon buster.
Adventurous investment profile
Dependent on your attitude to risk there are different pension portfolios you can invest in.
An adventurous investment profile could be the right approach for someone comfortable with a high degree of risk.
Those who pay into a pension can get tax relief on the money they save into their pension pot. This is capped by what is called an annual allowance.
The annual allowance really, only affects high earners as the limit on contributions into a private pension is £40,000.
The standard limit is £40,000, but may be lower depending on how much you earn.
Some people get confused between the annual and Lifetime Allowance for Pensions. They are two different things. Here’s a quick overview of the Lifetime Allowance.
Your lifetime allowance is the amount of money you can build up in your pension pots.
Currently, the standard lifetime allowance is £1,073,100.
Interested to learn more about the Lifetime Allowance for Pensions?
Related reading: What is the Lifetime Allowance for Pensions?
Watch our video: What is the lifetime allowance and how can I plan for it?Annuity
An annuity is a regular income you can purchase with the money saved into your pension.
Annuities usually pay you an income for the rest of your life. However, some pay for a shorter period.
The law in the UK states all employers have to put certain employees in a workplace pension scheme.
Depending on your age and earnings, you may be automatically put into the pension scheme.
You can find out more about auto-enrolment by reading this article from the Pensions Regulator.
Balanced investment profile
This type of investment profile means we’ll take a balanced approach to how much of your money we invest in certain ways, rather than a cautious approach or an adventurous approach.
The money saved into your pension pot will hopefully support you for as long as you live.
However, you can pass on anything that’s left over to a loved one. You can also pass anything left over to a good cause, or a company.
Assigning a beneficiary means that should you die unexpectedly, and they are a dependent, your pension can be passed to them.
Benefit crystallisation event (BCE)
This is a test that’s carried out whenever you take cash or income out of your pension pot.
Additionally, this can happen if you haven’t accessed it by the age of 75.
If you haven’t, this test will happen then.
Bonds are one of the many ways you can invest your pension savings.
In simple terms, a bond is like loaning your money to an organisation.
They promise to pay you back in full, along with interest payments along the way.
If you exceed your annual allowance limit, you will usually have to pay tax on the excess figure
If this happens, in some cases you can carry forward any unused annual pension allowance from the previous 3 tax years.
You can find more information on pensions carry forward in this article by Money Helper.
Cautious investment profile
So far, we have covered an adventurous and balanced investment profile
A cautious investment profile is what it sounds like; a cautious, lower-risk approach to investing your money.
If you have a high sensitivity to risk, this could be the right option.
Combined pension pots
If you have more than one pension pot and are in a position where you are considering taking your pension savings soon, you should think about the value of your combined pension pots.
This will help you understand your options.
A pension provided to you by the company you work for.
Do you fully understand your pension and the scheme you are in?
Here’s a fantastic video by IFA, George Rashbrook.
Pension contributions refer to the amounts of money you put into your pot or pots.
Pension contributions are usually made on a regular basis.
However, pensions can also be topped up with lump sums.
Defined contribution pension
A defined contribution pension is like a tax-friendly savings account.
You pay money into your pension pot. Your employer can contribute too.
Earning basis illustrates which of the employee’s earnings get used when calculating pension contributions. Here are the three definitions:
- Qualifying earnings
- Pensionable earnings
- Total earnings
For more information, visit The Pensions Regulator’s website.
The earnings threshold from which an employee is assessed as a Type 1 employee – someone who must be put into a pension scheme.
This can be referred to as a company pension.
Another name for shares. Some more traditional businesses still, refer to shares as equities so this is worth knowing.
A pension investment fund that invests in company shares.
The fund your money will be invested in is determined by a multitude of factors; your attitude to risk is one of them.
Read part two of our pension jargon buster
Looking to learn more? Read part two now!
About Sterling & Law – Hampshire
Sterling & Law – Hampshire, part of the Sterling and Law Group, has one clear goal; to help you plan for and realise the financial future you desire.
When working alongside our clients, we enter a process where we take the time to fully understand your life, career, business, family, and financial goals.
This allows us to create and deliver a financial, wealth, and retirement plan aligned to your own unique objectives.
Related pensions articles
Here are a couple of pensions related articles we have recently published:
Looking to speak to a pensions adviser?
For a no-obligation initial conversation, you can call us today on 01329 550190