Some of the definitions contained in this section are taken from the publication 'Pension Terminology' which is jointly produced by the Pensions Management Institute (PMI) and the Pensions Research Accountants Group (PRAG). Those definitions have been reproduced with the kind permission of PMI/PRAG.
For the purpose of this website we have selected definitions that are most relevant to our members.
For a link to the PMI website full list of Pensions Terminology click here
Active Member – A member of an occupational pension scheme who is building up pension benefits, in either a defined benefit or a defined contribution scheme, from their current job. An active member may or may not pay contributions.
Actuarial Reduction – A reduction that is made to a member's pension benefits if those benefits come into payment before the member's normal retirement age.
Actuarial Valuation – An investigation by the Scheme actuary into the ability of a pension scheme to meet its liabilities. Under the Pensions Act 2004, actuarial valuation refers to a full valuation (usually carried out every three years).
Actuary – An adviser on financial information and assumptions relating to a pension scheme.
Additional Voluntary Contributions (AVCs) – Contributions made by a member of a pension scheme over and above their normal contributions (if any). Additional Voluntary Contributions are used to secure additional benefits at retirement.
Annual Allowance - The maximum amount of tax relievable pensions that can be built up in one tax year. This is expressed as a capital value and the amount is £225,000 for the 2007/08 tax year (rising to £255,000 by 2010/11). Any excess is subject to the Annual Allowance Charge.
Annual Allowance Charge - The tax charge that is levied on an individual who exceeds the Annual Allowance.
Beneficiary – A person who will become entitled to benefits from the Scheme on the event of a member’s death.
Benefit Statement – An estimate of the benefits that will become payable to a scheme member at retirement or to a beneficiary in the event of the member's death.
Career Average Scheme - A scheme where the benefit for each year of membership is related to the pensionable earnings for that year.
Centralised Scheme – An occupational pension scheme that is operated on behalf of a number employers in an associated field.
Contracted-out Pension Scheme – A scheme that provides benefits in place of the State Second Pension (formerly SERPS).
Deferred Member – A member who is no longer active in the Scheme but is not yet in receipt of a pension.
Defined Benefit Scheme – A scheme where benefits are linked through a formula to the member's earnings and/or length of pensionable service.
Dependant – A person who is financially dependent on a member or pensioner at the time of their death.
Early Retirement – The payment of retirement benefits before a member's normal retirement age.
Final Pensionable Earnings – The earnings on which pension benefits are calculated on leaving a final salary scheme.
Final Salary Scheme – A defined benefit scheme where benefits are calculated by reference to final pensionable earnings and in the case of the SFHA Pension Scheme.
Guaranteed Minimum Pension (GMP) – The minimum pension which a salary-related occupational pension scheme must provide as one of the conditions of being contracted-out of the State Earnings Related Pension Scheme (now State Second Pension) for pensionable service accrued prior from April 1978 and April 1997.
Her Majesty's Revenue & Customs (HMRC) - Founded in 2005 following the merger of the Inland Revenue and HM Customs & Excise. Responsible for the tax approval of pension schemes and taxation of contributions and benefits.
Ill-Health Early Retirement – Immediate payment of retirement benefits on the grounds of ill-health before normal retirement age.
Late Retirement – The payment of retirement benefits to a member of the Scheme after normal retirement age.
Lifetime Allowance - Overall maximum capital amount of tax relievable pension savings that any one individual can accumulate in all pension arrangements. This is £1.6million for 2007/08 tax year (rising to £1.8million by 2010/11).
Lifetime Allowance Charge - The tax charge that is levied on any excess funds for an individual who has a capital amount of pension savings that exceeds the Lifetime Allowance. the tax charge is applied on the excess.
Limited Price Indexation (LPI) – This refers to the requirement under the Pensions Act 1995 to increase most occupational pension scheme pensions in payment by 5% a year or by increase in the Retail Prices Index, is less. It applies to pensions accrued since April 1997. Since April 2005 occupational pension schemes have been required to provide increases of up to 2.5% on pensions accrued since that date.
Member – A person who has been admitted to membership of a pension scheme and has an entitlement to benefits under that scheme.
Normal Retirement Age – The age at which a member of a pension scheme normally becomes entitled to receive their retirement benefits.
Occupational Pension Scheme – A scheme organised by an employer or a group of employers to provide pensions and/or other benefits on leaving, death or retirement.
TPAS (The Pensions Advisory Service) - An independent organisation that offers free advice to members who have problems with a workplace pension scheme. TPAS does not give financial advice.
Participating Employer – An employer whose employees are entitled to become members of the Scheme.
Pensions Increase – The increase made to a pension in payment.
Pensionable Earnings – The earnings on which benefits and/or contributions are calculated under the scheme rules.
Pensions Regulator - The UK regulator of work based pension schemes. The Pensions Act 2004 gives the Pensions Regulator a set of specific objectives:
- to protect the benefits of members of work based pension schemes,
- to promote good administration of work based pension schemes, and
- to reduce the risk of situations arising that may lead to claims for compensation from the Pension Protection Fund.
Pensionable Service – The period of service which is used to calculate benefits.
Pensioner – A member who is currently receiving a pension from the Scheme.
Pensions Ombudsman – The Ombudsman deals with disputes and complaints from members of occupational pension schemes.
Trustee – An individual or company that is appointed to carry out the purposes of a trust.