Accrual Rate

This is the rate a member builds up benefits in a Defined Benefit (DB) scheme. For example in a scheme with a 1/60th accrual rate, the pension is calculated as 1/60 x pensionable salary x pensionable service.

Active Management

A style of investment management where the aim is to outperform a chosen index (e.g. The Financial Times - FTSE All Share Index).

Active Member

A member of a pension scheme who is paying contributions into the Scheme. These contributions can be from the member, the employer or both. Someone can still be an active member if no contributions are currently being paid, for example due to sick leave, provided that the contributions restart within a set period.

Added Years Additional Voluntary Contributions (AVCS)

This is a type of AVC where additional service is built up in return for extra contributions being paid. Currently the only TPT scheme that offer this is the Oxfam Pension Scheme. This type of benefit can only apply to members in a Final Salary benefit structure. It is not possible to do this if the member is in a Defined Contribution (DC) or CARE benefit structure.

Additional Voluntary Contributions (AVCs)

Members of either a Defined Benefit (DB) or Defined Contribution (DC) scheme may pay these extra contributions which can be used at retirement to increase benefits.

Annual Allowance

This is a limit on the total amount that can be either paid or earned each year in a pension scheme without tax being payable. For Defined Contribution (DC) schemes the assessment is based on the total amount of contributions paid in the year, including those from your employer. For Defined Benefit (DB) schemes the assessment is based on the total amount of benefits that have been earned in the year. The amount of the annual allowance varies depending on your earnings and whether you are already receiving a pension. The Annual Allowance takes into account all the Schemes that you are a member of.

Annual Management Charge (AMC)

This is a charge made to members of Defined Benefit (DB) schemes. The charge is typically made up of the number of different costs, to cover ongoing expenses of running a fund and is deducted from the member's fund.

Annuity

A type of retirement income which provides you with a regular payment, usually for life. If you have a Defined Contribution (DC) pension fund you can use it to buy as annuity. There are different types of annuity for you to choose from, and usually you can shop around to choose which provider you want to buy it from. Annuities are not usually relevant if you are in a Defined Benefit (DB) scheme as that automatically provides you with a regular payment for life.

Auto-Enrolment

Under the Pensions Act 2008, every employer in the UK must put certain staff into a pension scheme and contribute towards it. This is called 'automatic enrolment'.

Benefit structure

Some schemes offer a range of different benefit structures to employers and members, for example Defined Benefit (DB) or Defined Contribution (DC). If you participate in one of these schemes, it is up to your employer to determine the benefit structure which you will be enroled into.

CARE

CARE stands for Career Average Revalued Earnings schemes and is a type of Defined Benefit (DB) scheme. A member’s pension is worked out using the average of their salaries during the time they have been contributing to the scheme. Please note that does not include CARE DC, which has a Defined Contribution (DC) benefit structure.

Commutation (Factor)

When a member with a Defined Benefit (DB) pension retires they can choose to exchange an amount of annual pension for a cash sum. When working out the lump sum and annual pension, a factor is used to calculate how much pension must be given up to provide the cash lump sum. For example, if the factor is 15:1, then a £10,000 annual pension could be exchanged for a sum of £150,000.

Consumer Price Index (CPI)

A measure of price inflation.

Contracted-Out

Before 6 April 2016 a Defined Benefit (DB) scheme could be contracted-out as part of the State Pension scheme. Employees who were contracted-out would pay lower National Insurance contributions. When the State Pension scheme was changed from April 2016 contracting-out stopped.

Corporate Advisers

Organisations that advise companies on employee benefits.

Declaration of Compliance

(Formally ‘registration’) Once employers have started automatically enrolling their staff in a pension scheme (as required by law) they are required to confirm that they are complying with the legislation and provide supporting information to The Pensions Regulator. They do this through a declaration of compliance. This is also known as Registration.

Default Fund: Defined Contribution (DC)

Defined Contribution (DC) schemes always offer a suitable fund for members' contributions to be automatically invested. Members may be offered alternative investment funds after the enrolment process is complete.

Deferred Member

This is what we call a member of a pension scheme who is no longer building up new benefits in the Scheme but has not yet taken their benefits. Someone would become a deferred member if they left the employer they were with when they joined the scheme. Members can choose to become a deferred member before they leave employment.

Defined Benefit (DB)

This is a type of pension scheme and examples include 'final salary' or 'career average related earnings'. The amount you get at retirement is based on a formula which takes into account a number of things, including your earnings and how long you have been a member of the pension scheme. In most schemes, when you retire you can take some of your pension as a tax-free cash lump sum. The rest you get as a regular income, on which you might pay tax.

Defined Contribution (DC)

These are also known as 'money purchase' schemes. This is a scheme where your contributions (and those your employer makes for you) are invested. The amount available to provide benefits at retirement is based on how much has been paid in and how well the investments have performed.

Dependant Pensioner

Someone who is receiving a pension following a member's death. This would usually be because they were the spouse, partner or child of the deceased member.

Drawdown

When you retire, this is one way of taking an income directly from your Defined Contribution (DC) pension schemes. You can take lump sums over a period of time and the remaining pension pot stays invested, so its value can go up and down. The income you get is taxable.

Early Retirement Factor (ERF)

If you decide to take payment of your benefits before you reach the Normal Pension Age, a factor is used to determine what your pension will be. It will usually be reduced as it is likely that your pension will be paid for longer. The earlier you take your pension, the greater the early retirement reduction factor and the larger the reduction.

Eligible Jobholder

These are workers who normally work in the UK, are aged 22 or over and under State Pension Age, whose earnings are above a certain amount (this figure is subject to change each April). Employees who meet these criteria must be auto-enrolled into a Qualifying Workplace Pensions Scheme (QWPS) by their employer.

Entitled Worker

These are workers who work in the UK, aged 16 or over and under 75, whose earnings are below a certain amount (this figure is subject to change every April). Employees who meet these criteria can choose to join a pension scheme. The Scheme does not have to be a Qualifying Workplace Pensions Scheme (QWPS) and the employer does not need to make contributions if they do not wish to do so.

Final Salary

These are also known as Defined Benefit (DB) schemes. The benefits at retirement are based on the member’s ‘final salary’ (set out in by the Scheme Rules) at or close to retirement and their service in the Scheme. The pension a member will receive is based on both their final salary and how long they have been contributing into the pension scheme.

Guaranteed Minimum Pension (GMP)

If you were a member of a contracted-out Defined Benefit (DB) scheme before 6 April 1997 then you may receive a GMP. It is an element of the pension which is 'broadly equivalent' to the amount the member would have received had they not been contracted out of State Earnings Related Pension Schemes (SERPs). GMP receives different levels of increases than the rest of the benefit the member has from the Scheme.

Hybrid Scheme

An occupational pension scheme that is made up of both Defined Benefit (DB) and Defined Contribution (DC) structures.

Inducement

This is action taken by an employer where the main purpose is to encourage an employee to opt out of a pension scheme or not to join one if they have the opportunity to do so. Inducement is illegal. If you think you may have been induced please contact The Pensions Regulator. You can find out more here: http://tpr.gov.uk/docs/inducement-offers-guidance.pdf

Late Retirement Factor (LRF)

If you decide to retire after the Normal Pension Age, a late retirement factor is used to work out your pension once you do retire. It means that your pension will probably be increased as it is likely that you will have your pension for a shorter time. The later you take your pension, the greater the late retirement increase factor.

Lifestyling

The process where in Defined Contributions (DC) schemes a member’s fund is gradually moved to lower risk investments in the years before retirement. At TPT we use Target Date Funds, which use this process when investing members' funds.

Lifetime Allowance

The limit on the amount of pension benefit that can be drawn from pension schemes – whether lump sums or retirement income – without triggering an extra tax charge.

Limited Price Indexation (LPI)

Each year your pension will increase. If these increases are subject to LPI, they will be increased by the rise in the Consumer Prices Index (CPI) over the year, up to a set maximum. The maximum was reduced to 2.5% per annum compound for pensions in payment earned on or after April 2005 (from a maximum of 5% per annum compound previously).

Lump Sum

A single payment made at a particular time, as opposed to a number of smaller payments or instalments.

Marginal Rate of Income Tax

Individuals pay tax at a rate determined by their income. Their usual rate on income tax is known as their marginal rate.

Money Purchase Annual Allowance

If you take part of all of your Defined Contribution (DC) pension fund as benefits and want to continue making new contributions to a Defined Contribution (DC) pension scheme, then this much lower allowance might apply instead of the annual allowance.

Non-Eligible Jobholder

These are employees who normally work in the UK, aged 16 or over and under 75. They must have qualifying earnings within a certain range (this range is subject to change each April). This definition also applies to employees aged between 16 and 22 or aged between State Pension Age and 75, with qualifying earnings are above a certain amount (this figure is subject to change each April). People who meet these criteria can choose to opt in to a Qualifying Workplace Pensions Scheme (QWPS). If they choose to do this, the employer must also pay contributions at the minimum level required under the regulations.

Normal Minimum Pension Age

Generally the rules of a registered pension scheme does not allow members to be paid any pension benefits before they reach the normal minimum pension age. The normal minimum pension age for a member is usually age 55. However, if you joined a scheme before 6 April 2006 your normal minimum pension age may be 50, subject to certain conditions.

Occupational Pension Scheme

This is a pension scheme set up by an employer for their employees. It can be Defined Benefit (DB) or Defined Contribution (DC).

Opt In

This is the process for Non-Eligible Jobholders, and Eligible Jobholders in postponement, to choose to join a pension scheme.

Opt Out

Employees who have been automatically enrolled into a scheme can choose not to stay in the Scheme. The period when opt-out can take place lasts one month after an employee was enrolled and an opt-out notice will need to be obtained from the pension scheme, not the employer.

Paid Up Member

A member of a Defined Benefit (DB) pension scheme that is no longer paying contributions or building up new service, but their benefits are still linked to their salary.

Partial Pensioner

a member who has taken part of their benefits but still has benefits left to take. This is only possible in certain schemes.

Pay Reference Period

The period of time in which an employee earns money, such as weekly or monthly.

Pension Protection Fund (PPF)

A government fund set up to pay compensation to members of eligible Defined Benefit (DB) pension schemes. A scheme may enter the PPF when there are insufficient assets in the pension scheme to pay a certain level of benefits.

Pension Wise

A free and impartial government service which provides guidance on the different options available for taking benefits from a Defined Contribution (DC) scheme. Which can be found at www.pensionwise.gov.uk.

Pensionable Commencement Lump Sum (PCLS)

In Defined Benefit (DB) schemes members usually have the option at retirement to give up part of their pension and take a lump sum. This lump sum is known as the PCLS. The PCLS is restricted to a maximum level and will usually be paid tax free. It is only possible to take a PCLS when the member starts to receive a pension payment.

Pensionable Pay or Pensionable Earnings

This is a term for the pay used in Defined Benefit (DB) benefit calculations and consists of the elements of pay from which contributions are deducted. This will vary according to the rules of a particular scheme and will usually include basic salary although it can also include bonuses and other elements of pay. Where the rules of a scheme do not define pensionable pay, the employer will decide the definition.

Pensionable Service

This is a term used in Defined Benefit (DB) benefit calculations and means the amount of time a member has been an active member of a scheme. Pensionable service is either measured in complete months and years or in years and days depending on the scheme.

Pensioner

A member of a pension scheme who is currently receiving their retirement benefits in the form of regular payments.

Pensioner Pot

This is a term used to describe the benefits held in a Defined Contribution (DC) scheme. It simply refers to the pot of money that is invested for the member. It is not relevant to Defined Benefit (DB) schemes.

Phasing

Under auto-enrolment requirements, there is a minimum level of contributions for Defined Contribution (DC) which will increase over a period of time. A further increase in these rates applied from April 2019.

Postponement

Employers can choose to postpone enrolling employees under auto-enrolment for up to three months. This may also be referred to as a ‘waiting period’. Postponement can be used to defer enrolment for groups of employees or individual employees. This is also known as a Waiting Period.

Qualifying Earnings (QE)

These are the earnings used to decide whether an employee is an eligible worker or not. This includes salary, commission, bonuses, overtime, statutory sick pay, statutory maternity, paternity and adoption pay taking their earnings above a certain amount (this figure may be changed every April).

Retail Prices Index (RPI)

A measure of price inflation, generally higher than the Consumer Prices Index (CPI).

Right To Join

Employees who are categorised as an entitled worker also have the right to join a pension scheme. See ‘entitled worker’.

Salary Sacrifice

This is a way for employees to give up part of their salary instead of paying pension contributions. As a result they, and their employer, pay lower National Insurance Contributions. The employer then pays the member’s salary sacrifice as a pension contribution to a pension scheme. There can also be salary sacrifice arrangements where part of the salary is given up to pay for things such as childcare vouchers or season ticket loans.

Self Select Funds

TPT has seven self select funds, where Defined Contribution (DC) members can invest their funds.

Serious Ill-Health Commutation

This is where a member, who has a life expectancy of less than one year, can take all their benefits as a one off tax free lump sum.

Socially Responsible Investment (SRI)

Investment in companies that meet prescribed social, ethical and environmental standards. TPT’s SRI Fund invests in companies that are working towards environmental sustainability, developing positive relationships with stakeholders and upholding and supporting universal human rights.

Staging Date

This is the date at which an employer will have to begin complying with the auto-enrolment legislation. This is dependent on the size of the employer’s largest PAYE group. Employers should contact The Pensions Regulator to confirm their staging date.

Target Date Fund

This is the fund Defined Contribution (DC) members’ funds automatically get invested. The investments are gradually switched from higher risk (and potentially higher growth) funds into lower risk funds, as the member moves closer to retirement. Members can choose to move their funds, see self select fund for more information

Target Retirement Age (TRA)

Also known as Target Retirement Date. It is the date when you expect or aim to retire under a Defined Contribution (DC) pension scheme.

Tax Relief

Receiving tax-relief means that you pay a lower amount of tax. In pension terms this means that some of your money that would have gone to the Government as tax, goes into your pension instead.

Transfer Value

Also referred to as a cash equivalent transfer value (CETV). This is the amount of money that would be paid to another pension scheme if a member chooses to transfer their benefits. In Defined Contribution (DC) schemes it is the current fund value. In a Defined Benefit (DB) scheme the transfer value is calculated by the scheme actuary.

Trivial Commutation

if your total retirement savings are less than an amount set by the Government, you might be able to choose to take this money as a one-off cash lump sum. Up to 25% of the payment is tax-free, with the remainder subject to tax at your marginal rate of income tax.

Trustee

Trustees manage a pension scheme acting in the best interests of the scheme’s scheme members and beneficiaries. The Trustee of TPT is a corporate Trustee, Verity Trustee Limited.

Uncrystallised Funds Pension Lump Sum (UFPLS)

The option to take your Defined Contribution (DC) pension fund as a one off or series of cash payments. You can take up to 25% of each payment tax-free, with the remainder subject to tax at your marginal rate of income tax.

Worker

Any individual who works under a contract of employment (an employee) or, has a contract to perform work or services personally and is not undertaking the work as part of their own business. It is the employer’s responsibility to determine if an individual meets this definition for auto-enrolment.