Terminology


A

Active member
A Member of the fund who is at present accruing benefits in respect of current service.

Additional voluntary contributions (AVCs)
Additional contributions (i.e. over and above a member’s normal contributions, if any) which the member elects to pay to the scheme in order to secure additional benefits.

Annuity
A series of payments, which may be subject to increases, made at stated intervals until a particular event occurs. This event is most commonly the end of a specified period or the death of the person receiving the annuity.

Asset allocation strategy
The splitting of the assets of a pension scheme between the various asset classes. This will primarily reflect the long term needs of the fund, but may be adjusted to favour particular asset classes or markets which look attractive in the short term.

Asset class
A collective term for investments of a similar type. The main asset classes are equities (shares), bonds, cash and property.

B

Bond
A certificate of debt issued by a company, government or other institution. A bond holder is a creditor of the issuer and receives interest at a rate stated at the time of issue.

C

Commutation
The forgoing of part or all of the pension payable from retirement for an immediate lump sum benefit.

Commutation factors
Factors used to determine the amount of pension which needs to be forgone in order to provide a given lump sum benefit.

Contribution holiday
A period during which employers’ and/or members’ contributions are temporarily suspended, normally when the fund is in surplus. (The term is sometimes used loosely when contributions continue to be paid but at a reduced rate.)

Current assets
Assets which are not investments or fixed assets and which are essentially short term, such as debtors, payments in advance (prepayments), short-term deposits and cash.
Current liabilities
Creditors to be paid in the near future, such as amounts due to the suppliers of goods and services and sums to be paid in respect of benefits already due to members at the accounting date.

Custody
The safe-keeping of securities and other investments by a custodian.

Custodian
A financial institution, independent of the investment management function. The custodian keeps a record of a client’s investments and may also collect income, process tax reclaims and provide other services agreed with the client.

D

Deferred annuity
An annuity which commences from a future date.

Deferred pensioner
“A member no longer accruing benefits but who has accrued benefits that will be payable at a future date.
A member entitled to preserved benefits.”

Defined contribution scheme
A scheme providing benefits on a money purchase basis.

Discretionary increase
An increase in a pension in payment or in a preserved benefit arising on a discretionary basis i.e. other than from a system of escalation or indexation. Such an increase may be of a regular or an ad hoc nature.

E

Early retirement
The retirement of a member with immediate retirement benefit before normal retirement date.

F

Free cover
The maximum amount of death or disability benefit which an insurance company covering a group of lives is prepared to insure for each individual without production of evidence of health.

Fund manager
An individual or body to which the investment of the whole or part of the assets is delegated in accordance with the provisions of the Rules of the retirement scheme.

G

General (or Reserve) account
“The General (or Reserve) Account is the vehicle from which benefits and expenses are paid.
This account is funded by the transfer of Personal Member Accounts (PMAs) from the Member Account whenever a benefit is payable in respect of a Member and by employers’ contributions to meet the fund expenses and risk benefit costs.”

I

Ill-health early retirement
Retirement on medical grounds before normal retirement date.

Insured scheme
A scheme where the sole long term investment medium is an insurance policy (other than a managed fund
policy).

L

Late retirement
The retirement of a member after normal retirement date.

Liabilities
Amounts which a pension scheme has an obligation to pay now or in the future.

Lifestyle investments
An asset allocation strategy used mainly in defined contribution schemes whereby a member’s investments are adjusted depending on age and term to retirement. Typically asset are switched from equities to bonds and cash as retirement approaches.

M

Member
A person who has been admitted to membership of the fund and is entitled to benefits under it.

Member account
“The Member Account is the vehicle in which Member and Employer contributions and other transfers are invested in order to build up the member’s retirement benefits.
Contributions and transfers are credited to an individual account, called a Personal Member Account (PMA). The Member Account represents the sum of the individual PMAs.

Member Accumulated Share (MAS)

Money purchase scheme
The determination of an individual member’s benefits by reference to contributions paid into the scheme in respect of that member, usually increased by an amount based on the investment return on those contributions.

Multi-employer scheme/centralised scheme
An occupational pension scheme operated on behalf of several employers.

N

Normal Retirement Age (NRA)
The age of a member of an occupational pension scheme at the normal retirement date as specified in the scheme rules.

Normal Retirement Date (NRD)
The date (usually the date of reaching a particular age) specified in the rules of an occupational pension scheme at which a member would normally retire.

O

Occupational scheme
A scheme organised by an employer or on behalf of a group of employers to provide benefits for or in respect of one or more employees.

P

Participating employer
An employer, some or all of whose employees have the right to become members of the fund.

Pensioner
A person who is currently receiving a pension from the fund.

Preservation
The granting by a scheme of preserved benefits to a member leaving pensionable service under an occupational pension scheme before normal pension age.

Preserved benefits
Benefits arising on an individual ceasing to be an active Member under the fund, payable at a later date.

Prospective member
An individual, not currently a member of the pension scheme of his/her employer, who is either entitled to join or will become eligible to join in the future by virtue of continuing in employment with the employer.

R

Reversionary annuity
An annuity which commences to be paid on the death of a specified person, normally to a spouse or a
dependant.

S

Self-administered scheme
An occupational scheme where the assets are invested, other than wholly by payment of insurance premiums with an in house investment manager or an external investment manager.

Service
A period of employment with an employer which counts for benefit accrual.

Special contributions
Any contribution to a retirement benefits scheme by an employer which is not an ordinary annual contribution.

T

Total Accumulated Share (TAS)

Transaction costs
Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of an asset or a liability. They include fees and commissions paid to agents, advisers, brokers and dealers, levies by regulatory agencies and securities exchanges, and transfer taxes and duties.

Transfer value
The amount of the payment made from one pension scheme to another to enable the receiving arrangement to provide alternative benefits.

U

Unrealised Gain/Loss
Unrealised gain/loss is the difference between the market value and the carrying amount of an asset that is being held. This ‘paper’ gain/loss may crystalise if the asset is sold.

V

Vested rights
Benefits to which a member of a scheme is entitled whether or not they remain an active member of the
scheme.

W

Withdrawal benefit
A benefit payable when an employee leaves employment with less than 2 years of service or when accumulated benefits are transferred to another pension arrangement.