GBPensions jargon buster

Jargon Buster

The financial services industry is notorious for its jargon, abbreviations and acronyms. At GBPensions, we promise to try and speak only in normal, everyday English – and to keep the technical terminology to an absolute minimum!

As part of this commitment, we’ve put together a Jargon Buster which should further help to demystify the pension transfer process.


A person qualified to calculate rates and dividends, etc, using probabilities based on statistical records.

Added years (DB)

Some DB pensions let you pay extra each month and that is counted as if you had paid into the pension scheme for more years. That boosts your guaranteed pension and is generally better than Additional Voluntary Contributions (AVCs).

Additional Voluntary Contributions (AVCs) (DB)

Normally called just AVCs, these are extra contributions you pay to boost your pension at work. They form a separate DC pension pot with your name on it.

Annual allowance

You usually pay tax if savings into your pension pots go above the annual allowance, currently £40,000 a year. You can top up your allowance for the current tax year (6 April to 5 April) with any allowance you didn’t use from the previous 3 tax years.


Until April 2015, this was the usual means by which a pension fund is converted into an annual income for life that is paid regardless of how long the recipient lives. They can prove poor value for those who die early, as their annuity provider pockets any surplus funds. The law has been amended to give people greater flexibility and control of their pension fund by removing the need to buy an annuity altogether.

Authorised payment

An authorised payment is a payment from a UK pension scheme to a member that is not an unauthorised payment. Such payments are effectively legitimate and not subject to additional tax charges.

Cash Equivalent Transfer Value (CETV)

Before transferring out of a defined benefits pension scheme, the scheme is required to actuarially convert the benefits you’ve accrued into a lump sum amount. The CETV is the actual amount that can be transferred to another suitable arrangement or scheme.

Defined Benefit (DB) scheme

The so-called “gold-plated” pensions, where your retirement income is based solely on earnings and the length of time you have been a member of the scheme. In most cases it is your final salary that is the key determinant, but some pension schemes now use a “career average” salary instead. While commonplace in the public sector, such pension schemes are now rare beasts elsewhere.

Defined Contribution (DC) scheme

Also known as money purchase schemes. Here your retirement benefits are based solely on how much money you have accumulated in your pension pot, based on contributions from you and your employer plus investment returns. Most work pensions are now DC schemes and come with no guarantees. When you reach age 55 you can take the money out, though it is usually more sensible to leave it there until you retire.

Drawdown (DC)

If you do not want to buy an annuity or spend all your savings, you can transfer your pension pot into in a drawdown scheme. It allows you to leave your pension fund invested and take amounts out of your fund when you want but the fund remains yours – unlike an annuity where you give the whole lot to the insurance company.

Free-standing AVCs (FSAVCs) (DC)

Pension top-ups to a personal plan that is unconnected to any company or occupational scheme.

Guaranteed annuity rate (DC)

Some older pensions – normally begun before the mid-1990s – pay a guaranteed rate of annuity (GAR) when you reach the pension age specified in the scheme. These rates can mean an annuity bought with your fund could be significantly more than the amount you would get on the market today. So always check for a GAR before deciding what to do with your fund. If you don’t ask, you might lose it.

The UK’s inland revenue

In Specie

From the Latin meaning in its real or actual form. An in specie transfer is one where the underlying assets held in one scheme are transferred direct to another scheme. In other words, the funds or investment portfolio currently held within a UK scheme can remain invested exactly where they are, but can be moved from the UK scheme into a new QROPS or SIPP as a whole and completely intact, without first being converted into cash.

NZ’s inland revenue

Letter of Authority (LOA)

A signed document, which formally grants permission to a third party (in this case GBPensions) to obtain information on the signer’s behalf.

Lifetime allowance

Before you retire, the capital value of your pensions cannot exceed £1.25 million (until tax year end 2016). A DB pension is converted to a capital sum by multiplying by 20. So an income of £20,000 a year is worth £400,000 and you reach the lifetime allowance if the pension you are due is worth £62,500 or more. Because these rules and limits have changed frequently there are many transitional protections that complicate matters.


A catch-all term that can describe both the investment plan you save into and the income you receive from it in retirement. At its most basic, a pension is a tax-efficient savings plan, where your money is locked away until you are at least 55. They can be provided via the state, your employer or a private insurance company.

Pension Freedom

As of 6 April 2015, most of the rules about what you can do with your pension fund were scrapped. You can do what you want with it – which is why it is called pension freedom.

Pension Protection Fund

If your employer goes out of business or the firm is sold then your DB pension will usually be taken over by the Pension Protection Fund, that guarantees you will get at least 90% of the promised pension up to a limit depending on your age. If you are already retired, the pension will be paid in full.

Personal pension plan (DC)

You can pay into a personal pension whether you work or not. They are used by self-employed people or those who have little or no pension at work.

Qualifying Recognised Overseas Pension Scheme (QROPS)

It is possible to transfer funds from a UK registered pension scheme into an overseas pension or superannuation scheme that has been recognised by Her Majesty’s Revenue and Customs (HMRC) as a QROPS.

Retirement Annuity Contract (DC)

Also called Section 226 pensions, Retirement Annuity Contracts were not sold after June 1988, but if you bought one then and are still paying into it, then it might be a very good deal. Check if it has a guaranteed annuity rate – many did.

SIPP (self- invested personal pension) (DC)

A special type of personal pension where individuals are free to choose where their pension fund is invested, rather than entrusting their money to one insurance company or fund manager. SIPPs are good for those with big pension funds who are confident in making investment decisions.

Stakeholder pension (DC)

Lower-cost personal pension with typical charges of just 1% a year. Most have more limited fund choice.

Statement of Advice (SOA)

Relates to the advice process and recommendations supplied by an adviser.

Superannuation scheme

A phrase that is used less frequently in the UK to describe a pension scheme. Effectively it’s a savings arrangement into which contributions can be made by individuals and/or their employers in order to accumulate an investment fund to provide an income, lump sum or both upon retirement or when they stop work.

Tax relief

Any contributions up to the annual allowance that you make into a pension are free of tax. That means every £100 you pay in out of your taxed income is boosted to £125. Higher rate taxpayers can claim back the tax they have paid.

Transfer value

Don’t just look at the projected value of your pension plan, or even its investment value today. If you are worried about the performance of the plan, look at its transfer value. As the name suggests this is what you will be paid – when all charges and penalties have been deducted – if you were to move your funds elsewhere. To some this may seem a more realistic picture of their current pension position.

Unauthorised payment

UK tax rules specify the conditions that need to be met for payments from a UK pension scheme to be authorised. Any payment that doesn’t meet these conditions is an unauthorised payment and subject to tax charges levied against the member and ceding scheme of up to 55% and 40% of the released amount. Unauthorised payments include most lump sum payments to cash-in or access pension funds before age 55 except when:

  • the member retires due to ill health
  • if, before 6 April 2006, the member had the right under the pension scheme to take their pension before age 55

Certain movements of pension funds within a pension scheme are also classed as unauthorised payments.