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Glossary

Asset Allocation
Term used to describe the breakdown of different investments within a portfolio or fund. Always decided by someone.

Active management

An investment strategy that tries to create excess returns through the recognition, anticipation, and exploitation of short-term investment trends.

Passive management

An investment strategy whereby an investor or financial advisor makes long-term investments in certain securities and is not influenced by short-term market fluctuations. The management style is the opposite of active management.

Transaction charges

Fees charged by financial companies in the sale and purchase of securities

Annual Management Charge
Term for a charge levied on an investment fund for its management and administration

Annuity
An income for life, or sometimes a set period of time, provided by a company in exchange for a capital lump sum, usually from a pension.

Asset Allocation
Term used to describe the breakdown of different investments within a portfolio or fund. Always decided by someone.

Asset Backed
A pension or annuity that relies in part on the current value of underlying investments. So can be protected against unexpected inflation.

AVCs (Additional Voluntary Contributions)
A pension plan, designed to top-up up your occupational pension.

Base Rate
The term that is given to the official interest rate indicated by the Bank of England.

Basic State Pension
An income paid by the government from State pension age. It's paid to people who have paid enough National Insurance contributions.

Benchmarks
It is difficult to determine how well or how badly an investment is performing without something against which to compare it. Over the years a large number of benchmarks have been created in order to give his guidance.

Beneficiary
A person or persons named (and so entitled to), or as part of a class or group, are only potentially entitled to, assets held in a trust.

Bid Offer Spread
The difference between the price a unit can be sold for and the price the unit can be bought for.

Blue Chip
This term describes the share of the largest, most consistently profitable companies in any particular market.

Book Cost
The total purchase cost at which investments were acquired.

Bonds

An alternative name for a fixed-income investment.  Bonds are a form of debt investment, where the investor lends funds to the bond issuer.  In return the lender expects to receive back the principal and interest (also known as coupons).  Governments, local authorities, or companies generally issue bonds.

Cancellation Rights
The right to change your mind about a contribution made to a pension usually 30 days.

CETV
Cash Equivalent Transfer Value. The lump sum value of the rights accrued in a scheme, assuming the member leaves at a specified date.

Client Agreement

A document that sets oiut the basis of the service to be provided between investment managers and their clients.

Company Pension Scheme
A scheme sponsored, and contributed to, by an employer to provide pension benefits to employees when they retire.

Compensation Scheme
A scheme set up to make compensation payments to occupational pension schemes where the employer is insolvent and assets have been removed through fraud or misappropriation. Started in April 1997 it was created by the Pensions Act 1995.

Conventional Gilts

Standard UK government bonds that offer a fixed rate of interest over the life of the bond.  They are not index-linked.

Critical Yield
Average annual growth required of a pension fund assets for an USP to provide equivalent income as annuity.

Death Benefits
What happens to the residual pension benefits e. g. lump sum net of tax, dependants pensions on death before or after starting pension.

Death in Service Benefits
Benefit provided for family or dependants of employees who die in service, a common feature of approved occupational pension schemes.

Deferred Benefits
Pensions entitlements can be taken at a given age or delayed usually with some enhancement. State pensions can be deferred too.

Dependant
A person who has been wholly or partially finacially dependent upon the deceased member or pensioner at or near to the time of his death or retirement.

Discretionary

Where a client allows their investment manager to make all the decisions on how the portfolio is run.  The investment manager can make investments without asking for the client’s approval, as long as it is a preferred class of investment and appropriate to  the client’s requirements, including their risk – return appetite.

DFM
Discretionary fund manager who makes investment decisions without referring to the investor for every deal. Used by SIPP's.

Discretionary Trust
A trust where the benefits are payable at someone's discretion (usually the trustees).

Drawdown
Now called unsecured income, this allows you to remain invested in the pension, whilst taking the tax free lump sum and a flexible income

Earnings
The amount you are paid before tax. Not always the same as pensionable earnings

Earnings Threshold
Pay in a relevant period if earned by a worker over age 22 and under SPA makes them an 'eligible worker' and so subject to auto-enrolment

Enhanced Annuity
An annuity paid at a higher rate because of lifestyle or health considerations. Available to about 40% of population.

Equities
Another name for shares, stocks or units of ownership in a company.

Exchange Traded Funds

Exchange traded funds or ETF’s for short are investment vehicles that track any one of a wide range of sectors or indices.  Traded like shares on major stock exchanges across the world, they can be bought or sold any time during the trading day at the market price.  Similar to an index fund, an ETF seeks to reflect the performance of an index such as the FTSE All Share index.  A good example of ETF offerings would be Barclays’ ishares.

Executive Pension Schemes
Small company pension arrangements quite often for one man, or for the directors of the company. Can also be used as top-up to the main company pension scheme.

Expression of Wish
The process for informing the trustees of occupational schemes of the nominated beneficiaries of lump sum pension death benefits.

Final Bonus (Terminal Bonus)
Amount added to a with-profit investment at the claim stage representing investment return in excess of bonuses already given

Financial Conduct Authority

The FCA and the Prudential Regulation Authority (PRA) are the bodies that regulate the financial services industry in the UK.  These organizations superseded the Financial Services Authority on 1 April 2013.

FTSE 100 Index

A share index of the 100 largest companies listed on the London Stock Exchange in terms of market capitalization.

FTSE 250 Index

A share index of the 101st to 350th largest companies listed on the London Stock Exchange in terms of market capitalisation

FTSE All Share Index

A broad UK stock exchange index covering around 800 companies prepared by the Financial Times together with the Faculty and Institute of Actuaries and the London Stock Exchange.

FSAVC - Free Standing Additional Voluntary
Members of occupational pension schemes used FSAVC's to make extra savings to a scheme not provided by their employer.

Fund Manager
A professional who runs an investment fund (unit trusts etc), and decides what shares, bonds or gilts the fund should contain.

GAD
Government Actuary's Department provides actuarial advice to the DWP on government policy affecting occupational pension schemes.

GAD rate
Figure based on 15-year gilt yields, adjusted for age and sex of pension investor, to work out limits on income withdrawal from their fund.

GAR
Guaranteed Annuity Rate - an annuity rate promised at policy commencement. Offered on many old style personal pensions and often attractive.

General Investment Account

GIA is a form of savings kept with a banking institution for a stated period, with the exception that it has no tax-free benefits.  It is a vehicle for housing various investments and is a suitable ‘feeder’ account to fund an ISA

Gilt
A bond issued through the United Kingdom Treasury and guaranteed by the British government, widely used by pension funds.

Government Actuary's Department (GAD) rate
Data used to determine the maximum income from unsecured pension funds and maximum and minimum for alternatively secured pensions.

Guaranteed Minimum Pension (GMP)
The minimum pension an occupational pension provides for employees who were contracted out of the SERPS between 1978 and 1997.

Illustration
A series of calculations, growing investments at constant rates and deducting charges to show the net effect, not a prediction or promise.

Income Drawdown
Now called unsecured income, this allows you to remain invested in the pension, whilst taking the tax free lump sum and a flexible income.

Independent Financial Adviser
Independent Financial Advisers or IFAs are professionals who offer independent advice on financial matters to their clients.

Index-Linked
Varying in value in relation to a price index.

Inflation
A sustained increase in the price level in an economy resulting in an increase in the cost of living

Inflation Risk
The risk that the value of a pension pot is eroded by inflation.

Investment Trusts
Companies which manage pooled investments, and are registered under the Companies Act. Entry to the trust is by purchase of the shares in the Investment Trust, which is in effect a closed fund, unlike a Unit Trust.

ISA  

Tax efficient investment vehicle The aim when using ISAs is to move your investments from a taxed environment into a more tax efficient environment, and to ensure that new investment funds are invested, from the outset, in a way that minimises tax

Key Features Document
'Key features document' explains details such as the aims and benefits, the level of risk, an illustration and commission and charges.

Liquidity

The amount of cash or investments that can be readily converted into cash in a portfolio. 

Lump Sum
An entitlement of 25% of your pensions can be paid tax free upon retirement.

Managed Fund
A fund, comprising a mixture of equity, property, fixed interest investments, along with cash, which is managed by a life office. Units are issued to investors.

Management Fees

Fees charged by investment managers for running portfolios or mutual funds for clients.

Market Risk
The risk that the value of a pension pot is permanently impaired by over-exposure to adverse market conditions.

Market Value Adjustment
Deduction made on the early surrender of a with-profit investment if investment returns have been lower than the bonuses already added.

Multi-Manager
An investment manager who blends various different investment manager products in order to achieve a greater portfolio return at lower risk.

National Average Earnings Index
Released mid-month on a Thursday. Normally 6 weeks behind the month recorded.

National Insurance Contributions
Payments taken from pay by the government, used to fund the State pension and other State benefits.

NEST
Is the National Employment Savings Trust, a national pension scheme which any employer can use to meet workplace pension duties from 2012.

Non Contributory

A pension fund that the employee does nothave to contribute in.

NRA
Normal Retirement Age, very shortly 65 for everyone - the age you can retire or not without penalty or enhancement.

OMO
Open Market Option - the right of people at retirement to use their pension to shop around for a best value and appropriate annuity.

Open Ended Investment Company

A type of pension investment that can invest in other companies with money pooled from many investors.

Open Market Option -OMO
The statutory ability to take your pension pot from the holding provider to an annuity provider, hopefully for more income.

Pension

A savings plan that is designed to be held until retirement age.

Pension Forecast
A way of assessing your possible income in retirement to see if it will be sufficient

Pension Income Recycling
Recycled income is invested in a new uncrystallised pension, offering an additional tax free lump sum and improved lump sum death benefits.

Pensionable Earnings
Earnings which qualify for the calculation of pension benefits and in respect of which contributions are paid.

Pensionable Employment
Employment to which an occupational pension scheme relates.

Phased Retirement
A way of taking pension benefits by gradually crystallizing benefits from one or many pension pots.

Platform

Internet based services used by intermediaries (and sometimes clients) to view and administer investments

Policy Document
A legal document setting out the terms and conditions of the contract which is issued to each individual once their policy has been set up.

Pound Cost Averaging (PCA)
PCA is investing the same amount of money each month which buys more units or shares when they are cheaper and less when more expensive.

Projected benefits

An estimate of the present value of an employee's pension which assumes that the employee will continue to work.
Protected Rights
Funds built up in a Money Purchase pension in respect of rebated National Insurance payments (see COMP).

Rebalance

To keep the asset classes aligned with your long-term asset allocation strategy

Remuneration disclosure  

Document detailing earnings/commission as a result of completion of business

Retail Price Index (RPI)
It is the average measure of change in the prices of goods in the UK and used by pension schemes to calculate pension increases.

Retirement
The period that occurs after an individual has stopped working in full time paid employment. May it be long and happy!

Retirement Age
The age at which you plan to start using your pension plan. Usually but not always at a point when you stop work/ reduce your working hours.

Retirement Annuity Contract
An old school DC individual pension saving plan often with less options and flexibility when compared to a Personal Pension

Risk Profile Questionnaire

A document used to establish how much risk, if any, you are prepared to take as an investor

Share

The capital of a company is divided into shares. Each share forms a unit of ownership and is offered for sale so as to raise capital for the company.

Structured Product

Structured product is a kind of fixed-term investment whose payout depends on the performance of something else, like a stock market index.

Suitability Report               

report which a firm must provide to its client under which, among other things, explains why the    firm has concluded that a recommended transaction is suitable for the client

Tax Free Cash
The cash that occupational and personal pensions allow to be taken in lieu of pension from the pension fund at retirement.

Tax Relief
A system of exemptions and deductions on income and expenditure whereby the Tax Inspector can identify taxable income.

Tax Year
Begins on 6 April and ends on the following 5 April. Also known as Fiscal Year.

Tax-Free Lump Sum
An amount of cash that you can take at retirement from your pension pot, free of tax. Also called pension commencement lump sum.

Taxable Benefits
Benefits provided to employees in addition to their salary which are subject to tax, and generally, National Insurance. These benefits are generally brought under the P11Dnotice.

Taxable Income
Total income minus any tax free allowances.

Total Expense Ratio
Designed to show the total charge of the fund as in Annual Management Charge (AMC) plus Annual Expenses.

Trail Commission
Payment to the adviser from the assets backing a pension e.g. USP for advice. Used especially if regular reviews needed.

Unbiased and Unrestricted advice  

Impartial and not limited advice that considers every financial product on the relevant market and without any agreement with a provider to recommend their products, so will always be unbiased.

Unit Trust

Unit trusts and open ended investment companies (Oeics) are forms of shared investments, or funds, that allow you to pool your money with thousands of other people and invest in world stock markets
Volatility
Volatility is a measure of how much the price of an asset rises and falls against expected growth.

Whole of market

Accessibility of all appropriate companies to establish a potentially suitable product

Wrap
A Wrap platform provides an open architecture which allows the client to hold any fund, share, bond, or property within any product.

Yield
See critical yields. Growth of pension assets. Used in comparing pension options especially USP and annuity.