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Glossary 

An A to Z guide to words and terms commonly used in pensions.

Active member

An employee who is currently paying into their employer's pension scheme and building up benefits in it.

Actuary

An adviser on financial matters involving probabilities, often relating to mortality. They usually help during scheme valuations to assess if a scheme has enough funds to cover its responsibilities.

Additional Voluntary Contributions (AVCs)

Additional Voluntary Contributions (AVCs) are extra contributions you pay into the Fund, on top of the regular contributions you and your employer pay in. You can either make AVCs regularly, or as one-off payments.

Annual Allowance (AA)

The Annual Allowance (AA) is the maximum amount of money that can be paid into your pensions each year, without paying tax. If more than this amount is paid in, you’ll only get tax relief up to the allowance. This means you’ll pay income tax on everything over that amount. The Annual Allowance amount is set by the government. For the 2023/2024 tax year, it is £60,000 for most people.

Annual Allowance used by BRASS contributions

This is the amount of Annual Allowance your BRASS contributions alone will use up at the level you are currently paying. 

This amount includes any BRASS matching contributions your employer may make and is the amount that would be measured against the Money Purchase Annual Allowance. 

Annual Benefit Statement (ABS)

This is the yearly statement sent to members who are paying into the Fund. It provides you with an estimate of how much your BTP benefits may be worth when you reach your Normal Retirement Age, as well as information about any BRASS contributions you have made. 

Your APE also includes details about the options available when you take your benefits; the lump sum and dependant’s pension that may be paid if you die before claiming your benefits; your normal pension contributions; and tax allowances.
 

You can view a copy of your most recent ABS when you log in to your myFund account (or register) and look under ‘My pension’.

Annual Management Charge

A charge made by investment fund managers for management and administration services. Additional Voluntary Contribution (AVC) funds all have an associated annual management charge.

Annuity

An annuity is a guaranteed regular income that you buy when you retire, using the money in your pension. Most annuities are for life, but you can also buy one that lasts for a fixed term. 

Auto-enrolment

If you meet certain criteria, your employer is legally required to enrol you into a pension scheme that meets minimum quality requirements. This process is known as ‘auto-enrolment’.

Automatic re-enrolment

Your employer must re-enrol you into their pension scheme every three years if you opted out and still meet the enrolment criteria. This process is known as ‘automatic re-enrolment’.

AVC Extra

AVC Extra is an Additional Voluntary Contribution (AVC) arrangement for members paying into one of the final salary sections of the Fund. It is available to any members who wish to pay AVC contributions in excess of those which can be paid into BRASS.

Basic State Pension

An income paid by the government once you reach State Pension age, if you have paid enough National Insurance contributions.

Beneficiary

A person (or organisation) who receives a pension, lump sum or other benefits from the Fund when you die.

BRASS

BRASS is an Additional Voluntary Contribution (AVC) arrangement for members who joined the Fund before 1 April 2007. 

BRASS contributions

Money you pay into your BRASS pot (if you choose to have one). 
  

Contributions to BRASS start from as little as £2 a week, or £10 per month and, like your contributions to the Fund, they are taken from your pay before tax. The most that you can contribute to BRASS each tax year is 15% of your annual earnings (gross pay) or 20% of your pensionable pay (whichever is more), less the amount you already contribute in normal contributions to the Fund.

BRASS funds

This is the estimated value of your BRASS pot at your chosen retirement age. It is not a guaranteed amount.

BRASS matching

When contributions are paid into your BRASSpot by your employer, matching your own BRASS contributions (subject to eligibility).

BRASS 1

BRASS 1 is an Additional Voluntary Contribution (AVC) arrangement that closed to new entrants in 1987 before BRASS was launched in 1988. You can not increase your contributions, but you can reduce or stop these by contacting your employer.

CARE

Career Average Revalued Earnings (CARE) is a defined benefit pension arrangement (where the amount you’ll receive in your pension is determined by a set formula, not investment market returns). Benefits are based on your 'average' rather than 'final' salary at retirement.

Cash Equivalent Transfer Value (CETV)

A Cash Equivalent Transfer Value (CETV) tells you how much your pension benefits would currently be worth in cash terms if you wish to transfer them to another scheme. 

Civil partner

A person who has entered into a civil partnership with his or her same-sex partner.

Closed scheme

A pension scheme which no longer allows new members to join, but continues as normal for its existing members and pensioners.

Contracting out

When a defined benefit pension scheme opted out of the State Earnings Related Pension Scheme (SERPS) in exchange for a reduction in National Insurance contributions for employers and employees. Contracting-out ceased from 6 April 2016. 

Contributions

The money paid into your pension/pension pot by you and your employer. 

Current BRASS 1 transfer value

This is the current transfer value of your BRASS 1 funds and is provided by Aviva. This fund value is not used in the Planner projections. The value of your BRASS 1 funds at retirement is shown on your annual statement which is sent to you by Aviva.

Current BRASS funds (plus growth)

The amount that you have already accumulated in BRASS, plus a projection of how much it could be worth in the future.

Death benefits

The pension benefits paid out when you die.

Default fund

This is the fund that members of defined contribution pension schemes (which includes the Industry-Wide Defined Contribution Section and BRASS and AVC Extra members) will automatically be invested in, unless they choose to invest in other funds.

Deferred member

A person who is no longer paying into their employer's pension scheme, but has benefits in it that they have not yet claimed. Also known as a 'preserved member'.

Defined Benefit (DB) pension

In a Defined Benefit (DB) scheme, the amount you get at retirement is based on a number of things. These could include your earnings and how long you have been a member of the scheme. 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.

There are two types of DB pension: final salary and CARE – Career Average Revalued Earnings. A final salary pension is based on how much you’re paid at the point you leave the scheme, or retire if you’re still working for the employer. CARE is based on the average of your salary throughout your career.

Defined Contribution (DC) pension

(Also known as a money purchase pension)

A pension scheme where members and employers pay contributions that are invested into funds. 

The amount members receive when they retire depends on the market performance of the funds they’re invested in and is not a set amount. 

The IWDC Section and Additional Voluntary Contribution arrangements such as BRASS and AVC Extra are defined contribution.

Department for Work and Pensions(DWP)

The Department for Work and Pensions (DWP) is the government department responsible for administering State Pensions.

Dependant

A person who has been wholly or partially financially dependent upon a member or pensioner at, or near to, the time of their death or retirement.

Drawdown

Using drawdown means you take some of your money from your pension pot as a regular annual income, and you leave the rest invested. The amount you take as income will reduce the value of your pension pot. The amount that stays invested can either rise or fall in value, depending on how your investments perform. Drawdown is available to members of defined contribution pension schemes only, so Fund members would need to transfer to an alternative arrangement to use ​this option.

Early leaver

A member who leaves a pension scheme before reaching their Normal Retirement Age.

Early retirement

Taking the benefits from your pension scheme before your Normal Retirement Age.

Earnings

The amount you are paid before tax. This is not always the same as pensionable earnings.

Eligible jobholder

A worker who is 'eligible' for automatic-enrolment under the Pensions Act 2008.

Employer covenant

The financial strength of an employer with a defined benefit occupational pension scheme. This is assessed via their willingness, ability and legal obligation to support the scheme.

Encashment

When you take your pension pot as cash. This is available to members of defined contribution pension schemes (including the IWDC Section or Additional Voluntary Contribution arrangements).

Entitled worker

A worker who is entitled to join a pension scheme but not entitled to employer contributions.

Equities

Equities is another word for shares in a company, which can be bought and sold on the equity market. If you invest in equities, you own part of the companies you invest in.

Estimated annual earnings

The amount of taxable pay that you think you may get over the next 12 months.

Final Average Restructuring Premium

Final Average Restructuring Premiums are used to work out your benefits and will be whichever is greater between:

  • the average of your Restructuring Premium(s) over the 12 months before you take your benefits, leave the Section, or die (whichever is earlier)

or

  • the average of your Pensionable Restructuring Premium(s) over the 12 months before you take your benefits, leave the Section, or die (whichever is earlier).
  

If you have more than one Restructuring Premium, you will have more than one Final Average Restructuring Premium.

Final salary pension scheme

A type of defined benefits pension scheme where benefits are based on a member's service and salary close to retirement.

Financial Conduct Authority (FCA)

The FCA is the organisation responsible for regulating advice on pensions, and registering firms and individuals.

Fund Manager

A professional who runs an investment fund and decides which shares, bonds or gilts the fund should invest in.

Future BRASS funds (plus growth)

The amount of extra BRASS funds that you could build up in the future with different contributions, plus a projection of how much it could be worth in the future.

Gilt

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

Governance risk

The risk that falls on the Trustees of a pension scheme to look after it and run it properly.

Guaranteed Minimum Pension (GMP)

Guaranteed Minimum Pension (GMP) is the minimum amount of pension promised to members of pension schemes that contracted out of the State Earnings Related Pension Scheme (SERPS).

Hedging

Reducing risk by making an investment that offsets existing or expected risks.

His Majesty's Revenue & Customs (HMRC)

UK Government department responsible for collection of taxes, payment of some State benefits and prevention of organised financial crime.

Ill-health retirement

When a pension scheme member retires for medical reasons before the Fund's Normal Retirement Age.

Independent Financial Adviser (IFA)

Independent Financial Advisers (IFAs) are professionals who offer independent advice on financial matters. You can find IFAs in your local area at www.unbiased.co.uk.

Industry-wide pension scheme

A scheme set up for all members of a particular industry. 

Inflation

A sustained increase in the price level of an economy which results in an increase to the cost of living.

Investment fund

A fund is a way to invest money. Depending on what type of fund it is, your money could be invested in property, shares in companies, bonds or a mixture of different types of financial products.

Late retirement

If you’re near your Normal Retirement Age, you may be able to postpone taking your benefits up to the maximum age of 75. Your benefits will then be ‘preserved’. Late retirement factors will calculate how much extra you will get when you eventually decide to take your benefits.

Liability Driven Investments

Liability Driven Investments (LDIs) is an investment approach used to reduce the volatility of funding level within an actuarial valuation. The approach can help to aim to make sure pension promises are paid in full.

Lifestyle strategy

An investment fund designed to reduce risk in your investments as you move towards your chosen Target Retirement Age.

Lifetime Allowance

The maximum amount you can save into all your pensions throughout your working life before you have to pay tax. The Lifetime Allowance for the tax year 6 April 2023 to 5 April 2024 is £1,073,100. 

You would have to pay tax on any pension savings you have that over the Lifetime Allowance limit. The amount of tax you owe will depend on your income tax rate, rather than the LTA charge that was in place before 5 April 2023.

You should be aware that from 6 April 2024, there is a limit of £268,275 on the amount you can take as a lump sum when you take your pension. This limit won't affect you if you have Lifetime Allowance protections.

Lifetime Allowance tax

You will be charged tax on any savings you have that are over the LTA. The amount of tax you owe will depend on your income tax rate, rather than the LTA charge that was in place before 5 April 2023 and has now been abolished. 

Lump sum

The amount you can take as a one-off tax-free payment when you retire. You can take up to 25% of your pension savings as a lump sum when you retire.

Management Committee

Many​ powers and duties of the Trustee are delegated to the Fund’s Management Committee. The Management Committee meets quarterly and is made up of six employer-nominated representatives and six employee-nominated representatives.

Managed fund

A fund, comprising of a mixture of equity, property, fixed-interest investments, along with cash, which are managed. Units are issued to investors.

Member

A person who, having joined a pension scheme, has built up benefits under that scheme.

Member-Nominated Trustee

A trustee chosen by the members of an occupational pension scheme.

Money Purchase Annual Allowance (MPAA)

The amount you can save each year into a money purchase (or ‘defined contribution’) pension arrangement before incurring a tax charge. However, it only applies once you’ve taken some of your pension savings using some of the options available as part of the pension freedoms (such as taxable cash lump sums, drawdown or using your pension pot to buy an annuity where the income can be reduced).

The MPAA increased from £4,000 to £10,000 from April 2023.

Money Purchase pension

(Also known as a defined contribution pension)

A pension scheme where members and employers pay contributions that are invested into funds and the amount members receive when they retire depends on the market performance of the funds they’re invested in, rather than being a set amount. The IWDC Section and Additional Voluntary Contribution arrangements such as BRASS and AVC Extra are classed as money purchase.

Multi-employer pension scheme

A pension scheme in which more than one employer participates.

National Insurance Contributions

Money taken from your pay by the government, used alongside other tax proceeds to fund the State Pension and other State benefits.

Nomination 

By completing a nomination form you can let the Trustee know who you’d like to get a lump sum if you die before taking your pension. The Trustee does not have to follow your wishes, but must take them into consideration.

Nominees

The people, charities or organisations chosen (or ‘nominated’) by you to receive any death benefits from the pension scheme if you die before claiming your pension. You can nominate online when you  sign into your myFund account.

Non-eligible jobholder

A worker who is not eligible to be automatically enrolled but who can 'opt in' to a pension scheme if they choose.

Normal Retirement Age (NRA)

The age from which you can retire without any reductions to your pension.

Offsetting

The amount of pension benefits that are deducted from the value of other assets, such as cash, a car or family home, upon divorce.

Opting in

Employees who are not automatically enrolled into a pension scheme can ask their employer to enrol them in it. This process is known as ‘opting in’.

Opt-out form

The form an employee must complete in order to opt out of an automatic-enrolment scheme.

Opt-out window

The one-month period after a worker has been auto-enrolled when they are able to leave a scheme and have their contributions returned.

Pension

A pension is a long-term savings plan for retirement. 

You and your employer put money into your pension each month, and in return you get a regular income ​when you've retired.

You don't have to pay tax on pension contributions, which is one of the reasons saving into a pension can be more effective than other types of retirement savings.

The Pension Protection Fund (PPF) pays compensation to members of eligible defined benefit pension schemes, when there is a qualifying insolvency event in relation to the employer and where there are insufficient assets in the pension scheme to cover PPF levels of compensation.

Pension increase

When you start taking your pension, the amount you get will increase every year to keep up with inflation. The way we calculate these increases is set by the government. At the moment, RPS pensions increase in line with the Consumer Price Index. Pension Protection Fund (PPF). 

Pension scheme Trustee

Effectively the legal guardians of a pension scheme. The Trustee’s role is covered by the Trust and Rules and controlled by law.

Pensionable pay

This is the pay used to calculate your contributions to the Scheme. Your employer decides what is included in your pensionable pay, which may not always be 100 per cent of your annual salary. In general, your pensionable pay is your basic annual salary from 1 April each year. 

Preserved member

A person who is no longer paying into their employer's pension scheme, but has benefits in it that they have not yet claimed. Also known as a 'deferred member'.

Qualifying earnings

The amount you need to earn to be automatically enrolled into a pension scheme by your employer.
 

For the 2016/17 tax year, this is earnings between £5,824 and £43,000 and for the 2017/18 tax year, it is earnings between £5,876 and £45,000.

Qualifying scheme

A pension scheme that meets the minimum standards required to allow it to be used for auto-enrolment.

Registered pension scheme

A pension scheme that is registered with HMRC and satisfies its requirements.

Restructuring Premiums

 

Restructuring premiums are one element of a member’s pay that is used to work out their pension amount. They are applied to your pension when your employer restructures your pay, and new parts of your pay become ‘pensionable’. From this point onwards, your new restructuring premium will be used to help work out your pension and lump sum. You might have several different restructuring premiums. 

 

Retirement

The period of time after you stop working in full-time paid employment and take your pension benefits. May it be long and happy!

Retirement age

This is the age you have selected your benefits to be payable from when using the online Planner. The Planner will assume that you will continue to make contributions until this age.

Salary sacrifice

This is an arrangement between you and your employer. You give up part of your pay, and your employer pays this amount into your pension pot instead. You might see this referred to as ‘salary sacrifice’ or ‘SMART’. Both you and your employer potentially save on National Insurance contributions with such an arrangement.  

Scheme administrator

The person or company that runs a pension scheme and carries out certain legal requirements; for example, paying certain tax charges to HMRC. Railpen is the administrator for the Fund.

Scheme lump sum

The tax-free payment that you could receive when you take your Fund benefits.

Section Pay

This will depend on the rules of your Section. However, for most sections:
 
  • This is your Pensionable Pay plus Pensionable Restructuring Premium(s), less 1.5 times the single person's Basic State Pension.
  • Your Section Pay will never be less than half of your Pensionable Pay plus your pensionable Restructuring Premium(s).

State Pension

An income paid by the government once you reach State Pension age. There are 2 main versions - the new State Pension and the old State Pension. These are explained below. You can also learn more on the Gov.uk website.

New: The new basic State Pension is paid to those who reach State Pension age on or after 6 April 2016. The amount an individual receives can vary, depending on National Insurance contributions or credits. You need at least 10 qualifying National Insurance years to qualify for any of the new basic State Pension.

Old: The old basic State Pension is paid to those who reached State Pension age before 6 April 2016. The amount an individual receives can vary, depending on National Insurance contributions, or credits and any paid by a spouse or civil partner.

Tapered Annual Allowance

The Annual Allowance is £60,000 for most people. But for high earners, the Annual Allowance reduces on a sliding scale called the Tapered Annual Allowance.

The Tapered Annual Allowance will apply to you if:

  • your ‘threshold income’ is over £200,000. This is your total taxable income;
  • your ‘adjusted income’ is over £260,000. This is your total taxable income plus contributions that you have paid into all registered pension schemes.

For every £2 of adjusted income over £260,000, your Annual Allowance will reduce by £1. The minimum Annual Allowance is £10,000.

Target Retirement Age (TRA)

Your Target Retirement Age (TRA) is the age when you plan to take your benefits. You will be asked to set a TRA if you’re a member of a defined contribution pension arrangement such as BRASS and are invested in the Lifestyle strategy, which changes your investments to lower-risk funds as you get closer to retirement.
 
It’s important to let Railpen know if you change your TRA.

Tax relief

Tax relief means some of your money that would have gone to the government as tax, goes into your pension instead.

Tax year

The tax year begins on 6 April and ends on the following 5 April. Also known as the Fiscal Year. 

Tax-free lump sum

The payment you can choose to receive tax tax-free from your pension savings when you retire. The maximum you can take as a tax-free lump sum is 25% of the value of your pension savings. 

The Pensions Ombudsman

An institution set up to investigate complaints regarding UK pensions.

The Pensions Regulator

The Pensions Regulator (TPR) is the UK regulator of work-based pension schemes. It works with trustees, employers, pension specialists and business advisers, giving guidance on what is expected of them.

Trivial commutation

You may be eligible to exchange all your pensions for a one-off cash payment. To do this, you must be over age 55 and the value of your pension benefits from all registered schemes must not be over £30,000. This doesn’t include the State Pension. The first 25 per cent will be paid to you tax-free, and the remaining 75 per cent will be taxed at your marginal rate of income tax. 

Trustee

The person(s) or authorised body given the job of looking after money entering a Trust on behalf of named or potential beneficiaries.

TUPE

A Transfer of Undertakings (Protection of Employment) or ‘TUPE’ is the legislation intended to protect employees after a business is sold and employees are transferred to a new employer.

Under-funded scheme

When a pension scheme's assets (incomings) are less than its liabilities (outgoings).

Unit

All investment funds are divided into smaller parts called units. When you make contributions, these are used to buy units in that particular fund. The unit price is how much each unit held by a member is worth from day to day. Units are priced daily. So if you have 10 units worth £1 each on the day they’re sold, they’ll be worth £10 in total.

Valuation

The calculation of a pension scheme’s assets (incomings), liabilities (outgoings) and overall funding position at a given point in time.
 
The valuation processes include placing a value on the Fund’s assets at the valuation date, and calculating the amount needed to pay the pension rights already accrued under the scheme, both for pensions already in payment and those which will become payable in the future.
 

The Trustee is legally required to carry out a formal valuation, also known as an actuarial valuation, every three years and to provide a report to The Pensions Regulator of its funding position. 

Whistleblowing (pensions)

The requirement (under the Pensions Act 2004) on trustees, administrators, professional advisers and employers to inform the Pensions Regulator of breaches of law relevant to the running and administration of a scheme.

Yearly pension

This is the pension that will be payable at your retirement date (shown in today's money).