Understanding what tax you might pay (2024)

Active member (of a pension scheme)

A member of a pension scheme where contributions are being paid, and/or pension benefitsbuilding up.

Additional bonus

A bonus that may be added to a with-profits policy when it is cashed in or matures. The amount of bonus paid (if any) depends on the performance of the investments (and other profits and losses of the fund) over the term of the policy and is not guaranteed. This is sometimes known as a final, maturity or terminal bonus.

Additional Voluntary Contributions (AVC)

Additional money you pay into your workplace pension above your normal contributions to provide extra benefits at retirement.

Adjusted Income

Adjusted income is one of two measures used to determine if a member has a tapered annual allowance. The process of calculating adjusted income takes a number of steps and is potentially very complicated so it is recommended that individuals take appropriate advice.

Administrator (for a deceased person's estate)

If a person has died without making a will, the next of kin can apply to His Majesty's Courts & Tribunal Service for letters of administration, which is a legal ‘grant of representation’ that appoints them as the administrator to deal with the deceased person’s estate. The administrator can claim the proceeds of any life and some pension policies owned by the deceased person, which are not in trust or subject to an assignment.

In Scotland, the administrator is called the ‘executor dative’ and the grant of representation is called the ‘confirmation’.

Adviser

Someone who is authorised and regulated by the Financial Conduct Authority (FCA) to provide specialist advice on how to manage your money. Financial advisers can provide a wide range of products and services, and help you with your financial circ*mstances at different stages of your life. An independent adviser can consider and recommend all types of products from all firms across the market. A restricted adviser can only recommend certain products, product providers, or both.

Allocation rate

For unit-linked policies, the percentage of your premium that is invested.

Annual allowance (pension)

The annual allowance is a limit on the amount of money you can save into your pension pot and still get tax relief. The allowance includes money you have paid into your pension and money from your employer or anyone else who might pay into your pension. It applies across all your pension savings. In the tax year 2024/2025, the annual allowance is £60,000 for most people. If the total paid in goes over the annual allowance, a tax charge (the annual allowance charge) is made. This takes away the tax relief given to any pension contributions over the annual allowance. See also money purchase annual allowance. If your taxable earnings in the year are less than the annual allowance then tax relief on pension contributions from all sources is limited to 100% of your earnings (or to £3,600 if you have no earnings). If your 'adjusted income' is more than £260,000 the annual allowance is gradually reduced or 'tapered'.

Annual allowance charge

The tax you pay if your pension savings go above the annual allowance. Tax is charged at the highest rate of income tax you pay.

Annual bonus

A bonus that may be added to conventional with-profits policies once a year. The allocation of bonuses depends on the performance of the fund and we can’t guarantee that a bonus will be added every year but once a bonus is added, it cannot be taken away. For more information on annual bonuses, visit our customer centre, select your former policy provider and look in the ‘with-profits’ section.

Annual Management Charge (AMC)

An amount we charge each year (usually a percentage of the amount you have invested) for managing your fund.

Annual Percentage Rate (APR)

APR is the cost of borrowing money. It's the rate of annual interest used by lenders, that includes the set up and continuing costs of a loan over its entire term.

Annuitant

A person who receives an annuity for a fixed period of time (a temporary annuity) or for the rest of their life (a lifetime annuity).

Annuity (policy)

You can use your pension pot to get a life long, regular income (also known as a ‘lifetime annuity’) to provide you with a guarantee that the income will last as long as you live.

Annuity escalation

An escalating guaranteed income increases over time to keep up with the increasing cost of goods and services, known as inflation. Your income will start at a lower level and will increase by a chosen amount.

Annuity guaranteed period

Annuity policies may include a guarantee which means that the income is paid for a minimum number of years, even if you die.

Annuity rates

The rates that determine the amount of income an annuity provides, typically for each £100 or £1,000 of fund value. Annuity rates offered by different providers vary and change regularly.

Asset allocation

The amount of a fund that is invested in each asset class.

Asset class

The different types of asset that are included in an investment fund, for example, property, bank (cash) deposits, company shares (equities), fixed interest stocks / bonds including bonds or securities issued by the UK Government (gilts) and loans to companies (corporate bonds).

Asset mix

The type of assets the fund is invested in.

Assets

Investments in a fund (see also asset mix, asset class and asset allocation).

Assign / assignment / assignation / assignee

If you assign your policy it means you give up all your rights to receive benefits and pass them over to a new owner (known as the assignee).

Association of British Insurers (ABI)

An organisation that represents the interests of the UK’s insurance industry. The association speaks out on issues of common interest, helps to guide debates on public policy and promotes high standards of customer service in the insurance industry. Visit the ABI’s website at www.abi.org.uk

Assumed final bonus

The final bonus we believe will be paid when we estimate the value of an investment.

Assumed regular bonus

The regular bonus we believe will be paid when we estimate the value of an investment.

Authorised payment

Pension payments made within the tax rules that will not generate tax charges.

BACS

This stands for ‘Bankers’ Automated Clearing Services’ but is now generally only used in its abbreviated form. It is a way of transferring money electronically from one UK bank account to another. Payments take three working days to clear.

Bank of England base rate

It's the interest rate the Bank of England charges other banks and lenders when they borrow money

Basis amount (pensions)

The amount on which the maximum income that can be taken from a capped drawdown product is based. It broadly matches the income a pension pot would provide if it was used to buy a lifetime annuity (a guaranteed income for life). Capped drawdown used to be a way of taking an income from your pension pot where the money in your pot was invested and you would receive an income from the pension pot. It’s no longer available but if you’re already in capped drawdown, you can continue to use it.

Beneficiary (beneficiaries)

A person or persons allowed to receive money/benefits from a policy or from a deceased person’s estate. A ‘nominated’ beneficiary is a person who is named in a policy or a person’s will to receive benefits.

Benefit Crystallisation Event (BCE)

BCEs were tests against the lifetime allowance relating to the taking of benefits from a pension plan. The lifetime allowance was abolished on 5th April 2024 so BCEs no longer apply. They have been replaced by relevant benefit crystallisation events.

Bid / offer spread

In a unit-linked fund, the price you can buy units at (offer price) is usually higher than the price you can sell them at (bid price). The bid / offer spread is the difference between the two.

Bid price

The price that you get when you cash in or sell units in a unit-linked policy.

Blood relative

Someone who is related to you through a common ancestor rather than by marriage or adoption, e.g. you have common parents or grandparents.

Bond

A type of policy where you pay a single premium. These policies have no fixed term (open ended) and can be cashed in at any time. We will pay the sum assured (or death benefit) when you die.

Bondholder

The legal owner of a bond. This may include trustees of a pension scheme.

Bonus

The share of the profits added to with-profits policies.

Bonus units

Units that can be added to a unitised with-profits policy to increase its value.

Capital gain

The amount of money made if an asset (such as a property that's not your main home or company shares) is sold for more than it cost (the investment profit).

Capital gains tax

A tax charged on the profit made by selling assets e.g. a business, a second home or shares. Everyone is allowed to make a certain level of profit each year before capital gains tax is charged. The allowance is £3,000 for the 2024/2025 tax year. You may qualify for Private Residence Relief on the sale of your main home.

Capital units

Also known as Initial Units. These can be allocated to a unit-linked or unitised with-profits policy, usually in the first one or two years. Capital units have extra charges to cover the selling and set-up costs for the policy.

Capped drawdown

A type of income drawdown product that was available before 6 April 2015. It allows you to take an income directly from the pension fund while leaving the rest of the fund invested. If you already use capped drawdown it will continue under its existing rules unless your plan converts to flexi access drawdown either through your request or if the income you take exceeds the drawdown ‘cap’. If your plan becomes flexi access drawdown the tax relief you can get on future pension savings is reduced.

Carry forward (pensions)

An option which allows you to have more money paid into your pension than the annual allowance without having to pay the annual allowance charge. Any annual allowance you don't use can go into the current tax year.

Cash in value

The amount you might get if you cash in or cancel an investment or life insurance policy. You should think carefully before cashing in your policy. We recommend you seek independent financial advice before you do.

Chain of succession

The order in which next of kin can apply for legal authority to handle a relative’s estate when they have died without leaving a will.

Chargeable event

A chargeable event will normally happen on a non-qualifying policy. For example, when you cash the policy in or if the life assured dies. If a chargeable event occurs, we need to send a chargeable event certificate to you and a copy to . This certificate is used to work out whetheryou need to pay any tax above the basic rate.

Charges

There are a number of ways in which providers can cover the cost of managing your policy. These include allocation rate, annual management charge and the bid / offer spread.

Civil partner

Someone who has entered into a legal relationship (a 'Civil Partnership') that is similar to marriage.

Claimant

A person who is claiming money/benefits from a policy or policies.

Closed life funds

When a fund is 'closed', energy is focused on existing customers, rather than attracting new ones.

Commission

An amount of money paid to an adviser or salesperson who advises you to buy a financial product. Since the start of 2013 advisers cannot be paid commission if they give you advice about pensions or investments. They must charge you a fee for the advice. Commission can still be paid for advice on other products such as mortgages, general insurance or life assurance.

Compound interest

Compound interest means when you save money, as well as earning interest on the savings, you also earn interest on the interest itself. So for every year that the money is in your account you are earning interest on each previous year’s interest.

Confirmation (Scotland)

In Scotland, if a person has died and their estate is in probate, their next of kin can apply to the Sheriff's Court for ‘confirmation’. This is a legal document that appoints them as the ‘executor dative’ to deal with the deceased person’s estate. Every part of the deceased person’s estate should be written in the inventory attached to this document. There can be an extra page called an ‘eik’, which contains details of any amendments to the inventory identified at a later date.

Consumer Price Index (CPI)

This is now the key official measure of inflation. It is calculated each month by taking a sample of goods and services that a typical household might buy including food, heating, household goods and travel costs, but it doesn't include mortgage costs. The size of the change in the index gives the rate of inflation.

Contracting out

A term used to describe pension policyholders who were contracted out of the State Second Pension (S2P). Contracting out ended in April 2016.

Conventional with-profits

A type of with-profits policy which has a guaranteed amount of pension or cash sum (in other words, an amount we promise to pay you, so long as you pay all the premiums due for the term of your policy).

Critical illness

A type of insurance policy that will pay you a fixed amount, usually as a lump sum, if you are diagnosed with one of the severe illnesses, medical conditions or injuries specified in the policy.

Crown copyright

The format of official documents like birth, marriage, death and civil partnership certificates are protected by ‘Crown copyright’. The UK Government (the ‘Crown’) places restrictions on how you can reproduce these documents and how they can be used. For example, the rules say that you cannot use reproductions of these certificates to provide evidence of birth, death, marriage or civil partnership. This is why we may ask for original certificates when you are claiming on your policy.

Daily bonus

A regular bonus that may be added each day which usually represents 1/365th of an annual bonus rate.

Data Protection Act 1998

An Act of Parliament that sets out the rules an organisation had to follow when they stored or used information about people. This act also gave a person certain rights to see information about them and to have incorrect information corrected. The Data Protection Act was replaced in May 2018 by the General Data Protection Regulations.

Death benefits

For pension policies with a death benefit this is the amount used to provide benefits if you die before taking your pension. This value is not guaranteed and may go up or down. For Pension Term Assurance policies this is the amount used to provide benefits if you die before your policy ends, which is usually at your assumed pension date.

Decreasing term

Some life insurance policies are for a fixed length of time (term) and pay you a fixed lump sum if you die during that time. With a decreasing term policy, the amount paid out if you die reduces over the term. At the end of the term, the policy typically has no value.

Deed poll

A legal document that can be used in the UK to change your name.

Deed of assignment

A document that transfers benefits or rights from one party to another. Once signed, it becomes legally binding.

Deferred benefits

The delayed payment of a pension. This is delayed until the policyholder is ready to start taking it.

Deferred payments

If you are in arrears on your policy, we can look at deferring when you pay your outstanding premiums back to ensure your life cover remains in place.

Deferred period

For income protection policies, the period after the policyholder first becomes ill or unable to work and has not recovered before any income is paid.

Defined benefit (pension scheme)

Pays a retirement income based on your salary and how long you have worked for your employer. Defined benefit pensions include 'final salary' and 'career average' pension schemes. Generally only available from public sector or older workplace pension schemes.

Defined contribution (pension scheme)

Builds up a pension pot to pay you a retirement income based on contributions from you and/or your employer. Your pot is put into various types of investments, including shares (shares are a stake in a company). The amount in your pension pot at retirement is based on how much has been paid in and how well the investments have performed. Also known as 'money purchase' schemes.

Demutualisation

The process by which a mutual company (one that is owned by its members) becomes a publicly-traded company (one that is quoted on the stock exchange and is owned by shareholders).

Dependant

Someone who depends on another person for financial support, such as a child or family member who does not work.

Dependant’s pension

Some guaranteed incomes can provide an ongoing income for a named dependant should you die. These plans (known as 'joint life annuities') provide a slightly lower income initially but payment will continue to your dependant after you die or for a guaranteed period.

Direct debit

Payments you make direct from your bank account through a direct debit instruction.

Disclosure of costs

An investment company must tell you the total cost of taking out a product or policy with them.

Diversification

Diversification is used when money is invested in different asset classes to lower risk and help you get more stable returns. If one of the assets failed or there was an economic slump affecting that asset it would not be disastrous.

Drawdown pension

Also known as ‘flexible retirement income’, it allows you to leave your money in your pension pot and take an income from it. Any money left in your pension pot remains invested, which may give your pension pot a chance to grow, but it could go down in value too. The income isn’t guaranteed for life but you have the flexibility to make changes to how much you take or to later switch to more secure retirement income products. You may need to move into a new pension plan to do this. Replaced flexible drawdown and capped drawdown from April 2015, though existing users of capped drawdown can continue in that plan.

Emolument

Payment of some other kind instead of money.

Endowment assurance / policy (with-profits)

A savings product that usually includes life cover. It pays out at least a fixed amount if you die before the policy matures or, at maturity, the sum assured (in other words, the amount we promise to pay you, so long as you pay all the premiums due for the term of your policy) plus any bonuses that may have been added over the term.

Enhanced allocation rate

An increased amount of premium used to buy units in a unit-linked policy.

Enhanced annuity (enhanced guaranteed income)

If you smoke, have high blood pressure, are on prescribed medication or have a medical condition, you may be eligible for an ‘enhanced’ guaranteed income (also known as an ‘impaired’, ‘lifestyle’ or ‘underwritten’ annuity). These tend to pay a higher amount of income on the basis that your life is expected to be shorter and so the income will not be paying out for as long.

Enhanced protection (pensions)

An option to help protect pension rights built up before 6 April 2006 from the lifetime allowance charge. The option was open until 5 April 2009, but only to people who stopped building up additional pension rights after 5 April 2006. Protection must be registered with .

Equities

A general name for company stocks and shares.

Equity Backing Ratio (EBR) of a with-profits fund

The variable proportion of an investment fund that is invested in equities and property.

Equity release

A way to release some of the value of your property to spend while you are alive. It is generally only suitable for people who own their property but have little in the way of other assets or income.

Escalating annuities

An 'escalating' guaranteed income (or annuity) increases over time to keep up with the increasing cost of goods and services, known as inflation. Your income will start at a lower level and will increase by your chosen amount each year.

Estate (of a deceased person)

When a person dies, their 'estate' is everything they own (except, in most circ*mstances, anything owned jointly with another person), less any liabilities, including their main residence, the value of any assets and most money given away by them within the seven years before the date they died. The estate also includes all bank accounts, life insurance policies, unit trusts, individual savings accounts (ISAs), but not personal pensions, unless we advise you otherwise. More information is available from HM Revenue and Customs.

Estate (with-profits funds)

Some of our with-profits funds have an ‘estate’. The estate is a pot of money or ‘surplus held in a particular with-profits fund which is over and above the amount needed to pay the total value of the policy benefits due to policyholders when the policies mature or are surrendered or transferred. For some funds, we have started to distribute the estate to eligible with-profits policyholders.

Estimated Maturity Value (EMV)

An estimate of what you might get back from an investment. It is worked out based on future growth rates that all insurance companies have to use and future charges you may have to pay. The amount is not guaranteed and what you actually get back may be higher or lower than the EMV, depending on how well your investment performs and how long you keep it for.

Exclusions

Certain conditions and/or events that a policy does not cover.

Executor

Someone named in a person’s will to look after their affairs after they die. Executors’ duties can include claiming the proceeds from a deceased person’s estate and using the assets to carry out their wishes as set out in the will.

Executor dative (Scotland)

The term used to refer to an administrator in Scotland i.e. a person appointed through confirmation to look after a deceased person’s estate, if they haven’t left a will.

Executor nominate (Scotland)

The term used in Scotland to refer to an executor i.e. someone named in a person’s will to look after their affairs after they die. The executor nominate’s duties can include claiming the proceeds from a deceased person’s estate and using the assets to carry out their wishes as set out in the will.

Exit fee

This is the money that you might have to pay if you take out all of the money in your pension before a set date.

Final bonus

A bonus that may be added to a with-profits policy when it is cashed in or matures. The amount of bonus paid (if any) depends on the performance of the investments (and other profits and losses of the fund) over the term of the policy and is not guaranteed. This is sometimes known as a maturity or terminal bonus.

Final salary pension scheme

Pays a retirement income based on your salary and how long you have worked for your employer. Defined benefit pensions include 'final salary' and 'career average' pension schemes. Generally only available from public sector or older workplace pension schemes.

Financial Conduct Authority (FCA)

An independent body that regulates the financial services industry within the UK. Visit the FCA’s website at www.fca.org.uk

Financial Ombudsman Service

The Financial Ombudsman Service is an independent public body that helps settle individual financial disputes between customers and businesses. For more information, visit their website at www.financial-ombudsman.org.uk

Fixed interest securities

Financial products that promise the lender one or more fixed cash payments in the future. They may be issued by central or local Government or a company in order to raise capital.

Fixed protection (pensions) 2012

The ability to protect pension funds built up before 6 April 2012 from a lifetime allowance charge. You were given a personal lifetime allowance of £1.8m.You must have applied to HM Revenue & Customs for fixed protection by 6 April 2012 and must have agreed to stopaccruing further pension rights, for example by making contributions, from 6 April 2012 onwards. Following the removal of the lifetime allowance charge, from 6 April 2024 the lump sum allowance is £450,000 and lump sum and death benefit allowance is £1.8m.

Fixed protection (pensions) 2014

The ability to protect pension funds built up before 6 April 2014 from a lifetime allowance charge. You were given a personal lifetime allowance of £1.5m. You must have applied to HM Revenue & Customs for fixed protection by 6 April 2014 and must have agreed to stopaccruing further pension rights, for example by making contributions, from 6 April 2014 onwards. Following the removal of the lifetime allowance charge, from 6 April 2024 the lump sum allowance is £375,000 and lump sum and death benefit allowance is £1.5m.

Fixed protection (pensions) 2016

The ability to protect pension funds built up before 6 April 2016 from a lifetime allowance charge. You were given a personal lifetime allowance of £1.25m. You must have applied to HM Revenue & Customs for fixed protection and must have agreed to stopaccruing further pension rights, for example by making contributions, from 6 April 2016 onwards. Following the removal of the lifetime allowance charge, from 6 April 2024 the lump sum allowance is £312,500 and lump sum and death benefit allowance is £1.25m.

Flexi access drawdown

An option under some money purchase pension schemes that allows you to take an income directly from the pension fund while leaving the rest invested. There is no limit on the amount you can take out each year. Any income you take will be added to your total income for the year and you will pay tax on it in the normal way. Flexi access drawdown has been the only option available since April 2015. If you already use capped drawdown you can continue under its existing rules.

Former protected rights

These are funds that were built up from National Insurance contributions (NICs) paid into your pension policy. These contributions can no longer be paid into your policy and when you take your benefits they are treated in the same way as non-protected rights.

Free Standing Additional Voluntary Contributions (FSAVC)

If you are in your employer's pension scheme, you may be able to build up a bigger pension pot by paying extra amounts into a separate, independent scheme which is known as an FSAVC scheme.

FRS17 (Financial Reporting Standards)

The accounting standard that, from 2005, requires companies to put a market value on any pension deficits.

Fund

A fund is a pool of money that is invested in a range of assets by a fund manager.

Fund manager

A fund manager invests the money investors have paid into a fund in various asset types such as cash, bonds, equities and property and depending upon on the investment objective of the fund.

Fund value (of a pension)

The pot of money you have saved while you are working for when you retire.

General Data Protection Regulation (GDPR)

European Parliament and Council regulation that sets out the rules an organisation has to follow to protect EU citizens' personal data. This came into force from 25th May 2018 and replaced the Data Protection Act 1988.

General insurance

General insurance can include home, contents, motor, travel, unemployment and accident and sickness cover.

Gilts

Gilts are bonds that are issued by the British government and they are generally considered low-risk investments. The name comes from the original certificates, which had gilded edges. The yield (income) on Gilts is one of the items we use to work out the capped drawdown pensions.

Government Actuary's Department (GAD)

The Government Actuary’s Department (GAD) is a department of the Government of the United Kingdom responsible for providing actuarial advice. When working out a capped drawdown pension, one of the figures we use is taken from a set of tables provded by GAD.

Guaranteed bonus

Once a bonus has been added to a with-profits policy it is guaranteed to be paid at the end of the policy, so long as all the premiums are paid. It also refers to where bonus rates are guaranteed to be fixed or at least a minimum amount.

Guaranteed cash sum

The minimum amount to be paid when a policyholder with a with-profits policy retires or dies, so long as all the premiums are paid.

Guaranteed fund

The minimum amount to be paid when a policyholder with a with-profits policy retires or dies, so long as all the premiums are paid.

Guaranteed Annuity Option (GAO)

Your pension policy may have a Guaranteed Annuity Option (GAO). If it does, and you can choose to take a guaranteed income for life (an annuity), you are entitled to the guaranteed rate. It is important to check whether you have a GAO and how it operates as this may give you a higher income than you can get from another provider.

Guaranteed Annuity Rate (GAR)

A guaranteed rate that applies to certain types of annuity and is calculated per £1,000 of savings. It is likely to be higher than the standard rate available from Phoenix Life and other pension providers.

Guaranteed drawdown

A hybrid product that combines a guaranteed income for life with the features of a flexible retirement income product.

Guaranteed growth bonds

A policy where you can invest a lump sum for a fixed term (typically 3 to 5 years) usually with a guaranteed minimum return.

Guaranteed income bonds

A policy where you can invest a lump sum for a fixed term (typically 3 to 5 years) usually with a guaranteed income of a specified amount for the length of the term.

Guaranteed investment bond

A fixed term stock market linked investment with a built-in guarantee to return at least the original investment if held to maturity. This offers investors the chance to share in stock market growth potential without risking their original investment.

Guaranteed minimum death benefit

The minimum amount a policy will pay out if the policyholder dies during the term of the policy, as long as they make all the payments due.

Guaranteed Minimum Pension (GMP)

A guaranteed minimum pension amount. This applies if the policy was funded by a transfer from an Occupational Pension Scheme which was contracted out of the State Earnings Related Pension Scheme (SERPS). The value is not available online.

Hedge funds

Hedge funds are pooled funds not generally open to the public. They are often more risky than other investment fund types as they are aimed at achieving higher returns. Many hedge funds do not provide their investors with the same level of protection that other reglated funds do.

HM Revenue & Customs (HMRC)

Is the tax authority of the UK government.

Hybrid products

Products that combine features of a guaranteed income and a flexible retirement income product to provide a retirement income.

Illustration

An estimate of what you might get back from an investment. It is worked out based on future growth rates that all insurance companies have to use and future charges you may have to pay. The amount is not guaranteed and what you actually get back may be higher or lower than the illustration, depending on how well your investment performs and how long you keep it for.

Impaired life annuity

If you smoke, have high blood pressure, are on prescribed medication or have a medical condition, you may be eligible for an 'enhanced' guaranteed income (also known as an 'enhanced', 'lifestyle' or 'underwritten' annuity). These tend to pay a higher amount of income on the basis that your life is expected to be shorter and so the income will not be paying out for as long.

Income protection

This type of insurance policy pays out if you're unable to work because of injury or illness. It will usually pay out until your retirement, death or your return to work.

Income tax

The tax you pay on your income each tax year. The amount of tax you pay depends on the amount of money you earn and receive from your investments and savings and on your individual tax allowances.

Increment

Extra contribution or premium on top of the original premium or contribution.

Independent financial adviser

The only type of financial adviser who can choose from all the products available on the whole of the market.

Index-linked

An increase to annuity payments, pension benefits or premiums you pay, linked to a government index (typically the Consumer Price Index or Retail Prices Index). The purpose of index-linking is to attempt to protect you against rising costs as a result of inflation.

Index tracker

An investment fund that follows a selected market index, for example the FTSE 100 index. The value of the investment will go up and down in line with the index that it is based on. There are no guarantees.

Individual protection 2014

Individual Protection 2014 gave individuals a protected lifetime allowance equal to the value of their pension savings on 5 April 2014, subject to an overall maximum of £1.5 million. You will not lose Individual Protection 2014 by making further savings in to your pension scheme. You couldn't apply for Individual Protection 2014 if you already hold primary protection. Following the removal of the lifetime allowance charge, from 6 April 2024 the lump sum allowance is 25% of the protected amount and the lump sum and death benefit allowance is the lower of £1.5m or the value of benefits on 5 April 2014.

Individual protection 2016

Individual Protection 2016 gave individuals a protected lifetime allowance equal to the value of their pension savings on 5 April 2016, subject to an overall maximum of £1.25 million. You will not lose Individual Protection 2016 by making further savings in to your pension scheme. You couldn't apply for Individual Protection 2016 if you already held primary protection or Individual Protection 2014. Following the abolition of the lifetime allowance charge, from 6 April 2024 the lump sum allowance is 25% of the protected amount and the lump sum and death benefit allowance is the lower of £1.25m or the value of benefits on 5 April 2016.

Individual Savings Account (ISA)

ISAs are tax-efficient savings and investment accounts. You do not pay tax on the interest, income or profits. There are limits on the amount you can invest in ISAs in each tax year.

Industrial branch

If you have a life policy and used to make (weekly) payments to a collector, you have an ‘Industrial Branch’ policy. All other life policies are classed as 'Ordinary Branch’ policies.

Inflation

The increase in the general level of prices of goods and services meaning that the same amount of money will buy less in the future than it does today.

Inheritance tax

If a person dies and the value of their estate is over the threshold or nil rate band for inheritance tax (currently £325,000), inheritance tax may be payable on any amount over that figure. If an individual dies after 5 April 2017 an estate may also be entitled to the 'Main residence nil rate band', which is £175,000 in 2024/25 (provided that the value of the estate isn't more than £2 million).

Initial units

Also known as Capital Units. These can be applied to a unit-linked or unitised with-profits policy, usually in the first one or two years. Initial units have extra charges to cover the selling and set-up costs for the policy.

Intermediary

A financial intermediary is someone, such as an independent financial adviser, who arranges or organises a financial product or service for you.

Intestate

A person dies ‘intestate’ if they do not leave a valid will. There are rules, laid down by law, which set out how the person’s estate must be handled.

Investment pathway funds

Investment pathways funds are based on the four most common ways that people choose to take their retirement savings. They offer a simple choice of funds where experts will manage the money in your pension plan based on what you want to do with the money left in it after you’ve taken your tax-free payment.

Investment performance

Returns from investments and profits and losses (growth and falls in prices) on investments.

Investment return

Returns from investments and profits and losses (growth and falls in prices) on investments.

Joint Life

A life assurance product that provides life cover for more than one person and pays benefits either on the first or second death.

Land register

A record of the registered owner of land and of whether there are any mortgages or other restrictions affecting it. The record is held by the Land Registry.

Lapse / lapsed

If a policyholder stops paying a regular premium on a life assurance policy, the policy may ‘lapse’. This may be ‘with value’ or ‘without value’ depending on the type of policy and the length of time the policy has been in force.

If the policy lapses ‘with value’ the life cover may continue for a limited period, but will end if premiums are not paid. The policy will normally have some cash in value. If the policy lapses 'without value’ all life cover ends and there is no cash in value.

Lasting Power of Attorney

A Lasting Power of Attorney (LPA) is a legal document that lets someone choose one or more people (known as attorneys) to make decisions for them. An LPA can cover things like money and property or healthcare and personal welfare.

Letter Of Authority (LOA)

Sent by third parties (typically independent financial advisers, or banks and building societies), to confirm they have a policyholder’s permission to get information about their policy.

Letters of administration

The legal process of distributing an estate for someone who has died without leaving a will.

Level term assurance

The simplest type of life assurance. If you die during the time you are covered, it pays out a stated sum of money. The premiums stay the same throughout the term. There is normally no cash-in value.

Life cover

If you have a policy that provides life cover, the policy will pay out a sum of money if the life assured on the policy dies.

Life assured

The person on whose death the proceeds of a policy will be paid.

Life expectancy

How long a person is expected to live.

Life insurance

An insurance policy that pays out if you die.

Lifetime allowance

The lifetime allowance was total amount you could save into pensions in your lifetime while still getting tax relief. If you went over the allowance you would pay a tax charge on the excess when you drew out your savings as cash or pension. The Lifetime Allowance was abolished on 5 April 2024 and was replaced by the lump sum allowance of £375,000 and the lump sum and death benefit allowance of £1,073,100.

Lifetime allowance charge (pensions)

The Lifetime Allowance was the total amount you could save into your pension in your lifetime while still getting tax relief. If you went over the allowance you would pay a tax charge on the extra when you took out your savings as cash or pension. This tax charge was called the Lifetime Allowance Charge and was abolished with effect from 5th April 2024.

Lifetime annuity

A retirement income product that guarantees a regular income for the rest of your life. The income may stay level, be linked to inflation or rise gradually at set rates, depending on which features you choose. Includes the option to provide for a dependant for life after you die in return for a lower income.

Limited Price Indexation (LPI)

This is a pricing index used when calculating increases to certain pensions, either in payment or while you're waiting for them to come into payment. The LPI is the Consumer Price Index (CPI) capped at either 5% or 2.5%.

Low cost endowment

A savings product that always includes life assurance. It pays out a fixed amount, known as the sum assured, plus any bonuses at the end of a fixed term. It is designed to help pay off the capital of an interest only mortgage but doesn't guarantee to do so. The amount payable if you die during the term is normally enough to pay off the mortgage.

Lump sum allowance

The lump sum allowance (LSA) was introduced on 6 April 2024 to replace the Lifetime Allowance. The LSA is a limit on the maximum amount you can withdraw tax-free from your pension and is £268,275 for the 2024/25 tax year. If you have any of the HMRC protections this figure may be different depending on the type of protection you hold.

Lump sum and death benefit allowance

Tthe lump sum and death benefit allowance (LSDBA) was introduced on 6 April 2024 and is a limit on the total amount that can be paid tax-free during your lifetime and on death. The limit for the 2024/25 tax year is £1,073,100. If you have any of the HMRC protections this figure may differ depending on the type of protection you hold.

Market Level Adjustment (MLA)

See market value reduction (MVR)

Market Value Reduction (MVR)

For unitised with-profits policies, we may apply a market value reduction (MVR) if you decide to cash-in your policy (or start taking pension benefits) early, transfer it to another company or switch it from the unitised with-profits fund into another investment fund. Full details of when an MVR may apply are given in your policy terms and conditions.

The MVR is the amount by which the cash-in value is less than the fund value. It is used to help ensure that policyholders who cash in some or all of their with-profits investments before the end of their policy term do not disadvantage the policyholders remaining in the fund.

MVRs are not normally applied when the policy is due to end, if you retire at your chosen retirement date or if you die during the term. For unitised with-profits bonds, there may also be guaranteed dates where we guarantee not to apply a MVR if you cash-in your policy. The MVR is also sometimes known as a market value adjustment (MVA).

Maturity

This is when the policy has reached the set number of years originally agreed. For pension policies, the maturity date is usually called the selected retirement date.

Maturity bonus

A bonus that may be added to a with-profits policy when it is cashed-in or matures. The amount of bonus paid (if any) depends on the performance of the investments (and other profits and losses of the fund) over the term of the policy and is not guaranteed. This is sometimes known as an annual, final or terminal bonus.

Money purchase (pension scheme)

Builds up a pension pot to pay you a retirement income based on contributions from you and/or your employer. Your pot is put into various types of investments, including shares (shares are a stake in a company). The amount in your pension pot at retirement is based on how much has been paid in and how well the investments have performed. Also known as 'defined contribution' pension schemes.

Money Purchase Annual Allowance (MPAA)

If you flexibly access your pension savings, for example, by cashing them in, the maximum amount that can be paid into pensions in the future might be subject to a lower limit on your annual allowance, called the Money Purchase Annual Allowance (MPAA).The current limit is £10,000. If your total pension savings to defined contribution (also known as money purchase) pensions and certain hybrid pensions goes above the MPAA then you will pay tax on the amount above the MPAA. The pension savings that attract tax relief into defined benefit pensions is reduced by £10,000.

Mortgage deed

The legal document you sign giving the lender the legal right to use your property as security for a mortgage.

Mortgage endowment

A type of endowment policy usually linked to an interest only mortgage. The benefits are used to pay off some or all of the mortgage at the end of the term.

National insurance contributions

You pay National Insurance contributions to qualify for certain benefits and the State Pension. You pay National Insurance if you are 16 or over and earn, or make a profit if you are self-employed, over a minimum amount.

National insurance rebates

Before April 2012, if you contracted out of the State Second Pension (S2P) into a money purchase (appropriate) personal pension plan, part of the national insurance contributions paid by you and your employer to fund S2P was refunded and paid into your pension plan. Since April 2012, individuals in these plans have been contracted back in and accumulated S2P up to April 2016. Contracting out through a defined benefit scheme ceased in April 2016.

National Treasury Management Agency (NTMA)

The National Treasury Management Agency (NTMA) provides financial management services to the Government in Ireland. This includes looking after the value of any unclaimed life assurance policies. For more information, visit www.ntma.ie

Net income

Income after deductions (such as tax).

Net interest

If you're a basic rate taxpayer you are able to earn up to £1,000 in savings income tax-free. Higher rate taxpayers will be able to earn up to £500. This is called the Personal Savings Allowance. If you are a basic rate tax payer and have savings income or interest of more than £1,000 (and £500 for higher rate taxpayers) you will have to pay some tax on it. Additional-rate taxpayers do not get an allowance.

Next of kin

Your next of kin is your closest relative, usually a spouse or registered civil partner, but if no such person exists, may be a blood relative (i.e. someone who is related to you through a common ancestor, rather than by marriage or adoption, e.g. if you have shared parents or grandparents).

Nominated beneficiary

A person, named by a policyholder, as someone they would like to receive benefits from a policy following their death.

Non forfeiture

Non-forfeiture is where the policyholder/customer is not paying the premiums but some of the benefits are continuing at their full value. There may be an additional cost to maintaining a policy in this way, and it may only be able to continue for a limited time or while there is still a cash-in value. Sometimes the unpaid premiums are called a 'loaned' amount.

Non-protected rights pension

The amount of your pension which has been built up from contributions made by you and/or your employer or by transferring similar contributions to your policy from another pension policy.

Non-qualifying policy

These are life assurance policies (typically single premium policies) which do not meet requirements and therefore do not qualify for certain tax reliefs. As a result a chargeable event will normally arise when the proceeds are paid.

Normal Retirement Date (NRD)

This is the assumed retirement date we use when we set up a pension policy (for an occupational pension scheme this will be set in the scheme rules).

Notary Public

An individual who is authorised to swear oaths, certify the execution of deeds and who can authenticate signatures, documents and facts with such authentication being relied upon.

Occupational pension scheme

A pension scheme set up by an employer for its employees. It usually provides life insurance as well as pension benefits. The pension it pays out can be based on a proportion of the employee's final salary, or on the amount paid in, together with investment growth (see money purchase). Occupational pension schemes can be ‘contributory’, where employees pay into the pension fund as well as their employer, or ‘non-contributory’, where the employer pays all the pension contributions into the fund.

Offer price

The price at which you buy units in a unit-linked fund.

Ombudsman

An ombudsman is an independent person or organisation that can help settle some disputes between an organisation and their customers. The main ombudsman for the financial services industry in the UK is the Financial Ombudsman Service. If you purchased your policy in the Republic of Ireland, our usefulombudsman selection toolwill help you identify the right ombudsman to contact.

Ongoing charge

A charge is made on a policy to show the ongoing cost of investing in a fund. It’s shown as an annual percentage and includes management fees, administration costs, and other expenses for running the fund.

Open Ended Investment Companies (OEICS)

A collective investment vehicle in company form. They provide a way for individual investors to pool their money and invest in a broad selection of shares from a range of other companies, with the aim of reducing the risks of investing in individual shares.

Open market option

Whatever you decide to do with your pension pot you don't have to stay with your current pension provider. You can use the 'open market option' to shop around for the best product to suit you.

Ordinary branch

Most life policies are classed as 'Ordinary Branch’ policies. However, if you used to make (weekly) payments to a collector, you have an 'Industrial Branch' policy.

Ordinary rights

The benefits built up in a money purchase pension scheme from contributions made by the policyholder or their employer.

Overlap

This is where a dependant’s annuity begins on the death of the annuitant (that is, the person who took out the annuity originally) within the annuity guarantee period. As a result two annuities may be paid until the end of the guaranteed period.

Overseas transfer allowance

The overseas transfer allowance (OTA) was introduced on 6 April 2024 and limits the tax-free amount that can be taken from your pension policies during your lifetime and on death. The OTA for 2024/25 is £1,073,100.

Overseas transfer charge

Where an individual's total transfers from a UK pension scheme to a qualifying recognised overseas pension scheme exceeds the overseas transfer allowance the excess will be subject to the overseas transfer charge, payable at 25%.

Paid up

Contributions or premiums are no longer being paid and the policy may provide reduced benefits on death, at retirement or at the end of the policy term.

Payment increase

Extra contribution or premium on top of the original premium or contribution.

Payment in kind

Payment of some other kind of benefit instead of money.

Pension commencement lump sum

The amount of tax-free lump sum available to you when you start taking your pension benefits at your selected retirement date. From 6 April 2024 the pension commencement lump sum will be limited to the lower of:

• 25% of the crystallised amount, or
• so much of your lump sum allowance or lump sum death benefit allowance available when you become entitled to the lump sum, or
• £268,275

Pension commencement excess lump sum

The pension commencement excess lump sum (PCELS) was introduced on 6 April 2024 and is payable when an individual takes more out of their policy than their lump sum allowance on commencement of their pension. The PCELS is only payable where the individual has used up all of their lump sum allowance, and the total of the lump sum for payment on commencement of the member’s pension exceeds the member’s available lump sum and death benefit allowance (LSDBA). Income tax is payable on the PCELS at the individual's marginal rate.

Pension deficit

When the amount a pension scheme has to pay out is more than it is worth.

Pension income

‘Pension income’ is another term for an ‘annuity’, which provides you with a guaranteed income in retirement.

Pension liabilities

For an occupational pension scheme, an estimate of the employer’s future costs of providing retirement benefits already earned by staff.

Pensions input

The pension input amount is the increase or growth in the value of a member's benefits over the pension input period. For a money purchase (pension scheme), it is the total of the contributions paid. For a defined benefit (pension scheme), it is the capital value of the increase in the member’s defined benefits over the pension input period.

Pensions Input Period (PIP)

The period over which a member’s pensions contributions is measured. For many pension schemes, the PIP was aligned with the tax year, so it ran from each 6 April to the following 5 April. From April 2016 all arrangements have a pension input period aligned with the tax year.

Pensions lifestyling

Also known as lifestyle, target date, phased, protective, automatic or default switching, this feature gradually moves your pension savings from higher into lower-risk funds. It aims to reduce the impact of short-term falls in the value of your pension savings in the run-up to your chosen pension date. Lifestyling usually starts five years before your assumed pension date. You should review your investment choices regularly to ensure that they are still appropriate for your needs.

Permanent Health Insurance (PHI)

See ‘income protection’

Personal lifetime allowance (pensions)

The personal lifetime allowance was abolished on 5 April 2024.

Personal pension

A type of Money purchase (pension scheme) which offers a tax efficient way to save for retirement.

Personal rights

The benefits built up in a money purchase pension scheme from contributions made by the policyholder or their employer.

Phishing

Phishing is a cybercrime where scammers try to steal sensitive information from people by pretending to be someone or something that’s legitimate, like a bank or a government agency. They usually send emails, telephone or text messages that look real and urgent, and they ask you to click on a link or provide personal information. The scammers use the information they get to steal money or commit other crimes like identity theft.

Plan

A ‘plan’ or policy is the contract you hold with us as a ‘planholder’ or ‘policyholder’.

Planholder

The legal owner of a plan or policy. This may include trustees of a pension scheme.

Policy

A policy is the contract you hold with us as a ‘policyholder’.

Policy charge

An amount we charge each month, or each time you pay a premium, where your money is invested.

Policy fee

An amount we charge each month, or each time you pay a premium, where your money is invested.

Policyholder

The legal owner of a policy. This may include trustees of a pension scheme.

Policy terms and conditions

These are contained in the policy document and tell you more about your policy benefits.

Policy Value Adjustment (PVA)

See market value reduction (MVR)

Power of Attorney (POA)

A person who has the authority to make decisions surrounding assets or property on behalf of another party. This person is now often referred to as an ‘enduring power of attorney’ or ‘lasting power of attorney’.

Premium

The amount you pay for your policy.

Premium holiday

Where a policy allows you to take a temporary break from paying your premiums.

Primary protection (pensions)

An option to help protect pension rights built up before 6 April 2006, from the lifetime allowance charge. The option was open until 5 April 2009 if you had pension rights worth more than £1.5m at 5 April 2006. People with primary protection can continue to have contributions paid to their retirement plans and build up more benefits. You must have registered for primary protection with . The lifetime allowance was abolished on 5 April 2024 and replaced by the lump sum allowance and the lump sum and death benefit allowance. The amount you can take tax-free from your pension will depend on whether the amount of protected tax-free cash exceeded £375,000. The lump sum and death benefit allowance is £1.8m x the individual's primary protection factor.

Principles and Practices of Financial Management (PPFM)

This is a detailed document that describes how we manage the with-profits fund.

Private medical insurance

A policy that will pay for some or all of the cost of private medical treatment, as long as the medical condition is covered by the policy.

Probate

The legal process of proving a will, appointing an executor and distributing a person’s estate in line with that will.

Probate Registry of the High Court

The office in England and Wales responsible for issuing letters of administration to appoint an administrator for a person’s estate, if they die without leaving a will.

Product provider

This refers to the insurance company who issued and is responsible for the running of your policy.

Projected Maturity Value (PMV)

A projection of what you might get back from an investment. It is worked out based on growth rates and future charges we believe you may have to pay. This is an example amount and is not guaranteed. The amount you actually get back may be higher or lower than the projected maturity value, depending on the investment returns and the period invested.

Projection

A projection of what you might get back from an investment. It is worked out based on growth rates and future charges we believe you may have to pay. This is an example amount and is not guaranteed. The amount you actually get back may be higher or lower than the projection, depending on the investment returns and the period invested.

Proposal

An application form signed by you.

Proposer

This is the person who took out the policy and was the original owner of the policy. This does not need to be the life assured.

Protected rights

Pension funds that were built up in a money purchase pension scheme from National Insurance `rebates` paid by the Government as a result of contracting out of the State Second Pension (S2P). As they replaced some state pension benefits, they were subject to special rules. From 6 April 2012, it was no longer possible to contract out into a money purchase pension scheme. Any protected rights which existed on 6 April 2012 became non-protected rights, so are no longer subject to special rules.

Protected rights annuity

The part of your annuity bought with the value built up from payments the Government has put into your pension plan, if you chose to contract out (see contracting out) of the State Second Pension (S2P).

Protected rights fund

The value built up from payments the Government made into your pension plan if you were contracting out of the State Second Pension (S2P) into a money purchase pension scheme. Protected rights ceased to exist on 6 April 2012 and any protected rights funds which existed on that date became non-protected rights.

Prudential Regulation Authority (PRA)

This is part of the Bank of England. It is responsible for the regulation and supervision of financial institutions.

Q&As

Questions and answers

Qualifying policy

These are life assurance policies which satisfy specific requirements in order to qualify for certain tax reliefs. If taken out before 14 March 1984, they benefited from life assurance premium relief (LAPR). The proceeds of such policies are normally paid free from any further tax liabilities. LAPR was stopped from 6th April 2015. See also non-qualifying policy.

Qualifying Recognised Overseas Pension Scheme (QROPS)

An overseas pension scheme which satisfies HMRC's requirements to be a recognised overseas pension scheme and appears on HMRC's list of Qualifying Recognised Overseas Pension Scheme (QROPS).

Quotation

A document showing you the cost of insurance cover, a policy value or a projected value for a future point in time.

Redemption penalties

A financial penalty typically charged by a lender if you choose to repay a loan early.

Reduction in yield

The difference between the return that a fund earns on its investments and the return that you receive. The difference represents the effect of expenses and other charges.

Registered civil partner

Someone who has entered into a legal relationship (a 'Civil Partnership') that is similar to a marital spouse.

Registered pension scheme

A pension scheme that has been registered with so it is bound by, and benefits from, the tax rules and advantages available through registration.

Regular bonus

A bonus that may be added to conventional with-profits policies once a year. However, the allocation of bonuses depends on the performance of the fund and we can’t guarantee that a bonus will be added every year but once a bonus is added, it cannot be taken away. For more information on annual bonuses, visit ourcustomer centre, select your former policy provider and look in the ‘with-profits’ section.

Relevant benefit crystallisation event

Relevant benefit crystallisation events (RBCEs) were introduced on 6 April 2024 to replace benefit crystallisation events (BCEs) following the abolition of the lifetime allowance. RBCEs relate to the tax-free element of the benefits taken from your pension and are tested against either the lump sum allowance or the lump sum and death benefit allowance depending on the circ*mstances in which the money is taken.

Remuneration

Payment for work or services.

Renewable term insurance

Life insurance which pays out if you die during the time you are covered for. At the end of the term, you have an option to renew the cover.

Repayment mortgage

With a repayment mortgage, you repay part of the money you have borrowed each month together with interest. At the end of the mortgage term, you will have repaid the money you borrowed in full and all the interest added throughout the term.

Retail Prices Index (RPI)

RPI is a measure of inflation. It tracks changes in the prices of a basket of goods and services, taking a large sample of retail goods including food, tobacco, household goods, transport fares, motoring costs and clothing. An increase in the index means prices have on average increased. The Consumer Price Index (CPI) is now more commonly used.

Retirement Annuity Contracts (RAC)

Pension policies that were taken out before June 1988 by self-employed people or employed people who were not in an occupational pension scheme.

Reversionary bonus

A bonus that may be added to conventional with-profits policies once a year. The allocation of bonuses depends on the performance of the fund and we can’t guarantee that a bonus will be added every year but once a bonus is added, it cannot be taken away. For more information on annual bonuses, visit ourcustomer centre, select your former policy provider and look in the ‘with-profits’ section.

Reversionary pension

An annuity may allow for the income you are receiving to continue to be paid to your spouse or dependants after your death, though usually at a lower level.

S2P (State Second Pension)

This was an earnings related pension which was paid to you by the Government when you retired, on top of your basic state pension. If you were notcontracting outof the S2P, some of your National Insurance contributions went towards S2P. The S2P replaced the State Earnings Related Pension Scheme (SERPS) in 2002. If you reach state pension age on or after 6 April 2016 you will receive the new state pension.

Safeguarded benefit

A safeguarded Pension benefit is a form of guarantee on the rate and/or the amount of guaranteed annuity income to be provided. An individual with safeguarded benefits worth more than £30,000 under the scheme must take financial advice before they can be given up.

Schedule

Details of what is and isn’t covered by a policy.

Scheme administrator

A pension scheme administrator fulfils various functions for a pension scheme including communicating with scheme members and reporting to .

Scheme insurer

An insurance company that provides a pension policy held by the trustees of the scheme.

Scheme member

A person whose pension is part of a registered pension scheme.

Scheme pension

A pension paid by the pension scheme or by an insurance company selected by the scheme administrator.

Scottish Rate of Income Tax

The Scottish Rate of Income Tax was introduced in the Scotland Act 2012. It gave the Scottish Parliament the power to set its own rate of income tax from April 2016.

Sealed copy

If someone dies without leaving a will, a ‘sealed copy’ is an extra copy of a grant of probate, letters of administration or confirmation that you can obtain from the Probate Registry of the High Court or the Sheriff's Court (in Scotland). Sealed copies are endorsed with an original stamped seal by the court official.

Selected benefit date (SBD)

The date you choose when pension benefits from a pension scheme come into payment.

Self-proposed

Where the person who took out the policy (the policyholder) is also the life assured.

Serious ill health lump sum

A lump sum paid from a pension scheme to a member who has a life expectancy of no more than 12 months. It is not available to those who have already taken their benefits. If paid after age 75 the lump sum is taxed as pension income at the recipient's marginal rate of income tax.

SERPS (State Earnings Related Pension Scheme)

This was replaced by the State Second Pension (S2P).

Service fee

Also called platform fees, these cover the administration of your pension and are usually charged as a percentage of the money you’ve contributed. How service fees are applied varies between providers. Generally speaking they’ll be one of two options: Stepped charges applied to the total amount of your fund that increase or decrease once thresholds are crossed or Tiered charges applied to parts of your fund, with each having its own pricing band.

Sheriff's Court

The office in Scotland responsible for issuing confirmation, the type of grant of representation issued in Scotland if a person has died without leaving a will. To find out more including the address for a local office of the Sheriff’s Court, visit the Scotcourts.gov.uk.

Short term annuity

A pension income that is payable for a set period of time up to a maximum of 5 years.

Single payment

A lump sum contribution.

Single-tier state pension

From 6 April 2016 the single-tier state pension was introduced. Individuals need at least 10 qualifying years to be entitled to receive any state pension and so the amount an individual will receive will be based on how many qualifying years they have, with individuals needing to have 35 qualifying years to be entitled to the full single-tier state pension. The single-tier state pension is £221.20 per week for the 2024/2025 tax year, with this amount increasing each year by the 'triple lock', which is the higher of:

• earnings - the average percentage growth in wages
• inflation - the percentage growth in prices in the UK measured by the Consumer Prices Index (CPI)
• 2.5%

Small pot payment

A payment that allows you to take your pension fund as a lump sum without triggering the Money Purchase Annual Allowance. Usually 25% is paid tax-free, with the remaining 75% being taxed at marginal rate. In order for you to take your pension savings as a small pots payment, there are a few conditions you must meet:

• You must be aged 55 or over
• The payment must not exceed £10,000 at the time it is paid to you
• You must take all the benefits from the pension
• You can do this a maximum of 3 times for non occupational money purchase pensions, but there is no limit for occupational money purchase pension schemes.

Smishing

Smishing is a type of scam using text messages where fraudsters attempt to steal sensitive information, such as usernames, passwords, and credit card details. The text message might appear to be from a legitimate source, such as a bank or a government agency.

Smoothing

With-profits investments include a special feature known as smoothing. Smoothing is designed to protect investors from the direct impact of any sudden movements in the stock market. However, it can’t get rid of the strong link between underlying market returns and with-profits returns.

Spouse

A husband, wife or civil partner.

Spouse’s pension

An annuity may allow for the income you are receiving to continue to be paid to your spouse or dependants after your death, though usually at a lower level.

Stakeholder pension

A personal pension with restricted costs introduced by the Government in April 2001.

Standard lifetime allowance

The lifetime allowance was a limit on the total amount you could save into pensions in your lifetime while still getting tax relief. If you went over the allowance you would pay a tax charge on the extra amount when you drew out your savings as cash or pension. It was abolished on 5 April 2024.

Standard lifetime allowance charge

The tax that needs to be paid on any pension benefits that are above the standard lifetime allowance (or your personal lifetime allowance, if higher). The tax charge is charged at the highest rate of income tax you pay.

Standing order

An instruction you give to your bank or building society to pay regular amounts to a third party.

State pension

The UK state pension is made up of two parts - the basic state pension and the Second State Pension or ‘S2P’. You will receive a basic state pension so long as you have paid or been credited with enough national insurance contributions by the time you reach the state pension age. The S2P is an earnings related pension scheme, and part of your national insurance contributions will go into the S2P unless you are contracted-out of the S2P to your employer’s scheme. The S2P replaced the State Earnings Related Pension Scheme (SERPS) in 2002.

State pension age

The State Pension age for men and women is 66. It's due to rise further, to 67, between 2026 and 2028.

State Second Pension (S2P)

This is an earnings related pension which is paid to you by the Government when you retire, on top of your basic state pension. If you're employed, and are not contracting out of the S2P to your employers’ pension scheme, some of your National Insurance contributions go towards S2P. The S2P replaced the State Earnings Related Pension Scheme (SERPS) in 2002.

Statutory money purchase illustration (SMPI)

An example of what the pension policy (or pension scheme) might provide at the normal retirement date. It uses assumptions which are generally set by the regulator. This illustration is normally sent to most pension policyholders each year, except in the year before the normal retirement date.

Sum assured

If your policy has a sum assured, this is the amount we promise to pay you, so long as you pay all the premiums due for the term of your policy. For whole life policies, we will pay this amount when the life assured dies. For endowment policies, we will pay this amount when the life assured dies or at the end of the policy term.

Surrender

If you cancel an investment or life assurance policy, this is known as a surrender. There may be penalties if you cancel the policy before the policy ends or ‘matures’. You should think carefully before surrendering your policy. We recommend that you seek independent financial advice before you do.

Surrender value (SV)

The amount you might get if you surrender or cancel an investment or life insurance policy. You should think carefully before cashing in your policy. We recommend you seek independent financial advice before you do.

Tapered annual allowance

Pension annual allowance (AA) is the annual limit on the amount of contributions paid to, or benefits built up in, a pension scheme before the member has to pay tax. Tapered annual allowance is lower than the standard annual allowance and is based on the individuals level of taxable income within the tax year. For the taper to apply, the limits on threshold income and adjusted income must both be exceeded. For every £2 of adjusted income over £260,000, an individual’s annual allowance is reduced by £1. The minimum annual allowance is £10,000. The minimum annual allowance is reached when the individual's adjusted income is £360,000 or more.

Threshold income

Threshold income is one of two measures used to decide if a member has a tapered annual allowance. Threshold income is broadly defined as the individual’s net income for the year and includes all taxable income such as salary, bonuses, rental income, dividend income, interest, etc. Where an individual has a threshold income above £200,000 they must calculate their adjusted income to work out the amount of any tapered annual allowance.

Tax-free lump sum (TFLS)

An amount of cash set by law that you can take at retirement free of tax. It's usually up to 25% of your pension. Sometimes simply referred to as 'tax-free cash' or 'cash lump sum.'

Tax relief

Some of your money that would have gone to the Government as tax, goes into your pension instead.

Temporary annuity (policy)

An annuity that is paid for a fixed period only.

Term

The length of time a policy is in force or, in the case of a mortgage, the length of time you have to repay what you have borrowed.

Term assurance

Life assurance giving protection for a specific amount of time (the term).

Terminal bonus

A bonus that may be added to a with-profits policy when it is surrendered or matures. The amount of bonus paid (if any) depends on the performance of the investments (and other profits and losses of the fund) over the term of the policy and is not guaranteed. This is sometimes known as an annual final or maturity bonus.

Terminal illness

For life insurance, an advanced or rapidly progressing incurable illness where, in the opinion of an attending consultant or a Chief Medical Officer, life expectancy is likely to be no greater than 12 months.

The State

Generally, the present Government and the departments responsible for the administration of the UK.

The Pensions Regulator

A UK regulator for work-based pensions, set up under The Pensions Act 2004. Visit their website at www.thepensionsregulator.gov.uk

Third party

A person or organisation who is not directly involved in a contract or relationship but has an interest in it.

Top-up payment

Extra contribution or premium on top of the original premium or contribution.

Trading / switching fee

These apply when buying or selling some investments. They might also apply if you’re investing a lump sum, switching from one investment fund to another or sometimes when you make a pension contribution. This might be a set amount or a percentage of the investment you’ve made.

Traditional with-profits

A type of with-profits policy which has a sum assured or guaranteed cash sum (in other words, an amount we promise to pay you, so long as you pay all the premiums due for the term of your policy). A with-profits policy shares in the profits and losses of the fund it invests in, in the form of bonuses. The bonuses may be added each year and / or at the end of the policy.

Transaction cost

These are the costs linked with buying, selling, lending or borrowing investments. Your provider or pension manager will keep these costs under review, as they could affect investment returns and the value for money you get.

Transfer

You can normally transfer your pension pot between products or from one provider to another.

Transfer payment

The amount received from another pension scheme or pension provider when pension benefits are moved from one provider to another.

Transfer value

The amount of money that can be transferred to another pension plan or pension scheme.

Transitional tax-free amount certificate

Where an individual has taken cash from their pension policy before 6 April 2024 and wants to take more after 6 April 2024, the amount they have already taken will need to be taken into account in determining how much of their new allowance is available. From 6 April 2024, individuals may request that any pension scheme of which they are a member issues a ‘transitional tax-free amount certificate’, setting out their transitional tax-free amount and lump sum and death benefit tax-free amount. Individuals will be required to provide the scheme with records of the previous tax-free amounts they have received in order that such certification can be provided.

Trivial commutation lump sum

The option for a member of a defined benefit pension scheme to take all of their pension benefits as a one-off lump sum. You need to be 55 or over and the value of all of your pension benefits when added together do not exceed £30,000 in total. The lump sum will be subject to an income tax charge at the member's marginal rate.

Trust deed

The legal document that transfers the legal ownership of a policy to the trustees to hold, subject to the terms of a trust.

Trust / trustee

Where a policy is held by a person or persons (the trustee(s)), for the benefit of another person or persons (the beneficiaries), the trustees are the legal owners and will be the people entitled to make a claim under the policy. The trustees have the duty to make sure that the proceeds are paid to the named beneficiaries, or are managed on their behalf.

Unauthorised payment

Unauthorised payments are any payments that don't meet the conditions to be an authorised payment. Examples could be: trivial commutation lump sums in excess of £30,000 or continued payments of pension after the member's death.

Underlying investments

The assets money is invested in to build up the value in a policy.

Underwriter

The person who assesses the terms we accept business on and whether a policyholder should be charged because they are at a higher risk of dying or becoming ill.

Underwriting

Calculating the risk that a policyholder will make a claim on an insurance policy, based on information such as age, sex, health and occupation. Underwriters can then decide how much the insurance premiums should be.

Unitised with-profits policy

A with-profits policy that distributes any profits on a daily basis, typically at 1/365th of the annual rate. A market value reduction may apply to these policies in certain circ*mstances.

Unit-linked

A unit-linked policy is linked directly with particular investments (for example, stocks and shares). The amount you finally receive depends on the success of these investments, which can go up or down in value.

Variable rate

An interest rate that can move up or down at any time, usually when there are movements in the Bank of England Base Rate.

Vishing

Vishing is a type of phone scam where fraudsters attempt to get sensitive information, such as credit card details, bank account numbers, and personal identification numbers (PINs). They do this by posing as a legitimate source, such as a bank or a government agency.

Voluntary rights

The benefits built up in a money purchase pension scheme from contributions made by the policyholder or their employer.

Waiting period

For income protection policies, this is the period after first taking out the policy when you are not fully covered.

Waiver of premium / contribution

The policy may allow for your regular premiums to be suspended if you become ill and are unable to work.

Welsh Rate of Income Tax

The Welsh Rate of Income Tax was introduced in the Wales Act 2014. It gave the Welsh Parliament the power to set its own rate of income tax from April 2019.

Whole life (assurance)

A life assurance policy which pays out whenever you die. Premiums might be paid for a period of time, up to a certain age or until you die.

Will

A legal document that allows an individual to state how their assets are to be handled following their death, naming the person, or persons, responsible for carrying out those wishes.

Winding-up lump sum

A one-off lump sum paid, that may be subject to an income tax charge, under an occupational pension scheme which is winding up when the available fund is below a stated limit. This threshold is £18,000 for the 2024/2025 tax year. There are no age limitations on when it can be paid.

With-profits plans / policies

A with-profits policy shares in the profits and losses of the fund it invests in, in the form of bonuses. The bonuses may be added each year and / or at the end or the policy.

With-profits endowment

A with-profits endowment is a savings product which usually includes life cover. It pays you at least a fixed amount if you die before the policy matures, or the sum assured plus any bonuses that may have been added over the term, at maturity.

Yearly bonus

A bonus that may be added to conventional with-profits policies once a year. The allocation of bonuses depends on the performance of the fund and we can’t guarantee that a bonus will be added every year but once a bonus is added, it cannot be taken away. For more information on annual bonuses, visit ourcustomer centre, select your former policy provider and look in the ‘with-profits’ section.