Cash Equivalent Transfer Value (CETV) is an actuarially calculated current ‘value’ of the member’s benefit within a defined benefit scheme.
Commutation Factor is defined as the forgoing of part or all of the pension payable from retirement for an immediate lump sum. Commutation factors (usually calculated by the Scheme Actuary) are used to determine the amount of pension which needs to be forgone in order to provide the lump sum.
Consumer Prices Index (CPI) is an index published by the Government each month reporting the change in the price of a ‘basket of goods, commodities and services’ and a measure of inflation within the UK. This can be used for revaluing pensions in deferment and increases to retirement income.
Retail Prices Index (RPI) is an index published by the Government each month reporting the change in the price of a ‘basket of goods, commodities and services’ and is the accepted measure of inflation within the UK. This is a slightly different ‘basket of goods, commodities and services’ from those used to calculate CPI. This can be used for revaluing pensions in deferment and increases to retirement income.
Limited Price Indexation (LPI) is an annual increase in pensions equal to the lesser of 5% per annum and the annual increase in the Government’s Retail Prices Index.
Contracting-Out is to opt out of the State ‘top up’ Pensions. This means that you replace the additional State Pension benefit with your own pension. The Inland Revenue will arrange for the part of your own, and your employer’s, National Insurance Contributions, which would have gone towards the State Pension, to be paid directly into your plan. These payments are called ‘rebates’ and are paid into your plan after the end of each tax year.
Critical Yield is the investment return you will need to obtain in your individual plan so that the transfer value will grow to match the value of the pension ‘paid-up’ in your former employer’s scheme.
Escalation is applied to pensions in payment to provide an element of inflation proofing. The escalation applicable is dependent on pensionable service and the Scheme rules.
Financial Ombudsman Service (FOS) is the official independent body responsible for settling complaints between consumers and businesses providing financial services.
Financial Services Authority (FSA) is responsible for the regulation of the UK financial services industry.
Guaranteed Minimum Pension (GMP) relates to the earnings component of the State Pension that the member would have earned while in the employer’s scheme, had the member not contracted-out. GMPs ceased to accrue after 5 April 1997.
Guaranteed Period means that if the member dies within the guaranteed period the income will continue to be paid to the member’s spouse or beneficiaries until the end of the guarantee period.
Pensionable Salary is the definition of income that is used within the rules of a pension scheme to determine the level of benefits provided.
Pension Commencement Lump Sum (PCLS) In general a member of a Registered Pension Scheme may choose to take a Pension Commencement Lump Sum (PCLS) which is paid tax free subject to certain limits. This was previously known as Tax Free Cash.
Pension Protection Fund was established to pay 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 Pension Protection Fund levels of compensation.
Preserved Benefit is the benefit whether in the form of pension and/or cash left in your former employer’s pension scheme after you have left the company.
Revaluation is carried out to preserved pension entitlement to provide an element of inflation proofing. The amount of revaluation applied depends on the member’s period of service and the Scheme rules.
Scheme Solvency Basis is the Scheme Actuaries assumptions used to estimate the solvency position of the Scheme.
State Pensions means both the State Earnings Related Pension Scheme (SERPS) and, from 6 April 2002, the State Second Pension (S2P) which replaced SERPS.
State Pension Age for an individual will now depend on when they were born and prevailing legislation. Under current legislation, State Pension age is planned to increase to age 66 between November 2018 and October 2020, to age 67 between 2034 and 2036 and to age 68 between 2044 and 2046. The government has announced that the increase to 67 will now take place between 2026 and 2028. This change to the timetable is not yet law and will require the approval of Parliament. The government is considering how the State Pension age could better reflect changes in life expectancy in the future. This is likely to mean that the existing timetable to increase State Pension age to 68 will be revised.
The direct.gov website (wwww.direct.gov.uk) provides a pensions calculator which allows an individual to check their State Pension age. You can use the State Pension age calculator to work out your State Pension age. However, the State Pension age calculator will tell you when you will reach State Pension age under the current law and does not take account of the recent announcement to bring forward the increase to 67.
Transfer Club applies to a small number of schemes which are mainly public sector. In the transfer club, a standard actuarial calculation basis is applied to transfers in and out of Schemes within the club. The club schemes are obliged to pay and accept transfers on the club basis.
Transfer Value Analysis System (TVAS) is the method applied to all pension transfers from a defined benefit occupational scheme. The TVAS will calculate the critical yield required from a receiving pension plan to match at retirement age the benefits provided by a final salary occupational pension scheme.