Glossary.

Choosing the right pension or investment can be a daunting process. Our glossary aims to make the process easier and help you understand some of the commonly used financial words and terms.

Term	Definition
A
Active management	An actively managed unit trust means that your money is invested in a portfolio of assets selected by a professional fund manager (an actively managed fund). Each fund manager constantly monitors companies, economic conditions and markets, and decides where best to invest to meet the fund's objectives on an ongoing basis.
Annual allowance	This is the maximum gross contribution you can make to your pension without incurring a tax charge. It is £255,000 for the 2010/2011 tax year up until the 2015/2016 tax year. After that, it will be reviewed on an ongoing basis. If you have benefits under a defined benefit scheme, it is the increase in value of your benefits over the scheme year that counts and not the actual contribution to that scheme.
Annuity	In the context of a pension scheme, an annuity is an income, guaranteed for life, which is paid to you in return for handing over your pension fund to an annuity provider. Annuities are mainly offered by insurance companies, and you are entitled to shop around for the highest annuity when you wish to take your benefits – you don’t have to buy your annuity from the same company that manages your pension scheme.
Annual management charge (AMC)	Covers the fund manager's management costs and is taken out of the assets of the fund.
Assets	These are investments held within the pension plan and could include shares, unit/investment trusts, deposit accounts and any other allowable investments within the pension plan.
Asset allocation	Is the process of deciding what proportion of an investment portfolio should be invested in different types of investment (for instance, shares or bonds), in what markets (what regions and countries) and in what sectors.
Asset class	There are four main categories of asset class: Cash - the least risky of the four asset classes but this risk is offset by often modest returns on the investment. Equities - shares issued by a company normally listed on a stock exchange. Individuals who buy equities hold a share in that company and are entitled to dividend payments and voting rights. Fixed interest - a fixed interest security is a way of 'lending' money to a Government, or to a company, in return for a fixed rate of interest over a set period. This type of investment is intended to provide a regular, reliable income. Property - invests in commercial property such as office blocks and retail parks.
Autoswitch	This facility gives you the opportunity to switch your unit trust investment to an ISA at the start of a new tax year. This means your investment moves to a more tax efficient position as soon and easily as possible.
B
BACS	Bank's Automated Clearing Services. A system supported by the major UK clearing banks for automated cash transfers between accounts, eliminating the need for cheque payments.
Benefits	Payments made to you in respect of your accumulated pension fund, either in the form of an annuity, income withdrawal or cash.
Beneficiary	The policy holder will be asked to nominate a beneficiary when applying for a Stakeholder pension. This is a person who will benefit from the pension should anything happen to the policy holder.
Bonus sacrifice	Giving up part or all, of a bonus, so that your employer can make a contribution to a pension plan on your behalf. It can result in tax savings.
C
Capital gain	The difference, if any, between the price at which you sell, transfer or give away an asset and the price at which you bought it.
Capital gains tax (CGT)	This is a tax which could be charged on certain capital gains.
Cash option	An option to take some of your pension benefits as a tax-free cash sum. This will result in a lower pension.
Company pension	This is a pension scheme set up by an employer to provide an income, or a tax free cash sum and a reduced income in retirement. Typically, both the employer and the employee make regular contributions into the scheme. These are also known as occupational, group or corporate pensions.
Corporate bond	Corporate bonds are a type of fixed interest security. When you invest in a corporate bond fund, instead of 'lending' money to a bank - which is effectively what happens when you place money on deposit - we lend your money to companies who agree to pay an amount of interest over a certain period of time.
D
Derivatives	Some funds can use specialist investments known as derivatives. Their name reflects the fact that their price is derived from the change in value of the investment that it's linked to, such as shares, property or bonds. Experienced managers use derivatives as part of an investment strategy to manage the effect of possible market falls or changes in exchange rates. This reduces the cost of investing in assets and helps to manage cash flow. For some trusts, derivatives will be used to seek to enhance overall investment returns, manage risk and to help protect returns from market falls. This includes investing in derivatives whose value rises when the market falls, but whose value falls if the market rises.
E
Equities	Shares issued by a company normally listed on a stock exchange. Individuals who buy equities hold a share in that company and are entitled to dividend payments and voting rights.
Ethical investment	An investment that conforms to a range of ethical and environmental guidelines.
Exit charge	Also known as a withdrawal charge, some companies charge a fee when you cash your units in.
F
Fixed interest securities	A fixed interest security is a way of 'lending' money to a government, or to a company, in return for a fixed rate of interest over a set period. This type of investment is intended to provide a regular, reliable income.
FTSE	Financial Times Stock Exchange, an independent company jointly owned by the Financial Times and the London Stock Exchange.
Fund	Money is pooled together from various sources and managed by professionals to allow investors to benefit from a larger pot of money spread across investments.
Fund manager	A professionally appointed person to manage a mix of funds to meet financial goals for the benefit of the investor(s). A fund manager will make the decision on what funds to invest in and how the investment is split.
G
Gross income	Income before tax has been deducted.
Gross interest	Interest before income tax has been deducted.
I
Income withdrawal	Also referred to as pension fund withdrawal or income drawdown – is a way for members to take an income directly from their pension fund without buying an annuity when they start taking benefits. HMRC sets a minimum and maximum level of income that can be ‘withdrawn’ from the fund each year, and members are free to choose any amount of income within these limits. The member continues to direct how their remaining fund is invested. A pensions provider may have their own minimum fund size requirements
Income units/shares	Any income earned by the trust is paid direct to your bank or building society account, and isn't reinvested into the trust. Also known as 'distribution units/shares'.
Index-tracker (or passive fund)	Index-tracker funds invest in most or all of the same shares, and in a similar proportion, as the index they are tracking, for example the FTSE 100 index. Index-tracker funds aim to produce a return in line with a particular market or sector, for example, Europe or technology. They are also sometimes known as 'Tracker funds'.
ISA	ISA stands for Individual Savings Account. An ISA is simply a tax wrapper around a product, for example, a unit trust, that makes it more tax-efficient. You can invest in a cash ISA and/or a stocks and shares ISA. We don’t currently offer a cash only ISA product.
Inflation	The increase in prices over a period of time. As prices rise, the value of money falls, so your money has progressively less buying power.
L
Lifetime allowance	An individual’s lifetime allowance is a ceiling on the amount of tax privileged pension savings that they can build up. Unless a member is entitled to any form of protection, any excess benefits above the lifetime allowance will incur a Lifetime Allowance charge of up to 55%. For most people their lifetime allowance will be the standard lifetime allowance. The standard lifetime allowance is £1.8 million for tax year 2010/11 up until the 2015/2016 tax year. After that, it will be reviewed on an ongoing basis.
M
Manage Your account	Our online service allows you to manage your pension and savings 24 hours a day, seven days a week. You can change your contributions, switch funds or simply check up on your investment funds whenever it suits you.
N
Non Protected Rights	These are pension benefits that are not Protected Rights (see below). That is, benefits which are not deemed to replace State benefits.
P
Protected rights	These are pension benefits which are built up because an individual has contracted-out of the earnings related component of the State Pension Scheme, or because they belong (or belonged) to an occupational pension scheme, which was contracted-out. These benefits are deemed to replace the State Second Pension (previously known as the State Earnings Related Pension Scheme) and consequently are treated differently to Non Protected Rights.
Passive funds	Please see index-tracker.
Portfolio	A holding of funds, this could be split across ISA, unit trust and pension investments. An investment portfolio may be held by a financial institution or a private investor. Portfolio turnover rate (PTR) gives an indication of how much the trust's investments have changed in a year. A PTR of 200% is equivalent to all investments having been replaced once.
Prospectus	A legal document provided by businesses to describe the investments/products they offer customers. The Prospectus usually provides investors or potential investors with fund information.
R
Registered Pension Scheme	Any scheme registered with HMRC. This includes occupational schemes and private personal pension schemes and excludes State pension schemes, such as the State Second Pension.
Risk	All funds have their own risk factors with some having higher overall risk ratings than others. Higher risk funds offer the potential for higher returns but carry with them an increased risk of not getting back all the money that was initially invested.
S
Salary sacrifice	Giving up part of your salary so that your employer can make a contribution to a pension plan on your behalf. It can result in tax savings.
Share price	The price at which you can purchase shares in a company on the stock market. The share price is determined by the financial market and so can fluctuate on a daily basis.
Shares	Shares are sold by companies to raise capital. If the company is a Plc (Public Limited Company) their shares will be available to purchase on the stock exchange. Shareholders are entitled to a share of company profits, usually paid as dividends, and have the right to vote on major decisions. (Also, see Open-Ended Investment Companies (OEICs)).
Stamp Duty Reserve Tax (SDRT)	Any unit trusts which invest in UK shares, have to pay SDRT each month. This is paid out of the assets of the fund. The duty is paid on any units the trust buys back from one investor and sells to another. The amount of SDRT paid is reduced if part of the trust is not invested in UK shares, including any cash not invested.
State pension	Government funded retirement plan that you may be entitled to at State retirement age depending on your National Insurance contributions.
Stock exchange	As the name suggests, a stock exchange is where stocks and shares in companies can be bought and sold. The Financial Times Stock Exchange 100 Index (FTSE 100) lists the 100 largest companies on the London Stock Exchange. These companies are the largest in terms of market capitalisation, the total value of the shares issued by the company.
Stocks and shares ISA	Each tax year you can invest up to your ISA limit in a stocks and shares ISA or split the amount between a stocks and shares ISA and a cash ISA. The annual stocks and shares ISA allowance for the 2010/2011 tax year is £10,200.
Switching fee	Switching is when you choose to change your fund choice and/or allocation. You can make a switch at any time and the service is currently free of charge if you switch online but you'll be limited to one switch per day on your Stakeholder pension.
T
Tracker	Please see index-tracker.
Transfer	ISAs. Stocks and shares ISAs, and cash ISAs, can be transferred between providers without losing their ISA status. You can transfer a cash ISA into a stocks and shares ISA but not a stocks and shares ISA into a cash ISA. Pensions. For pension transfers we would recommend you seek independent financial advice and request a transfer value analysis. This will allow you to compare all the options available to you.
U
Unit trusts	A unit trust is simply a collection of individual investors' money, which buys a range of investments. The trust is then divided into units. The number of units you buy represents your share of the trust.
V
Valuation point	Is the point in time on each business day that the unit trust is valued and a price calculated.
Volatility	The degree of unpredictable change over a period of time, normally short term, in the investment market.
W
Wrapper	A wrapper is a product designed to go around an investment to make it more tax efficient. For example, an ISA wrapper allows you to invest in a unit trust without having to pay personal income or capital gains tax.

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