Jargon buster

While we all try to be as clear as possible, sometimes it can feel like financial services in particular are speaking a different language.

So whilst we’ve simplified this site as best we can, if you do get stuck, this jargon buster should help explain the most commonly used terms.

Select from the tabs below, to find terms related to your product.

Retirement savings

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Choosing the right pension can be difficult, which is why we've created this jargon buster to explain some of the most commonly used words and terms. The tax information we provide is based on our understanding of current tax law and could change.

Annual Allowance

The Annual Allowance for the 2018/2019 tax year is £40,000. If the total gross contributions paid by you, your employer or a third party, into any UK Registered Pension Scheme you’ve taken out are over the Annual Allowance, you’ll be subject to a tax charge. If you’re also in a final salary pension scheme (defined benefit), your gross contributions for that scheme will be based on the increase in the value of your benefits during the tax year.

In some circumstances a reduced Annual Allowance may apply:

  • A Money Purchase Annual Allowance (£4,000 gross for the 2018/2019 tax year) will apply each tax year once you take money directly out of any money purchase (defined contribution) pension pot you have, unless you:

       - only take your tax-free cash lump sum, or

       - take all of it under the small pension pot rules, or

       - continue taking Capped Income Drawdown.

      Not all of these options will be available from every pension pot.

  • Your Annual Allowance may also be reduced if your income (including the value of any pension contributions) is over £150,000 and your income (excluding the value of any pension contributions) is over £110,000.

The Annual Allowance will not apply in the tax year in which you die or if you access your pension pot because of serious ill health.

More information is also available at gov.uk

You should contact your adviser if:

  • You expect your total gross contributions into all pension schemes to exceed the Annual Allowance in any tax year as unused allowances may be available from previous tax years;
  • You have any additional questions, including whether your Annual Allowance will be reduced.

Annual management charge (AMC)

The charge to cover set up and management costs, administration and day-to-day fund management. 

Annuity

An annuity is what most people call their 'pension'. It's a financial product that provides you with a regular income, usually for life. You can use all or part of your pension pot to buy an annuity from an insurance company.

Asset allocation

Is the way you've decided to invest. For example:

  • different types of investment (for instance, shares or bonds);
  • what markets (what regions or countries, for example the UK or overseas market); and
  • what sectors (for example technology or health care).

Asset class

Assets are what investment funds invest in. They have a significant impact on the performance of an investment so it’s important to understand the differences between the main types of asset.

There are four main types of asset and each has its own characteristics:

1. Equities – also known as ‘shares’, are a share in a company that allows the owner of those shares to participate in any financial success achieved by that company. They’re considered by many investment experts to be good for long-term growth but their value can go up and down a lot in the short term.

2. Fixed interest securities – also known as ‘bonds’, they are essentially a loan usually to a company or a government - the company or government pays regular interest on the loan and then pays it all back at a set date in the future. The value of fixed interest securities does go up and down. It tends to go up and down less than the value of shares but potential returns are often lower.

3. Commercial property – here you buy ownership in buildings, such as office blocks or shopping units. Property funds may grow from rising property values and rent paid by tenants. Property value is opinion based so the value may go up and down.

4. Cash - Some investment funds keep a proportion of your money in cash, adding flexibility to your ‘asset mix’ and making the investment fund more stable. The proportion of the investment in cash is usually quite low as the growth potential is low. So it’s low risk but offers the lowest potential return.

Automatic enrolment

Automatic enrolment is a Government initiative to encourage people to save more for their retirement. Employers will automatically enrol their eligible employees into their pension scheme. Employees then have the option to opt out.

Find out more about automatic enrolment by visiting gov.uk/workplace-pensions

Beneficiary

Nominating a beneficiary means if you die before you take your benefits and a lump sum becomes available you can request who you would like this lump sum paid to.

Benefits

You can normally take up to 25% of your pension pot tax free and use the rest of your pot to buy an annuity, take a regular income directly from your pot or take a lump sum. Different products will have different options available. You should shop around to find the best product to suit your circumstances.

Bid price

The price you sell your units in your investment fund for.

Bid/offer spread

The difference between the 'buying' (offer) and 'selling' (bid) price of units in an investment fund.

Capped Income Drawdown

Is one of two types of income drawdown where your pension pot can be left invested and an income taken directly from your pot. It is only available to those who were already in drawdown before 6 April 2015. There are restrictions on the amount of income that can be taken, however, it is possible to change from Capped to Flexi-Access Drawdown. Whilst in Capped Income Drawdown, there is no impact to your Annual Allowance.

Company pension

This is a scheme set up by an employer to provide benefits for when their employee retires. Typically, both the employer and the employee make regular contributions into the scheme. These are also known as occupational pensions.

Contributions

A payment into your pension plan made by you, your employer or any other person (called a third-party). You can usually pay regular contributions every month or every year. You can usually make one-off contributions at any time before you access your pension pot (this is known as a single contribution). 

Defined Benefit Pension Scheme

Sometimes also called a final salary scheme, is one that promises to pay out a guaranteed amount of income at your selected retirement date.

Defined Contribution Pension Scheme

Also known as a Money Purchase scheme, a pot of money is built up and is then used to provide retirement benefits. Unlike defined benefit schemes, these schemes do not provide a guaranteed income. The value of your pot will depend on a number of factors including the amount paid in, charges deducted and investment performance.

Derivatives

Derivatives are contracts usually giving a commitment or right to buy or sell assets on specified conditions, for example on a set date in the future and at a set price. The value of a derivative contract can vary. Some derivatives can have large changes in their value over a short period of time, while others may be more stable.The value of some types of derivative can even move in the opposite direction to a particular market.

Derivatives can generally be used with the aim of enhancing the overall investment returns of a fund by taking on an increased risk, or they can be used with the aim of reducing the amount of risk an investment fund is exposed to. The value of derivatives may vary more than an investment in shares, fixed interest securities or commercial property.

If one of the parties in a derivative contract suffers financial difficulty, they may not be able to make some of the payments they owe. This can affect the value of a fund invested in derivatives.

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 in your units.

External fund

An investment fund that a company other than Legal & General manages.

Flexi-Access Drawdown

This is an option that can usually be taken from age 55 onwards from a defined contribution pension pot. Your pension pot is left invested and an income taken directly from it. There are no limits to the amount of income that can be taken. When the first income payment is made, the Money Purchase Annual Allowance will be triggered. Please see the Annual Allowance explanation for more information.

Fund

A collection of assets that you can invest in. Money is pooled together from various sources and managed by a professional investment fund manager. This means that you can invest a fairly small amount while still enjoying the benefits of a larger investment fund.

Fund manager

A professional person who manages an investment fund on behalf of investors. Each investment fund has aims and financial goals that the investment fund manager tries to meet. 

Gilts

Gilts are bonds issued by the Government to raise money. When you invest into a gilt your money is lent to the Government who agree to pay an amount of interest over a certain period of time.

Gross income

Income before tax is deducted.

HMRC

HM Revenue & Customs is the part of the Government that is responsible for collecting tax.

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'.

Inflation

The increase in prices over a period of time tracked by the Office for National Statistics UK. As prices rise, what you can buy with a fixed amount of money falls, so your money has less buying power.

Internal fund

An investment fund managed by Legal & General.

Lifetime Allowance

There are no restrictions on the value of the total benefits payable from all your Registered Pension Schemes. However, anything over a certain level, called the Lifetime Allowance, will be subject to a tax charge of up to 55% on the excess.

For most people their Lifetime Allowance will be the standard Lifetime Allowance. The standard Lifetime Allowance for the tax year 2018/2019 is £1.03 million. Certain circumstances may mean you have a different personal Lifetime Allowance - for example, if you’ve registered with HMRC for protection. Depending on the type of protection you have, any contribution to a plan may mean you lose your protection.

My Account

Is the name of our service that allows you to manage some of our products online. For some pension plans you can change your contributions, switch funds or simply check up on the value of your plan whenever it suits you. Registering and using My Account  is fast and simple - just visit: legalandgeneral.com/login

National Employment Savings Trust (NEST)

NEST is a pension provider set up by the Government as part of its changes to workplace pensions. Employers who have to enrol their eligible employees into a pension scheme as a part of automatic enrolment can use NEST instead of a private pension scheme. Once a member, you can carry on saving even if you change jobs or stop working. To find out more about NEST, visit The Money Advice Service website.

Net income

Income after tax is deducted.

Nominee

Is a company (or person) who looks after the ownership of investments on behalf of someone else.

Occupational pension

This is a scheme set up by an employer to provide benefits for when their employee retires. Typically, both the employer and the employee make regular contributions into the scheme. These are also known as company pensions.

Offer price

The price at which you buy units in an investment fund. So if you have £10,000 to invest and the offer price is £1 a unit, you could buy 10,000 units.

Open-ended investment companies (OEICs)

Are established as companies that issue shares to investors. The value of an OEIC is set on a daily basis and divided into shares of equal worth. They are similar to unit trusts as they pool investors' money and they can invest in sub-funds in different market sectors giving greater diversity.

Pension pot

Is the money built up within a Defined Contribution Pension Scheme. This could be through transferring in other pensions, making single or regular contributions or receiving pension credits as a result of a divorce settlement. This money is then used to provide benefits.

Pension Wise

The Government offers free and impartial guidance to anyone aged 50 or over, that has a defined contribution pension. They offer guidance over the phone or face to face. You can find out more on their dedicated Pension Wise website.

Personal Illustration

A document that provides a guide to how much you might get back from your pension pot. It’s based on a number of example investment growth rates and it shows the charges you may pay. It assumes that charges will remain at their current level, and your contributions and funds selection remain unaltered throughout the term of your plan. You may have more than one personal illustration.

Pound cost averaging

To benefit from pound cost averaging you need to invest money on a regular basis. Spreading your investment over a period of time will help to cushion you from fluctuations in the price of units as you will buy more units when the unit price is low and fewer units if the price increases.

Registered Pension Scheme

A scheme that is registered in the UK under Chapter 2 of Part 4 of the Finance Act 2004. A Registered Pension Scheme qualifies for special tax privileges.

Risk

When you invest in an investment fund, it's important to consider the risks. This is because the value of any money invested can go down as well as up so you could get back less than you invest. All investment funds have their own risks with some having higher overall risk ratings than others. Higher risk investment funds offer the potential for higher returns but carry with them an increased risk of not getting back all the money you initially invested.

Selected retirement date

The date you intend to access your pension pot. This is normally from age 55.

Shares

Shares are sold by companies to raise money. Shareholders are entitled to a share of company profits, usually paid as dividends, and have the right to vote on major decisions. If the company is a Public Limited Company their shares will be available to buy on the stock exchange.

Small pension pot

A type of benefit that can be taken if you are aged 55 or over and have a pension pot value of £10,000 or less. You can only take three in a lifetime.

Stakeholder pension

Stakeholder pensions are a flexible, tax-efficient way of saving money for your retirement. By law, the yearly charges must be no more than 1.5% of your pension pot for the first 10 years and no more than 1% of your pension pot after that. A pension plan can only be registered as a Stakeholder plan if it meets strict standards set by the Government.

State pension

The State Pension is a regular payment from the Government that you can get when you reach State Pension Age. The State Pension you’ll receive will depend on the date you reach your State Pension Age and the number of qualifying years you have. Find out more about the State Pension at gov.uk

Stock exchange

This is where stocks and shares in companies can be bought and sold.

Switching 

Switching is when you move your investment from one investment fund to another.

Tax-free cash lump sum

An amount of cash that can be taken from a pension pot tax free, usually up to 25%.

Tax relief

There’s no limit on how much you can contribute, however, there is a limit on how much tax relief you can get. 

Your contributions before basic rate tax relief is added are net contributions. We add tax relief up to the basic rate, which we reclaim from HMRC, on the contributions you make.  Your contributions after basic rate tax relief is added are gross contributions. 

If you have no earnings, or earn up to £3,600 in a tax year, you can contribute £2,880 net across all your pension schemes and get tax relief of £720, giving you a gross contribution of £3,600. If you earn more than £3,600 in a tax year, you can get tax relief on 100% of the earnings you contribute up to the Annual Allowance. 

For example, if you pay £80 a month as your net contribution, we currently add £20, as the basic rate of tax is 20% (£80 divided by 0.8 = £100). 

Your contract is for the gross contribution, so if the basic rate of tax changes, the amount you pay will change. If you pay more than 20% tax on any of your income, you can reclaim any further tax relief through your yearly tax return or by contacting HMRC. 

Tax relief does not apply to:

  • Transfer payments
  • Employer contributions
  • Any contributions on or after your 75th birthday.

When you reach age 75 your regular net contribution will increase as your contract is for the gross contribution and the tax relief will no longer be added.

Transfer

You can transfer the value of some pension pots between providers. We would recommend you seek advice before you do this and request a transfer value analysis, so you can compare all the options available to you.

Transfer value analysis

This is where an adviser looks at the value of your current pension and the value of alternative options available to you. We strongly recommend that you seek advice to evaluate all your options before transferring the value of your pension pot.

UK dividends

Dividend payments can be made to shareholders of a company in the United Kingdom from that company's profit. The amount of payment is decided by the company directors.

UK resident

You live in the UK and are here for at least 183 days in a tax year.

Uncrystallised Funds Pension Lump Sum (UFPLS)

A type of benefit that can be taken from a defined contribution pension pot if you are aged 55 or over, made up of 25% tax-free cash with the remaining 75% taxed in the same way as earned income.

Unit

A unit is a share of an investment fund. Each investment fund is split into units. The number of units you hold is your share of the investment fund.

Unit trusts

A unit trust is simply a pool of individual investors' money, which buys a range of investments. The trust is divided into units. The number of units you hold represents your share of the trust.

Volatility

The degree of unpredictable change over a period of time, normally short term, in the investment market.

Retirement income

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Annual Allowance

This is an upper limit on the total value of contributions that can be paid to your pension scheme(s) in any one year and benefit from tax relief. HM Revenue & Customs has set the limit for the 2018/19 tax year as £40,000, which includes your personal contributions, any contributions by your employer and any tax relief on those contributions, across all of your pension savings. Your Annual Allowance will go down to £4,000 if you’ve flexibly accessed any of your pension benefits. This is known as the Money Purchase Annual Allowance. Your pension provider(s) will confirm if the Money Purchase Annual Allowance applies to you.

If you haven't accessed your benefits flexibly and earn more than £150,000, your Annual Allowance will reduce by £1 for every £2 you earn over £150,000. The maximum reduction is £30,000.

You may have to pay tax charges if you exceed your Annual Allowance.

Annuity

A retirement product that provides you with a regular, guaranteed income, either for life or for a set period.

Cash lump sum

See Tax-free cash sum.

Defined Benefit Pension

This pays a retirement income based on your salary and how long you have worked for your employer. They include ‘final salary’ and ‘career average’ pension schemes, and are generally only available from public sector or older workplace pension schemes.

Defined Contribution Pension

A pension savings product that builds up a pot of money to use for your retirement. It can be based on contributions from you and/or your employer, or a third party. Includes workplace, personal and stakeholder pensions.

Enhanced annuity

If you have certain medical conditions or lifestyle factors, then it could mean that you qualify for an ‘enhanced’ annuity, which may pay a higher income than a standard annuity.

To be considered for an enhanced annuity you’ll need to answer some questions about your health. We may contact your doctor to request a report about your medical condition(s). The conditions considered for enhanced Pension Annuities vary between different providers. That means whether you do or don't qualify for extra income with us, another provider could still offer you more.

Final Salary Pension

Please see Defined Benefit Pension.

Flexi-access drawdown (or ‘flexible income drawdown’)

Sometimes referred to as 'flexible retirement income', this allows you to use your pension pot to provide a regular retirement income by investing it in funds specifically designed and managed for this purpose. Unlike other solutions, such as an annuity, the level of income isn’t guaranteed, and it doesn’t guarantee that your money will last until you die. It does give you flexibility to change how much income you take, if any, or to switch to more secure retirement income products at a later date.

Flexi-access drawdown replaced flexible drawdown and capped drawdown from April 2015, though if you’re an existing user of capped drawdown, you can continue in that plan.

Flexibly Accessed

If you have taken any cash from your pension savings that are taxable, even if no tax was paid, then you have Flexibly Accessed your pension savings. This means that you will be subject to the reduced Annual Allowance.

If you have taken only your tax free cash, or have only purchased a lifetime annuity, you have not Flexibly Accessed.

Guaranteed Annuity Rate (GAR)

A valuable guaranteed income often offered by your own pension scheme or provider if you take a lifetime annuity with them; it’s usually at a competitive rate which may be hard to match by shopping around.

Guaranteed Minimum Payment Period or Guarantee Period

A lifetime annuity will pay you your income for as long as you live. However, you can choose to guarantee that your income is paid for a minimum period from the date your annuity starts. This means that if you die during your chosen period we’ll continue to pay your income to your estate or any other person you specify until the end of your chosen period.

Income Tax rates and bands

Income Tax is split into bands and you pay different rates (20%, 40% and 45%) based on these bands. Your pension income is added to your other earnings and then taxed according to which tax band it falls into. If it pushes your overall income into a new tax band you may pay tax on it at more than one rate.

The table below shows the tax rates and bands for the 2018/19 tax year. Tax treatment depends on each individual's circumstances and may change in the future. The Income Tax rates and bands for Scottish residents may be different.

Income rate taxes for 2018/19 tax year
Taxable income Tax rate for most people
Up to £11,850 No income tax payable (Personal Allowance)
Between £11,851 and £46,350 20%
Between £46,351 and £150,000 40%
Above £150,000 45%

Where your total income is more than £100,000, your Personal Allowance goes down by £1 for every £2 that your income is above £100,000. This means your Personal Allowance is zero if your income is £123,700 or above.

Inflation

The rate of increase in prices for goods and services. There are a number of different measures of inflation in use but the most frequently quoted and most significant ones are the Consumer Prices Index (CPI) and the Retail Prices Index (RPI). The inflation rates are expressed as percentages for example, if CPI is 3%, this means that on average, the price of products and services we buy is 3% higher than a year earlier.

Income drawdown

Allows you to take an income from your pension scheme while leaving the pot invested. Referred to as flexi-access drawdown under new rules from April 2015.

Joint life annuity

Some annuities will give you the option to choose an income for life just for you, or an income for life that continues to make payments to a nominated dependant or beneficiary after you die. This is called a joint life annuity. Choosing this option may reduce the income that you receive.

Lifetime Allowance

There are no restrictions on how much income you can receive. However, if the total value of your pension savings exceeds your 'Lifetime Allowance', as set by the Government, the excess will be subject to an additional charge payable to HMRC. For the tax year 2018/19 the Lifetime Allowance is £1,030,000.

If you exceed the Lifetime Allowance you pay a charge on the excess amount at 55% if taking the pension as a lump sum or at 25% if you take it as income. The same savings aren't assessed twice, so if you put £2million into drawdowns this will have been tested and the excess taxed at that time and no further Lifetime Allowance charge is due.

If you die leaving untouched pension savings that exceed the Lifetime Allowance - and they have not already been assessed against it - then your nominated beneficiary will be liable for the extra charges on the amount that exceeds the Lifetime Allowance.

The tax you pay depends on your individual circumstances and may change.

Lifetime annuity

A lifetime annuity is a way of using your pension pot to provide regular income that is guaranteed to continue for the rest of your life.

Depending on the provider and the product you choose, there may be different features that you can select. The choices you make will affect how much income you get.

Money Purchase Pension

Please see Defined Contribution Pension.

Pension Credits

Pension Credit is an income-related benefit that's designed to top up any State Pension you may be getting. You can use the View - Pension Credit Calculator to work out how much you might get. More information is available on Gov.uk.

State Pension

This is a regular payment from the Government that is paid when you reach State Pension Age. The amount payable depends on when you retire and the number of years of qualifying National Insurance Contributions (NICs) you have paid or been credited. You can find out more with the State Pension age calculator.

Tax-free cash sum

The amount of cash that you can take at retirement tax-free. It's usually up to 25% of your pension pot, and is also known as 'tax-free cash', 'pension commencement lump sum' or 'cash lump sum'.

Lifetime mortgages

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Arrangement fee

This covers the costs for setting up the lifetime mortgage, and is payable on completion. If you wish, you can add this fee to your lifetime mortgage, but it will increase the amount you owe and interest will be charged on it.

Compound interest

Any unpaid interest charged is added to the amount you owe each month. This is sometimes called compound interest or "rolled up interest".

Drawdown Facility

Our Lifetime Mortgages offer you a cash sum as the initial loan. If you choose to take less than the maximum that you're eligible for, you may be able to borrow more in the future, up to the maximum originally agreed.

Early Repayment Charge

The charge you will need to pay if you repay all or part of your lifetime mortgage early, outside the limits and terms that apply.

Further advance

If there is no Drawdown Facility available on your Legal & General Lifetime Mortgage, you may apply for a further advance. This is additional borrowing on top of your existing lifetime mortgage.
You'll have to pay fees, as you did when you first took out a lifetime mortgage, and these are outlined in our current Tariff of Charges.

Inheritance Protection

With our Lifetime Mortgages, you can choose at the start of the loan a percentage of the value of your house to protect for your beneficiaries of your estate when you die. Including Inheritance Protection will reduce the amount that you can borrow with a lifetime mortgage.

Key Facts Illustration

This is a document that your adviser will create, and use to discuss your options, costs and recommendations with regards to a lifetime mortgage.

Lifetime mortgage

A type of equity release, a lifetime mortgage is a way of releasing money from your home without having to move. It's a loan secured against your home which can be taken as a tax-free cash sum or in smaller amounts as and when you need it.

Loan term

The duration of the lifetime mortgage is not fixed. The mortgage lasts until the last remaining borrower dies or moves out of the home into long term care.

No Negative Equity Guarantee

All of our Lifetime Mortgages come with a No Negative Equity Guarantee. It means that you or your beneficiaries will never have to pay back more than the amount your property is sold for. This is provided it's sold for the best price reasonably obtainable and you have met the Terms and Conditions of your lifetime mortgage.

Optional Partial Repayments

You can pay part of your lifetime mortgage off early with no Early Repayment Charge, provided it is within the limits and terms that apply. Making Optional Partial Repayments will reduce the total amount of interest that will accumulate on your lifetime mortgage.

Protected Percentage

This is the percentage of the value of your home that you choose to protect for your beneficiaries when you apply for a lifetime mortgage.

Telegraphic transfer fee

This is charged to cover our costs in transferring your money to your solicitor on completion of your lifetime mortgage.

Valuation fee

This is payable when you apply for a lifetime mortgage and the amount will depend on the value of your home.