Mis-Sold pension jargon explained

Making a claim can sometimes feature some pretty confusing pension jargon if you’re not used to it. Taking the time to understand this glossary of pension words and querying ones that you don’t understand may well be the key to unlocking a way forward with your claim.

Don’t forget, you can call up the experienced and knowledgeable team at Spencer Churchill Claims Advice to help you out if you get stuck, or want us to take a look at your own potential mis-sold pension claim.

Accelerate Accrual: Action by a provider that “accelerates” accrual to a rate greater than one-sixtieth of pensionable earnings, for each year of pensionable service. See Accrual Rate.

Accrual Rate: This is the rate at which a member of a defined benefit scheme (eg, Final Salary Pension Scheme) gains benefits for each year of pensionable service. Accrual rates vary from scheme to scheme and position to position and are used to determine how much a scheme member receives once they reach retirement age and begin to draw from their pension.

Accrued Benefits: The sum total of the benefits gained for pensionable service.

Accumulated Contributions: This is the sum total of the contributions made by a pension scheme member. This may or may not be enhanced by interest, and may or may not include contributions from an employer.

Active Member: An individual member who is still within a pension scheme and accruing benefits.

Active Risk: The volatility of an investment or pension fund’s performance in comparison to the potential return.

Actuarial Assumptions: A set of assumptions made by an Acurary in regards to projected inflation, potential increase in earnings, and likely mortality etc, in order to provide an actuarial valuation.

Actuary: A specialised professional adviser who is able to calculate probabilities involving mortality of scheme members and liabilities, etc.

Actuarial Valuation: The outcome of an investigation by an Actuary to calculate whether a defined benefit scheme can pay its liabilities.

A-Day: Refers to the 6 April 2006: the day when a new tax regime was imposed which allowed many changes within the pensions industry.

Additional Voluntary Contributions (AVC): Often called AVCs, added voluntary contributions is when extra money is added to a pension by the member, over and above the member’s normal contributions so they can get additional benefits when they retire.

Administrator: The role of administrator could refer to several people/companies/bodies. If could be the person(s) responsible for looking after the pension scheme (such as a pension administrator or provider), or it could be an insolvency practitioner appointed to investigate what has happened to a company and work out if there is a way to pay its debts and either recover the business or dissolve it.

Age Discrimination: The unlawful discrimination by [employers] and [trustees] or managers of a [pension scheme] to discriminate against [members] or prospective members on the basis of age. There are exemptions for certain age-related rules and practices in pension schemes.

Alpha: Represents the additional or excess return, relative to the market return ([beta]), which is derived from a portfolio selected by a skilled active [investment manager].

Alternative Investments: Investments other than the mainstream assets. They may involve unregulated assets and a higher risk category, or be based, registered or operated outside of mainland UK. These investments are often mis-sold.

Annual Allowance (AA): The upper-most amount of tax-relievable pensions that can be built up in one tax year. This amount can change from year to year.

Annual Allowance Charge: If an individual exceeds the annual allowance on their pension, they may be taxed using the annual allowance charge.

Annual Report: Pension companies, investment companies and even just ordinary companies may be required to produce an annual report, detailing the state of the company and its prospects, including any effects on scheme members or investors.

Annuitant: The beneficiary of an annuity, usually the person who has purchased the annuity.

Annuity: A series of payments, which may be subject to increases, made at stated intervals until a particular event occurs. This event is most commonly the end of a specified period or the death of the person receiving the annuity. Some people are mis-sold an annuity.

Annuity Rate: The rate at which an annuity pays money

Appropriate Personal Pension Scheme (APP): A type of personal pension scheme that has been designated as appropriate for those contracting out of the State Second Pension.

Appropriate Personal Pension Stakeholder Scheme (APPSHP): A type of personal pension scheme operating on a similar basis to an APP, but with the same status as a Stakeholder pension scheme.

Appropriate Scheme: An approved, designated and certificated pension scheme for those contracting out.

Asset Class: A group of assets investments that all share similar properties, such as all being equities, bonds, property or even cash or managed funds. See Assets

Asset: Any entity (either physical or non-physical) that can be owned or controlled in order to produce monetary value. In pension terms, this could mean investments, stocks, shares or cash.

Auditor: A person(s) or company whose job it is to report on the financial aspects of a business. Usually, auditors are a professional third party.

Automatic Enrolment: Often called auto-enrolment, this initiative means that all employers must offer their employees a pension. It began for larger companies in the UK back in 2012 and finished for all companies in 2017/2018.

Average Earnings Scheme: See Career Average Scheme

Basic Pension: The flat rate state pension paid to all UK people who have met the minimum NI contribution requirements.

Beneficiary: A person, usually the pension scheme member, set to benefit from the pension payments, or somebody who has been elected by the scheme member or trustees to benefit should the scheme member die before reaching pensionable age.

Benefit Statement: Statement detailing the benefits payable to an individual member of a pension scheme when they get to the pensionable age (often an estimate).

Benefits: The payments payable to a pension scheme member from their pension scheme upon on their retirement. Benefits are usually accrued over time and may be influenced by other factors listed on this page such as accrual rates in the case of defined benefit pension schemes.

Career Average Scheme: A type of occupational pension scheme where the scheme member’s benefits on retirement are determined by their pensionable earnings each year.

Cash Equivalent: The calculated cash value of the benefits a member has with a pension scheme.

Cash Equivalent Transfer Value (CETV): Related to Cash Equivalent, The CETV is how much those accrued pension scheme benefits are worth as a cash value Transfer Payment to an alternative pension scheme as part of a final salary pension transfer.

Churning: Often viewed as a bad practice, churning is where those with the power to do so trade securities excessively to produce a high turnover for their investment portfolio. In may generate huge commissions as the same securities are sold again and again and again.

Claim: A form of official complaint in the form of a request or demand for compensation. Mis-sold pension claims are now common in the UK.

Class Action: Legal proceedings against a company/investment/director or directors brought about by investors. Usually, this is related to allegations of negligence, misconduct or other below-board actions on the part of the company or individuals, and the investors have decided to do something about it.

Closed Scheme: Simply put, a closed scheme is a pension scheme that still has money, assets and members, but is not open to new members joining. Many final salary pension schemes are now closed schemes.

Cold-Call: Legally, a call for which you have not given opt-in consent to receive. In this case, this is a call you were not expecting from an unregulated introducer

Commission: Payment, usually to a marketing company or adviser for the successful sale of an investment or other financial product.

Commutation: The name given to the process of exchanging either all of some pension benefits for a cash lump sum.

Commutation Factors: Relating to commutation (exchanging benefits for cash), these factors are used to work out how much of a pension needs to be given up to provide a specific lump sum.

Compulsory Purchase Annuity: As it sounds, this is an annuity that MUST be purchased at retirement age. Not applicable to all pensions.

Concentration of Investment: This is where the most investment capital is invested – eg some may be spread over different assets, while some may be concentrated in a particular asset or asset class.

Contingent Annuity: A type of annuity that would become payable to a living person in the event of the death or somebody else.

Contracted Out Deduction: The deducted amount from a scheme members SERPS pension benefits while contracted out between 1978-79 and 1996-97 respectively.

Contributions: Money paid into a pension scheme

Critical Yield: The percentage amount a new pension must grow by in order to match or exceed the value of the old pension upon retirement.

Currency Risk: Details the risk of investing in foreign investments valued in alternative currencies. On-top of the investment risk, the risk presented by volatility in the currency exchange market is added to the equation.

Deferred Annuity: An annuity that is not set to pay straight away, but at a later, already determined date.

Deferred Member: A pension scheme member that remains entitled to their preserved benefits despite no-longer contributing to the scheme (eg, somebody who has left the company)

Defined Benefit Pension: A pension that pays the pension scheme member a guaranteed amount annually in retirement. It is usually based on the number of years of pensionable service, combined with the salary details of that individual. Considered to be gold-plated and valuable, many transfers away from these pensions are down to negligent advice.

Defined Benefit Scheme: See defined benefit pension above

Defined Benefits Lump-Sum Death Benefits: For members of Defined Benefits Pension Schemes, this is the lump sum paid on death in specified circumstance.

Defined Contribution Pension: This is a pension scheme where the benefits to be paid on retirement are determined by the contributions made into the pension scheme, and how well the assets and investments have performed.

Defined Contribution Scheme: See defined contribution pension

Dependant: This is a person such as a child under 16 or somebody else who is considered to be financially dependent on the pension scheme member, or was at the time of death of said member.

Designated Scheme: A type of occupational, stakeholder pension that a company or employer has decided to offer to employees.

Direct Investment: Where the securities are held directly by or on behalf of the trustees, as opposed to pooled investment vehicles or insurance contracts. Common with SIPP pensions

Dividend: Distributions of money (usually from profits) from a company or investment to shareholders and investors, which may be dependent on the performance of the asset.

Drawdown: Using a pension to receive a regular income in retirement by re-investing in specialised funds.

Early Retirement: Retirement before the normal pensionable age for the scheme, which may be available through the discretion of the pension scheme.

Enhanced Transfer Value (ETV): A transfer valuation that is above the cash equivalent transfer value, but not usually as much as how much it would cost to pay the benefits on retirement. Often used to incentivise people leaving the scheme

Final Salary Scheme: A valuable defined benefit scheme where the benefits on retirement are directly connected to the salary of that pension scheme member at retirement age, or when leaving the company it is connected to (leaving pensionable service), and how long they worked for.

Financial Conduct Authority (FCA): The Financial Conduct Authority took over from the FSA as regulator of the financial services industry in the UK. They operate a register of all companies they regulated/have regulated which is free to use.

Financial Ombudsman Services (FOS): Independent and impartial, the FOS is there to settle disputes between regulated financial services companies and consumers.

Financial Services Authority: The FSA used to regulate companies and individuals in the financial services sector, but was later replaced by the Financial Conduct Authority (FCA)

Financial Services Compensation Scheme (FSCS): The FSCS is often referred to as the lifeboat scheme. It levies regulated firms each year and uses the funds to pay compensation to eligible consumers who have lost out due to negligence or wrong-doing on the part of regulated firms.

Free Pension Review: A common offer made by unregulated marketing firms and some IFAs to assess

Frozen Benefit: A frozen benefit is a pension that will not change, usually because the member and employer have stopped paying into it.

FSCS Claim: A compensation request or demand made to the Financial Services Compensation Scheme because the potentially wrongful party is unable to pay compensation due to lack of adequate capital or insurance.

Group Personal Pension: A pension set up for a group of employees all at the same firm, or perhaps a group of self-employed people, all ran through the same provider. Contributions are collective, whereas policies are sperate to the individuals.

Guaranteed Annuity: See Annuity: this variant guarantees to payout for a specified number of years. In the event of the death of the annuitant, the annuity may continue to pay the balance of what is left over that period or to provide a lump-sum instead.

Ill Health Early Retirement: In the event of ill health such as a terminal illness diagnosis or other life-limiting issue, ill-health early retirement may be triggered, meaning the immediate payment of retirement benefits BEFORE the normal pension date

Income Drawdown: When a member withdraws income from the pension scheme, while any annuity purchase is deferred until a later date.

Independent Financial Adviser: An FCA regulated firm or individual who is qualified and authorised to give advice about financial services and products, often including pensions and investments. Some financial advisers have been held to account for negligent financial advice over pension transfers and investments..

Industry Wide Scheme: This is a pension scheme where several separate employers join together to provide and pension scheme, usually relating to a specific industry (eg, Electricity Supply Pension).

Investment: An asset which can accept money from an investor, and promises to increase in value and/or pay dividends.

Investment Manager: A person or company that makes and actions decisions involving investment assets and capital, hopefully in line with predetermined rules.

Investment Strategy: The planned methodology of how to make investments to generate more money in any given market. Strategies may be complex or simple, low-risk or high-risk, long-term and short-term, or a mix of everything!

Joint Lives Annuity: An annuity that is set to pay out to two people rather than one, so that when one person dies the other will continue to benefit.

Liabilities: In terms of pensions, liabilities are what the pension scheme is obligated to pay when scheme members reach retirement age.

Lifetime Allowance: The amount an individual can pay into their pension and still benefit from tax relied, after which a charge may be incurred.

Local Government Pension Scheme (PGPS): Types of often pensions schemes often characterised by Defined Benefits features operated by local councils and available to many council employees. Some people are mis-sold pension transfers away from Local Authority Schemes.

Longevity Risk: Bit of a weird one – this is the risk that a scheme member will live longer than their pension lasts, and therefore run out of money if they live too long. People who transfer final salary pensions may be newly exposed to this risk.

Lump Sum: A bug chunk of cash.

Managed Fund: See Pooled Investment

Marketing Company: See Unregulated Introducer – a firm paid to find investors for financial products. Usually, the firm is NOT regulated by the Financial Conduct Authority and are usually paid large commissions for funneling business.

Member: An individual person who stands to receive benefits as part of their membership of a pension scheme.

Money Purchase Pension: See Defined Contribution Scheme<

Money Purchase Scheme: Another name for a defined contribution pension, which pays benefits depending on how much money was placed into the scheme, and how well the investments inside performed.

Normal Pension Age: The normal age when a person may be expected to retire.

Normal Pension Date: The date when a person can normally begin to access their pension. Some people may be able to access their pension before this time without tax implications in special circumstances.

Occupational Pension Scheme: A pension scheme provided by an employer, usually where both employer and employee make contributions. It may be a defined benefit scheme, or a defined contribution scheme, or a mix. Sometimes called a Workplace Pension.

Ombudsman Claim: A compensation request or demand made to the Financial Ombudsman Services regarding the conduct or advice of a regulated company resulting in a loss or theoretical loss for the consumer/complainant.

Overseas Pension Scheme: A pension scheme that is not registered or always regulated in the UK. It may or may not be recognised or qualifying.

Pension Protection Fund: In the event of the collapse of a defined benefit pension scheme, the PPF may step into compensation scheme members up to 90% of the total benefits value.

Pension Tracing Service: Services allowing people who have lost track of any pensions they may have accrued benefits with to trace them.

Pension Ombudsman: The PO’s role is to investigate complaints of injustice relating to primarily defined benefits pensions and to determine their legitimacy and take action where required.

Pensions Regulator: The regulatory body overseeing occupational pension schemes. They help set and enforce the rules for pension schemes.

Personal Pension Scheme: A personal defined contribution pension basis or stakeholder pension scheme in some circumstances.

Pooled Investment Vehicle: An investment fund which is managed on a collective basis: money is provided by multiple investors which is given unit values.

Preserved Benefit: Preserved benefits exist when an occupational pension scheme member leaves the company they worked for and stops being an active member. Benefits are available to be used at normal pension age.

Public Sector Pension Scheme: A pension scheme (often a defined benefits pension scheme) offered to workers in the public sector, operated by the Government.

Qualifying Recognised Overseas Pension Scheme: More commonly called a QROPs, these pensions satisfy HMRC requirements in relation to transfers, allowing people who wish to retire abroad to take their pensions with them. However, they can sometimes be used to make high-risk investments and are involved in pension mis-selling.

Risk: Probability of receiving returns from a venture or investment, in comparison to the probability that the investment or venture will fail and the money will be lost

Risk Appetite: An assessment, usually performed by a regulated financial adviser, to see how much risk a potential investor can willingly and functionally accept in regards to investment opportunities. Calculating Risk Appetite can be important for building a risk profile to see how much risk an individual can take with their investment strategy.

Many financial advisers get this wrong, and pair people with low appetite to risk with high-risk investments through SIPPs.

Risk Management: Risk management is a range of strategies where attempts are made to mitigate risk through concepts like diversification and hedging.

Self-Invested Personal Pension: A type of tax-efficient vehicle for pension investment. Pension scheme members are given greater control and investment choice, but tens of thousands were mis-sold high-risk investments through SIPPs.

Serious Ill Health Lump Sum: A lump sum of pension benefits payable (often at the discretion of the pension scheme) to a scheme member upon diagnosis of a life-limited illness.

Small Self-Administrated Scheme: A type of occupational pension scheme allowing for direct investments. Designed mainly for the self-employed or small businesses, many people have found themselves with SSAS pensions without realising they have invested in high-risk products.

Stakeholder Pension Scheme: A type of flexible, HMRC recognised money purchase scheme introduced in 2001.

State Earnings Related Pension Schemes: Usually called SERPS The extra provisions of the state pension scheme, replaced by State Second Pension in 2002.

State Pension: The state pension is available to all eligible people in the UK

State Pension Age: The state pension is available to all eligible people in the UK

Tax Free Cash Lump Sum: A cash amount that may be withdrawn from a pension, tax-free. How much may be withdrawn depends on the age of the member, the scheme and potentially other factors.

Transfer Payment: The actual payment of the Transfer Value from one pension scheme to another recognised pension scheme.

Transfer Value (TV): The amount of money that is transferred from one pension to another pension.

Trustee: An individual or company appointed to carry out the purposes of a [trust] in accordance with the provisions of the [trust instrument] and general principles of trust law.

Unregulated Introducer: A marketing firm not regulated by the FCA (of previously the FSA) to give pensions advice, but may behave like an expert while introducing investments or pension schemes. A cold-call from an unregulated pension introducer was often a tell-tale sign of a mis-sold pension over the past 15 years.