EQUITABLE LIFE MEMBERS
GLOSSARY OF TERMS
Last Updated: Sunday, February 02, 2003 12:57 PM
Please let us know if you think we should add any other terms glossary@equitablelifemembers.org.uk
actuaries
Professionally qualified person who makes calculations on which
pensions, insurance and investment companies base their products.
The Institute of Actuaries,
Staple Inn Hall,
High Holborn,
London
WC1V 7QJ.Tel: 0207 632 2100.
An investment that produces a guaranteed lifetime income. People with personal pensions are obliged to use much of their pension fund to buy an annuity. An annuity must be purchased by age of 75.
Extra payments paid to top up benefits under a company pension scheme. People who choose to pay AVCs get tax relief on their contributions
A certificate of debt issued by governments or major companies. Bonds issued by the UK Government are called Gilts.
An insurance policy that pays out a lump sum at the end of a set period or on death, whichever comes first.
Another word for a share. Or, in the context of housing, the part of your home that you own outright, as opposed to being under a mortgage.
A pension where the amount you get is worked out on the basis of how much you earn in the last (or last few years) of service and your length of service. Most company pension schemes operate this way.
The Financial Services Authority is the main City regulator whose job is to protect investors' interests.
On 01 December 2001 the Financial Services Compensation Scheme took over the responsibilities of eight previous compensation schemes including the Policyholders Protection Board. The FSCS has a web site at www.fscs.org.uk
High-risk financial products that allow people to sell something that they do not actually own in the hope of profiting from falling markets.
GAD (Government Actuary's Department)
The GAD sets the limits on the amount of income that you can draw down, which changes according to your age.
GAR (Guaranteed Annuity Rate)
The annuity rate is fixed in the original policy and guaranteed. This can be taken up at retirement, if it is felt it is better than going out into the open market for an annuity.
Bonds issued by the British Government. Regarded as being the safest of all investments.
Guaranteed Minimum Pension
An adviser offering advice on investment products from all companies in the marketplace, instead of being limited to selling those of just one firm, which may not be the best deal for you.
An adviser offering advice on investment products from all companies in the marketplace, instead of being limited to selling those of just one firm, which may not be the best deal for you.
Income Drawdown (IDD)
AN income drawdown policy enables you take income from your retirement fund, within Government-defined limits, without having to lock yourself into an annuity contract.
But you need a substantial fund before it becomes a viable option - between £100,000 and £250,000 as a minimum, according to many advisers.
Your fund remains invested, and you can "draw down" an amount each year, within limits set by the Government Actuary's Department (GAD).
ISAs (Individual Savings Accounts)
ISAs are tax free savings schemes in three separate ‘components’ :- 1, Stocks & Shares 2, Cash 3, Insurance. Investments in an ISA are free of capital gains tax and you can claim your tax credit from the Inland Revenue on dividends. ISAs were launched by the Government to replace PEPs and Tessas and help a wider range of people to save.
A form of pension where your final pension depends on stock market performance. All personal pension plans operate this way.
A mutual organisation, such as a building society, is one which is owned by its members and with no outside shareholders who need a cut of the profits. This should mean that it is able to offer better terms to its members than a non mutual one.
A pension scheme that is personal to you and portable between jobs. Ideal for the self-employed and those without a company pension scheme. A poor choice for those who could join a company scheme.
PEP - (Personal Equity Plan)
PEPs were introduced to encourage investment in stocks and shares. There is no capital gains tax on investments in a PEP and you currently get a tax credit back from the Inland Revenue on dividends which we claim on your behalf. Unfortunately, you can no longer put new money in a PEP.
Rectification Scheme For the purposes of Rectification, the House of Lords ruling is deemed to apply retrospectively as if the client had access to the full fund vale (including final bonus) at the time of taking benefits. Also, it will look at what annuity he (or she) was offered and how it would have compared to a Guaranteed Annuity. Also, if the client took benefits before 60 without being aware of the GAR, would they, based on circumstances at the time, have acted differently. This should have been completed by Equitable by 2001, but due to the enormous administration support required for other things, staff have been transferred and so it looks like this could continue until 2003.
Retirement Annuity Contracts
Type of pension policy that was sold before the Personal Private Pension (PPP) was introduced in the late 1980's. GARs have this type of policy.
SERPS (State Earning Related Pension Scheme) To boost the basic state pension, employees can join SERPS. The scheme provides for an additional pension to be paid which is related to earnings from employment. Earnings falling within certain bands (known as the upper and lower limits) qualify towards your SERPS entitlement. The calculation on how much you may be entitled to from SERPS can be complex. If you'd like to receive an estimate of what your entitlement will be, talk to a financial adviser or alternatively, contact the Department of Social Security (DSS) and ask for form BR19.
Since the late 1980's it's been possible for employees to 'opt out' of SERPS. The benefits of doing so are not clear cut, and the decision over whether you should do so can be finely balanced.
SIPPs (Self-Invested Personal Pension Plans)
SIPPs were launched by the Government in the 1989 Budget to allow independent investors to choose and control their own investments in a form which is totally tax-free. There is no income tax on income arising on investments and no capital gains tax.
The final payout on a with-profits endowment mortgage, which is not guaranteed, but is often over half the total payout. Surrender before the 25 years is up and you lose this bonus.
A way of smoothing the return on a life insurance or pension plan. The company keeps back some of the profits in good years to top them up in the bad ones.