Annuity service

A

Annuitant – This is the recipient of an annuity income guaranteed by an annuity. Their retirement benefits are used to purchase the annuity.

Annuity – (see Pension Annuity) – Can be bought with the funds from your money purchase pension scheme or your cash equivalent transfer value from a final salary pension scheme. The annuity provider agrees to pay you a pension income for the rest of your life.

C

Contributions – These are payments made by an individual or their employer to a pension scheme, to build up the pension rights or funds of an individual.

D

Defined benefit (salary related) scheme – A pension scheme where benefits are based on length of service and pensionable earnings in the years leading up to retirement. These schemes are established by employers and are often referred to as defined benefit or final salary schemes.

Defined contribution (money purchase) scheme – A pension scheme to which personal and employer contributions can be invested. At retirement the funds built up are used to provide retirement benefits. They are often referred to as defined contribution or money purchase schemes and include all personal pension schemes.

E

Enhanced (annuity) rates – These are improved or higher annuity rates offered to an annuitant on the basis of reduced life expectancy in the opinion of the annuity provider. Annuity rates govern how much income will be offered in return for a given lump sum.

F

Final salary scheme – see defined benefit scheme.

Financial adviser – A financial adviser is an individual or company who is authorised by the Financial Services Authority to provide advice on financial products and services. An Independent Financial Adviser (IFA) is authorised to provide advice for all products and services on the market, whilst a tied agent may only provide advice on the products and services of one or more specific providers.

Financial Services Authority (FSA) – The Financial Services Authority is responsible for regulating the Financial Services industry. It provides information and advice for consumers on its website for a range of financial products and services, including pension annuities.

Financially Dependent – To rely (either fully or partially) on another person’s finances. Financial dependence must be proved by an unmarried partner before they receive a dependant’s pension (if this has been provided for by the Annuitant).

O

Open Market Option (OMO) – The right to buy a pension annuity from a provider other than your current pension provider. Often referred to as ‘shopping around’ for an annuity.

P

Pension Annuity – This is an annuity, which pays a guaranteed level of income to the annuitant for the rest of their life. The level of income payable will not fall. Pension annuities convert the proceeds of a pension scheme into a pension income.

Protected Rights (PR) – Pension rights built up from “contracting out” of the State Second Pension (S2P, previously the State Earnings Related Pension Scheme). National insurance contributions are refunded to your personal or occupational pension scheme for the period you’re contracted out resulting in a reduction to your entitlement to S2P. There are restrictions placed on the benefits that can be provided with Protected Rights monies and when they can be taken.

R

Retail Prices Index (RPI) – The Retail Prices Index is the primary measure of inflation in the UK and is compiled by the Office of National Statistics. The index tracks the prices of a representative “basket” of retail goods and services on a monthly basis.