A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
A
Active Member
A member of the Plan who is currently working for Royal Mail Group or Post Office Limited and is making contributions into the Plan.
Active Management
The investment manager uses its expertise to try and choose investments that will beat the returns of a specific index or combination of indices - this is known as 'outperforming'.
Annual Allowance
The tax laws limit the level of payments into pension plans that can receive full tax relief. This limit is the greater of £3,600 and 100% of taxable earnings, subject to the Annual Allowance which applies in the relevant tax year. The Annual Allowance is currently £50,000 per year.
The Annual Allowance applies to all contributions and pension accruals for you in all pension plans. This includes your employer’s contributions. Any contribution over the Annual Allowance will be subject to a tax charge. Also see Lifetime Allowance. With effect from April 2011, if an individual exceeds the annual allowance, any unused annual allowance in the previous three tax years may be used to offset the excess.
Annual Benefit Statement
A statement of pension benefits that informs you of your status in the Plan, accumulated contributions including the investment return and the estimated value of the Plan benefits as at your Selected Retirement Age.
Annual Management Charge (AMC)
Refer to the Charges Sheet.
Annuity
This is the regular income that will be paid by an insurance company in return for a lump sum of money at retirement (your Member Account proceeds). The income from the insurance company is what people usually call their pension and the level of this pension will depend upon the age at which you retire, your sex, health, the size of the lump sum being invested and even where you live. There are different types of annuity (and associated options) available which will also affect the size of your income, as will the level of market interest rates when the annuity is established.
Annuity Rate
The factor applied to the lump sum (Member Account proceeds) at retirement to calculate the income that can be provided from that lump sum.
Asset Classes
The different types of assets available to investors. For example, equities (also known as shares), cash, fixed interest (also known as bonds or gilts) or property.
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B
Basic State Pension
The flat rate (not earnings-related) State Pension paid to all who have met the minimum National Insurance contribution requirements.
The full basic State Pension in 2012/13 is £107.45 a week for a single person. This will normally change each year on 6 April.
To satisfy the minimum National Insurance contributions requirement you need to have built up enough qualifying years (a qualifying year is a tax year where you have sufficient income to pay National Insurance Contributions (NICs), or are treated as having paid or been credited with NICs). You need 30 qualifying years for a full basic State Pension.
Benchmark
A standard against which performance of an investment (or fund) is measured.
Beneficiary
This is someone who may benefit from a will, trust, pension fund or a life assurance policy in the event of another person’s death. A beneficiary under the Plan is a person to whom benefits may be paid when the member dies.
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C
Contribution
An alternative term to ‘payment’ - used in connection with employee or employer payments into a pension scheme.
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D
Defined Contribution Pension Scheme
A pension scheme where the size of the member’s pension is based on how much money is put into the pension fund on behalf of the member, how much the pension fund has grown, and what annuity rate is available when the member retires. These are commonly referred to as money purchase schemes.
Default
The investment option, contribution rate or Selected Retirement Age that is selected for you in the Plan if you do not make a choice yourself.
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E
Early Retirement
The option to put pension benefits into payment before the normal retirement date of the Plan.
Employer Contribution
The amount or percentage of pay that a company contributes into its employees' pension fund. Typically the employer contribution will match or be proportionate to the employee's contribution.
Enhanced Annuity
If you have an illness, condition or a lifestyle habit (such as smoking) that may shorten your life, you may qualify for an Enhanced or Impaired Life Annuity. This normally pays a higher income than a conventional annuity as it is expected to be payable for a shorter period of time.
Equities
Another name for shares held in a company or companies.
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F
Financial Adviser
An individual who is authorised and regulated to provide advice and recommend financial products from providers in the UK.
Financial Services Authority (FSA)
A private limited company set up under statutory legislation. Whilst the senior executives are selected by the Treasury its status is autonomous of government. It has four main objectives:
- Market confidence - maintaining confidence in the UK financial system.
- Financial stability - contributing to the protection and enhancement of stability of the UK financial system.
- Consumer protection - securing the appropriate degree of protection for consumers.
- Reduction of financial crime - reducing the extent to which it is possible for a regulated business to be used for a purpose connected with financial crime.
FTSE 100 Index
An index of the share prices of the 100 largest companies in the UK. “FTSE” means “Financial Times Stock Exchange”.
FTSE All-Share Index
An index of the share prices of more than 800 leading companies and investment trusts on the London Stock Exchange.
Fund Based Charges
Refer to the Charges Sheet.
Fund Manager
An individual (or company) who is employed to manage money. A fund manager buys (and sells) shares or other assets, such as property, equities or bonds, that they believe will increase in value in order to provide investment growth or to create a certain level of income.
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G
Gilts
An abbreviated name for fixed interest securities that are bonds issued by the UK government.
Government Bond
A fixed-interest loan issued by a government. UK government bonds are known as gilts. The original amount is usually repaid at the end of the loan period. Gilts can be traded at any time prior to repayment, subject to market conditions.
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H
No glossary term for this letter
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I
Illustration
An example of the income that you may receive as pension income from the proceeds of your Member's Account, assuming that contributions continue at a specified level and that your investments achieve a specified rate of growth. It is important to remember that the actual income received could be higher or lower than that shown on the illustration.
Impaired Annuity
See Enhanced Annuity
Independent Financial Adviser (IFA)
See Financial Adviser
Index
A device that measures changes in the overall price of a collection of shares. The purpose is to give investors an easy way to see the general direction and relative movement of shares in the index. Examples of stock market indices are the FTSE 100, FTSE All-Share, Nikkei and Dow Jones.
Indexation
An investment strategy designed to produce a rate of return in line with a specific financial index. Also known as index tracking. See Passive Management.
Inflation
The increase in the price of commodities and/or services over time, the rate of inflation may be recorded in an index such as the Retail Prices Index (RPI). Inflation will affect the buying power of investments or income over time.
Inheritance Tax (IHT)
A tax an estate pays on assets over a certain amount (known as the ‘nil rate band’) that a person leaves on their death.
Interest Rate
The amount of money a customer can earn on an investment that pays interest or conversely the amount he or she is charged for borrowing money. It is usually expressed as a percentage of the total amount invested or borrowed.
Investment Fund
A vehicle through which individuals invest their savings by pooling their savings with those of others. This enables them to invest into a wider range and number of assets than they would normally be able to if they invested on their own and to share the costs and benefits.
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J
No glossary term available for this letter.
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K
No glossary term available for this letter.
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L
Lifetime Allowance
A limit set by the government on the total value of pension savings that can be used to provide pension benefits for an individual without incurring a tax charge – known as the ‘lifetime allowance’. Also see Annual Allowance. The Lifetime Allowance is £1.5 million in 2012/13.
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M
Member
A person who has been admitted to membership of a pension scheme and who retains a benefit in the scheme.
Member Account
This is the individual account in which your own contributions (plus any transfers in) and contributions from your employer are held.
Money Purchase Scheme
A company pension scheme where the size of the member’s pension will be affected by how much money is put into the pension fund on behalf of the member, how much the pension fund has grown, and what annuity rate is available when the member retires. These are also referred to as Defined Contribution Pension Schemes.
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N
National Insurance Contributions
A contribution paid by most employers and employees to the UK government for state pensions and benefit funding. For the employed it is deducted from income by the employer on a scale related to income levels. The self-employed pay contributions based on profit and like the unemployed may pay a flat-rate voluntary contribution to keep their benefit entitlements up to date.
Normal Retirement Date
Refers to the date at which a member of a pension scheme normally becomes entitled to receive their retirement benefits.
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O
Open Market Option (OMO)
An individual does not have to buy an annuity from their pension provider. They can shop around to compare rates and arrangements offered by other insurance companies and buy an annuity from another provider if they find a better deal – this is called the open market option
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P
Passive Management
The investment manager aims to produce a return that mirrors that of a specific investment index, such as the FTSE All-Share Index. However, since it may not be possible to exactly replicate the component parts of an index, the actual return may be greater or less than the index return; this is known as 'tracking error'. Passive funds are sometimes called 'index-tracker' funds.
Pension
A regular income paid to a person after they have retired or have taken their benefits.
Pensionable Pay
If you are employed on a full time contract, Pensionable Pay means your basic salary or wage and does not include overtime, bonuses or any other items. If you are contracted to work less than full time, Pensionable Pay means:
- your basic salary or wage for your contractual hours, plus
- the salary or wage that you earn for non-contractual hours worked each pay period (which is a week if you are a weekly-paid employee and a month if you are a monthly-paid employee), so long as you are not paid overtime for those hours.
Earning for hours of work that are in excess of the number of hours normally scheduled for someone working full time in your role will not be counted for the purpose of Pensionable Pay. Bonuses and other items will not be counted for the purpose of Pensionable Pay.
Pension Input Period
The Trustees have nominated that the period over which pension savings in the Plan are measured each year (or pension input period) is the 12 month period ending 31 March.
Plan
The Plan is the definition used to describe the Royal Mail Defined Contribution Plan.
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Q
No glossary term available for this letter.
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R
Registered Civil Partner
A registered civil partnership is a legal relationship that has been registered by two people of the same sex. A civil partnership has the same rights and benefits under the Plan as a spouse.
Regular Contribution
Payments deducted from your pay levels of 3%, 4% and 5% and credited to your Member Account are referred to as a regular contributions.
Relevant Income
Please visit the HMRC website where there is a step by step guide to calculating this.
Retail Prices Index (RPI)
A monthly indication of the average price changes to a particular 'basket' of consumer goods, and used as a general indicator of price inflation.
Return
The profit or yield from an investment.
Risk
In investment terms, the balance of potential loss versus potential gain as perceived by the investor. Please see the Investment Guide for more details.
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S
Selected Retirement Age (SRA)
The age when you aim to take your Plan benefits. This can be easily changed. It is also the age to which your Plan benefits are projected in your Annual Benefit Statement. Please see the Plan Guide for more details.
State Earnings-Related Pension Scheme – SERPS and S2P
SERPS was replaced by the State Second Pension (S2P) in April 2002. Part of an employee's National Insurance contribution goes into the S2P, which provides an additional State Pension on top of the Basic State Pension on reaching State Pension Age. The amount of SERPS and S2P pension payable is dependent on a person's earnings while they were in employment and the National Insurance contributions they paid.
State Pension Age or State Pensionable Age
This is the age at which State benefits may be taken as pension income. The State Pension Age (SPA) is currently 65 for men. For women, State Pension Age is increasing, gradually from age 60 to age 65 from April 2010. As legislation currently stands, the State Pension Age for both men and women will rise gradually to 68 by 2046. The Government is considering further increases to the SPA.
State Pension Benefits
Basic State Pension - a pension paid by the government to people with enough qualifying years. It is not earnings related.
State Earnings-Related Pension Scheme (SERPS) - depends on your earnings and National Insurance contribution made while you were in employment. SERPS is paid in addition to the Basic State Pension. The self-employed do not qualify for this pension.
State Second Pension (S2P) - this replaced SERPS in April 2002. S2P is more valuable than SERPS to the lowest earners, particularly those earning about £10,000 a year. (See also State Second Pension (S2P)).
State Second Pension (S2P)
This is an additional pension you may receive from the government depending on the amount you earn and the additional National Insurance contributions made to S2P. This benefit replaced the State Earnings Related Pension Scheme (SERPS) in April 2002, with the aim to provide more help to the lowest earners, particularly those earning about £10,000 a year. The self-employed do not qualify.
Switching
Transferring sums of money from one investment fund to another. There is not normally a charge for switching between investment funds.
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T
Tax Relief
The UK government encourages you to save for your retirement by giving you tax relief on pension contributions. Normally this is equivalent to the amount of income tax that would have been payable on the amount of your contribution, however, restrictions apply. See also Annual Allowance for more information.
Transfer Payment
A payment representing the value of a member’s benefits made from one pension scheme to another pension scheme. The receiving pension scheme will then provide the benefits when they are payable. The amount transferred is known as the transfer value. See Pension Transfers.
Trust
An arrangement whereby one or more individuals (trustees) agree to take care of assets and to use those assets in particular ways (as detailed in a Trust Deed or Rules) for particular people (members and other beneficiaries).
Trustee
A person (individual or company) appointed to manage and safeguard the assets of a trust.
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U
Units
An Investment Fund is often divided into Units, which are used to calculate the value of each investor's holding in that Investment Fund. Contributions are normally used to buy Units in an Investment Fund. The value of these units will fall or rise in line with the underlying investments. There is often a difference between the buying and selling price to reflect the charges applicable for investing in the particular fund.
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V
Voluntary Contributions
These are additional contributions made by a member on top of their regular employee contributions to boost retirement benefits.
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W
Waiting Period
The period of time a member has to wait before being able to join a pension scheme. See the Plan Guide for more details of the Plan’s waiting period.
Will
A will or testament is a legal declaration by which a person, the testator, names one or more persons to manage his or her estate and provides for the transfer of his or her property at death.
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X
No glossary term available for this letter.
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Y
Yield
A measure of the return on an investment compared to the price paid for it. This is normally expressed as an annual percentage. There are several types of yields. Bonds for instance have a nominal yield, current yield and yield to maturity. Shares have a dividend yield and an earnings yield. Yield can refer to growth or income, while net yield refers to the yield after charges and other deductions have been made.
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Z
No glossary term available for this letter.
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