A short guide to words and terms commonly used in pensions.
Active member
An employee who is currently building up benefits in their employer's pension scheme.
Actuary
A professionally qualified independent person appointed by the Trustee to value the fund, and to provide advice on other financial aspects of the pension scheme.
Additional State Pension
Prior to 6 April 2016 the State Pension was based partly on earnings and was provided in addition to the Basic State Pension. Prior to 6 April 2002 this was known as the State Earnings Related Pension Scheme (SERPS). From 6 April 2002 SERPS was replaced by the State Second Pension (S2P).
Additional Voluntary Contributions (AVCs)
AVCs are additional payments you can make to increase your overall retirement savings. You choose where to invest your money from a range of funds and the money you pay in gets tax relief in the same way as your normal Scheme contributions (subject to limits).
Annual Allowance (AA)
This is the maximum amount you can save into all of your pension arrangements combined each tax year before tax is charged on any excess. The Annual Allowance is currently £60,000.
However, a lower ‘Tapered Annual Allowance’ applies to high-earning pension savers and may affect those with a taxable income of more than £200,000.
A lower allowance of £10,000 may also apply if you’ve taken money out of your pension pot. This is known as the ‘Money Purchase Annual Allowance’.
You can find more information on the Annual Allowance at www.gov.uk/tax-on-your-private-pension/annual-allowance
Annuity
A series of payments made at regular intervals for an agreed period (often for the life of the person purchasing the annuity). Pension scheme members can choose to purchase an annuity by means of an insurance policy once they retire, although they’re no longer obliged to.
Annuity Rate
This is the rate that insurance companies use when converting lump sums to regular pension payments.
Beneficiary
Someone who will receive benefits following your death. Your beneficiaries are likely to include a partner or children (if any). However, you can name any people or organisations to receive a lump sum payment if you die before claiming your pension.
Benefits
Any payments paid from a pension scheme, including tax-free lump sums, pension payments and death benefits.
Benefit statement
An annual summary of a member’s pension benefits, which includes an estimate of the benefits payable at normal retirement date.
Civil partner
A person who has entered into a civil partnership with his or her same-sex partner.
Company
Electricity North West or associated companies.
Contributions
The money you pay into your pension scheme or into your AVCs.
Deferred member
A person who is no longer an active member and who has not yet taken their pension benefits.
Default Fund
If you are a member of the LifeSight Master Trust and do not make an investment choice when you join, your contributions will be invested in the default investment option. This is currently the 'Medium Risk Drawdown' investment option.
Defined Benefit (DB) schemes
Pension schemes where the amount of pension payable is linked to pensionable service and pensionable salary. The most common DB schemes are ‘Final Salary’ Schemes.
Defined Contribution (DC) schemes
Pension schemes where the amount of contributions paid by the member and employer is set, but the amount of income received on retirement is not and depends on investment performance. Also known as ‘Money Purchase’ schemes.
Dependant
Someone who relies on you to some extent for support, usually financially. Your partner and children are usually considered dependants, but you may have others.
Early retirement
Taking the benefits from your pension scheme before you reach your normal retirement age.
ESPS
The Electricity Supply Pension Scheme.
Guaranteed Minimum Pension (GMP)
This is the minimum pension that has to be provided from the pension scheme if you were in the DB section and contracted-out of the State Earnings Related Pension Scheme (SERPS) for service before 6 April 1997. It is broadly equal to the Additional State Pension you would have earned if you had not been contracted-out of SERPS for this period.
HMRC
HM Revenue & Customs – formally the Inland Revenue and HM Customs & Excise.
Income Drawdown
This is a term used for taking a retirement income directly from your Defined Contribution pension pot. At retirement, if your are invested in the default investment option, your LifeSight Account is invested in funds specifically designed and managed for this purpose. The income you get depends on the performance of the funds and is not guaranteed for life.
LifeSight Account
Applicable to members with DC benefits, this records the investments held for you by the Administrator. It shows the details of the contributions that have been invested, which funds are being used and the current fund value. Log in to your LifeSight Account here.
Lifetime Allowance (LTA)
The Lifetime Allowance was abolished from 6 April 2024 and new Lump Sum Allowances were introduced. You can read more about each of these elsewhere in the glossary. Historically, the LTA was the maximum amount you could build up in all of your registered pension savings throughout your working life before you had to pay additional tax. The LTA for the tax year 6 April 2022 to 5 April 2023 was £1,073,100. Read more on the tax limits page.
Lump Sum Allowance (LSA)
The LSA is a cap on the amount of tax-free lump sum you can receive from all your registered pension arrangements. The standard LSA is £268,275. If you have an LTA protection, you may have a higher allowance than set out above. If the only pension arrangement you are a member of is the Magnox pension scheme, you only need to consider whether the total tax-free lump sum you want to take from the Scheme is more than your available LSA. If you have previously taken pension benefits from either the Magnox pension scheme or another scheme, it will be taken into account and will reduce the available LSA for future retirements.
The Lump Sum and Death Benefits Allowance (LSDBA)
This is the cap on the tax-free lump sum that can be paid to, or in respect of, a member of a registered pension scheme. If the value of lump sum death benefits means that the LSDBA will be exceeded, the excess may be taxed at the marginal rate of income tax of the person receiving it. The standard LSDBA is £1,073,100. If you have an LTA protection, you may have a higher allowance than set out above.
Member
A person who, having joined a pension scheme, has built up benefits under that scheme.
Money Purchase Scheme
Another term for a Defined Contribution scheme.
National Insurance contributions
National Insurance contributions are deducted from pay in a similar way to income tax, but they are used to build up entitlement to certain state benefits (such as the State Pension).
Normal contributions
These are the regular contributions that you and the Company pay. They do not include AVCs.
Normal Pension Age (NPA)
Applicable to DB section members, this is the earliest age that a member can usually receive unreduced pension benefits.
Normal Retirement Date (NRD)
Applicable to LifeSight members, this is usually age 65, but you can check by logging in to your LifeSight Account.
Overseas Transfer Allowance (OTA)
This only applies to transfers out to a Qualifying Recognised Overseas Transfer Scheme. The OTA limit will be £1,073,100, unless a valid LTA protection is held. If the transfer value exceeds the OTA, there will be an overseas transfer charge (OTC) of 25%.
Pension
A savings plan that is designed to be held until retirement age.
Pension Commencement Lump sum (PCLS)
A cash payment available to pension scheme members, usually at retirement. It is currently tax-free.
Pensionable Earnings
Applicable to members with DC benefits, this is your annual rate of salary or wages for your contractual hours of employment, including contractual overtime, contractual shift allowance and any specified fluctuating payments notified to you by the Company.
Pensionable Salary
Applicable to DB members, this is the salary that you pay pension contributions on. The definition depends on which part of the DB section you are a member of. For more information please contact the Pensions Team.
Pension Saver
A Salary sacrifice scheme that allows members to make pension contributions in a more effective way. Under Pension Saver, the Company pays pension contributions for you and in return your salary is reduced by the same amount. This results in you paying lower National Insurance contributions, therefore increasing your net pay.
Pension benefits
A general term for benefits paid from a pension scheme.
Pension input period (PIP)
This is the period (always aligned to a tax year) over which the increase in your pension benefits is measured to test against the Annual Allowance.
Pension scheme administrator
The person or company that runs a pension scheme and carries out certain legal requirements, for example paying certain tax charges to HMRC. Railpen is the pension scheme administrator for the DB sections. LifeSight is the DC pension scheme administrator.
Pensionable service
The period of pension scheme membership from the date you join the scheme up to the date you retire or leave.
For DB members this is includes any service credit that may have been granted as a result of a transfer from another employer’s pension scheme (including other Groups of the Scheme) and any added years you may have purchased up to the date you retire or leave. Service is calculated in years and days.
Protected member
An employee who joined the ESPS before 31 March 1990, or who was under age 18 on that date and joined within 3 months of their 18th birthday.
Retail Prices Index (RPI)
The Index of Retail Prices (All Items) as published by the Government.
Retirement
The period that occurs after an individual has stopped working in paid employment and takes their pension benefits.
Scheme
DB benefits are held in the Electricity North West Group of the Electricity Supply Pension Scheme (ESPS). DC benefits are held in the LifeSight Master Trust.
State Earnings Related Pension Scheme (SERPS)/State Second Pension (S2P)
Historical additional pension arrangements provided by the Government.
State Pension
The pension paid to UK citizens by the Government when they reach State Pension age.
State Pension age (SPA)
The age you start to receive your State Pension benefits. You can work out your State Pension age using the Gov.uk calculator at www.gov.uk/state-pension-age.
Summary Funding Statement
A report confirming the financial position of the DB section of the Scheme at the time of its actuarial valuation or annual funding update. It also gives details of the main reasons for any changes in funding position and, if the pension scheme is in deficit, it shows the agreed recovery plan.
Trustee
An individual or group responsible for governing a trust based pension scheme.
Valuation
An assessment of a Defined Benefit scheme’s funding position every three years to compare assets against liabilities.
