OPEN MARKET OPTION - ANNUITY QUOTES
Annuity Jargon Buster
Accrual rate
The proportion of pensionable earnings you receive as a pension for each year of a pension scheme
membership.
Annuity
A series of fixed payments that are
paid at regular intervals – usually until
you die.
AVCs – Additional Voluntary
Contributions
A pension top-up for an occupational
pension. You pay contributions into a
scheme run by your employer to boost
your main pension.
Contracting out
The facility to leave the State Second
Pension (or SERPS) and build up
benefits in a personal pension.
FSAVCs – Free-Standing Additional Voluntary
Contributions
A pension top-up policy for an
occupational pension, but separate
from your employer’s pension scheme and normally run by an insurance firm.
Group Personal Pension
A type of personal pension offered
by some employers but not classified
as an occupational pension scheme
– see Money purchase pension.
Lifetime annuity
A lifetime annuity converts money from
your pension fund into pension income,
which is taxed. There are different types
to suit your circumstances
Money purchase pension
Some occupational pensions and all
personal, group personal, stakeholder,
FSAVCs and some AVCs are money
purchase pensions. Your contributions
are invested in, for example, the
stockmarket. The size of your fund
depends on how much is invested and
how well those investments do.
At retirement, some or all of the fund
may be used to buy an annuity.
Occupational pension
Available through employers and run
by pension scheme trustees. There
are two types – salary-related (defined
benefit) and money purchase (defined
contribution).
Personal pension
A pension policy you take out yourself
from an insurance company or another
financial institution and into which
you pay contributions. It may also be
offered by employers – see Money
purchase pension.
Protected rights pension
The part of your pension fund which
was used to contract out of the State
Second Pension (or SERPS) that must
be used to buy a protected rights
annuity.
Salary-related pension
scheme (also known as a final
salary or defined benefit)
A type of occupational pension. The
amount of pension you get is worked
out on your salary at or near retirement,
or when you left employment, and your
pensionable service.
Stakeholder pension
A type of personal pension that has
to meet certain standards set by the
government.
State Pension
A pension based on your National
Insurance contribution record.
State Second Pension
An additional State pension paid
on top of your basic State Pension.
This used to be called SERPS. Selfemployed
people cannot build up a
State Second Pension.
Tax-free lump sum
An amount of cash you can take at
retirement free of tax set by HRMC.
Individual pension schemes may have
different rules on the amount of tax
free cash you can take.