Glossary

A-Day

6 April 2006, the date on which many of the restrictions on pension saving were swept away

ABI

The Association of British Insurers is a trade body representing the interests of the UK’s insurance industry. The ABI undertake research, provide leadership and guidance to insurance companies, and influence decisions made by the Government which are directly relevant to the insurance industry.

Actuary

Professionally qualified person who makes calculations on which pensions, insurance and investment companies base their products.

Annuity

This provides a guaranteed income, usually for life and from the proceeds of a pension.

Asset Allocation

This is the practice of dividing investments among different types of assets (eg stocks, bonds, property, commodities or collectibles) with the goal of maximising gains while minimising risks. In other words, not putting all your eggs in one basket.

For example – you may have an asset allocation of 20% property, 25% bonds, 5% cash etc.

Assurance

Life insurance. This is a contract between the policy owner and the insurer, whereby the insurer agrees to pay a sum of money in the occurrence of the policy owner’s death. To obtain this agreement, the policy holder will pay a regular amount (called a premium) to the insurer.

Basic State Pension

The state pension age is the earliest age you can draw your state pension. This depends on a person’s date of birth and it is intended that it will gradually move to the age of 68 in the future.

Capital Gains Tax

The tax paid on profits from selling investments such as shares. Applies over a set level for each year.

Cooling off period

The period of time after signing an agreement in which you can revoke it.

Corporate bonds

A certificate of debt issued by major companies – essentially an IOU. You get a fixed income, but the price of the bond moves up and down until maturity.

Critical Illness Cover

A type of insurance cover which pays out a sum, or covers the mortgage, on diagnosis of a critical illness.

Defined contribution

Also known as money purchase – a pension with a payout that depends on the amount saved rather than a person’s salary at retirement.

Emerging markets

High risk stock markets in the Third World where share prices are subject to violent fluctuations, political risk, and currency instability.

Endowment

An insurance policy that pays out a lump sum at the end of a set period or on death, whichever comes first.

Equities

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.

Final Salary

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.

FCA

The Financial Conduct Authority (FCA) is responsible for regulating conduct in financial markets and operates with the objective of protecting and enhancing confidence in the UK financial system.

FTSE 100

The Financial Times Stock Exchange 100 index, which is made up of the 100 largest firms quoted on the exchange.

Gearing

Borrowing, expressed as the relationship between total borrowing and the value of ordinary shares. A company that has borrowed a lot of money is said to be highly geared.

Gilts

Bonds issued by the British Government. Regarded as being the safest of all investments.

Guaranteed Income Bond

An investment paying a fixed income, usually issued by insurance companies. They are paid with tax deducted from the interest and this cannot be reclaimed by non-taxpayers.

Income Drawdown

Income Drawdown is where at retirement you opt to keep your pension pot invested and take an annual income rather than buy an annuity.

Monetary Policy Comittee

Bank of England committee that sets interest rates.

Money Purchase

A form of pension where your final pension depends on stock market performance. All personal pension plans operate this way.

Open Market Option

The right to shop around for the purchase of an annuity from an accumulated personal pension fund.

Permanent Health Insurance

A policy to pay you a replacement income if you cannot work through illness or accident.

Personal Pension

A pension scheme that is personal to you and portable between jobs. Ideal for the self-employed and those without a company pension scheme.

Section 32

Section 32 transfer (or buyout). The transfer of a payment representing pension benefits from a company scheme to a pension plan run by an insurance company.

Term Assurance

An insurance policy that pays out if you die within a set term, but not otherwise. Useful for people with young families because it is cheap, no-frills protection when they need it most.

Unit Linked Policy

An investment-based life insurance plan where the value depends directly on the stock market.

Whole of Life

A life insurance policy, without fixed term, that pays a set amount when you die.

With Profits

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.