We understand that for many people approaching retirement, the prospect of arranging your retirement income can seem daunting, not least because of all the complicated jargon and phrases that have become commonplace today.
At Retirement Line, however, we like to keep things simple. It is likely to be the most important financial decision you will make for your future, so we are absolutely dedicated to ensuring you have all the information you need to make an informed choice.
When we do have to use industry terminology then we always take great care to explain what we mean - using ordinary words that everyone understands.
For instance, a phrase we might use early on in our conversation is to establish if your existing pension policies have any ‘safeguarded benefits’ which would be lost if you transferred the policies to a new provider. We wouldn’t want you to be disadvantaged by missing out on these valuable benefits which could exceed what we are able to offer you on the open market, so we will explain what it all means and then check on your behalf.
So what other terminology are you likely to come across during your retirement income journey? This handy Jargon Buster explains the meaning of some of the words and phrases most commonly used…
A – Z Jargon Buster
Annuity - An insurance contract purchased with your pension fund to provide you with a guaranteed income for life.
Defined Benefit Pension - A type of occupational pension scheme, also known as a final salary scheme. The value of the pension is guaranteed by the employer and is defined as a percentage of your final salary.
Defined Contribution Pension - A type of occupational pension scheme, also known as a money purchase scheme. You and/or your employer contribute to the scheme, which is then invested. The value of the pension is based on the contributions paid and how well the investments have performed.
Drawdown Pension – Following the pension reforms, the latest version is called flexi-access drawdown pension. This allows you to draw a taxable income directly from your pension fund, keeping it invested whilst retaining the option to purchase an annuity. You can also access your tax free cash without drawing any income.
Enhanced Annuity - Also referred to as an impaired annuity. You can get a bigger income for life on enhanced terms if you are in poor health or are taking medication to control various medical conditions. Conditions include high blood pressure, high cholesterol, diabetes, heart conditions, kidney failure, certain types of cancer, plus lifestyle factors including smoking and a high BMI.
Expression of WishForm – Used by a current or former scheme member can to choose whom they would like to receive any death benefits payable from the scheme.
Fixed Term Annuity - A temporary annuity that runs for a fixed term allowing you to take your tax-free cash with or without any taxable income. At the end of the term, a guaranteed amount is available for you to take as taxable cash, or use to provide an income under drawdown or buy an annuity.
Guarantee Period - A period of up to 30 years running from the start date of the annuity, which ensures your annuity payments will continue in the event of your death up to the end of the guarantee period. For example, if you choose a five year guarantee and die after three years, your income will be paid to your nominated beneficiaries for the remaining two years.
Investment Linked Annuity - A pension annuity which pays an income for life whilst providing the potential to benefit from investment returns. The income payable can go down as well as up but may benefit from a minimum guaranteed annual amount.
Joint Life Annuity - Here you can choose for a percentage of your annuity to be paid to your spouse, civil partner or partner for the rest of their life, after your death.
Level Annuity - A level annuity will pay you a fixed income that will stay the same for the rest of your life as opposed to an escalating annuity that starts lower but increases each year to combat the effects of inflation.
Open Market Option (OMO) - The right to buy an annuity from a provider other than your current pension scheme provider. Often referred to as 'shopping around' for an annuity.
Find out more
We hope this jargon buster helps you to better understand pension terminology. Pensions are a complicated subject, and we have only covered the very basics here. If you are approaching retirement age and would like more information about your pension options, then please do call our friendly team of specialists on 0800 652 1316.
You can read our comprehensive Jargon Buster here