INSIDE! FIND OUT HOW TO MIX YOUR - PRAG
INSIDE! FIND OUT HOW TO MIX YOUR - PRAG
INSIDE! FIND OUT HOW TO MIX YOUR - PRAG
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GET<br />
JARGON BUSTER<br />
In previous years we have provided you with<br />
an A-Z of pensions terms. This received a very<br />
favourable feedback in last year’s questionnaire<br />
so this year we focus our Jargon Buster on the<br />
terms which are used in this issue.<br />
Actuary<br />
A qualified professional appointed by the trustees<br />
of an occupational defined benefit pension<br />
scheme to carry out valuations and advise on<br />
funding matters. An actuary is the person who<br />
calculates how much money the Scheme will<br />
need to pay all members’ benefits in the future.<br />
Additional Voluntary Contributions (AVCs)<br />
Contributions you pay in addition to the<br />
Company’s contributions to add to your pension<br />
fund. AVCs get the benefit of full tax relief and can<br />
be stopped and started at any time.<br />
Annuity<br />
Members of the DCS (or a DBS member with<br />
AVCs) obtain a pension provided by an annuity<br />
which is a regular amount of income usually paid<br />
monthly. This is paid by an insurance company for<br />
life in exchange for a one-off payment at the time<br />
of retirement.<br />
Bond<br />
An investment issued by governments and<br />
companies who wish to borrow money and in<br />
return promise to pay interest and eventually<br />
repay the face value of the loan on a specified<br />
date in the future. Insurance companies set the<br />
cost of an annuity according to the market value<br />
of bonds, so investing in bonds can help a person<br />
approaching retirement to protect the pension<br />
buying power of their Retirement Account.<br />
08 PENSIONWISE<br />
SMART<br />
STEP 3:<br />
<strong>YOUR</strong> PENSION<br />
COCKTAIL<br />
Adding a splash of coke would<br />
leave you with a basic cocktail...<br />
...just as upping your AVCs by<br />
a small amount could leave you with a<br />
sweeter retirement.<br />
Contracting out<br />
Some schemes are contracted out of the State<br />
Second Pension (S2P). If you join such an<br />
arrangement, you will not build up benefits in S2P.<br />
Instead you and your employer pay lower National<br />
Insurance contributions to the Government and<br />
the scheme provides a benefit at least equal to<br />
S2P (known as Guaranteed Minimum Pension<br />
(GMP) or Protected Rights). You still build<br />
contributions towards the Basic State Pension<br />
and will still get the Basic State Pension when<br />
you retire. You will also still be eligible for any<br />
additional State pension you may have earned<br />
for periods of employment when you were not<br />
contracted out.<br />
Equity<br />
Shares in public companies traded on a stock<br />
market. Buying shares in a company gives the<br />
purchaser the right to share in the profits of the<br />
company. NOTE: Over the long term, investors in<br />
equities expect the value of shares to grow more<br />
than the value of bonds or cash. However, this is<br />
not guaranteed and shares prices can fluctuate a<br />
great deal. If this happens as a member is about<br />
to retire then there will be little time for the value<br />
to recover before the planned date of retirement.<br />
A ‘Lifestyle’ investment option can protect against<br />
this.<br />
Lifestyle option<br />
A Lifestyle investment option aims to provide a<br />
good, long-term rate of return over the majority of<br />
your working life by investing in shares but then<br />
in the last few years before retirement Lifestyling<br />
steadily switches your investments out of shares<br />
into less volatile and lower risk investments<br />
(bonds and cash) that protect your pension<br />
purchasing power close to retirement.
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