Glossary

The traditional investment approach where fund managers actively build and change a portfolio of assets (e.g. stocks and shares) in order to take advantage of what they believe are the best opportunities.

Business professional who analyses the financial consequences of risk.

One way of boosting your retirement income is by moving back your date of entry into a pension fund. Buying a specific number of added years in a final salary scheme will increase the service on which your pension is based.

A discretionary bonus that we may declare in relation to a With-Profits Pension Annuity.

The highest rate of income tax in the UK, which in the 2010/11 tax year is 50% for those earning more than £150,000.

The above is based on our understanding, as at April 2010, of current legislation and HM Revenue & Customs' practice, all of which is subject to change without notice. The impact of taxation (and any tax reliefs) depends on individual circumstances.

A charge made over the year by fund managers and product provides to cover the expenses associated with running the fund and administering insurance and pension products. Although it is expressed as an annual percentage figure it is usually taken from the fund daily.

An agreement whereby an insurance company guarantees to pay somebody a regular income usually for life in return for a lump sum of money. The amount of income will depend on various factors including the person's age and gender, the size of the lump sum and the type of annuity selected.

The factor used to calculate the amount of income payable, following investment of a lump sum in an annuity.

This is your estimate of the rate of future bonus we'll declare each year in relation to a With-Profits Pension Annuity. It's used to determine your starting income and how your income changes each year. You can choose an ABR of between 0% and 5%. If you select the maximum ABR (5%) your starting income will be higher. However, in this example, a bonus of over 5% needs to be achieved before you receive any increase in your income. If you select a low ABR, say 0%, then your starting income would be lower but all bonuses awarded would result in an increase to income.

The proportion of investments in a fund or portfolio held in different asset classes such as equities, fixed interest and cash.

The different types of assets available to investors. For example, equities, cash, fixed interest or property.

Items that are owned by an individual such as property and investments. Money in a bank or building society account is known as a liquid asset. Assets may also be held in a fund.

The formal transfer of rights to another party. For example, the rights to receive the benefits of a life insurance policy to repay a debt/loan.

Non compulsory additional payments made by a member of an employer's pension scheme to boost retirement benefits.

A fund that aims to provide capital growth through investments in a diversified portfolio of collective investment schemes.

An interest rate set by the Bank of England which is used as a benchmark by UK lenders.

This is the starting rate of income tax in the UK, which for the 2010/11 tax year is 20%.

The above is based on our understanding, as at April 2010, of current legislation and HM Revenue & Customs' practice, all of which is subject to change without notice. The impact of taxation (and any tax reliefs) depends on individual circumstances.

The flat rate (not earnings-related) state pension paid to all who have met the minimum National Insurance contribution requirements.

The full basic state pension in 2010/11is £97.65 a week for a single person. This changes each year on 6 April.

To satisfy the minimum National Insurance contributions requirement you need to have built up enough qualifying years. (A qualifying year is a tax year during which you have enough income to pay your contributions.) In 2010/11 the minimum earnings requirement is £4,940 or more if you are an employee, and £5,075 or more if you are self-employed. You will need 30 qualifying years for a full basic state pension.

The above is based on our understanding, as at April 2010, of current legislation and HM Revenue & Customs' practice, all of which is subject to change without notice. The impact of taxation (and any tax reliefs) depends on individual circumstances.

This is someone who benefits from a will, trust, pension fund or a life assurance policy.

The price you get when you sell shares, bonds or units in a unit trust. The price you buy shares, bonds or units in a unit trust is known as the Offer (Buying) Price. The difference between the two is often referred to as a Bid Offer Spread.

Lower- to medium-risk loans to the government or companies that pay you a fixed rate of interest.

The price at which you can buy shares, bonds or units in a unit trust.

The period after signing a contract for some financial products during which you are entitled to cancel and receive your money back without penalty. For investment related products, you may get back less if the value of the investment falls during the cancellation period.

The amount you invest in any type of savings or investment product.

When a unit trust manager takes the management charges out of the fund's capital instead of the income it has produced.

You make a 'capital gain' if you sell assets such as shares or property for more than they cost you. Each tax year you are allowed to make gains up to a certain amount without paying any tax. For the 2010/11 tax year this figure is £10,100. Everyone has their own individual allowance so it may be possible for couples to make a combined gain of £20,200 before they have to pay the tax - although each individual's circumstances are considered separately.

Some gains you make are exempt from capital gains tax. These include gains from the sale of your car and Individual Savings Accounts. Also, you do not have to pay capital gains tax when you sell your home provided certain conditions are met.

The above is based on our understanding, as at April 2010, of current legislation and HM Revenue & Customs' practice, all of which is subject to change without notice. The impact of taxation (and any tax reliefs) depends on individual circumstances.

Any money you receive in addition to the capital you've invested when you cash in your investment.

Where the interest rate can go up or down, but cannot exceed a certain level for a set time.

The amount you get if you cash in an investment.

A fund that aims to provide a combination of income and capital growth, while reducing risk by diversifying your investments.

These pool money from many different investors into one fund, such as a unit trust, open ended investment company (OEIC) or investment trust.

Money paid by a financial company to a third party (eg an Independent Financial Adviser or direct agent) for selling a product. The financial company may recover the cost of the commission through charges to the client.

A pension scheme provided (sponsored) by an employer for its employees. Company pension schemes can be defined benefit schemes (final salary schemes) or defined contribution schemes (money purchase schemes).

In, for example, a deposit account, this is where interest is added to both capital and the accrued interest from time to time. The longer a customer leaves an investment the more advantage they can take of compound interest. For example, if in year one a customer is paid 10% on his/her £100 investment, at the end of the year the investment is worth £110. In year two, with compound interest taken into account, the customer now earns 10% on £110, giving £121 at the end of the year.

A pension scheme is contracted out when it provides benefits in place of the State Second Pension (previously known as SERPS). If you're employed you can normally contract out of the State Second Pension by using a personal pension, a stakeholder pension or a company pension scheme. As a result, your State Second Pension/SERPS benefit will be replaced by investing contributions (e.g rebate or minimum payments) with the provider.

The Pensions Act 2007 provided for the abolition of contracting out under Money Purchase schemes. This means everyone who is currently contracted out of the State Second Pension will be contracted back in from a date still to be finalised, (unless they reach state pension age or choose to contract back in before then). The current date proposed for the cessation is 5 April 2012.

A company pension scheme where the employee contributes as well as the employer.

Also known as a guaranteed annuity, this is a pension annuuity that guarantees to provide you with an income for the rest of your life in return for you paying over a lump sum from your pension fund. It can provide a guaranteed level of income which stays the same each year, an income that increases by a fixed amount or one that changes in line with inflation. The level of income you receive will depend on various factors including your age and sex, and size of your pension fund.

A life assurance policy which pays out if the policyholder dies within the period of policy, but also allows the customer to convert to another type of plan offered by that provider without requiring any proof of health at the time of conversion within certain limits.

A loan to a company that earns you income in the form of interest. (See also Bond).

The interest rate applied to the value of a corporate bond or gilt (see Government bond).

An option available to a member of certain types of pension scheme, where an annuity income is determined some years before the date income is due to start, and is conditional upon agreed contributions being paid.

A company pension scheme where the pension an employee receives is linked to the size of their final salary. They are also referred to as final salary schemes.

A company pension scheme where the contributions made by the employer and employee are set and the final pension an employee receives depends on a number of factors including the size of their fund on retirement. This final fund is then used to buy an annuity or an unsecured pension (income drawdown). These are also referred to as money purchase schemes.

A savings account from a bank or building society that pays interest on the amount of money held in it.

One to whom something is given in trust for storage or safekeeping. (A depository is the facility where things can be deposited for storage or safekeeping.) Open Ended Investment Companies (OEICs) are overseen by an independent body known as the depositary. For unit trusts this is called a trustee.

When a company pays money (dividends) to its shareholders, or when a unit trust pays income to unit holders.

Spreading your investments to reduce the risk of your portfolio.

A payment made by a company to its shareholders. The size of the payment is usually determined by the size of the company's profits and is usually paid twice a year, although a company does not have to pay a dividend at all.

The country where you have your permanent home or principal establishment and to where, whenever you are absent, you intend to return. You can only have one domicile at a time. For inheritance tax purposes for instance, you are deemed domiciled in the UK if you spend 17 out of 20 tax years in the UK.

Your 'domicile of origin' is acquired from your father when you are born (although this is set to change). You can legally change your domicile after the age of 16.

Domicile is a legal concept and is distinct from residence, which is a HMRC categorisation of how many days per tax year you spend in a country. You are considered resident in the UK for tax purposes if you spend more than 183 days per tax year in the country.

The above is based on our understanding, as at April 2010, of current legislation and HM Revenue & Customs' practice, all of which is subject to change without notice. The impact of taxation (and any tax reliefs) depends on individual circumstances.

When a member starts to take their pension before the normal retirement date of the scheme.

Cash set aside in a dedicated interest account to cover unanticipated financial emergencies such as property repairs, medical expenses and car repairs.

A pension scheme provided (sponsored) by an employer for its employees. Company pension schemes can be defined benefit schemes (final salary schemes) or defined contribution schemes (money purchase schemes).

A life assurance policy that pays out a lump sum after a specific period of time or on the earlier death of the policyholder. They can be used as a vehicle for saving or as a way to repay a mortgage. It is important to remember that an endowment is a medium- to long-term commitment. A customer who surrenders early may not get back the amount of money they have invested.

A pension annuity that pays a higher income because of a person's shortened life expectancy. If you, or your dependant in the case of a joint-life annuity, have a medical or lifestyle condition that is likely to shorten life expectancy, you may qualify for an enhanced annuity.

Another name for shares held in a company or companies.

The value of an asset (e.g. a property) less any money owing on it (e.g. loans/mortgages). Equity also refers to shares held in a company.

An investment fund that invests in UK shares or in overseas companies.

Schemes that allow homeowners to release cash from the value of their property.

There are two types of equity release scheme. A lifetime mortgage scheme allows you to raise money against the value of your property while you still own it and a home reversion scheme allows you to sell all or part of your home to a reversion company. The options for releasing the money are not standardised across the industry and depend upon the product terms.

When a pension in payment is automatically increased at regular intervals by a fixed percentage rate or changes in line with a specific index such as the Retail Prices Index (RPI).

Assets owned by an individual at death.

These aim to make socially responsible investments (they do not invest in companies that have interests in socially unacceptable markets or produce harmful products or by-products, such as high levels of environmental pollution).

Individual(s) who are appointed in a will to deal with the wishes of the deceased, in administering their estate.

A company pension scheme where the final pension an employee receives is linked to the size of their final salary and the number of years they have been a member of the scheme. They are also referred to as defined benefit pension schemes.

Since depolarisation in 2005, there are now four main classes of adviser: tied advisers (working for one financial institution), multi-tied advisers (paid by more than one financial institution), whole of market advisers (working with all companies but only on a commission basis) and independent financial advisers. Independent financial advisers must offer their clients the option to pay for advice by fee rather than commission.

The Financial Services Authority is the independent financial services regulator. It is a private limited company set up under statutory legislation. Whilst the senior executives are selected by the Treasury it should be autonomous of government in carrying out its four main objectives. These include:

- Market confidence - maintaining confidence in the financial system.

- Public awareness - promoting public understanding of the financial system.

- Consumer protection - securing the appropriate degree of protection for consumers.

- Reduction of financial crime - reducing the extent to which it is possible for a business to be used for a purpose connected with financial crime.

An interest rate that does not change during an investment or borrowing period.

A non-compulsory payment made by a member of a company pension scheme who wants to boost their retirement benefits, but keep the payments separate from their occupational fund. Payments are made into a separate FSAVC fund. A change of pension regulation on 6 April 2006 has meant that personal pensions are now favoured over FSAVC schemes for such use.

An index of the share prices of the 100 largest companies (by market capitalisation) in the UK.

An index of the share prices of more than 800 leading companies and investment trusts on the London Stock Exchange.

FTSE is a trademark jointly owned by the London Stock Exchange plc and The Financial Times Limited and is used by FTSE International Limited ("FTSE") under licence. The FTSE 100 index is calculated solely by FTSE. FTSE does not sponsor, endorse, or promote this website and is not in any way connected to it and does not accept any liability in relation to its issue, operation and trading. All copyright in the index values and constituent list vests in FTSE.

Pension policy where the only payment received is for 'contracting out' of the State Second Pension (see Rebate Only Personal Pension).

A pool of money normally set apart for a purpose, for example a pension fund to provide pensions.

A measure against which performance of an investment (fund) is to be judged.

An individual who is employed by a company to manage money. It is a fund manager's aim to buy shares or other assets such as property or bonds that they believe will increase in value or provide a level of income.

The monetary value of a fund, which is calculated by adding up the value of its underlying assets. For instance, the price of units in a unit trust is worked out from the value of all its holdings divided by the number of units issued.

A transfer of goods or property to another party. There are limits to the value and number of gifts you can make without any immediate or future inheritance tax liability.

A fixed-interest loan issued by a government. UK government bonds are known as gilts. The original amount is usually repaid at the end of the loan period. Gilts can be traded at any time prior to repayment, subject to market conditions.

A payment to a pension scheme including any tax relief applicable.

Earnings before income tax and other deductions are taken.

The amount of interest you receive without any income tax or charges deducted.

A scheme set up by an employer whereby employees can take out personal pensions. These types of scheme are not compulsory nor does the employer have to contribute to the pension. The employees often benefit from low charges secured by the employer's 'bulk purchase' and the contributions may be deducted directly from their salaries.

A fund which maintains a balance between investments aiming to produce growth and those generating income.

This aims to maximise growth over the medium- to long-term by investing in shares, property, fixed interest and other investments.

A guaranteed income from a fixed-term investment - usually three to five years - paid monthly or annually. Capital is generally secure so this is a low-risk investment, but penalties usually apply for early withdrawal.

The minimum pension which a company final salary pension scheme must provide as one of the conditions of contracting out in favour of the pre-April 1997 service (unless contracting out through the provision of protected rights).

This is our conventional annuity - please see conventional annuity. It guarantees to pay a regular income for life. Your income can always stay the same, increase each year by a fixed percentage of up to 8.5% or change each year in line with the Retail Prices Index (RPI).

A guranteed annuity rate guarantees that the annuity rate we offer will always be at a certain minimum level. If your pension includes a guaranteed annuity rate, it means you could get a higher income than normal, especially when annuity rates are low.

A medium-risk bond invested over a fixed period with no capital guarantees. These provide a fixed rate of income, either monthly or annually, which is net of basic tax. If you are a higher-rate tax-payer you will need to pay the additional tax. There may be penalties for early withdrawal.

The higher rate of income tax in the UK, which in the 2010/11 tax year is 40% for those earning more than £37,400.

The above is based on our understanding, as at April 2010, of current legislation and HM Revenue & Customs' practice, all of which is subject to change without notice. The impact of taxation (and any tax reliefs) depends on individual circumstances.

The sale of part of or your entire home to a reversion company in return for a lump sum, regular income or a combination of the two. You continue to live in your home and when you die or go into long-term care your home is sold and the percentage you sold goes to the plan provider.

An example of the potential growth a customer may expect to receive from an investment. The growth rates used are set by the industry regulator, the Financial Services Authority (FSA). It is important to remember that the actual return received could be higher or lower than that shown on the illustration.

Money received by an individual as a salary or from investments which is usually subject to income tax. Cash deposits and bonds will provide income in the form of interest. Most UK shares will provide income in the form of twice-yearly dividends.

This is our new with-profits pension annuity. It guarantees to pay a regular income for life linked to the investment performance of our With-Profits Fund. It lets you choose your starting income from within a set range and includes a Secure Level - an amount we guarantee to pay you which has the potential to increase but can never go down.

Enables people with certain types of pension plans to put off buying an annuity and to take income direct from their pension fund.

Tax paid by individuals on income received over a certain amount, dependent on the tax thresholds in place for the year in question.

(See Financial Adviser)

In the stock market, an index is a device that measures changes in the prices of a basket of shares, and represents the changes using a single figure. The purpose is to give investors an easy way to see the general direction of shares in the index. Examples of stock market indices are the FTSE 100, FTSE All-Share, Nikkei and Dow Jones.

The linking of a payment such as a pension to an inflation index - usually the Retail Prices Index (RPI) - with the aim of keeping pace with inflation.

Another name for index tracking. An investment strategy designed to produce a rate of return in line with a specific financial index. This term is also used to describe automatic increases in pension contributions.

The rate of increase in the price of commodity products over time as recorded in an index such as the Retail Prices Index (RPI). This can affect the buying power of investments when cashed in at a future date.

A tax your estate pays at a flat rate of 40% on assets over a certain limit that you leave on your death. IHT can also apply to assets given away during your lifetime and may be payable by the person who receives a gift.

The individual IHT threshold for the 2010/11 tax year is £325,000. This is also known as the 'nil rate band'.

Married couples and civil partners can now transfer their nil rate band upon death, so if one partner dies and a proportion of their allowance is unused, the remainder can be transferred to the surviving partner

Assets passed between spouses or civil partners are exempt from IHT, regardless of their worth and how soon you die after making them. These rules also apply to gifts made to charities. Additionally, any amount of money you give away outright will not be counted for IHT if you survive for seven years after making the gift. If you die within this period, taper relief on the amount may apply. This can reduce the amount of tax due.

Tax laws are subject to change, possibly retrospectively. Also, IHT for domiciled citizens can be charged in the UK and again locally, on for instance a foreign-owned property, so tax and local laws should be investigated by a potential investor.

The above is based on our understanding, as at April 2010, of current legislation and HM Revenue & Customs' practice, all of which is subject to change without notice. The impact of taxation (and any tax reliefs) depends on individual circumstances.

A charge made by an investment provider to cover the cost of setting up an investment. The amount invested is the amount contributed less the initial charge.

A tax-free transfer between husband and wife/civil partner under inheritance tax rules.

The amount of money a customer can earn on an investment or is charged for borrowing money. It is usually expressed as a percentage of the total amount invested or borrowed.

This refers to a person dying without a valid will. Upon death the person's assets are distributed according to the law, regardless of the person's intent when they were alive.

A document showing details of units held within a unit trust or shares or bonds.

A company that invests in the shares of other companies, or other assets such as property or bonds. When investing in an investment trust, customers actually own shares in the investment trust rather than owning the shares it invests in.

A savings vehicle that allows customers to invest in equities, (stocks and shares) or save in cash without having to pay any income or capital gains tax.

An annuity that pays you a regular income for life and then when you die usually pays your dependant a regular income for life too.

An assurance policy that pays out a lump sum or instalments on the death of the life assured.

A pool of money and/or assets such as property or shares held by a fund into which all life assurance policyholders' premiums are paid and from which claims are made.

Pension taxation rules introduced in April 2006, set a lifetime allowance for the total value of pension savings that can be realised before a tax charge is applied. If your benefits exceed this limit then the amount above it could be taxed at up to 55%. The lifetime allowance for the 2010/11 tax year is £1.75m.

The above is based on our understanding, as at April 2010, of current legislation and HM Revenue & Customs' practice, all of which is subject to change without notice. The impact of taxation (and any tax reliefs) depends on individual circumstances.

This is a loan secured against the value of your property that can be converted into a cash lump sum or income, without the need to move. You can also do this using a home reversion scheme. These types of plans are sometimes referred to as equity release.

A British term for a corporation, a limited company is a business entity that limits the liability of shareholders to the extent of their investment.

A company that satisfies the listings rules of a stock exchange, and whose shares are quoted and traded on a stock exchange.

The ratio between the value of an asset (such as property) to the value of the loan that will finance the purchase of that asset. LTV tells the lender if potential losses due to non-payment may be recouped by selling the asset.

An investment bond that is designed to cover the costs of care in old age. Can be used to cover residential home costs as well as expenses incurred when care takes place within the home.

If you are an employee, the lower earnings limit is the point at which your earnings start to build up entitlement to state pension benefits. The 'primary threshold' is the point at which you start to pay National Insurance contributions.

Usually a fund choice within a unit-linked policy. Managed funds are generally made up of units from a wide spread of other specialist funds or investments so spreading the risk of volatility.

The additional tax which someone pays on each £1 increase of their taxable income. In the UK the tax bands for the 2010/11 tax year are: 20% on the first slice of taxable earnings, 40% on the next slice and 50% on the next slice. See also basic rate tax, higher rate tax and additional rate tax.

The above is based on our understanding, as at April 2010, of current legislation and HM Revenue & Customs' practice, all of which is subject to change without notice. The impact of taxation (and any tax reliefs) depends on individual circumstances.

The value of an asset to a third party on the open market.

If you take money out of a with-profits fund, an adjustment may be made to the value of the withdrawal if the value of the underlying assets is less than the value of your plan including bonuses. This adjustment is known as a market value reduction.

The specified date when a policy comes to an end and the policy benefits are paid.

A person who has been admitted to membership of a pension scheme.

Contributions payable to an appropriate personal pension or stakeholder pension by HM Revenue & Customs in respect of a member who has contracted out of SERPS or the State Second Pension. This could also refer to minimum contribution levels that can be paid into a financial product.

This was a means-tested benefit that helped individuals on low incomes at retirement. It has now been replaced by Pension Credit.

This is the smallest amount an employer is allowed to pay into a contracted out money purchase scheme. This amount will give the employee protected rights.

A pension scheme where the contributions made by the policyholder (and their employer in respect of a company pension scheme) are set and the final pension the policyholder receives depends on the size of their fund on retirement. This final fund is then used to buy an annuity. These are also referred to as defined contribution pension schemes.

A tax paid by most employers and employees to the UK government which pays for state pensions and benefit funding. For the employed it is deducted from income by the employer on a scale related to income levels. The self-employed pay contributions based on profit and like the unemployed may pay a flat-rate voluntary contribution to keep their benefit entitlements up to date.

When the amount left outstanding on the mortgage is greater than the value of the related property.

If you have taken out a lifetime mortgage, you may be able to secure a 'no negative equity guarantee'. This means that if your property ends up being worth less than the amount you owe after you die or move into permanent long-term care, your provider will cover the difference so your family will not have to pay anything.

This is the sum you have remaining when there is nothing else to be deducted.

Pension contributions without tax relief. Net contributions are taken from bank accounts or after-tax salary. Tax relief is claimed back from HMRC by the pension provider.

Interest received on a savings account after tax and charges have been deducted.

This refers to the ceiling on earnings for income tax purposes under which no tax is payable. For the 2010/11 tax year, the personal tax free allowance is £6,475 for those under 65, £9,490 for 65- to 74-year-olds and £9,640 for those who are 75 or over.

Nil-rate band also applies to the threshold for inheritance tax (IHT). In the 2010/11 tax year the individual threshold is £325,000 - above which anything you leave may be subject to tax at 40%. (Assets passed between spouses or civil partners are exempt from IHT, regardless of their worth and how soon you die after making them.)

The above is based on our understanding, as at April 2010, of current legislation and HM Revenue & Customs' practice, all of which is subject to change without notice. The impact of taxation (and any tax reliefs) depends on individual circumstances.

The face value of something, for example a share issue.

A company pension where the employee does not make any type of contribution. It is entirely funded by the employer.

Refers to the date at which a member of a pension scheme normally becomes entitled to receive his/her retirement benefits.

A notice of coding shows your tax code if you are going to pay through the PAYE system. It is usually sent out in January or February for the tax year beginning 6 April.

An investment company where shares can be created or cancelled to match demand, in a way similar to the units of a unit trust. The principal difference lies in the fact that there is a 'single price' to which is added the initial charge for purchase.

The price you buy shares or units for in a unit trust. The price you get when you sell shares or units in a unit trust is known as the Bid (Selling) Price. The difference between the two is often referred to as a Bid Offer Spread.

In the context of measuring performance, offer to bid refers to the comparison between the original purchase cost or offer price - usually of a unit trust - and its current bid price, the price you receive if you sell. This measures the actual return you would get if you sell.

In the context of measuring performance, offer to offer refers to the comparison between the original purchase cost or offer price - usually of a unit trust - and its current offer price. This measures how the investment has performed without taking account of the initial charge.

The concept of 'offshore' has no strict legal definition. Broadly speaking, though, it refers to jurisdictions that offer concessionary taxation regimes compared to major 'onshore' centres, such as the UK or US. Additional characteristics of some offshore centres include such things as banking confidentiality and less strict company formation rules.

The option for you to choose which insurance company to buy your pension annuity from. You don't have to buy your pension annuity from the same company that provides your pension plan. You have the freedom to choose the pension annuity that best suits your needs.

'Ordinary residence' applies when you live in the UK year after year. The term 'residence' applies when you are in the UK for 183 days or more in the tax year. You may be resident but not ordinarily resident in the UK for a tax year if, for example, you normally live outside the UK but are in the UK for 183 days or more in the tax year. Or you may be ordinarily resident but not resident for a tax year if for example you usually live in the UK but have gone abroad for a long holiday and do not set foot in the UK during that year. (See also domicile).

The above is based on our understanding, as at April 2010, of current legislation and HM Revenue & Customs' practice, all of which is subject to change without notice. The impact of taxation (and any tax reliefs) depends on individual circumstances.

Also known as equity shares, these are the most common form of share in the UK. They give the owner a right to share in the profits of a company (dividends) and to vote at general meetings of the company.

Where a defined benefit/final salary pension arrangement has assets which exceed those required to meet its liabilities (the benefits allowed).

An investment approach that aims to mirror or track the performance of a financial index. This is normally done by either investing in the exact constituents of an index or by taking a representative sample of that index. The managers of the fund have lower expenses than active fund managers, and the charges to investors are therefore lower.

HM Revenue & Customs' system for collecting income tax from the pay of employees as they earn it.

The regular income provided by a pension annuity.

The amount of pension saving that can be made in a tax year, up to which no tax charges will apply.

This is a type of annuity usually bought with a lump sum of money from a HMRC registered pension scheme. Find out more about pension annuities in our guide. See also Conventional Pension Annuity, Guaranteed Pension Annuity, Income Choice Annuity, Enhanced Pension Annuity.

A benefit for people who have a relatively low income, even if they have some savings and modest retirement income, and can be paid on top of a state pension scheme. There are two elements - the Guarantee Credit, which can be claimed by pensioners aged 60 or over, and the Savings Credit for those 65 or over. The latter rewards pensioners with a second pension or modest savings.

This term is also used to describe an amount of pension transferred to an ex-spouse following divorce.

General term used to describe the investment fund built up in a pension plan and used at retirement to provide a continuing income.

Refers to the process by which the current value of a pension plan can be transferred from one registered pension scheme to another registered pension scheme. The value is transferred direct from one employer or pension provider to another.

Earnings on which benefits and contributions in a pension scheme are calculated.

Period of service with a company that is used in the calculation of pension benefits in a defined benefit/final salary scheme.

The level of income above which income tax starts to be levied.

From April 6 2008, Personal Equity Plans (PEPs) ceased to exist and are now treated as stocks and shares ISAs. (They were available for investment between 1987 and 1999, allowing you to enjoy the profits from stock market-related investment, free of income tax and capital gains tax.).

A private pension that you can take from job to job. The other main types of personal pension schemes are group personal pensions (GPP), stakeholder pensions and self -invested personal pensions (SIPPS).

A document giving all of the details of the agreement between the policyholder and the insurer.

The terms of a policy, which sets out the rights and responsibilities of the parties involved.

Generally taken to mean the owner of the policy.

Investments such as unit trusts, where a number of people put their money together to enable them to buy a wider range of investments, thereby spreading the risk of volatility.

Gifts on which inheritance tax will not be payable unless the donor dies within seven years.

The term used to describe the effect of paying a fixed regular amount into a unitised investment fund where the value of units fluctuates. The amount will purchase more units when prices are low and vice versa.

The periodic payments a policyholder makes to an insurance policy or the amount of money an individual pays into a saving or investment product, as either a lump sum or a regular payment.

How often the premium is paid, such as monthly or annually.

If a member of an occupational pension scheme leaves the company after less than two years' service, the employee can take a refund of any personal contributions, less certain deductions. But if the employee has been a member of the scheme for more than two years, the benefits must be preserved within the scheme or transferred to another pension scheme, and will be paid at a future date.

If you're employed you can normally contract out of the State Second Pension. One option is to contract out using a personal pension or stakeholder pension. This means that you give up your right to benefit from State Second Pension for the period you are contracted out. As a result, your State Second Pension benefit will be reduced. In return, HM Revenue & Customs sends your selected pension provider a rebate of part of your own and your employer's National Insurance contributions. These are invested in your plan and the fund that this produces is called protected rights. There are special rules about the benefits you can get from protected rights and when they can be taken.

This is a type of annuity bought with a lump sum of money from personal savings or investments. Part of the annuity is deemed to be interest paid on the capital and is taxed. The other part is considered to be a return of capital and so is not liable to tax. The annuity rates for purchased life annuities and pension annuities differ.

The division of a spread of values into four. A statistical division is generally used in financial services to denote performance of, say, a particular type of fund. Comparisons of similar funds are shown in a league table, which is divided into four quarters or quartiles.

A personal pension that is made up solely of the National Insurance rebates, payable by HM Revenue & Customs, where the member has elected to contract out of SERPS or the State Second Pension.

Bonus that is added to a with-profits investment during the course of the policy.

This is the rate of Smoothed Return needed to maintain your chosen level of income under an Income Choice Annuity.

A monthly indication of the average price changes to a particular 'basket' of consumer goods, and used as a general indicator of price inflation.

This is the date that you choose to retire at - however you can only get your state pension when you reach state pension age. This is currently 65 for men and 60 for women, but will rise gradually to 65 for women between 2010 and 2020.

All retirement ages will rise by a year each decade so that by 2046 both will retire at age 68.

The profit or yield from an investment.

In investment terms, the balance of potential loss and potential gain as perceived by the investor. In insurance terms, the likelihood of a claim being made on a policy during the term.

A tax-efficient method of increasing the money paid into a pension scheme by giving up existing salary or proposed salary increases, so that the sum forgone can be used as an additional company contribution into a pension scheme.

In effect, an old form of pension. Prior to 1 July 1988, people not in pensionable employment (employment where no pension scheme exists or where a scheme exists but was not joined) or people who were self-employed, were able to qualify for tax relief for contributions made to a pension scheme known as a Retirement Annuity under Section 226 of the Income and Corporation Taxes Act 1970.

A term used to describe stocks and shares.

Pension scheme investments managed alongside, but separately from, other investments under control of a particular manager.

The price at which you can sell shares or units in a unit trust. The price at which you can buy shares or units in a unit trust is known as a Buying (Offer) Price.

SERPS was replaced by the State Second Pension in April 2002. Prior to that date part of an employee's National Insurance contribution went into the scheme, which was paid on top of the basic state pension on retirement. It was dependent on a person's earnings while they were in employment and the contributions they paid.

The money paid (subscribed) for ordinary and preference shares in a limited company. Authorised share capital means the total amount of shares available to be issued. Issued share capital relates to the total amount of shares actually subscribed to.

Under a share exchange, shares are sold and the proceeds are put into an investment. There may be dealing charges involved, although these may be less than if the shares were simply sold through a stockbroker in the normal way.

An offer by a company (usually to its employees and directors) to buy its shares at a given price, before a specified date. A number of approved share option schemes offer tax-free capital growth.

An annuity that pays you alone a regular income for life.

A specialist product that allows more flexibility over where your money is invested. These pensions suit people who want to make their own investment decisions and are comfortable with taking on the higher associated risk.

An annual inheritance tax (IHT) allowance, enabling a donor to give up to £250 per year to any number of separate individuals (donees).

This is your share of the overall profits of our With-Profits Fund which we announce each year in relation to an Income Choice Annuity.

Stakeholder pensions (which can either be a type of personal pension plan or a type of defined contribution company pension) were introduced on 6 April 2001 to give everyone the opportunity to provide for their retirement. They are especially suitable if you can only afford to save small sums. For added protection, the government laid down minimum standards to ensure that all stakeholder pensions met the same basic criteria for payments, costs and terms.

For example:

- Stakeholder pensions cannot charge more than 1.5% a year of your fund value for the first 10 years. It is then capped at 1% thereafter.

- Savers must be able to start, stop, increase and reduce payments without penalty.

- The minimum contribution is £20.

A tax on the purchase of shares, securities and the purchase of land and/or buildings. For shares and securities the rate is 0.5%. In the case of land and buildings the rate varies according to value.

• Properties costing between £125,000 and £250,000 are charged 1% (first time buyers are exempt)
• Properties costing between £250,000 and £500,000 are charged 3%
• Properties costing above £500,000 are charged 4%

From 6 April 2011 properties over £1million will be charged 5%

The above is based on our understanding, as at April 2010, of current legislation and HM Revenue & Customs' practice, all of which is subject to change without notice. The impact of taxation (and any tax reliefs) depends on individual circumstances.

This is the age at which state benefits may be taken as pension income. The State Pension Age is currently 65 for men and 60 for women. For women, this will be increased gradually to 65 between 2010 and 2020. All retirement ages will rise gradually to 68 by 2046. (See also Retirement Date).

Basic state pension - if you have a full National Insurance contribution record you are entitled to the full basic state pension.

State Earnings-Related Pension Scheme - depends on your earnings and National Insurance contribution made while you were in employment. SERPS is paid in addition to the basic state pension. The self-employed do not qualify for this pension.

State Second Pension - this replaced SERPS in April 2002. More help will be given to the lowest earners, particularly those earning about £10,000 a year. (See also S2P).

This is an extra pension you may receive depending on the amount you earn and the additional National Insurance contributions you have made. More help will be given to the lowest earners, particularly those earning about £10,000 a year. This benefit replaced the State Earnings Related Pension Scheme (SERPS) in April 2002. The self-employed do not qualify.

You may have contracted-out of the S2P so that part of your National Insurance contribution could be paid into a personal or employer pension

A market where stocks and shares are bought and sold.

A place where shares or other securities are bought and sold, for instance the London Stock Exchange.

Agents who buy and sell stocks and shares for customers.

Sold by a company to raise money, these give the owners a right to share in the profits and success of a company through voting rights, dividends and/or capital appreciation. A stock generally refers to fixed interest securities, usually issued in denominations of £100.

The guaranteed amount paid on death under a life assurance policy. Depending on the policy held, this sum might be increased through the addition of bonuses.

The amount of money that will be paid to a policyholder if they discontinue a policy before it matures. The benefits the customer usually receives are reduced because of the effects of the charges.

Transferring sums of money from one unit-linked or with-profits fund to another. This is usually done on a bid-to-bid basis to avoid 'new money' charges when buying units at the offer price. (See Offer To Bid and Offer To Offer).

The purpose of taper relief is to reduce the amount of tax you have to pay to account for the effect of inflation.

Taper relief applies to inheritance tax (IHT) if the donor dies between three and seven years after making a potentially exempt transfer (or transfers) of more than the nil rate band. It applies both to business and non-business assets, although different rules apply for each. Taper relief is calculated on the basis of how long you have held the asset for.

Taper relief also used to apply to capital gains tax (CGT) to reduce the amount of tax paid through the sale of shares, property or other capital assets, but this was abolished in the 2008 Budget.

A state benefit paid to employees through the tax system, which has the effect of increasing net income.

The UK government encourages you to save for your retirement by giving you tax relief on pension contributions. Tax relief works by reducing your tax bill or increasing your pension fund.

A period of time used for tax calculations. In the UK this starts on 6 April each year and finishes on 5 April the following year.

A simple life assurance policy that pays out on the death of the customer during the time period in years specified by the policy.

A discretionary bonus that may be added to a with-profits policy out of a life fund's surplus profit. This bonus would be payable at the end of the term of the policy (at maturity), or when a claim is made e.g. death or surrender.

A bank or building society account that offers tax-free interest, dividends and bonuses provided the account is maintained for a fixed period of five years. TESSAs were replaced by Individual Savings Accounts (ISAs) in 1999 as a tax-efficient way of saving over the medium- to long-term.

A person who dies having made a will is described as testate.

A salesperson who sells the policies of one particular insurance company (to which they have made a contractual agreement). Some sales people are tied to several companies (multi-tied).

Aim to mirror or 'track' the performance of any of a number of worldwide stock market indices, such as the FTSE 100 Index. (See also Passive Management).

Payment made from a pension scheme to another pension scheme, in lieu of benefits which have accrued to the member, to enable the receiving scheme to provide alternative benefits. The amount transferred is known as the transfer value.

An arrangement whereby one person or persons (trustees) agree to take care of assets and to use those assets in particular ways for particular people (beneficiaries).

A person appointed to manage and safeguard the assets of a trust.

If you are physically present in the UK for 183 days in a tax year then you will be resident in the UK and taxable on your income and capital gains. If you are abroad only temporarily, or if you spend an average of three months a year in the UK for four years, you will be treated as ordinarily resident and therefore taxable.

The above is based on our understanding, as at April 2010, of current legislation and HM Revenue & Customs' practice, all of which is subject to change without notice. The impact of taxation (and any tax reliefs) depends on individual circumstances.

Generally refers to the valuation of a company final salary pension fund where the actuary perceives that there are insufficient funds to support liabilities within the investment review period.

Income received from sources such as interest on savings accounts, dividends from shares and bonds that has not been earned by working.

A trust that pools together customers' money, allowing them to increase their investment options, therefore potentially reducing the risk. Unit trusts issue units, unlike OEICs which issue shares.

Unit trusts generally have two prices: a bid price at which you sell and an offer price at which you buy. The difference between the two is often referred to as a bid offer spread. Note: Prudential Unit Trusts have only one unit price.

Unit trusts are overseen by an independent body called the trustee.

Where the value of the saver's fund is linked to the value of the units of the fund it is invested in. (The value is directly dependent on the performance of the underlying asset).

This is a type of pension annuity. The income is linked to the performance of an underlying investment fund. The fund can be low, medium or high risk depending on what is offered by the provider or what risk the annuity owner is willing to take.

A form of with-profits fund where the investor buys units whose value increases in line with any declared regular bonuses and to which a final bonus may be added when the units are cashed in.

When investing in a unit-linked contract or unit trust, the individual's contribution is used to buy units of equal value. The value of these units will fall or rise in line with the underlying investments.

A statement (verbal or written) confirming a plan's worth

An option that can be chosen to protect the capital value of your annuity if you die before the age of 75. Your beneficiaries may get the remaining value of the purchase price, after the deduction of tax and any annuity instalments already paid.

Life assurance a customer pays for throughout the whole of their life that pays out when they die. On some whole-of-life policies, premiums stop at a certain age.

A document drawn up to administer an estate on death.

This is our original with-profits pension annuity and is now only available through a financial adviser. It guarantees to pay a regular income for life linked to the investment performance of our With-Profits Fund. If our With-Profits Fund performs better than expected, your income may increase and over the longer term potentially give you some protection against inflation.

An amount that is added to a with-profits life assurance policy. It can be added within the term of the policy (regular) or at the end of a policy (final).

Essentially a fund made up of shares, property, cash and fixed interest securities, which usually carries a medium risk.

The products that use with-profits are typically regular and single premium savings plans and pensions. With-profits funds pool policyholders' investments, and customers share in the company's investment returns and other profits. These returns are smoothed to help reduce the volatility associated with direct equity investments.

An investment where regular premiums or a lump sum are paid into a with-profits fund made up of shares, property, cash, and fixed interest securities. With-profits policies are usually medium-risk investments that use a smoothing device, when determining any bonus additions that might apply, to provide some protection for the investor from ups and downs of the market.

A measure of the return on an investment compared to the price paid for it. This is normally expressed as an annual percentage. There are several types of yields. Bonds for instance have a nominal yield, current yield and yield to maturity. Shares have a dividend yield and an earnings yield. Yield can refer to growth or income, while net yield refers to the yield after charges and other deductions have been made.