Glossary of Annuity Terms

Term	Explanation
Annual Escalation	The percentage amount that your annuity payments will increase every year from the date they started to be paid.
Annuity	The payment you will receive on a regular basis when you have retired and opted to cash in your pension fund. Annuity Rate: This is applied to the total value of your retirement fund to work out your yearly annuity payments. It is individually calculated based on personal circumstances, including age and gender.
Benefit crystallisation event:	Funds must be tested against your available lifetime allowance when a "benefit crystallisation event" occurs. Examples of "benefit crystallisation events" include the following: using a money purchase arrangement to pay an unsecured pension (for example the start of income drawdown). becoming entitled to an occupational scheme pension. a payment of a scheme pension above the maximum level set by law at the date the pension started. becoming entitled to a lifetime annuity purchased under a money purchase arrangement. becoming entitled to a lump sum. reaching age 75 and being a member of a defined benefit scheme with scheme pension and lump sum still to be taken. reaching age 75 and being a member of a money purchase scheme with unsecured pension funds (hence income withdrawals have commenced before your 75th birthday). a lump sum death benefit being paid from a defined benefits scheme or a money purchase arrangement. transferring to a qualifying recognised overseas pension scheme.
Bid Price	The price at which units in your pension fund will be sold to provide the annuity
Civil Partner	A person in a partnership that has been registered in accordance with the requirements of the Civil Partnership Act 2004.
Commutation	Giving up part or all of a pension payable from retirement for an immediate lump sum.
Contracted Out	An individual who contracts out of the State Earnings Related Pension Scheme (SERPS) or the State Second Pension (S2P). They pay less National Insurance contributions and contributions are redirected to a form pf personal pension which has to meet certain conditions.
Enhanced Lifetime Allowance	The standard lifetime allowance may be increased in several situations, for example, where primary protection applies.
Enhanced Protection	This provides full protection from the lifetime allowance charge for the value of the whole of an individual's pension rights accrued as at 5th April 2006, regardless of any subsequent growth.
Guaranteed minimum pension (GMP) for a pension built up before 6th April 1988 (known as a pre-88)	This portion of your fund must be taken in the form of a pension when you retire. If you are male, the pension will be payable on a level basis (in other words it does not have annual escalation) with a 50% spouse's pension. If you are female it will be payable on a level basis with no widow's pension.
Guaranteed minimum pension (GMP) for a pension built up from 6th April 1988 (known as a post-88 pension)	This portion of your fund must be taken in the form of a pension at retirement. The annuity payments will escalate at 3% a year compound and a 50% spouse's/ civil partner's pension will be provided.
Guarantee period	A period for which your annuity payments are guaranteed to be paid. This can be 5 years or 10 years for non contracted out annuity payments. Also known as a minimum payment period.
Immediate vesting annuity	The whole pension is transferred to a new pension arrangement/ provider, in order to take a tax free cash lump sum and buy an annuity with the rest of the fund to give you a pension for life.
Lifetime Allowance charge	If your personal savings are more than your lifetime allowance, the excess is subject to the Lifetime Allowance Charge. This tax is 55% on lump sums and 25% on funds used to buy a pension. The annuity is taxed under Pay As You Earn (PAYE) scheme.
Limited Price Indexation (LPI)	This is a statutory level of increase for pension in payment. Introduced in 1997, LPI was designed to safeguard pensions in payment from inflation. There are different levels of indexation rates annuities from defined benefit occupational schemes for benefits built up before 1997, from 1997 and from 2005 onwards. For pension benefits in respect of service between 6th April 1997 and 5th April 2005, the pension in payment must increase at 5% or in line with the Retail Prices Index (RPI) if lower. For pension benefits in respect of service after 6th April 2005, the upper limit of 5% has been reduced to 2.5%.
Named spouse/ civil partner	The person you have instructed us to pay the spouse's/ civil partner's pension to.
Non protected rights	The part of your pension fund built up from contributions paid by you or your employer.
Non reserved (applies to pensions built up before or after April 1985)	This portion of the fund is available to you from age 50 (rising to 55 in 2010) and can provide you with a pension and/ or tax free lump sum. With policies which started after November 1996, you can use the non-reserved units to cover a GMP shortfall.
Open market option	Where you use the benefits from a retirement fund built up with one pension provider to buy an annuity from another pension provider.
Pension commencement lump sum	A tax free lump sum benefit paid to a member of a registered pension scheme (who is aged under 75) in connection with an arising entitlement to a pension benefit (other than a short term annuity contract).
Personal Lifetime Allowance	This has the same meaning as a Lifetime Allowance (see above).
Primary Protection	If a pension scheme member had built up pension rights valued in excess of Ł1.5 million as at 5th April 2006, primary protection offers a means of protecting the excess benefits. The 5th April 2006 value registered with the Revenue is increased in line with the rise in the standard lifetime allowance up until the member takes their benefits.
Registered Pension Scheme	A registered pension scheme is a pension scheme that benefits from certain tax privileges.
Protected Rights	The part of your pension fund built up from contacted out contributions. You cannot take benefits from this part of your pension fund before age 50 (rising to age 55 in 2010).
Purchase price	The total fund value built up from the pension contributions that are being used to buy you an annuity for your lifetime.
Spouse's/ civil partner's pension	The regular payment that will be made to your husband, wife or civil partner on your death.
Standard Lifetime Allowance	Is a cap on the value of pension that can be accrued in a pension whilst continuing enjoy to beneficial tax treatment. If the amount of funds at the date benefits are taken exceeds the standard lifetime allowance the excess amount is subject to the lifetime allowance charge. In the 2008/9 tax year the Lifetime Allowance is Ł1,650,000
Unauthorised Member Payment	A payment by a registered pension scheme to, or in respect of, a member of that pension scheme who which is not an authorised member payment. Alternatively it can be anything which is specifically set out in legislation as being an unauthorised payment in respect of the member.
With overlap (only available on money from an occupational scheme)	If your annuity is guaranteed for a number of years (in other words 5 or 10) and you have selected the spouse's pension "with overlap", then your spouse's pension will start on the next installment due after the date of your death. If you die before the end of your guaranteed period, any installments of annuity you would have received to the end of that period will be paid in addition to the spouse's pension.
Without overlap (only available on money from an occupational scheme)	If your annuity is guaranteed for a number of years (in other words 5 or 10) and you have selected the spouse's pension "without overlap", then your spouse's pension will start at the end of the guarantee period, even if you die before this date.