Pension Terms Explained

Definitions of some terms used in relation to Pensions.

  • Pension Plan / Scheme

    This is the term used to describe the policy or contract used to receive pension contributions and invest the pension funds.

  • Pension Benefits

    There are several benefits that can come from a pension plan, most common is the actual pension payment to the pensioner. Other benefits can be a tax free cash lump sum or life assurance cover.

  • Trustees

    For occupational pension plans, the scheme is usually written under Trust. This means the legal title of the pension assets rests with the Trustees. The purpose of the Trust is to separate the scheme assets from the assets of the employer. This adds a layer of protection for scheme members.

  • Defined Contribution (DC)

    This is where the pension benefits are accumulated by a specific contribution. The actual benefits at retirement are not know, as these will depend on the size of the contributions, the duration contributions are made and the investment experience over the period.

  • Defined Benefit (DB)

    This is where the actual pension benefit is set out for the member on joining the scheme. The scheme rules will include a formula for calculating the pension payable. This is usually expressed as a fixed percentage of salary for each year of service. There are many variations to this formula.

  • AVCs

    These are additional voluntary pension contributions made by a member of a pension scheme and used to purchase additional pension benefits. The AVCs can be under the same scheme, or made under a separate scheme.

  • Member Spouse

    Refers to the spouse who is a member of a pension scheme/plan.

  • Non-member Spouse

    Refers to the spouse who is not a member of the scheme, but who may receive an order in relation to the pension benefits of the member spouse.

  • Designated Benefit

    The part of the member spouse pension to be allocated to the non-member spouse.

  • Relevant Percentage

    This is the proportion of the member spouse pension that must be paid to the non-member spouse.

  • Relevant Peroid

    This is the period of making contributions, or earning pension benefits, to be taken into account.