Your guide to frequently-used terms on the SPPA website

A

active members: People who are enrolled in the pension scheme and are making regular contributions (or have contributions made on their behalf).

actuarial reduction: A formal means of calculating the reduction required when someone chooses to take pension benefits before their normal pension age.

Additional Pension: An amount of pension that can be acquired by making voluntary payments above the compulsory contribution rate.

Additional Voluntary Contributions (AVCs): A private pension contract that allows people to make pension contributions outside of their occupational pension scheme in order to boost their retirement income.

Annual Allowance: The amount of annual pension growth permissible by HMRC that qualifies for tax relief.

Annual Allowance charge: A tax charge that’s made if your contributions exceed the Annual Allowance limit.

B

benefits: Payments due to members (or their dependants) from a pension scheme.

benefit crystallisation event: An event (for example, retirement) which triggers an entitlement to the payment of any benefit provided by the pension scheme.

C

Career Average Revalued Earnings (CARE): An accrual method for defined benefit pension schemes where you earn an amount each year based on your pensionable pay in that year. It’s then revalued each subsequent year by a set revaluation rate, linked to inflation until you retire. The final pension is calculated by adding together the amounts earned in each year of membership.

Cash Equivalent Transfer Value: The value of an individual’s accrued defined benefit pension rights expressed in cash terms.

Chargeable amount: If the value of all your pension pots exceeds your lifetime allowance you'll have to pay the lifetime allowance charge on the excess.

Commutation: Giving up some or all of a pension in exchange for a cash lump sum.

Consumer Prices Index (CPI): An index that tracks the changing cost of a fixed basket of goods and services over time. Used as measure of inflation to determine the appropriate rate for revaluing pension benefits.

Contributions: Amounts paid into the scheme to secure benefits on an individual’s behalf.

Crystallised amount: The monetary value of any benefit at the point it is put into payment.

D

Deferred members: Scheme members who have left employment, or opted out of paying pension contributions while remaining in employment, but retain an entitlement to benefits from the scheme.

Death benefits: Pension and lump sum entitlements payable to dependants when a member dies.

Dependant: A spouse, civil partner, non-legal partner or dependent child who qualifies to receive benefits from the scheme following the death of a member.

E

Enhanced protection: Historic option offered by HMRC to help protect individual pension rights built up prior to 6th April 2006 from the Lifetime Allowance.

Early Retirement Standard Reduction Buyout (ERRBO): Option to pay in advance to buy out the actuarial reduction that would apply if a scheme member retired at 65 when their normal pension age is linked to a higher State Pension age.

F

Faster Accrual: Option for members of the Scottish Teachers’ Pension Scheme 2015 which allows members to increase their pension contributions to accrue benefits at a more generous annual accrual rate of either 1/45th, 1/50th or 1/55th.

FSAVC: Free-standing Additional Voluntary Contributions – a type of private pension contract that can be used to provide retirement benefits in addition to an occupational or other pension scheme.

G

Guaranteed Minimum Pension (GMP): A historic commitment made by pension schemes that were contracted out of the State Earnings Related Pension Scheme up to 5 April 2016. Defines the minimum amount of pension a member will receive from the Scheme.

H

HMRC: Her Majesty’s Revenue and Customs – the non-ministerial department of the UK Government responsible for the collection of taxes.

I

Ill health retirement: Pension benefits paid earlier than the member’s normal pension age when their ability to work is compromised by long-term illness.

Injury Benefits Scheme: A scheme that pays you money if you’re injured or become ill as a direct result of your work.

L

Lifetime Allowance: A limit set by HMRC on the amount of pension benefit that can be accumulated in an individual’s pension schemes and can be paid without triggering an extra tax charge.

Lifetime Allowance charge: A tax charge made on funds that exceed an individual’s Lifetime Allowance.

M

Maximum lump sum: The maximum cash you can take from your pension benefits when you retire.

Minimum retirement age: This is the lowest age you can take your benefits - currently 55.

N

normal pension age: The age at which you can retire from the Scheme and receive the full value of your accrued pension benefits.

P

pension: An income paid from a pension scheme.

pensionable pay: The amount of your salary that’s used to calculate the contributions you make to your pension scheme.

pensionable earnings: The amount of earnings used to calculate the level of contributions you pay and how much pension you’ll receive.

pensionable salary: The salary used for calculating final salary retirement benefits and death grants.

pensionable service: The actual amount of time (hours/days) you spend at work that counts towards your pension.

pension value: This is a definition of the value of your pension as determined by HMRC. For SPPA administered schemes, it’s calculated by multiplying your pension by 20 and adding the value of your lump sum.

Personal Lifetime Allowance: Your Personal Lifetime Allowance will be either the normal Lifetime Allowance or a higher amount granted to you by HMRC, for example under Primary Protection.

personal pension: A separate pension you can take out to save towards your retirement.

phased retirement: The opportunity for members to drawdown part of their pension benefits (up to 75%) while reducing their earnings by at least 20% for a minimum of one year.

practice staff: Staff who work for a medical General Practice or for other employers connected to the NHS who are able to participate in the NHS pension schemes.

practitioners: NHS medical, dental and ophthalmic practitioners, including assistants, registrars and some locums.

preserved benefits: Pension scheme benefits that are held in the scheme for deferred members who have left or opted out of membership. Benefits include pensions, lump sums and death benefits.

Primary Protection: A historical option to protect pension rights built up prior to pension reforms in 2006 from the Lifetime Allowance charge.

Protected Rights: Funds which have built up either directly or indirectly, as a result of being contracted-out of the State Second Pension. Contracted out ended 5 April 2016.

Q

qualifying service: The calendar period of time that you work which counts towards qualifying for pension benefits.

R

reckonable pay: The salary period taken into consideration when calculating a final salary pension. For example, in some schemes this could be the average of the best three consecutive years pensionable pay in the last 10 years of membership.

reckonable service: The actual time (hours/days) you spend at work that counts towards your pension.

Retail Price Index: A measure of inflation published monthly by the Office for National Statistics tracking the changing cost of a fixed basket of goods and services over time.

retirement lump sum: A one-off, cash payment made at the time of retirement.

revaluation factor: A way of increasing the recorded value of each year’s pensionable earnings to maintain their buying power by reference to current earnings’ values.

regulations: The legal framework that sets out the rules of a pension scheme.

S

State Pension: A pension paid when you reach State Pension age based on your National Insurance payments or credits.

State Second Pension (S2P): A separate part of the State Pension that replaced SERPS in 2002. S2P ended on 5 April 2016.

T

total uprated superannuable earnings: The final value of pensionable earnings after adding all years’ earnings and applying revaluation factors.

transfer: Moving your pension benefits into, or out of, a pension scheme.

U

unfunded pension schemes: Pension schemes that aren’t backed by a pension fund but pay their liabilities from current employee and employer contributions and other funds provided by the employer (or government).

V

vesting event: The moment when a pension or lump sum payment from pension fund is made.

voluntary early retirement: Choosing to take your pension earlier than your normal pension age.

W

winding down: A phased retirement option which offers members of the Scottish Teachers' Superannuation Scheme to continue in employment on a part-time basis while accruing full-time pension service as they approach their retirement age.

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