Retirement Terms (A to Z)
An annuity is a financial product that is usually bought with a pension fund and provides an income guaranteed to be paid for the rest of a client’s life. The amount of annuity they receive depends upon a number of factors including the size of their pension fund, age, health, and the additional benefits that they choose to include in the annuity. Just refer to an annuity as a Guaranteed Income for Life (GIfL).
Interest rate based on the Financial Times UK Gilts 15 Year Yield Index.
Any amounts advanced to customers under an Equity Release Plan.
The amount guaranteed to be available to customers in excess of their Initial Cash Advance for the life of their Plan, subject to certain exceptional circumstances.
A way to describe pension funds that have been used to provide pension benefits (such as income or access to tax free cash).
With this type of pension, the amount of retirement income an employee gets is set in advance. The amount of income they get is based on the number of years they have been a member of the scheme and their salary at or near retirement, or averaged over membership of the scheme.
This is a term given to a pension which can be either a personal pension or an occupational pension. Under an occupational defined contribution pension both the employer and the employee will make a contributions into the pension fund. Under any defined contribution scheme, the value of the fund at date of retirement consists of contributions paid into it and any investment return achieved. As a result, the level of income that can be can be secured with the fund is not guaranteed and will depend on the fund value at the date of retirement.
Someone who is financially dependent on or financially interdependent with a client, typically a partner. Providers often require proof such as a joint utility bill or mortgage/bank statement.
Cash Advances made to customers from the Cash Facility they have been granted.
Also known as Income Drawdown. A drawdown pension allows a client’s pension fund to remain invested, and lets them draw an income straight from the fund. Following Pension Freedoms, there are now two main types of Drawdown, “Capped” for policies in place prior to April 2015, and “Flexi-access” for plans purchased after April 2015.
A fee charged if a customer repays their lifetime mortgage early (before a repayment event).
An enhanced – or underwritten – annuity is one that a client’s lifestyle habits (such as smoking), medical history or postcode is taken into account when calculating the rate of income offered.
Equity release allows your client to access the money tied up in their home, while they still continue to live there. There are two main types of equity release: lifetime mortgage which are mortgages secured against the clients home; and home reversion plans, where the customer sells all or part of their property to a reversion company in exchange for money.
This describes the way in which the income from an annuity can increase each year. Your client may choose to have no increase (level) or to have their income increase each year, either at a fixed rate (say 3% per year) or in line with the change in a measure of inflation, such as the Retail Prices Index (RPI).
Cash advances made to lifetime mortgage customers in excess, or in addition to any cash facility they were originally granted.
The income from a guaranteed income for life solution (annuity) is payable for as long as a client lives. If they die soon after making the initial purchase they can ensure their beneficiaries continue to receive the full value of their income by including a guarantee period. This means that, if they die within that guarantee period, their income will continue to be paid for the remainder of that period. Clients can nominate anyone to receive the income from their guarantee.
An impaired life annuity is one that could potentially pay a higher income than other guaranteed income for life solutions where the client has a significantly lower life expectancy due to an existing medical condition. Medical conditions such as heart attacks, heart surgery or angina, life threatening cancers, major organ diseases and other life threatening illnesses such as Parkinson's disease and strokes may be considered.
Clients can choose whether their income payments from their guaranteed income for life solution start as soon as it has been set up (in advance) or at the end of their chosen payment frequency (in arrears).
The amount advanced to lifetime mortgage customers at inception.
An annuity that is linked to the performance of one or more investment fund(s). It means that the income payments may fluctuate in value, in line with the performance of the underlying funds. The income may have some guarantees attached to it so it's worth checking what these are and how these work. If investment returns are good, income payments may rise. If investment returns are poor, then income payments may fall, so this product needs to be reviewed in line with your client’s attitude to risk. Two types of investment linked annuity you may have heard of are the with-profits annuity and unit-linked annuity.
In the event of death, a client’s annuity income may continue to be paid to a surviving spouse, civil partner or any other beneficiary if they have selected a joint life annuity. If they choose for their annuity to be paid to a dependant, this person may be asked to prove that they are financially dependent on or financially interdependent with them.
This is a measure of inflation, calculated as the retail price index (RPI) but with additional limits. LPI has a cap in the growth of RPI of 2.5% or 5% each year and also a floor of 0%, which the measure will not fall under.
Applicable to lifetime mortgages, this is the maximum amount that can be advanced against your client’s property. It considers the age of the youngest applicant and the property value. And with our Lump Sum Plus product we can now use our expert underwriting capability to take into account health and medical conditions as well, which may help your client release even more money from their home.
Referred to as tax free lump sum, this is the sum that your client can withdraw from their pension fund tax free, up to 25% of the fund value.
Also known as the Pension Commencement Lump Sum, this is the amount (up to 25%) that your client can take from their pension fund as a lump sum tax free.
A client can choose to take a larger one off payment after any tax free lump sum has been taken. This option can be selected at outset when a Just annuity is purchased and will be taxable at marginal rate.
An Uncrystallised Fund Pension Lump Sum (UFPLS) is a lump sum withdrawn directly from a pension before being crystallised, for example, before any income has been drawn. 25% of the amount withdrawn is paid tax free, the remainder is taxable at the individual’s marginal rate of income tax.
Sometimes known as annuity protection or capital protection, value protection is an option on a guaranteed income for life solution that returns a lump sum to the policy holder’s beneficiaries if the policy holder were to die before receiving the full value of their pension fund as income. It excludes the total gross payments already made, giving the ability to protect up to 100% of the original pension fund.