Retirement Terms (A to Z)
A
An amount of money a client takes from any unused, pre-agreed Cash Facility after taking the Initial Advance.
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 received depends upon a number of factors including the size of their pension fund, age, personal, lifestyle and medical information, and the additional benefits that they choose to include in the contract. Just refer to an annuity as a Guaranteed Income for Life (GIfL). (There are some other annuities that can pay a guaranteed income for a specified amount of time, known as fixed-term annuities.)
An agreed interest rate that allows comparison by which other interest rates are assessed. A benchmark interest rate could be based on the Financial Times UK Gilts 15 Year Yield Index.
A fixed amount of money from which customers will take the initial advance and additional advances as they need up to the pre-agreed amount under a Lifetime Mortgage.
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, guaranteed and increases each year. 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 contributions into the pension fund. Under any defined contribution scheme, the value of the fund at the date of retirement depends on contributions paid, investment returns and charges. As a result, the level of income that can be secured with the fund is not guaranteed and will depend on the fund value at retirement.
Someone who is financially dependent on or financially interdependent with a client, typically a spouse, civil partner or children. Pension providers definition of a dependant can be broad and they may require proof of financial dependency.
A type of equity release that pays an initial advance and provides a pre-agreed cash facility from which a customer can take additional advances.
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 that may be charged if a customer repays some or all of their lifetime mortgage early (before a repayment event or the repayment period).
Older terminology dating to when annuities were either ‘standard rate’ (not taking into account any lifestyle or medical details when establishing the annuity rate), or ‘enhanced’ (personal, lifestyle and / or medical details taken into consideration when establishing the annuity rate). Now we refer to ‘individually underwritten annuities’ where all an individual’s details are taken into account when establishing the annuity rate.
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 loans 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).
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.
Older terminology describing a significant reduction in a client’s life expectancy due to a severe existing medical condition (or combination of conditions).
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 other financially dependant person, 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 in line with 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 medically underwritten option, we can use our expert underwriting capability to take into account health and medical conditions which may help your client release even more money from their home.
Referred to as tax-free lump sum, this is the amount that your client can withdraw from their pension fund tax-free, usually up to 25% of the fund value.
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 the recipients marginal rate of income tax.
Also known as the Pension Commencement Lump Sum, this is the amount that your client can withdraw from their pension fund tax-free, usually up to 25% of the fund value.
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 protects a chosen percentage of the annuity purchase price, so that when the annuitant dies, the protected amount, less any payments already made, is paid as lump sum to a beneficiary or beneficiaries. If a joint annuity is being set up, the lump sum can be selected to be paid on the death of the annuitant, or on the death of the last survivor (please check with your product provider as the options offered can vary) . When working out the value protection payment, all income payments already paid are taken into account. If at least the chosen percentage has already been received, no value protection payment is due.