Additional Voluntary Contributions
Contributions over and above a member’s normal contributions into an occupational pension scheme (if any) which a member elects to pay in order to secure additional benefits.
Contracted out
This refers to a statutory arrangement under which pension schemes that meet certain conditions may contract out of the second state pension (S2P), formerly the state earnings related pension (SERPS), and the members and employers pay lower National Insurance contributions. Members of a contracted out pension scheme obtain rights in the pension scheme in place of additional earnings - related benefits under the state scheme.
Contracted out mixed benefit scheme (COMBS)
An occupational pension scheme which has separate defined benefit and money purchase sections and which contracts out on both bases.
Contracted out money purchase scheme (COMPS)
An occupational pension scheme that is contracted out on a money purchase basis i.e. where the employer pays minimum payments towards protected rights.
Contracted out salary related scheme (COSRS)
An occupational pension scheme that is contracted out on a salary related basis i.e. by providing benefits which are broadly equivalent to or better than a minimum standard.
Contracted out stakeholder pension (CO-ShP)
A stakeholder scheme that is also contracted out.
Contribution
Payments into a pension scheme from members or employers.
Defined benefit (DB)
A pension scheme in which the rules specify the benefits to be paid – also known as a salary related scheme - some based on final salary, some based on average salary.
Defined contribution (DC)
A pension scheme in which the benefits are determined by the contributions paid into the scheme and the investment return on those contributions – also known as a money purchase scheme.
Free standing additional voluntary contributions (FSAVC)
Contributions to a pension contract separate from an occupational pension scheme effected by an active member of that scheme. Benefits are secured with a pension provider by contributions from the member only.
Funded
A scheme in which benefits are met from a fund built up in advance from contributions and investment income.
Group Personal Pensions
An arrangement made for the employees of a particular employer to participate in a personal pensions scheme on a group basis. This is not a separate pensions scheme, but merely a collecting arrangement.
Hybrid scheme
A pension scheme with elements of both defined contribution and defined benefit, e.g. pensions set as the better of a final salary and a money purchase basis.
Insured scheme
A scheme for which the retirement benefits are secured by insurance policies and which is administered by the insurance company.
Minimum contribution/ National Insurance Rebate
Contributions payable to a contracted out personal pension scheme from the National Insurance Fund in respect of a member who has elected to contract out.
Minimum funding requirement (MFR)
A requirement under Section 56 of the Pensions Act 1995 that, under a prescribed set of actuarial assumptions, the actuarial value of assets of a defined benefit scheme should not be less than its actuarial liabilities.
Non-state pension
A pension other than the state basic retirement or earnings related pension, sometimes referred to as a private pension. Includes all occupational and personal pensions, including those for public sector employees.
Not approved
An occupational pension scheme which is not designed for approval by the Inland Revenue.
Notional fund
A device used to calculate required contribution rates in unfunded schemes by assuming those contributions are used to purchase investment assets.
Occupational pension scheme
An arrangement (other than accident or Permanent Health Insurance) organised by an employer (or on behalf of a group of employers) to provide benefits for employees on their retirement and for their dependants on their death.
Pension fund
Strictly speaking the assets of a pension scheme but very often used to denote the pension scheme itself.
Pension scheme
An occupational pension scheme, a personal pension scheme or an FSAVC scheme.
Personal pension scheme
An arrangement under which individuals who are self-employed or in employment but not in an occupational scheme make pension provision, usually by means of investment products offered by a financial institution.
Private sector
Employees not in the public sector of the economy as defined for national accounts purposes. Includes some largely independent non-profit making bodies such as the universities.
Public sector
Employees in the central government, local authority and public corporation sectors of the economy as defined for national accounts purposes.
State Second Pension (S2P)
The additional pension provisions of the state pension scheme, linked to earnings and National Insurance contributions during the working life. Replaced the State Earnings Related Pension Scheme (SERPS) in April 2002.
Self administered pension scheme
A pension scheme in which the assets are invested by the trustees or an internal or external investment manager, rather than through an insurance contract with an insurance company.
Stakeholder pension
A type of defined contribution scheme introduced in April 2001. Stakeholder schemes must satisfy CAT (conditions, access and terms) standards. Employers who do not provide an occupational scheme and are not otherwise exempt must offer their employees access to a stakeholder scheme.
Tax approved
Commonly used to mean a scheme approved by the Inland Revenue.
Tax Relief
Reductions in taxation in respect of pension contributions. For approved occupational pension schemes, tax relief is given at source; i.e. contributions are deducted from the member’s pay before earnings are calculated for tax. For personal pensions, contributions are paid net of the basic rate of tax. Pension providers recover tax at the basic rate from the Inland Revenue with the contributor recovering any higher rate tax through their self-assessment return.
Transfer
A payment made from one pension scheme to another, in lieu of benefits which have accrued to a transferring member, to enable the receiving scheme to provide alternative benefits.
Unfunded
A scheme in which no fund is built up to provide in advance for pensions and other benefits. Such schemes may nevertheless charge employer and employee contributions which help finance on-going pension payments. Sometimes these contributions are set of the basis of a notional fund.
Notes
This glossary is that used in the review of ONS Pension Contributions Statistics. It is based largely on the glossaries published by the Pensions Management Institute (Pensions Terminology, 6 th edition 2002) and GAD (1995 Survey of Occupational Pension Schemes).
This page last revised: Wednesday, 20 October 2004
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