Glossary

Annual Management Charge (AMC)

A charge taken from an investment on a yearly basis. This is typically a percentage between 0.5% and 2% of each fund.

Annuity

A purchased income. Typically purchased using a pension fund to provide an income throughout retirement.

Asset

Anything of material value or usefulness that is owned by a person or company.

Attitude to Risk

A profile of your situation, circumstances, previous experience in investing, wealth and other factors that determine what degree of risk should be associated to your investments.

Bank of England Base Rate

The interest rate that the Bank of England charges banks for secured overnight lending.

Basic State Pension

A government-administered pension, paying you an income on your retirement, based on the number of qualifying years gained through National Insurance contributions you have paid or been credited with throughout your working life.

See Basic Rate Pension tax table for current rate.

Benefits Package

The package an employer may offer an employee as well as their salary. For example, Private Medical Insurance may be a part of a company's benefits package.

Bridging Loan

An expensive temporary loan to tide you over when having to buy your new house before selling your old home.

Capital Gains Tax

The tax charged on the profit made when an asset is sold.

Car Benefit for Employees

Some employers provide a vehicle for an employee as part of their remuneration package. The employee is taxed based on the CO2 emissions of the vehicle.

Car Fuel Benefit Charge

A charge occurring when your employer pays for the fuel in your company car for private use.

Cash Individual Savings Accounts, (ISAs)

A saving product that earns tax-free interest. You can only invest a limited amount in each tax year.

Chain

This occurs when a seller needs the sale of their house to occur before they can complete the purchase of another property. The same situation may exist for others in the chain. As a result, the whole chain can collapse if one link breaks.

Chargeable Lifetime Transfer

Transfer of value to a discretionary trust, potentially subject to inheritance tax.

Chartered Financial Planner

The Chartered Financial Planner title is awarded on application after the completion of a set of advanced qualifications designed to signal to the public that the financial planners are highly qualified, reputable and can provide quality advice with the utmost integrity.

Completion

The point when legal contracts detailing the sale and purchase of the property have been exchanged and the relevant monies are released. At this point ownership legally passes to the buyer.

Compulsory Purchase Annuity

An income typically used to fund retirement, purchased using a pension fund from the provider that the pension fund was originally held with.

Conveyancing

Legal work involved in buying and selling a house.

Corporation Tax

The tax charged on companies' profits.

Current Value

The value of your plan and the underlying funds.

Disbursements

This is a payment or outlay. The term is often used during the purchase of a house when some expenses are paid by the solicitor/conveyancer on behalf of the purchaser.

Employee Share Scheme

Legislation and Tax regulations of an employee scheme to issue eligible employees with shares, whether they are bought or free.

Enhanced Rate/Impaired Life Annuity

When purchasing an annuity, if you have serious health problems or have suffered from conditions in the past, you may be entitled to an enhanced rate, increasing your income payments.

Equity Release

A way in which older people can benefit from the value of their home without having to move out – by borrowing on it or selling all or part of it for a regular income or a lump sum. The two types of equity release mortgage are lifetime mortgage and home reversion. See these headings for more details.

Exchange of Contracts

The point at which buyer and seller are legally bound to the sale and purchase of the property.

Family Income Benefit

A life insurance policy which provides an income rather than a lump sum upon claim. Typically used to provide an income to help support the raising of children. Policies will have a defined period for which the income will be paid.

Financial Planners

A person who looks at your financial situation and can offer advice in how best to plan for the future. This is another term for a financial adviser.

Fiscal Drag

A situation where wages increase at a faster rate over time than tax allowances, leading to a larger proportion of income being taxed.

FOS

Financial Ombudsman Service. The independent service for settling disputes between businesses providing financial services and their customers.

FSA

Financial Services Authority. The regulator of the financial services industry.

FSCS

Financial Services Compensation Scheme. The compensation fund of last resort for customers of authorised financial services firms. If a firm becomes insolvent or ceases trading the FSCS may be able to pay compensation to its customers.

FTSE

An index used to measure the performance of the UK stock market. Most commonly used is FTSE100 which is an index of the share price of the largest 100 UK listed firms.

Fund

A themed collection of shares that is managed by a fund manager. For example an emerging markets fund would be made up of shares from firms trading in developing countries.

Further Advance

The process of increasing your mortgage by borrowing more against the equity in your property.

Gross

Amount before tax adjustments.

Group Personal Pension (GPP)

A scheme set up by an employer for its employees that holds a group of personal pensions. Each pension is still an individual contract between you and the provider. A GPP with one employer can be moved to a GPP with a new employer or to an Individual Personal Pension.

Guaranteed Annuity Rate

A benefit written into a pension whereby a provider will guarantee a set rate for your annuity if you purchase it through them.

Home Reversion

Home reversion is the action of selling all or part your property to a bank but retaining the right to live in it. You will receive the funds from the sale and on death the property ownership passes to the bank.

Illustration

A personalised document issued for an investment contract before or as a policy commences. This outlines the details specific to your policy such as premium and term.

Income Drawdown/Pension Fund Withdrawal (PFW)

The alternative to purchasing an annuity with your pension fund. This is the method of keeping you pension fund invested but making regular withdrawals from it thus creating an income.

Income Protection

Insurance that pays you a monthly income if you are unable to work due to illness or injury, until you are able to return to work, or retirement age, whichever is the sooner. The benefit is normally based on a percentage of annual earnings.

Income Tax

A tax you pay on your income above a certain level.

Independent Financial Advisers (IFA)

Advisers who have no contractual ties with providers to sell their products. This allows them to recommend products from the whole of the market.

Inheritance Tax

A tax that is paid based on the value of your estate, in the event of your death on assets over a given value. The tax free allowance can change from one tax year to another.

Inheritance Tax planning

Arrangements put in place to minimise the inheritance tax bill on an individual's estate.

Insurance Broker

An agent that arranges the most suitable contracts of insurance on behalf of their customers.

Interest

A fee paid on borrowed assets. It is the price paid for the use of borrowing money, or equally money earned by depositing funds.

Investment Bond

An investment bond is a single premium life assurance policy for the purposes of investment. It requires you to invest your money in funds for a minimum term either for the purpose of long term growth or to pay an income. On death, the value of your investment is paid to your beneficiaries, plus typically an extra 1% of your fund value in life insurance.

Investment Individual Savings Account (ISA’s)

An investment product that earns tax-free interest and growth. There is a limit on the maximum annual contributions.

Key Employee

If in the event of an employee being unable to work, their employer would suffer a loss in income, then that employee would be classed as a key employee for the purposes of insurance.

Key Features Document

A document which must be issued to clients before or at the point of purchase. It summarises the key information about the plan.

Life assurance/insurance

A way to provide some financial security in the event of your death to the people who financially depend on you. There are different types, but the policy usually pays out a lump sum or an income when the insured person dies.

Lifetime Allowance (LTA)

The lifetime allowance applies to pension schemes. It is a limit, set by the Treasury, on the value of benefits a member can take without incurring a tax charge.

Lifetime Mortgage

Borrowing money against the value of your home where no monthly repayments are due. The interest accumulates for the duration of the mortgage and the total amount owed is paid back from your estate on the sale of your property after death.

Loan

A facility in which banks lend you money on the terms you pay them back over a set term. Interest is charged on loans. Loans can be secured against an asset to reduce the interest however; failure to meet your repayments could put you at risk of losing the asset.

Loan-to-Value

A percentage expressing size of mortgage: value of house. For example, House Value=£100,000, Mortgage Size=£90,000. Loan-to-Value=90%.

Market Value Reduction/Adjustment

A term associated with With-Profits funds. The provider is entitled to decrease the value of the investment in difficult market conditions to ensure a fair pay-out for all investors in the fund.

Mortgage

A loan to buy a property, which is secured against the property. Failure to pay the loan can result in your property being repossessed.

Mortgage Protection

An insurance contract that will pay your mortgage payments for a defined period (typically 12-18 months) if you are unable to work.

Mortgage Term

Period over which a mortgage is to be repaid.

Mortgage Valuation

A survey carried out by the lender to ensure that the house's value is not less than the proposed loan. Often the lender will arrange the survey and bill the buyer. This cannot be used as a structural survey.

Mortgagee

The lender of a mortgage.

Mortgagor

The house buyer who takes out a mortgage.

Multi-tied Financial Adviser

An adviser that can only offer advice on products from a limited range of providers, not the whole of the market.

National Insurance (NI) Contributions

Both employees and employers pay National Insurance Contributions in accordance with the employees. This mainly funds state benefits such as the state pension.

NEST

National Employment Savings Trust. A UK pension scheme that is due to come into force in October 2011. This scheme is aimed at encouraging more people in the UK to contribute to a pension. It is a scheme in which employers will either have to set up a NEST pension scheme or automatically enrol them on existing pension schemes. Eventually contributions of 3% of the employee's salary must be paid into the pension by employers.

Net

Amount after tax adjustments.

Occupational/Final Salary Scheme

A pension provided by an employer for their employees in which the value is determined by years of service and the salary that the employee was being paid upon retirement. Becoming uncommon outside the public sector.

Open Market Option

An annuity that is purchased from a separate provider to the one which you hold your pension fund with. For example, if your pension is invested with Company A, you can use these funds to purchase an annuity from Company B. This allows you to take advantage of the best annuity rate available.

Pension Commencement Lump Sum (PCLS) or Tax Free Cash (TFC)

PCLS was previously known as TFC. This is the lump sum that can be taken tax free from your pension fund upon retirement, equating to a maximum of 25% of the overall value of your pension.

Pension Switch

The movement of funds from one personal pension to another, typically from one provider to another, in order to take advantage of lower charges or other favourable conditions.

Pension Transfer

The movement of funds from an occupational scheme to a personal pension.

Personal Pensions

A UK tax-efficient individual investment, with the primary purpose of building a capital sum to provide retirement benefits, although it may also be used to provide death benefits.

Portfolio

Your portfolio is made up of all of your investments and assets.

Potentially Exempt Transfer (PET)

A gift of value to another which could be subject to inheritance tax on chargeable transfers or within seven years of death.

Private Medical Insurance

An insurance that in the event of needing medical care will pay for you to be treated privately.

Projection of Benefits

An estimate from your pension provider of what your pension value will be at your retirement date.

Re-mortgage

The renewal of your mortgage. The terms such as interest rate and duration will often change and if a better deal is available with another provider then the mortgage can be moved.

Repossession

When the mortgage lender takes away your home because you have fallen too far behind on your mortgage repayments.

Retirement Planning

Putting provisions in place so when you decide to stop work at retirement you will have enough funds to maintain a good standard of living.

Self-Invested Personal Pension (SIPP)

A type of personal pension which allows investment into a greater range of assets in comparison to other personal pensions. However this type of plan will usually come with higher charges as a result.

Solicitor

Legal professional who advises clients on matters of law, draws up legal documents and prepares cases for barristers. In the specific case of a house purchase/sale, the buyer and vendor will each instruct a solicitor to act on their behalf. They will check the legal position of the house, carry out a Local Authority Search, Land Registry and oversee the exchange of contracts between the two parties.

Stakeholder

A type of personal pension that has to meet certain standards set by the government. Namely the annual management charges cannot be above 1.5% and there is no minimum premium.

Stamp Duty

A government tax on the purchase of a home.

State Second Pension (S2P)

A state benefit aiming to provide a more generous state pension provision for workers as well as those unable to work, such as carers and the long term disabled. It replaced the State Earnings-Related Pension Scheme (SERPS) in 2002 which was less advantageous to those who are unable to work.

Surrender Value

The value that would be received from an investment if the policy was terminated. This may differ from the current value for various reasons.

Surveyor

A qualified professional who carries out a survey of the property, examining the structure and general state of the house. When seeking a Surveyor it is advisable to seek a member of the Royal Institute of Chartered Surveyors (RICS).

Term Assurance

Life insurance paying a lump sum in the event of the policyholder's death. The policyholder is only covered for a specific term. The sum available on death can rise, decrease or stay level throughout the term, dependent on requirements.

Tied Adviser

An adviser that is employed by a bank or insurance company that can only offer advice on their own company's products.

Transfer Value

The value you would receive if you transferred or switched your pension to another provider. This may differ from the current value for various reasons.

Treating Customers Fairly (TCF)

An FSA principle that all financial services companies should be adopting to ensure their customers are treated fairly.

Trust

Something (as property) held by one party (the trustee) for the benefit of another (the beneficiary). Trusts can be written in many ways with differing terms and options.

Value Added Tax

A form of consumption tax, added to the majority of products sold in the UK.

Whole of Life

A life insurance policy paying a regular premium with no expiration date. The policy provides a lump sum on death. When the policyholder dies, his/her beneficiaries receive the lump sum. Traditional whole life policies also include a cash surrender value, allowing the policyholder to recover part of the premium he/she has invested in the policy should he/she ever decide to cancel the policy.

Whole of Market

An adviser/firm of advisers with the ability to provide financial advice across all available products and providers, sourcing the most suitable for the client's needs

With-Profits

A type of pooled investment that typically offers some form of life insurance. They are typically structured through the collection of regular premiums and then pay out a lump sum. The final value is reliant on bonuses and penalties that the plan has incurred. There can be penalties for early withdrawals.