Plain English explanations of the words and terms you will meet in the world of pensions
Figures and rules for the 2026-27 tax year
by Doug Brodie
[1] About this dictionary
How to use this dictionary: every letter in the A to Z index is a link, so click a letter to jump straight to its section, and click "back to the A to Z index" at the end of each section to return.
Pensions come wrapped in more jargon than almost any other part of personal finance, and most of us were never taught what half of it means, so this dictionary sets out to explain, in plain English, the words and phrases you are likely to meet in letters from your pension scheme, in conversations with your adviser, in the newspapers and on government websites.
The terms are arranged alphabetically, and each one is written so that it makes sense on its own, although where one idea leans on another we point you to the related entry with the words "see also". We cover workplace pensions, personal pensions, final salary schemes, the State Pension, annuities, drawdown, tax, inheritance and the rules that protect you, because in real life these things overlap and a single decision often touches several of them at once.
Figures and rules are given for the 2026-27 tax year, which runs from 6 April 2026 to 5 April 2027, and they apply to England, Wales and Northern Ireland unless we say otherwise. Scotland sets its own income tax rates and bands, although the pension allowances themselves are the same across the whole of the UK.
Pension rules change often, and several important changes are already on their way, including inheritance tax on unused pensions from April 2027 and a rise in the earliest age you can take a private pension from April 2028. We have flagged these where they matter, but please treat this dictionary as general information rather than personal advice, and check the current position with us before acting on anything.
[2] A to Z index
Browse the dictionary A–Z. Select a letter or number to jump to that section.
[3] Key figures for 2026-27 at a glance
These are the numbers that come up most often in pension conversations, and many of them are referred to in the entries that follow. They apply to the tax year from 6 April 2026 to 5 April 2027.
| What it is | Figure for 2026-27 | Where to read more |
|---|---|---|
| Full new State Pension | £241.30 a week, or £12,547.60 a year (£241.30 × 52) | New State Pension |
| Full basic State Pension (for those who reached State Pension age before 6 April 2016) | £184.90 a week, or £9,614.80 a year (£184.90 × 52) | Basic State Pension |
| Full new State Pension from April 2027 | £250.70 a week, a rise of 3.9% | Triple lock |
| Pension Credit standard minimum guarantee | £238.00 a week single, £363.25 a week for a couple | Pension Credit |
| Personal Allowance | £12,570, frozen until April 2031 | Personal Allowance |
| Annual Allowance | £60,000 | Annual Allowance |
| Money Purchase Annual Allowance | £10,000 | Money Purchase Annual Allowance |
| Tapered Annual Allowance | Starts above £260,000 adjusted income, falling to a minimum of £10,000 | Tapered Annual Allowance |
| Lump Sum Allowance (maximum tax-free cash for most people) | £268,275 | Lump Sum Allowance |
| Lump Sum and Death Benefit Allowance | £1,073,100 | Lump Sum and Death Benefit Allowance |
| Overseas Transfer Allowance | £1,073,100 | Overseas Transfer Allowance |
| Normal minimum pension age | 55, rising to 57 from 6 April 2028 | Normal minimum pension age |
| State Pension age | 66, rising to 67 for people born on or after 6 April 1960, phased in between 2026 and 2028 | State Pension age |
| Auto-enrolment earnings trigger | £10,000 a year | Auto-enrolment |
| Qualifying earnings band | £6,240 to £50,270 | Qualifying earnings |
| Minimum auto-enrolment contribution | 8% of qualifying earnings, of which at least 3% from the employer | Auto-enrolment |
| Small pot lump sum | Up to £10,000 per pot, a maximum of three non-workplace pots in a lifetime | Small pots |
| Trivial commutation limit (final salary benefits) | £30,000 | Trivial commutation |
| Maximum gross contribution with no earnings | £3,600 a year (£2,880 paid in, plus £720 tax relief) | Relief at source |
The Personal Allowance and the full new State Pension are now very close together. In 2026-27 the full new State Pension of £12,547.60 sits just £22.40 below the £12,570 Personal Allowance (£12,570 minus £12,547.60), and from April 2027 the full new State Pension of £13,036.40 a year (£250.70 x 52) will be £466.40 above it (£13,036.40 minus £12,570), which means that anyone on the full new rate with no other income will have a small amount of tax to pay from that point.
The Scottish income tax bands differ from those in the rest of the UK, so a Scottish taxpayer will see different figures for tax relief and tax on pension income, although the allowances listed above apply everywhere in the UK.
[4] The dictionary
A
Accrual rate: In a final salary or career average scheme, this is the fraction of your pay that you earn as pension for each year you are a member. A scheme with an accrual rate of one sixtieth, for example, gives you one sixtieth of your pensionable salary for every year of membership, so 30 years would give you thirty sixtieths, which is half your salary. See also Defined benefit.
Accumulation: The years during which you build up your pension by paying in and letting the money grow, as opposed to decumulation, which is the stage when you start drawing from it.
Active member: Someone who is still building up benefits in a workplace scheme, usually because they still work for the employer and are still paying in. Once you leave, you become a deferred member.
Added years: An option offered by some public sector and older final salary schemes that let members pay extra to buy additional years of service, which increases the pension the scheme will eventually pay. Most schemes have now replaced it with other ways of topping up.
Additional State Pension: The earnings-related top-up to the basic State Pension that existed before April 2016. It was known as SERPS from 1978 to 2002 and as the State Second Pension (S2P) from 2002 to 2016. If you reached State Pension age before 6 April 2016 you may receive it on top of your basic State Pension, and if you reached it later, any amount you had built up was taken into account in your starting amount for the new State Pension. See also Protected payment.
Additional voluntary contributions (AVCs): Extra payments you choose to make on top of your normal contributions to a workplace pension. In a final salary scheme the AVCs usually go into a separate pot invested on your behalf, and in many schemes you can take that pot as part of your tax-free cash. Free-standing AVCs (FSAVCs) were a similar arrangement held with an insurer outside the employer's scheme.
Adjusted income: A measure used to work out whether the tapered annual allowance applies to you. Broadly, it is your total taxable income plus pension contributions made by you and your employer. See also Tapered Annual Allowance and Threshold income.
Adviser charge: The fee you agree to pay a regulated financial adviser for advice, which may be paid directly or taken from your pension or investments. Since 2013 advisers have not been allowed to take commission on new investment advice, so the charge must be agreed with you openly in advance. See also Ongoing advice charge.
Annual Allowance: The maximum amount that can be paid into all your pensions in a tax year while still getting tax relief, currently £60,000 for most people. Contributions from you, your employer and anyone else all count, and for a final salary scheme it is the increase in the value of your benefits that counts. If you go over it, you may face a tax charge, although you may be able to use carry forward. See also Money Purchase Annual Allowance and Tapered Annual Allowance.
Annual Allowance charge: The tax charge that applies if your pension savings in a year go over your available annual allowance. It is charged at your marginal rate of income tax on the excess, and if the charge is more than £2,000 you can usually ask your scheme to pay it from your pension, which is known as Scheme Pays.
Annual management charge (AMC): A yearly charge for running a pension or fund, expressed as a percentage of the value. It is now more common to see the ongoing charges figure (OCF) for funds and a separate platform or product charge for the wrapper, and the total of all of these is what really matters.
Annual statement: The yearly statement your pension provider sends showing the value of your pot, contributions made and charges taken. For money purchase pensions it will usually include an illustration of the income you might receive in retirement, known as a Statutory Money Purchase Illustration (SMPI).
Annuity: A contract you buy from an insurance company, usually with some or all of your pension pot, that pays you a guaranteed income for the rest of your life or for a fixed period. Once bought, a lifetime annuity normally cannot be cashed in or changed, so the options you choose at the start matter a great deal. The main choices are explained under the entries that follow.
Annuity rate: The income an insurer offers in return for your pension pot, usually shown as an annual income per £100,000 or as a percentage. A rate of 7%, for example, means £7,000 a year for every £100,000 used (£100,000 x 7%). Rates depend on your age, health, where you live, the options you choose and the level of interest rates and gilt yields at the time.
Annuity, enhanced or impaired life: An annuity that pays a higher income because your health or lifestyle (for example, smoking, high blood pressure, diabetes or a serious illness) suggests a shorter life expectancy. A surprising number of people qualify, so it is always worth disclosing your health fully when getting quotes.
Annuity, escalating or increasing: An annuity whose income rises each year, either by a fixed percentage such as 3% or in line with inflation (often the Retail Prices Index or Consumer Prices Index, sometimes with a cap). The starting income is lower than a level annuity, but it helps protect your spending power over a long retirement.
Annuity, fixed-term: An annuity that pays an income for a set number of years, often five or ten, and may return a guaranteed sum at the end, which you can then use to buy another product. It offers certainty for a period while keeping options open for later.
Annuity, guaranteed period: An option that ensures the annuity carries on paying for a minimum period, such as five or ten years, even if you die before the end of it. The remaining payments go to your beneficiaries.
Annuity, joint life: An annuity that continues to pay an income, usually at a chosen percentage such as 50% or 100%, to your spouse or partner after you die. It costs more than a single life annuity because the insurer may be paying out for longer.
Annuity, level: An annuity whose income stays the same every year. It gives the highest starting income but loses buying power over time as prices rise, so at 3% inflation a level income of £10,000 would buy roughly what £7,400 buys today after ten years (£10,000 divided by 1.03 to the power of 10, which is about 1.344).
Annuity, value protection: An option that pays a lump sum to your beneficiaries if you die before the annuity has paid out a chosen amount, usually the purchase price, minus the income already received.
Annuity, purchased life: An annuity bought with your own money rather than with a pension pot. Part of each payment is treated as a return of your capital and is tax-free, so it is taxed differently from a pension annuity.
Asset allocation: How your money is divided between different types of investment, such as shares, bonds, property and cash. It has a large effect on both the growth and the ups and downs of your pension.
Attendance Allowance: A tax-free benefit for people over State Pension age who need help with personal care because of an illness or disability. It is not means-tested, so your savings and pension income do not affect it, and it can also increase the amount of Pension Credit you may receive.
Authorised payment: A payment from a registered pension scheme that is allowed under the tax rules, such as a pension income, a tax-free lump sum or a death benefit. A payment outside these rules is an unauthorised payment and can attract tax charges of up to 55%.
Auto-enrolment: The legal duty on employers to put eligible workers into a workplace pension and pay into it. You are automatically enrolled if you are aged at least 22 and under State Pension age and earn more than £10,000 a year. The minimum total contribution is 8% of your qualifying earnings, with at least 3% from the employer. You can opt out, but you will lose the employer's contribution if you do. See also Qualifying earnings and Opting out.
Average salary scheme: See Career average revalued earnings (CARE).
B
Basic rate tax: The 20% rate of income tax that applies in 2026-27 to taxable income between £12,571 and £50,270 in England, Wales and Northern Ireland. Pension contributions made to a personal pension receive basic rate tax relief automatically. Scotland has different bands.
Basic State Pension: The flat-rate State Pension paid to people who reached State Pension age before 6 April 2016. The full rate in 2026-27 is £184.90 a week, and you needed 30 qualifying years of National Insurance to get it in full. See also New State Pension.
Beneficiary: A person who receives money or benefits from your pension when you die. You can tell your scheme whom you would like to benefit by completing an expression of wish form.
Beneficiary drawdown: A drawdown arrangement set up for someone who has inherited a pension pot, allowing them to leave the money invested and take income as and when they need it. If the original member died before 75, payments have generally been tax-free, and if they died at 75 or over, payments are taxed as the beneficiary's income. Inheritance tax may also apply to unused pensions from 6 April 2027. See also Inheritance tax on pensions.
Benefit crystallisation event (BCE): A term from the lifetime allowance rules that described the moments when your pension was tested against the allowance, such as taking benefits or reaching 75. BCEs were abolished from 6 April 2024 along with the lifetime allowance, but you may still see the term on older paperwork.
Bereavement Support Payment: A State benefit paid to a surviving spouse or civil partner under State Pension age whose partner paid National Insurance contributions. It is paid as a lump sum and then monthly instalments for 18 months.
Bonds: Loans to governments or companies that pay a fixed or index-linked rate of interest and return your capital at a set date, unless the issuer defaults. Government bonds in the UK are called gilts, and company bonds are called corporate bonds. Bonds are usually less volatile than shares and are widely used to produce income in retirement. See also Gilts.
Bridging pension: An extra amount paid by some final salary schemes, especially public sector schemes, from early retirement until State Pension age to help fill the gap before the State Pension starts. It usually stops or reduces at State Pension age.
Buy-in: When the trustees of a final salary scheme buy an insurance policy that covers the pensions of some or all of its members, while the scheme itself remains responsible for paying them. Members usually notice no difference in what they receive.
Buy-out: When the trustees of a final salary scheme transfer the scheme's obligations to an insurer, which then issues individual annuity policies to each member. The scheme normally winds up afterwards and members are paid by the insurer.
Buy-out bond: See Section 32 policy.
C
Capped drawdown: An older form of drawdown, closed to new arrangements since 6 April 2015, where the income you can take each year is limited to 150% of a figure set by the Government Actuary's Department (GAD). People who already had capped drawdown can keep it, and taking income within the limit does not trigger the Money Purchase Annual Allowance. Going over the limit converts it to flexi-access drawdown.
Career average revalued earnings (CARE): A type of defined benefit scheme where each year you earn a slice of pension based on that year's pay, and each slice is then increased (revalued) every year until you retire. Most public sector schemes, including those for the NHS, teachers and civil servants, now work this way.
Carry forward: A rule that lets you use unused annual allowance from the previous three tax years, provided you were a member of a registered pension scheme in those years. You must use the current year's allowance first, and personal contributions still cannot exceed your relevant UK earnings for the year if you want tax relief on them.
Cash equivalent transfer value (CETV): The amount a final salary scheme will pay to another pension if you transfer out. It is a calculation of what the scheme thinks your future pension is worth today. If the value of your safeguarded benefits is over £30,000, the law requires you to take advice from a specialist pension transfer adviser before transferring.
Cash fund: An investment fund that holds cash and very short-term deposits. It is low risk in terms of day-to-day ups and downs, but over long periods it often fails to keep pace with inflation.
Cashflow modelling: A planning tool that projects your income, spending and assets year by year into the future so that you can see whether your money is likely to last and what happens under different assumptions. It is only as good as the assumptions put into it, so it should be treated as a guide rather than a forecast.
Charge cap: The legal limit of 0.75% a year on the charges in the default fund of a workplace pension used for auto-enrolment. It does not apply to funds you choose yourself or to personal pensions you set up independently.
Collective defined contribution (CDC): A newer type of scheme where the contributions of members and the employer are pooled and invested together to provide a target pension income, rather than an individual pot. The income is not guaranteed and can be adjusted up or down, but the pooling of risk aims to give more stable and higher outcomes than an individual pot. Royal Mail introduced the first UK CDC scheme in 2024.
Commutation: Giving up some of your pension income in exchange for a tax-free lump sum, which is the usual way final salary schemes provide tax-free cash. See also Commutation factor.
Commutation factor: The rate at which a final salary scheme converts pension into lump sum. A factor of 12, for example, means you receive £12 of lump sum for every £1 a year of pension you give up, so giving up £1,000 a year of pension would give a lump sum of £12,000 (£1,000 x 12). Factors are often poor value compared with the income you lose, which is why this decision deserves careful thought.
Consumer Duty: The Financial Conduct Authority's rules, in force since July 2023, that require firms to act to deliver good outcomes for retail customers. They cover products and services, price and value, customer understanding and customer support.
Consumer Prices Index (CPI): The official measure of inflation most widely used in the UK today. It is used to increase many pensions in payment, public sector pensions and State benefits, and it is one of the three measures in the triple lock.
Contracting out: Before April 2016, members of many workplace schemes were contracted out of the Additional State Pension, which meant they and their employer paid lower National Insurance contributions and the workplace scheme provided a pension in its place. People who were contracted out usually have a lower starting amount under the new State Pension. See also Guaranteed minimum pension.
Contributions: Money paid into a pension, whether by you, your employer or a third party such as a family member. Personal contributions receive tax relief, and employer contributions are usually free of both tax and National Insurance.
Corporate bond: A loan to a company that pays interest. It usually pays more than a government bond to reflect the greater risk that the company may not repay. See also Bonds.
Critical yield: The investment return a pension would need to achieve, after charges, to match the benefits being given up, typically used when comparing a final salary transfer with staying in the scheme. It has largely been replaced by the FCA's Appropriate Pension Transfer Analysis, but the idea is still useful.
Crystallised and uncrystallised: Pension money is uncrystallised before you have taken any benefits from it, and crystallised once it has been used to provide benefits, such as moving into drawdown or buying an annuity. The distinction matters for tax-free cash and death benefits.
D
Dashboard (pensions dashboards): A government-led online service that will let you see all your pensions, including the State Pension, in one place. Schemes have been connecting in stages under a legal timetable running up to October 2026, but the date when the public can use the service has yet to be announced, so this should be double checked for the current position.
Death benefits: The money paid from a pension when a member dies, such as a lump sum, a dependant's pension or an inherited pot. How much is paid and how it is taxed depends on the type of pension, your age at death and, from 6 April 2027, on inheritance tax rules too.
Death in service: A lump sum, often a multiple of salary such as four times, paid by an employer's scheme if an employee dies while still employed. Death in service benefits will be excluded from the new inheritance tax rules on pensions from April 2027.
Decumulation: The stage of life when you draw on your pension to provide an income, rather than paying into it.
Default fund: The investment fund your money goes into if you do not make a choice. In workplace pensions this is designed to suit most members, but it may not be right for someone approaching retirement who intends to take an income rather than buy an annuity.
Deferral of the State Pension: Choosing to delay claiming your State Pension in return for a higher income later. Under the new State Pension, your pension increases by 1% for every nine weeks you defer, which is just under 5.8% for each full year (52 weeks divided by 9, multiplied by 1%). The extra amount is taxable and is not usually increased by the triple lock.
Deferred member: Someone who has left a workplace scheme but still has benefits in it that will be paid in the future. In a final salary scheme, deferred benefits are normally increased each year until they are paid.
Defined benefit (DB): A pension that promises an income based on your salary and years of service, rather than on how investments perform. It includes final salary and career average schemes. The employer carries the investment risk, and the income is usually increased each year and continues in part to a spouse after your death.
Defined contribution (DC): A pension where you build up a pot of money from contributions and investment growth, and the amount you end up with depends on what was paid in, how the investments performed and the charges taken. Also called a money purchase pension. Most personal pensions and modern workplace pensions are of this type.
Dependant: Someone who can receive a dependant's pension when you die. This usually means a spouse or civil partner, a child under 23, or someone financially dependent on you. See also Nominee and Successor.
De-risking: Moving investments into less volatile assets as you approach retirement. See also Lifestyling.
Discretionary trust: In the pension context, most schemes pay death benefits at the discretion of the trustees or scheme administrator, guided by your expression of wish. This has kept death benefits outside the member's estate for inheritance tax, although from April 2027 most unused pension funds will be brought into the estate. See also Inheritance tax on pensions.
Diversification: Spreading your money across different investments, sectors and regions so that a problem with one does not do too much damage to the whole.
Dividend: A share of a company's profits paid to its shareholders, usually twice a year or quarterly. Dividends from a portfolio of shares or investment trusts are a key source of natural income. See also Natural income.
Dividend yield: The annual dividend paid by an investment shown as a percentage of its price. A share priced at £10 paying 40p a year has a dividend yield of 4% (40p divided by £10).
Drawdown (flexi-access drawdown): A way of taking income from a pension pot while leaving the rest invested. You can usually take up to 25% tax-free when you move money into drawdown, and you then take taxable income as and when you choose. Your income is not guaranteed and the pot can run out if you take too much or investments fall, so it needs ongoing care. Taking any taxable income from it triggers the Money Purchase Annual Allowance.
E
Early retirement: Taking your pension before the scheme's normal pension age. In a final salary scheme this usually means the pension is reduced to reflect the fact that it will be paid for longer, often by something in the region of 4% to 6% for each year it is taken early, although each scheme sets its own terms, so the exact figure should always be checked. You cannot normally take a private pension before the normal minimum pension age unless you are in serious ill health or have a protected pension age.
Emergency tax: When you take your first taxable payment from a flexible pension, the provider often has no up-to-date tax code and will tax it on a temporary "month 1" basis, which assumes you will receive the same amount every month. The result is usually too much tax. You can reclaim it from HMRC using form P55 if you have not emptied the pot, P53Z if you have emptied it and have other income, or P50Z if you have emptied it and have no other income, or you can wait for HMRC to put it right at the end of the tax year.
Employer contributions: Money your employer pays into your pension. These are not taxed as a benefit in kind and attract no National Insurance, which makes them one of the most valuable parts of a pay package.
Enhanced protection: A form of protection from the old lifetime allowance, available in 2006, that allowed people with large pensions to avoid the lifetime allowance charge entirely. Since the allowance was abolished, it can still entitle the holder to a higher tax-free lump sum than the standard Lump Sum Allowance.
Equities: Another word for shares, which are part-ownership of a company. Over long periods equities have historically delivered higher returns than bonds or cash, but with greater ups and downs along the way.
ESG or responsible investing: Investing that takes environmental, social and governance factors into account, for example by avoiding certain industries or favouring companies with good practices. You can ask your provider or adviser whether such funds are available within your pension.
Executive pension plan (EPP): A type of individual workplace pension, usually set up for a company director or senior employee, largely replaced today by SIPPs and small self-administered schemes.
Expression of wish: A form, sometimes called a nomination form, telling your scheme whom you would like to receive your pension when you die. It is not legally binding on the trustees, but they will normally follow it, so it is important to keep it up to date after marriage, divorce, a death in the family or the birth of grandchildren. It sits outside your will, which does not control your pension.
F
Final salary scheme: A defined benefit scheme where your pension is based on your salary at or near retirement and the number of years you were a member. For example, a scheme with an accrual rate of one sixtieth would give someone with 30 years' service and a final salary of £45,000 a pension of £22,500 a year (£45,000 x 30 divided by 60).
Financial Assistance Scheme (FAS): A government scheme that helps members of certain final salary schemes that wound up underfunded between 1997 and 2005, before the Pension Protection Fund existed.
Financial Conduct Authority (FCA): The UK regulator responsible for financial advice firms, personal pensions, SIPPs, annuity providers and investment firms. It sets the rules on how advisers must treat customers and decides who is authorised to give advice. You can check that a firm is authorised on the FCA register.
Financial Ombudsman Service (FOS): A free and independent service that settles complaints between consumers and financial firms. You normally need to complain to the firm first and give it eight weeks to respond before going to the ombudsman. The maximum award it can make is reviewed every April. See also Pensions Ombudsman.
Financial Services Compensation Scheme (FSCS): The UK's safety net if a regulated financial firm goes out of business owing you money. For pensions and investments the usual limit is £85,000 per person per failed firm, annuities from UK insurers are generally protected in full, and cash deposits are protected up to £120,000 per person per banking licence from 1 December 2025. You may wish to verify which limit applies to your own arrangements, as it depends on the type of product and the firm that has failed.
Fixed protection: A form of protection from the old lifetime allowance, available in 2012, 2014 and 2016 versions, that locked in a higher lifetime allowance in return for stopping contributions. Since the allowance was abolished in April 2024, holders keep entitlement to a higher tax-free lump sum based on their protected amount. See also Individual protection.
Flexible retirement: Gradually winding down work while starting to take some pension. Many schemes, including several public sector schemes, allow this, and it can be a gentle way to adjust to retirement.
Fund: A pooled investment, such as a unit trust, open-ended investment company (OEIC) or investment trust, that combines money from many investors and invests it in line with a stated aim.
G
Gilts: Bonds issued by the UK government. Conventional gilts pay a fixed amount of interest twice a year and return a fixed amount at maturity, while index-linked gilts pay interest and capital that rise with inflation. Gilts can be bought directly and held until they mature, which gives a very high degree of certainty. See also Index-linked gilts.
Gilt yield: The return you would receive from holding a gilt to maturity at its current price. Gilt yields strongly influence annuity rates and the transfer values offered by final salary schemes, so when yields rise, annuity rates usually rise and transfer values usually fall.
Government Actuary's Department (GAD): The government's actuaries, who among other things publish the tables used to set the maximum income from capped drawdown.
Gross and net: Gross means before tax and charges are taken, and net means after. A personal pension contribution of £800 net, for example, becomes £1,000 gross once basic rate tax relief of £200 is added (£800 divided by 0.8).
Group personal pension (GPP): A workplace pension made up of individual personal pensions arranged by the employer with a single provider. Each member owns their own plan and can take it with them if they leave.
Guaranteed annuity rate (GAR): A promise, found in some older personal pensions and retirement annuity contracts, to convert your pot into an annuity at a set rate, often much better than anything available on the open market today. A GAR can be very valuable and is easily lost by transferring, so it should always be checked before moving an old plan.
Guaranteed minimum pension (GMP): The minimum pension a final salary scheme had to provide for service between 1978 and 1997 if it was contracted out of the State earnings-related pension. GMP has its own rules on increases, and schemes have recently been carrying out GMP equalisation to correct differences in how men and women were treated, which may lead to small adjustments in your pension.
Guidance: Free, impartial help that explains your options but does not recommend what you should do, such as that provided by Pension Wise and MoneyHelper. Guidance is different from regulated advice, which recommends a course of action based on your circumstances. See also Pension Wise.
Guided retirement: A new requirement under the Pension Schemes Act 2026 for workplace defined contribution schemes to offer members one or more default ways of turning their pot into a regular retirement income. The details are being set out in regulations, which are expected to apply first to master trusts from 2027 and to other schemes from 2028.
H
Higher rate and additional rate tax: In 2026-27, in England, Wales and Northern Ireland, income between £50,271 and £125,140 is taxed at the higher rate of 40%, and income above £125,140 at the additional rate of 45%. Higher and additional rate taxpayers can claim extra tax relief on personal pension contributions through their self assessment tax return. Pension income in retirement is taxed at these same rates, so large one-off withdrawals can easily push you into a higher band.
Home Responsibilities Protection (HRP): A scheme that ran from 1978 to 2010 to protect the State Pension of people, mostly women, who stayed at home to care for children or a sick or disabled person. From 2010 it was converted into National Insurance credits, and some people have found it missing from their records, so it is worth checking your State Pension forecast if this may apply to you.
I
Ill health retirement: Taking your pension early because poor health stops you working. Many final salary schemes pay an unreduced or enhanced pension in these circumstances, and you can take private pensions before the normal minimum pension age if you meet the ill health conditions. If your life expectancy is less than a year, you may be able to take the whole pot as a serious ill health lump sum.
Income drawdown: See Drawdown.
Income tax on pensions: Pension income, including the State Pension, annuity payments and taxable drawdown withdrawals, is taxed as income at your highest marginal rate, after your Personal Allowance. The tax-free part of a pension, usually 25%, is the main exception. Your pension provider deducts tax through PAYE using a tax code issued by HMRC, but the State Pension is paid without any tax taken off, so the tax due on it is usually collected by adjusting the code on your other pension.
Independent financial adviser (IFA): An adviser who can recommend products from across the whole market and is not tied to particular providers. A restricted adviser, by contrast, can recommend only certain products or providers, and must tell you so.
Index-linked gilts: Government bonds whose interest payments and repayment at maturity rise in line with inflation as measured by the Retail Prices Index (which is due to be brought into line with CPIH from 2030). Held to maturity, a ladder of index-linked gilts can provide a reliable, inflation-protected income for a set number of years.
Index-linking or indexation: Increasing a pension or other payment each year in line with an inflation measure. Final salary pensions in payment usually have some index-linking, often limited to a cap. See also Limited price indexation.
Individual protection: A form of protection from the old lifetime allowance, available in 2014 and 2016 versions, for people whose pension savings were above the allowance at the time. Since the allowance was abolished, holders keep entitlement to a higher tax-free lump sum based on their protected value.
Inflation: The general rise in prices over time, which reduces what your money can buy. At 3% a year inflation, prices roughly double in about 24 years (because 1.03 multiplied by itself 24 times is about 2.03), which is well within the length of many retirements and is why protecting income against inflation matters so much.
Inheritance tax on pensions: From 6 April 2027, most unused pension funds and pension death benefits will be counted as part of your estate for inheritance tax. This marks a major change, because pensions have until now usually passed outside the estate. The main points, as currently set out, are as follows.
Your personal representatives (executors) will be responsible for reporting and paying any inheritance tax due on pensions, although they can ask the pension scheme to pay it from the pension.
Pensions left to a spouse or civil partner will remain free of inheritance tax under the normal spouse exemption.
Death in service benefits paid from registered schemes will be excluded, as will dependants' scheme pensions from defined benefit schemes.
Income tax will still apply to inherited pensions where the member died aged 75 or over, so beneficiaries could face both inheritance tax and income tax on the same money.
Bringing pensions into the estate may also push some estates over £2 million, which reduces or removes the residence nil rate band.
The nil rate band of £325,000 and the residence nil rate band of £175,000 are currently set to stay frozen until April 2031, although this should be double-checked. Because this change is so significant for anyone who has been relying on their pension as a way of passing on wealth, it is worth reviewing your plans well before April 2027.
Investment pathways: Four ready-made investment options that providers must offer to people moving into drawdown without advice, each linked to a broad plan, namely having no plans to touch the money in the next five years, planning to buy an annuity within five years, starting to take a long-term income within five years, or taking out all the money within five years.
Investment trust: A company listed on the stock exchange whose business is investing in other companies or assets. Investment trusts can keep back up to 15% of their income in good years to help pay dividends in leaner years, which is why many have long records of steady or rising dividends and are well suited to producing a natural income. See also Natural income.
ISA (Individual Savings Account): A tax-free savings and investment account. Unlike a pension, there is no tax relief on money paid in, but everything taken out is tax-free and you can access it at any age. In retirement, a mix of pension and ISA income can help keep your tax bill down. ISAs currently remain inside your estate for inheritance tax.
L
Leaving service: Stopping being an active member of a workplace scheme, usually because you change jobs. Your benefits are normally kept in the scheme as deferred benefits, or you may be able to transfer them.
Liability driven investment (LDI): An investment approach used by final salary schemes to match their assets more closely to the pensions they must pay, often using gilts and derivatives. It came to public attention in the gilt market turmoil of autumn 2022.
Life expectancy: The average number of years a person of a given age is expected to live. It is an average, so roughly half of people live longer, and planning only to average life expectancy risks running out of money. Couples should remember that the chance of at least one of them living into their 90s is quite high.
Lifestyling: An automatic investment strategy that gradually moves your pension from shares into bonds and cash as you approach your selected retirement date. It was designed for people who would buy an annuity, so it may not suit you if you intend to stay invested through drawdown, and it is worth checking your selected retirement date is still right.
Lifetime allowance: A limit on the total value of pension benefits you could build up without paying an extra tax charge. It was £1,073,100 when it was abolished on 6 April 2024 and replaced by the Lump Sum Allowance and the Lump Sum and Death Benefit Allowance. You may still see it mentioned on older statements.
Lifetime ISA: An ISA for people aged 18 to 39 when they open it, which receives a 25% government bonus on up to £4,000 a year, and can be used for a first home or from age 60. Withdrawals for other reasons carry a 25% charge, which means you get back less than you paid in.
Limited price indexation (LPI): The increase applied to many final salary pensions in payment, which follows inflation up to a cap, commonly 5% or 2.5% depending on when the pension was built up. Benefits built up before April 1997 often have no legal requirement for increases, although some schemes pay them anyway.
Longevity risk: The risk of living longer than your money lasts. Annuities and defined benefit pensions remove this risk because they pay for life, whereas drawdown leaves it with you.
Lump sum: A single payment from a pension, as opposed to regular income. It may be partly or wholly tax-free depending on how it is taken. See also Pension commencement lump sum and Uncrystallised funds pension lump sum.
Lump Sum Allowance (LSA): The maximum total amount you can take tax-free from all your pensions during your lifetime, which is £268,275 for most people. It replaced the old rule that tax-free cash was limited to 25% of the lifetime allowance. People with protections may have a higher allowance.
Lump Sum and Death Benefit Allowance (LSDBA): The maximum total of tax-free lump sums that can be paid during your lifetime and on your death before age 75, which is £1,073,100 for most people. Amounts above it are taxed as income of the recipient.
M
Marginal rate of tax: The rate of tax you pay on the next pound of income. It matters because tax relief on pension contributions, and tax on pension withdrawals, are both worked out at your marginal rate. Between £100,000 and £125,140 the effective marginal rate is 60%, because the Personal Allowance is withdrawn at £1 for every £2 of income over £100,000, so each extra £2 earned costs 80p in higher rate tax plus 40p on the £1 of lost allowance, a total of £1.20, or 60%.
Master trust: A large workplace pension scheme run by a board of trustees and used by many unconnected employers. NEST, The People's Pension and NOW: Pensions are well-known examples. Master trusts must be authorised by The Pensions Regulator.
MoneyHelper: The free, government-backed service run by the Money and Pensions Service (MaPS), which offers guidance on money and pensions, including the Pension Wise appointments. It replaced the Pensions Advisory Service and the Money Advice Service.
Money purchase: See Defined contribution.
Money Purchase Annual Allowance (MPAA): A reduced annual allowance of £10,000 a year that applies to contributions to money purchase pensions once you have flexibly accessed a pension. It is triggered, for example, by taking taxable income from flexi-access drawdown or by taking an uncrystallised funds pension lump sum. It is not triggered by taking only your tax-free cash, by buying a lifetime annuity that cannot go down, or by taking a small pot lump sum. Once triggered, it applies for the rest of your life and carry forward cannot be used against it.
Multi-asset fund: A fund that invests across several types of asset, such as shares, bonds and property, in a single package. Many default workplace funds work this way.
N
National Insurance (NI): A tax on earnings that also builds your entitlement to the State Pension and some other benefits. You stop paying employee National Insurance once you reach State Pension age, even if you keep working. Pension income is not subject to National Insurance.
National Insurance credits: Credits that fill gaps in your National Insurance record when you are not working, for example while claiming certain benefits, caring for a child under 12 through Child Benefit, or caring for someone. Grandparents and other relatives who look after a child under 12 may be able to claim Specified Adult Childcare credits.
National Insurance record: Your history of contributions and credits, which decides how much State Pension you receive. You can check it, and get a State Pension forecast, through the government's online services.
Natural income: The income produced by investments without selling any of them, such as dividends from shares and investment trusts, interest from bonds and gilts, and rent from property. Living on natural income leaves the capital in place, so you are never forced to sell investments when prices are low to pay the bills, and the income tends to be steadier and more predictable than market values. At Chancery Lane we regard natural income as a more reliable and predictable foundation for retirement than a total return approach, and our published research on this subject is available at chancerylane.net. See also Total return and Sequence of returns risk.
Net pay arrangement: The way many workplace schemes give tax relief, by taking your contribution from your pay before income tax is worked out, so you get relief at your highest rate automatically. People earning below the Personal Allowance have historically missed out on relief under net pay, and HMRC has introduced a top-up payment for affected low earners from the 2024-25 tax year onwards, paid after the end of the year. See also Relief at source.
New State Pension: The State Pension for men born on or after 6 April 1951 and women born on or after 6 April 1953, who reached State Pension age on or after 6 April 2016. The full rate is £241.30 a week in 2026-27. You usually need 35 qualifying years of National Insurance to receive the full amount and at least 10 qualifying years to receive anything. Each qualifying year is worth one thirty-fifth of the full rate, which is about £358.50 a year in 2026-27 (£12,547.60 divided by 35), although the exact effect depends on your starting amount. See also Starting amount and Protected payment.
Nil rate band: The amount of an estate that can pass free of inheritance tax, currently £325,000 per person. A married couple or civil partners can pass on any unused part to the survivor. There is also a residence nil rate band of up to £175,000 when a home passes to direct descendants.
Nominee: Someone you have nominated to receive your pension death benefits who is not a dependant, such as an adult child or a friend. Nominees can usually choose to take an inherited pot as a lump sum or keep it in drawdown. See also Successor.
Normal minimum pension age (NMPA): The earliest age at which you can usually take benefits from a private pension. It is 55 now and will rise to 57 on 6 April 2028. Some people have a protected pension age, which lets them keep the right to draw at 55 if their scheme rules gave them that right before 4 November 2021, so check with your scheme before assuming either way. The rule does not apply to the State Pension, which has its own age.
Normal pension age or normal retirement date: The age at which a scheme expects to pay your pension in full, without any reduction for early payment or increase for late payment. It varies from scheme to scheme, so check your scheme booklet or annual statement.
O
Occupational pension scheme: A pension scheme set up by an employer for its employees and run by trustees. It can be defined benefit or defined contribution.
Ongoing advice charge: A fee paid to an adviser for continuing advice and regular reviews, usually a percentage of the value of the pension each year. The FCA expects firms to make sure customers actually receive the service they pay for and that it represents fair value under the Consumer Duty.
Ongoing charges figure (OCF): The annual cost of running an investment fund, shown as a percentage. It does not include transaction costs or platform and adviser charges, so the total cost of your pension is likely to be higher than the OCF alone.
Open market option: Your right to shop around for an annuity from any provider rather than accepting the one offered by your pension company. Shopping around can increase your income significantly, especially if you qualify for an enhanced annuity.
Opting out: Choosing to leave a workplace pension after being automatically enrolled. If you opt out within a month you get your contributions back, but you lose your employer's contributions, and your employer must re-enrol you, usually every three years, after which you can opt out again if you wish.
Overseas Transfer Allowance (OTA): The maximum amount you can transfer to a qualifying overseas pension scheme without paying the overseas transfer charge, which is £1,073,100 for most people. See also QROPS.
P
P45 and P60: Familiar tax forms that also apply to pension income. Your pension provider should send you a P60 each year showing the pension paid and the tax deducted, and a P45 if your pension payments stop or you take your whole pot.
Paid-up: A pension that you no longer pay into but which remains invested. Older policies sometimes carried higher charges once they became paid-up, so it is worth checking.
PAYE (Pay As You Earn): The system through which tax is deducted from pension income before it is paid to you, using a tax code issued by HMRC. If your tax code looks wrong, contact HMRC, as an incorrect code is a common reason for paying too much or too little tax in retirement.
Pension: A long-term savings arrangement with special tax treatment, designed to provide an income in later life. The word is used both for the arrangement where you save and for the income you eventually receive.
Pension commencement lump sum (PCLS): The formal name for tax-free cash taken when you start drawing benefits, usually up to 25% of the value you are crystallising, subject to the Lump Sum Allowance of £268,275 for most people. For example, moving a £200,000 pot into drawdown would usually allow a tax-free lump sum of £50,000 (£200,000 x 25%), with the remaining £150,000 staying invested to provide taxable income.
Pension Credit: A means-tested State benefit for people over State Pension age on a low income. Guarantee Credit tops up your weekly income to £238.00 if you are single or £363.25 for a couple in 2026-27, and Savings Credit gives a small extra amount to some people who reached State Pension age before 6 April 2016. Pension Credit is valuable not only in itself but because it opens the door to other help, such as Housing Benefit, Council Tax Reduction, Cold Weather Payments and a free TV licence for those aged 75 or over, so it is well worth claiming even if the amount seems small.
Pension freedoms: The reforms introduced in April 2015 that gave people with money purchase pensions freedom over how they use their pots from the normal minimum pension age, including taking it all as cash, using drawdown or buying an annuity, rather than being steered towards an annuity.
Pension input period: The period over which pension contributions are measured against the annual allowance. Since 2016 it has been aligned with the tax year, from 6 April to 5 April.
Pension Protection Fund (PPF): The lifeboat that pays compensation to members of final salary schemes whose employer becomes insolvent and whose scheme cannot pay the promised pensions. If you had already reached the scheme's normal pension age when the employer failed, you normally receive 100% of your pension, and if you had not, you normally receive 90%. Increases on PPF compensation are limited, and benefits built up before April 1997 have not been increased, although the government announced in the November 2025 Budget that increases capped at 2.5% would be introduced on pre-1997 benefits where the original scheme provided them. You may wish to verify the current position and timing.
Pension scam: An attempt to trick you out of your pension savings, often through cold calls, offers of a free pension review, promises of early access before age 55, unusually high guaranteed returns or exotic overseas investments. Cold calling about pensions has been illegal since 2019, so any unexpected call is a warning sign. You can check a firm on the FCA register and on the FCA's ScamSmart pages before you deal with it.
Pension Schemes Act 2026: The law that received Royal Assent on 29 April 2026 and will reshape workplace pensions over the coming years. It includes the automatic consolidation of small dormant pots, a requirement for schemes to offer guided retirement income options, a value for money framework, larger default schemes and changes to how final salary scheme surpluses can be used. Most of the detail will follow in regulations over the next few years.
Pension sharing order: A court order on divorce or dissolution of a civil partnership that splits a pension, giving the former spouse a percentage of its value as a pension of their own. The other main options on divorce are pension attachment, sometimes called earmarking, where part of the pension is paid to the former spouse when it comes into payment, and offsetting, where one person keeps the pension and the other receives other assets of equivalent value.
Pension transfer: Moving your pension from one scheme or provider to another. Transfers between money purchase pensions are usually straightforward, but you should check for valuable guarantees, exit charges or protected tax-free cash before moving. Transfers out of a final salary scheme give up a guaranteed income and need specialist advice if worth more than £30,000.
Pension Wise: The free, impartial guidance service from MoneyHelper for people aged 50 or over with a money purchase pension, offering appointments by phone or face to face. Providers must offer to book you an appointment before you access your pension, and you must either have the guidance or actively opt out.
Pensionable pay: The part of your pay that counts towards your pension, which may exclude items such as overtime or bonuses depending on the scheme rules.
Pensions Ombudsman: The free and independent body that deals with complaints about the way pension schemes are run, such as delays, errors or maladministration. Complaints about the advice you received or the sale of a pension go to the Financial Ombudsman Service instead.
Personal Allowance: The amount of income you can receive each year without paying income tax, which is £12,570 in 2026-27 and is currently frozen until April 2031. It is reduced by £1 for every £2 of income above £100,000, and is lost entirely at £125,140.
Personal pension: A defined contribution pension that you own individually, whether you set it up yourself or through your employer. Stakeholder pensions and SIPPs are types of personal pension.
Phased retirement: Taking your pension in stages rather than all at once, for example by moving part of your pot into drawdown each year. It can help control the tax you pay and spread out your tax-free cash.
Platform: An online service that holds your investments, such as a SIPP or ISA, in one place and lets you or your adviser buy and sell funds, shares and investment trusts. Platforms make a charge, usually a percentage of the value, on top of fund and adviser charges.
Pound cost averaging: Investing a regular amount each month, which means you buy more units when prices are low and fewer when they are high. In retirement the effect can work in reverse if you sell a fixed amount each month, which is one reason why relying on natural income can be more comfortable than selling units. See also Sequence of returns risk.
Primary protection: A form of protection from the old lifetime allowance, available in 2006, for people whose pensions were above £1.5 million at the time. It can still give holders a higher tax-free lump sum entitlement.
Protected payment: The amount by which your starting amount under the new State Pension exceeded the full new State Pension, paid on top of the full rate and increased each year in line with inflation. It usually arises when someone built up a large Additional State Pension before 2016.
Protected pension age: A right to take your pension before the normal minimum pension age, which applies in certain schemes, notably some occupational schemes for particular professions and those whose rules gave members an unqualified right to draw at 55 before 4 November 2021.
Protected tax-free cash: A right, usually arising in older occupational schemes, to take more than 25% of your pot as tax-free cash. This right can be lost if you transfer the pension to a new provider on your own, so it should always be checked before moving.
Q
QROPS (qualifying recognised overseas pension scheme): An overseas pension scheme that meets HMRC conditions to receive transfers from UK pensions. Transfers may be subject to the 25% overseas transfer charge unless an exemption applies, and since 30 October 2024 transfers to QROPS in the European Economic Area are no longer automatically exempt, so specialist advice is essential.
Qualifying earnings: The band of earnings on which minimum auto-enrolment contributions are worked out, which is £6,240 to £50,270 in 2026-27. Someone earning £25,000, for example, has qualifying earnings of £18,760 (£25,000 minus £6,240), so the minimum total contribution of 8% would be £1,500.80 a year (£18,760 x 8%).
Qualifying year: A tax year in which you paid or were credited with enough National Insurance to count towards your State Pension.
R
Recycling rule: An anti-avoidance rule that stops people taking tax-free cash and then paying it back into a pension to gain a second round of tax relief. It applies where the tax-free cash is more than £7,500, the contributions increase significantly as a result and the recycling was pre-planned. It can lead to a heavy tax charge, so take advice before paying large sums back into a pension after taking tax-free cash.
Relevant UK earnings: Your earned income, such as salary, bonuses and self-employed profits, which sets the maximum personal contribution on which you can get tax relief in a year. Pension income, rental income (other than furnished holiday lettings under the old rules) and dividends do not count. If you have no relevant earnings, you can still pay in up to £2,880 a year and have it topped up to £3,600.
Relief at source: The way most personal pensions give tax relief. You pay in 80% of the gross contribution and the provider claims the other 20% from HMRC. A payment of £8,000, for example, becomes £10,000 in your pension (£8,000 divided by 0.8). Higher and additional rate taxpayers claim the extra relief through self assessment. See also Net pay arrangement.
Residence nil rate band (RNRB): An additional inheritance tax allowance of up to £175,000 per person when a home, or the proceeds of selling one, passes to children, grandchildren or other direct descendants. It is reduced by £1 for every £2 that an estate is worth above £2 million, which is why bringing pensions into the estate from April 2027 could cause some families to lose it. See also Nil rate band and Inheritance tax on pensions.
Retail Prices Index (RPI): An older measure of inflation that usually runs higher than CPI. It is still used to increase some older pensions, index-linked gilts and some annuities, and it is due to be brought into line with CPIH from 2030, which will reduce future RPI increases.
Retirement annuity contract (RAC): A personal pension for the self-employed and those without a workplace scheme, sold before July 1988, sometimes called a Section 226 policy. Some RACs carry valuable guaranteed annuity rates or higher tax-free cash.
Revaluation: The increase applied to deferred pensions in a final salary or career average scheme between leaving and retirement, usually linked to inflation with a cap.
Risk, attitude to and capacity for loss: Your attitude to risk is how comfortable you feel with the ups and downs of investments, and your capacity for loss is how far your lifestyle could withstand a fall in value. An adviser must take both into account when recommending how your pension is invested, along with how much income you need and when. They are different things, because someone may be relaxed about risk but unable to afford a loss, or the other way round.
S
Salary sacrifice: An arrangement where you give up part of your salary and your employer pays the same amount, often more, into your pension. Both you and your employer save National Insurance on the amount sacrificed. From 6 April 2029, the National Insurance saving will apply only to the first £2,000 a year sacrificed into a pension, although the income tax advantage continues in full.
Scheme administrator: The person or firm legally responsible for running a registered pension scheme and dealing with HMRC, such as paying tax charges and reporting.
Scheme Pays: An option that lets you ask your pension scheme to pay an annual allowance charge on your behalf, with the charge then deducted from your pension benefits.
Section 32 policy: An individual policy, also known as a buy-out bond, set up to hold benefits transferred from an occupational pension scheme. Some Section 32 policies include a guaranteed minimum pension promise or protected tax-free cash.
Self-invested personal pension (SIPP): A personal pension that gives you, or your adviser, a wide choice of investments, including shares, investment trusts, funds, gilts and commercial property. SIPPs are commonly used for drawdown and for building a portfolio designed to produce natural income.
Sequence of returns risk: The danger that poor investment returns in the early years of retirement, while you are taking withdrawals, cause lasting damage to your pot, because units are being sold at low prices and cannot recover. Two people with exactly the same average return can end up with very different outcomes depending on the order in which good and bad years arrive. Drawing a natural income rather than selling units is one way of reducing this risk.
Serious ill health lump sum: A payment of your whole pension pot as a lump sum if you are expected to live for less than a year. It is tax-free if you are under 75, subject to your available Lump Sum and Death Benefit Allowance, and taxed as income if you are 75 or over.
Short-term annuity: An annuity bought from a drawdown pot that pays an income for up to five years.
Small pots: A rule allowing you to take pension pots worth £10,000 or less as a lump sum, with 25% tax-free and the rest taxed as income, without triggering the Money Purchase Annual Allowance. You can do this for up to three personal pensions in your lifetime, and for an unlimited number of occupational scheme pots in certain circumstances.
Small pots consolidation: A new system under the Pension Schemes Act 2026 that will automatically move dormant workplace pension pots worth less than £1,000 into an authorised consolidator scheme unless the member opts out. The process is expected to start around 2030.
Small self-administered scheme (SSAS): An occupational pension scheme for up to eleven members, usually directors of a family company, which can invest in a wide range of assets and in some cases lend to the sponsoring company.
Spouse's or dependant's pension: A pension paid to your husband, wife, civil partner or dependant after your death, usually as a percentage of your own pension, commonly 50% in final salary schemes. Some schemes also pay to unmarried partners who meet certain conditions.
Stakeholder pension: A type of personal pension with capped charges, low minimum contributions and flexible payments, introduced in 2001.
Starting amount: The figure worked out for everyone with a National Insurance record before 6 April 2016 when the new State Pension began, comparing what they would have received under the old and new rules and giving them the higher of the two. It explains why many people receive more or less than the full new rate.
State Pension: The regular payment from the government that most people receive from State Pension age, based on their National Insurance record. It is taxable but paid without tax deducted, it is increased every April under the triple lock and it does not start automatically, so you need to claim it. See also New State Pension and Basic State Pension.
State Pension age: The age at which you can start receiving the State Pension. It is currently 66 and is rising to 67 for people born on or after 6 April 1960, phased in between 2026 and 2028, with anyone born on or after 6 March 1961 reaching it at 67. Under current law it is due to rise to 68 between 2044 and 2046, and the government is reviewing the timetable, so you should double check the position for your own date of birth on GOV.UK.
State Pension forecast: An estimate of how much State Pension you could receive and when, which you can get online from GOV.UK. It also shows any gaps in your National Insurance record that you may be able to fill with voluntary contributions.
Successor: Someone who inherits a pension pot from a dependant, nominee or earlier successor, so that pension money can pass down more than one generation.
Suitability report: The written report a regulated adviser must give you explaining what they recommend and why it is suitable for your needs, objectives and circumstances. It should be clear and specific to you, and you should keep it safely.
Surplus: The amount by which a final salary scheme's assets exceed what is needed to pay its pensions. The Pension Schemes Act 2026 makes it easier for well-funded schemes to share some surplus with employers and, in some cases, members.
Sustainable withdrawal rate: The percentage of a pot that can be withdrawn each year with a reasonable expectation that the money will last. Figures from the USA, such as the so-called 4% rule, are often quoted but were based on American market history and investment costs, so they do not translate directly to UK retirees, and the right figure depends very much on your own circumstances.
T
Tapered Annual Allowance: A reduced annual allowance for people with very high incomes. If your threshold income is over £200,000 and your adjusted income is over £260,000, your annual allowance falls by £1 for every £2 of adjusted income above £260,000, down to a minimum of £10,000. Someone with adjusted income of £300,000, for example, would have an annual allowance of £40,000 (£300,000 minus £260,000 is £40,000, halved to £20,000, and £60,000 minus £20,000 is £40,000).
Tax code: The code HMRC gives your employer or pension provider to tell them how much tax to deduct. For most people it is 1257L, reflecting the £12,570 Personal Allowance, but in retirement it is often adjusted to collect tax due on your State Pension. Codes such as BR, D0 or one ending in M1 or W1 may mean you are paying tax at a flat rate or on an emergency basis, so check with HMRC if you are unsure.
Tax-free cash: The part of your pension you can take without paying income tax, usually 25%, up to the Lump Sum Allowance of £268,275 for most people. You can take it all at once when you start drawing benefits or, with many money purchase pensions, in stages. See also Pension commencement lump sum and Uncrystallised funds pension lump sum.
Tax relief: The money the government adds to your pension contributions to reflect the income tax you would otherwise have paid. Basic rate relief is 20%, so a basic rate taxpayer pays £80 for every £100 that goes into the pension, a higher rate taxpayer can effectively pay £60 for every £100, and an additional rate taxpayer can effectively pay £55. See also Relief at source and Net pay arrangement.
Tax year: The year used for income tax and pension allowances, running from 6 April to the following 5 April.
Threshold income: A measure used in the tapered annual allowance test, which is broadly your taxable income minus your own pension contributions. If it is £200,000 or less, the taper does not apply, whatever your adjusted income.
Total return: An investment approach that aims to grow the overall value of a portfolio, combining income and capital growth, and in retirement pays an income by selling units or shares as needed. It is the approach many large institutions use, but for an individual retiree it leaves the income at the mercy of market prices at the time of each sale, which is why at Chancery Lane we favour natural income for retail clients. See also Natural income and Sequence of returns risk.
Transfer value: The value of your pension that can be moved to another scheme or provider. For a final salary scheme this is the cash equivalent transfer value, and for a money purchase pension it is usually the value of the pot, less any exit charges. Transfer values can be guaranteed for a limited period only, often three months.
Triple lock: The government's commitment to increase the State Pension each April by the highest of average earnings growth, CPI inflation and 2.5%. The rise in April 2026 was 4.8%, based on earnings growth, and the rise announced for April 2027 is 3.9%. The triple lock applies to the new State Pension and the basic State Pension, but not to the Additional State Pension or protected payments, which rise with CPI.
Trivial commutation: A rule that lets you take small defined benefit pensions as a lump sum if the total value of all your pension savings is £30,000 or less, with 25% tax-free and the rest taxed as income. You must be at least the normal minimum pension age.
Trustees: The people or company responsible for running an occupational pension scheme in the interests of its members, in line with the scheme rules and the law. Some schemes have member-nominated trustees chosen from among the members.
The Pensions Regulator (TPR): The regulator of workplace pension schemes, which makes sure employers meet their auto-enrolment duties and that trustees run schemes properly.
U
Uncrystallised funds pension lump sum (UFPLS): A way of taking money from a money purchase pension as a series of lump sums, where each payment is 25% tax-free and 75% taxed as income. A withdrawal of £20,000, for example, would be £5,000 tax-free (£20,000 x 25%) and £15,000 taxable. Taking an UFPLS triggers the Money Purchase Annual Allowance.
Unauthorised payment: A payment from a pension that falls outside the tax rules, such as one made to you before the normal minimum pension age without a valid reason. It can lead to tax charges of up to 55% plus scheme charges, and is often linked to pension scams.
Units: The portions into which a fund is divided. When you invest, you buy units at the current price, and when you take money out in a total return approach, units are sold.
Unit-linked: A pension or investment whose value is directly linked to the price of the units in the funds it holds, so it rises and falls with the markets.
V
Value for money (VFM): A new framework under the Pension Schemes Act 2026 that will require workplace defined contribution schemes to measure and publish how they perform on costs, investment returns and service, with poorly performing schemes required to improve or close. Compliance is expected to start around 2028.
Volatility: How much and how quickly the value of an investment goes up and down. Higher volatility means a bumpier ride, which matters most when you are drawing money out.
Voluntary National Insurance contributions: Payments you can choose to make to fill gaps in your National Insurance record and increase your State Pension. Class 3 contributions are the usual type, and you can normally fill gaps from the past six tax years. Each extra qualifying year can add around £358.50 a year to a new State Pension in 2026-27 (£12,547.60 divided by 35), but not everyone benefits, for example if you already have 35 years or have been contracted out, so always check your forecast or speak to the Future Pension Centre before paying.
W
Widow's, widower's or survivor's pension: See Spouse's or dependant's pension.
Winding up: The process of closing a pension scheme, usually after an employer becomes insolvent or decides to end the scheme, during which members' benefits are secured with an insurer or passed to the Pension Protection Fund.
With-profits: A type of pension fund, common in older policies, that smooths returns by adding annual and final (terminal) bonuses. If you take money out at a time other than a guaranteed date, the provider may apply a market value reduction (MVR), so check for guaranteed dates before cashing in or transferring.
Workplace pension: Any pension arranged through your employer, whether an occupational scheme, a group personal pension or a master trust.
Y
Yield: The income from an investment shown as a percentage of its price or value. A portfolio worth £400,000 producing £16,000 a year in dividends and interest has a yield of 4% (£16,000 divided by £400,000).
75
75, age 75 rule: Age 75 is an important milestone in pensions. Death benefits from money purchase pensions are usually tax-free if you die before 75 and taxed as the beneficiary's income if you die at 75 or over, and tax relief on contributions is generally not available after 75.
[5] Common abbreviations
Pension paperwork is full of initials, and the table below gives the full name behind each of the most common ones, so that you can then look up the meaning in the main dictionary.
| Abbreviation | What it stands for |
|---|---|
| AA | Annual Allowance |
| AE | Auto-enrolment |
| AMC | Annual management charge |
| AVC | Additional voluntary contribution |
| BSP | Basic State Pension |
| CARE | Career average revalued earnings |
| CDC | Collective defined contribution |
| CETV | Cash equivalent transfer value |
| CPI | Consumer Prices Index |
| DB | Defined benefit |
| DC | Defined contribution |
| FAS | Financial Assistance Scheme |
| FCA | Financial Conduct Authority |
| FOS | Financial Ombudsman Service |
| FSCS | Financial Services Compensation Scheme |
| GAD | Government Actuary's Department |
| GAR | Guaranteed annuity rate |
| GMP | Guaranteed minimum pension |
| GPP | Group personal pension |
| HMRC | HM Revenue and Customs |
| IFA | Independent financial adviser |
| IHT | Inheritance tax |
| LPI | Limited price indexation |
| LSA | Lump Sum Allowance |
| LSDBA | Lump Sum and Death Benefit Allowance |
| LTA | Lifetime allowance (abolished April 2024) |
| MaPS | Money and Pensions Service |
| MPAA | Money Purchase Annual Allowance |
| MVR | Market value reduction |
| NI | National Insurance |
| NMPA | Normal minimum pension age |
| NRB | Nil rate band |
| OCF | Ongoing charges figure |
| OTA | Overseas Transfer Allowance |
| PCLS | Pension commencement lump sum |
| PPF | Pension Protection Fund |
| QROPS | Qualifying recognised overseas pension scheme |
| RAC | Retirement annuity contract |
| RNRB | Residence nil rate band |
| RPI | Retail Prices Index |
| S2P | State Second Pension |
| SERPS | State Earnings Related Pension Scheme |
| SIPP | Self-invested personal pension |
| SMPI | Statutory Money Purchase Illustration |
| SPA | State Pension age |
| SSAS | Small self-administered scheme |
| TPR | The Pensions Regulator |
| UFPLS | Uncrystallised funds pension lump sum |
| VFM | Value for money |
[6] Important notes and sources
This dictionary is general information to help you understand pension terms, and it does not take account of your personal circumstances, so it is not a personal recommendation. Pension and tax rules change frequently, the value of investments and the income from them can fall as well as rise, and the tax treatment of pensions depends on your individual circumstances and may change in future. Please speak to us before making any decision based on what you read here.
The figures for 2026-27 were checked in November 2026 against the following published sources, and the remaining allowances and rules reflect the legislation in force at that date. Where an entry contains the words "this should be double checked", it covers an area where the detail is still being settled or where we could not confirm the latest position from a primary source.
State Pension and Pension Credit rates: GOV.UK press release on the April 2026 State Pension increase and Which? on the State Pension in 2026-27
April 2027 State Pension rate: CIPP on the statutory review for 2027-28
Auto-enrolment thresholds: The Pensions Regulator, automatic enrolment earnings thresholds and GOV.UK review of the thresholds for 2026-27
Salary sacrifice changes from April 2029: GOV.UK guidance on changes to salary sacrifice for pensions
Pension Schemes Act 2026: Brodies summary of key changes and Hymans Robertson briefing note
Chancery Lane research on natural income: chancerylane.net