Pensions almost have a language of their own. Here we explain some of the more common terms.
Active member
An employee who is currently paying into and building up benefits in their employer's pension scheme.
Actuary
A professional adviser who calculates financial risks, the statistical likelihood of these risks occurring and the impact they may have. The actuary carries out regular valuations of the scheme to see how it’s performing and whether there is enough money being paid in (assets) to cover the cost of paying pensions out (liabilities).
Additional Voluntary Contributions (AVCs)
AVCs are additional payments you can make to increase your overall retirement savings. You choose where to invest your money from a range of funds. AVCs get tax relief in the same way as your normal scheme contributions (subject to limits).
Annual Allowance (AA)
This is the maximum amount you can save into all of your pension arrangements combined each tax year before tax is charged on any excess. The Annual Allowance is currently £60,000.
However, a lower ‘Tapered Annual Allowance’ applies to high-earning pension savers and may affect anyone with a taxable income of more than £200,000.
A lower allowance of £10,000 may also apply if you’ve taken money out of your pension pot. This is known as the ‘Money Purchase Annual Allowance’. Find out more about the Annual Allowance.
Beneficiary
A person or good cause who you would like to receive benefits, in the form of a scheme pension or lump sum, if you die. You can name any people or organisations to receive the lump sum if you die in service.
Benefits
Any payments you receive from your pension, including tax-free lump sums and pensions.
Benefit statement
A statement or estimate showing expected benefits from the scheme.
Civil partner
A person who has entered into a civil partnership with his or her same-sex partner.
Contributions
The money you pay into your pension scheme or into your AVCs.
Deferred member
A person who is no longer an active member, but has benefits in the scheme they haven’t claimed yet.
Defined Benefit (DB) scheme
This type of scheme offers a guaranteed pension for life for its members. You and your employer contribute to your pension. You also get tax relief from the government.
Your retirement income is based on how many years you’ve worked for your employer and the salary you’ve earned.
Defined Contribution (DC) scheme
The contributions paid in by you and your employer are invested to build up a retirement income. You also get tax relief from the government. Your benefits are based on your pension savings plus investment earnings. You have several options when you decide to take your benefits.
Dependant
Someone who relies to some extent on your income, such as your partner and children.
Early retirement
You can take your scheme benefits before you reach your normal retirement age.
ESPS
The Electricity Supply Pension Scheme.
Group Trustees
Each company in the ESPS has a set of Group Trustees, some appointed by the Company and others elected by members. The chairman – who is an appointed Group Trustee – has a casting vote.
The Trustees’ responsibilities are broadly to administer the Rules of the Scheme with respect to the benefits of, and contributions by, members, and to be fully responsible for the Group’s investments. Meet the E.ON UK Trustees
Guaranteed Minimum Pension (GMP)
This is the minimum pension that ESPS has to provide you if you were contracted-out of the State Earnings Related Pension Scheme (SERPS). This applies to service before 6 April 1997 only. It is broadly equal to the Additional State Pension you would have earned if you had not been contracted-out of SERPS for this period.
HMRC
HM Revenue & Customs, responsible for tax collection, some welfare payments and other regulatory business.
Incapacity
Physical or mental ill-health which, in the opinion of the ESPS medical adviser, is permanent, and prevents you from doing your job or similar work.
Lifetime Allowance (LTA)
The Lifetime Allowance (LTA) is the maximum amount you can save into all your pensions throughout your working life before you have to pay tax. The LTA for the tax year 6 April 2023 to 5 April 2024 is £1,073,100.
You would have to pay tax on any pension savings you have that are over the LTA limit. The amount of tax you owe will depend on your income tax rate, rather than the LTA charge that was in place before 5 April 2023.
You should be aware that from 6 April 2024, there is a limit of £268,275 on the amount you can take as a lump sum when you take your pension. This limit won’t affect you if you have Lifetime Allowance protections.
Lump sum
When you retire, dependant on your membership category, there may be a lump sum payable to you in addition and you may have the option to commute some of your pension for a higher tax-free cash lump sum. Your lump sum is up to 25% (but no more than £268,275) of the total value of your pension.
Member
A person who has joined a pension scheme and built up benefits in that scheme.
Money Purchase pension
A term for Defined Contribution schemes.
National Insurance contributions
Money taken from your pay by the government, which is used to fund the State Pension and other State benefits.
Normal Pension Age (NPA)
The earliest age at which a member can usually receive full pension benefits.
Normal Retirement Date
This is the date when you would normally expect to retire and start claiming your pension benefits
Pension
A savings plan for retirement.
Pensionable earnings
Your employer’s contributions to your pension are based on a percentage of your earnings. This is called pensionable earnings.
Pension benefits
A general term for money paid from a pension scheme.
Pension Input period (PIP)
This is a period of time (the tax year) used to measure contributions paid – or benefits built up – on behalf of a member, which are then measured against the Annual Allowance.
Pension scheme administrator
The person or company that runs a pension scheme, pays benefits and carries out legal duties, for example, paying certain tax charges to HMRC. Your scheme’s administrator is Railpen
Pensionable service
The length of time you have actually contributed to the scheme up to the date you retire or leave.
Protected member
An employee who joined ESPS before 31 March 1990 (or who was eligible to join at that date and joined later).
Qualifying Service (used to decide whether benefits can be awarded)
This equals:
- your period of actual contributory membership of ESPS up to the date you retire or leave, plus
- the period of membership of another pension scheme, from which a transfer has been paid to ESPS (known as a ‘back service credit’).
Retail Prices Index (RPI)
This is a measure of inflation which is published every month. It compares changes in the cost of a sample of retail goods and services.
Salary
Your basic annual salary or wages plus any other contractual payment that your employer defines as pensionable.
Scheme
The Electricity Supply Pension Scheme (ESPS).
State Pension
The pension paid to UK citizens by the Government when they reach State Pension age.
State Pension age (SPA)
The age you start to receive your State Pension benefits. You can work out your State Pension age using the GOV.uk calculator.
Summary Funding Statement
A report that tells you the financial position of your scheme at the time of its actuarial valuation or annual funding update. It also describes the main reasons for any changes in funding position and, if the Section is in deficit, shows the agreed recovery plan.
Trustee
An individual or group responsible for governing a pension scheme.
Valuation
An assessment of a scheme’s performance over a given timeframe (every three years for Defined Benefit schemes) to compare funds being paid in against funds being paid out.