Jargon buster

Published 29th January 2024   |   Updated 15th April 2024

An annuity is a financial product that provides a regular income, usually for the rest of your life, in exchange for a lump sum payment. Learn more about pension annuities in our guide ‘What is a pension annuity?’

Annuity payments
The regular payments you receive from an annuity, providing a regular income over a period, often in retirement.

Annuity protection
Also known as value protection which is a feature you can add to your annuity. It allows you to protect all or part of the fund used to buy your annuity. If you die before having received the protected amount, your named beneficiary will receive the remaining amount as a lump sum payment. Find out more about ways to protect your annuity in our guide.

Enhanced annuity
An annuity that has deemed your health and/or lifestyle to be eligible for a higher rate. This can lead to higher payments, especially if you have specific medical conditions, are overweight and/or are a smoker. Also known as impaired annuities. Learn more about enhanced annuities.

Guarantee period
You can choose to guarantee your annuity payments for a set time, usually up to 30 years. If you pass away during this time, your income will continue to be paid to your named beneficiary until the end of this period. For more information about guarantee periods, read our guide.

Investment-linked annuity
An annuity where your pension fund is invested in the stock market. Your payments depend on how well your investments perform. You can choose to invest all or some of your pension funds. Learn more about investment-linked annuities and other types of annuity here.

Joint life annuity
A joint life annuity provides an income for your named spouse, civil partner or financially dependent partner after you die. You can choose what percentage of your income you want to carry over to your surviving beneficiary. Find out the difference between single and joint annuities in our guide, ‘single vs joint annuities’.

Nominated beneficiary
This applies if you have chosen death benefits like value protection or a guarantee period. The nominated beneficiary is the person or persons you choose to receive any remaining annuity benefits when you die. Find out more about death benefits in our guide.

A pension is a long-term savings plan designed to provide an income in retirement. It can be funded by contributions from individuals, employers or both.

Pension scheme
A plan set up by employers or the government to provide pensions. It can be defined contribution or defined benefit.

Defined contribution pension
A pension where the final payout depends on contributions made and investment performance. Individual pension funds are built up, and you take on the risk of investment returns.

Defined benefit pension
A pension where the retirement income is based on things like salary and years of service. Retirees receive a set income from the pension.

State pension
A regular payment from the government, providing a steady income in retirement. Eligibility and amount depend on an individual's National Insurance contributions.

Annuity rate
The amount of income an annuity provides in relation to the lump sum used to buy it. Annuity rates are influenced by various factors, including interest rates and life expectancy.

A method of taking income from a pension while keeping the remaining funds invested. It can offer more flexibility compared to an annuity but does come with risks.

Tax-free lump sum
A part of a pension fund that can be withdrawn tax-free, usually up to 25% of the total value. The rest of the pension income is subject to the individual Lump Sum Allowance (iLSA).

Tax relief
Potential tax advantages from contributing to certain pension schemes. The amount can vary based on current UK tax regulations. The amount of tax relief you get is based on the tax bracket you're in.

Triple lock
A government commitment to increase state pensions by whichever is highest - average growth in earnings, Consumer Price Index (CPI) inflation or 2.5%.

Annual allowance
The largest amount you can pay into your pension each year before you have to pay tax. The current annual allowance is £60,000 per tax year. Find out more in our guide ‘What is the annual pension allowance?’

Lifetime allowance
The top value a pension pot can reach without incurring tax charges. If the pension pot exceeds this limit, tax is applied on the excess amount. The lifetime allowance (LTA) was removed from 6 April 2024.

Individual lump sum allowance
The individual Lump Sum Allowance (iLSA) limits the amount of tax-free cash you can take from all of your pensions. Usually, the maximum amount is £268,275 but this may be higher if you have a protected allowance.

Pot for life
A government proposal to give employees the right to choose the pension scheme their employer pays into. This would allow employees to ask new employers to pay into their existing scheme rather than opening a new one for each job.

A government scheme that means employers have to automatically enrol eligible employees into a workplace pension. Both employer and employee contribute to the pension fund.

Pension liberation scams
Fraud schemes that promise early access to pension funds before the legal retirement age. These often result in you losing a lot of your money. Also called pension loans. Learn more about pension scams and how to avoid them here.

Escalating annuity
An option to increase the annuity income over time to help combat the effects of inflation. This can be fixed or linked to inflation rates. We explain more about escalating annuities in this guide.

Pension transfer
Moving pension savings from one pension provider to another. This should be carefully considered, as it may impact benefits and charges.

Pensions Ombudsman
The Pensions Ombudsman is an independent authority that investigates and resolves complaints and disputes about pensions. It provides potential help for individuals facing pension-related issues.

Pension Wise
Pension Wise is a government service that offers free and impartial guidance on pension options to anyone aged 50 or over with a defined contribution pension. It can help you understand the choices available to you.