Contact Guides and tools Pensions and retirement Investments Funds Insurance Existing customers Contact a financial adviser Home Guides, Tools & Events Glossary Guides, Tools & Events Calculators Glossary Retirement News & Articles Glossary A B C D E F G H I J K L M N O P Q R S T U V W X Y Z A Back to top of page AAA Rating The highest credit Rating for a Bond or company - the risk of non­payment is very small Active Management The traditional investment approach where fund managers actively build and change a portfolio of assets (e.g. stocks and shares) in order to take advantage of what they believe are the best opportunities. Actuary Business professional who analyses the financial consequences of risk. Added Years (of Service) One way of boosting your retirement income is by buying a specific number of added years in a final salary scheme which will increase the service on which your pension is based. Additional Bonus A discretionary bonus that we may declare in relation to a With-Profits Pension Annuity. Additional Rate Tax The highest rate of income tax in the UK, which in the 2015/16 tax year is 45% for those with a taxable income of more than £150,000. Adviser charging An agreement between you and your financial adviser to pay him or her directly for the services you receive initially and ongoing. The payment may be made directly, say as fee, or taken directly from your investment as a matched deduction which will be facilitated by a product provider. Annual Management Charge (AMC) A charge made over the year by fund managers and product provides to cover the expenses associated with running the fund and administering insurance and pension products. Although it is expressed as an annual percentage figure it is usually taken from the fund daily. Annualised Converted to a yearly figure. i.e. Taking a five-­year Return and converting it to tell you what that would mean for just one of those five years. Annuity Rate The factor used to calculate the amount of income payable, following investment of a lump sum in an annuity. Anticipated Bonus Rate (ABR) This is your estimate of the rate of future bonus we'll declare each year in relation to a With-Profits Pension Annuity. It was used to determine your starting income and it also determines how your income changes each year. The higher the ABR, the higher your starting income was. However, a higher ABR also means your income has less potential for growth and there is a greater chance your income will fall in the future. Asset Allocation The proportion of investments in a fund or portfolio held in different asset classes such as equities, fixed interest and cash. Asset Classes The different types of assets available to investors. For example, equities, cash, fixed interest or property. Assets Items that are owned by an individual such as property and investments. Money in a bank or building society account is known as a liquid asset. Assets may also be held in a fund. Assignment The formal transfer of rights to another party. For example, the rights to receive the benefits of a life insurance policy to repay a debt/loan. Association of British Insurers (ABI) The trade association for insurance companies in the UK. Association of British Insurers (ABI) sectors The ABI Sectors are a system for the classification of life and pension funds. Every sector sets clear criteria that must be followed by funds wishing to belong to that sector. It ensures that life and pensions funds operating similar investment strategies are grouped together. AVC (Additional Voluntary Contributions) Non compulsory additional payments made by a member of an employer's pension scheme to boost retirement benefits. B Back to top of page Balanced Managed Fund A fund that aims to provide capital growth through investments in a diversified portfolio of collective investment schemes. Base Rate An interest rate set by the Bank of England which is used as a benchmark by UK lenders. Basic Materials Sector A category of stocks covering companies involved with the discovery, development and processing of raw materials. The basic materials sector includes the mining and refining of metals, chemical producers and forestry products. Basic Rate Tax This is the basic rate of income tax in the UK, which for the 2015/16 tax year is 20%. Basic State Pension The flat rate (not earnings-related) state pension paid to all who have met the minimum National Insurance contribution requirements. The full basic state pension in 2015/16 is £115.95 a week for a single person. This changes each year on 6 April. To satisfy the minimum National Insurance contributions requirement you need to have built up enough qualifying years. You will need 30 qualifying years for a full basic state pension. The above is based on our understanding, as at February 2015, of current legislation and HM Revenue & Customs' practice, all of which is subject to change without notice. The impact of taxation (and any tax reliefs) depends on individual circumstances. Basis Point A measure, which is often used in describing small percentages. Each basis point is equal to 0.01%, 25 basis points equals 0.25%. Bear Market A market where prices are falling against a background of gloomy investors. Benchmark A tool with which to measure a fund's performance - often a market Index or model portfolio. Beneficiary This is someone who benefits from a will, trust, pension fund or a life assurance policy. Bid (Selling) Price The price you get when you sell shares, bonds or units in a unit trust. The price you buy shares, bonds or units in a unit trust is known as the Offer (Buying) Price. The difference between the two is often referred to as a Bid Offer Spread. Blue Chip A leading company that is well established and tends to be regarded as relatively safe. Comes from the colour of the 2nd highest value poker chip. Bond Lower to medium risk loans to the government or companies that pay you a fixed rate of interest. Bottom - ­Up Analysis Analysis of individual companies, whereby that company's history, management and potential are considered more important than general market trends (as opposed to Top­Down). Boutique managed Funds Investment funds that are specialised in some way either through the expertise needed to manage the portfolio or because it has an unusual theme or a collection of funds under one house. These 'boutique' funds are typically offered by smaller, specialist firms as opposed to large investment management companies. British Government Stocks See "Gilts". Bull Market A market where prices increase against a background of optimistic investors. Buying (Offer) Price The price at which you can buy shares, bonds or units in a unit trust. C Back to top of page Cancellation Period The period in which you are entitled to change your mind and cancel a financial commitment. Any money already paid will be returned although there is a risk less may be returned - for example, if the value of an investment contract has fallen during the cancellation period. Capital The amount you invest in any type of savings or investment product. Capital Charge When a unit trust manager takes the management charges out of the fund's capital instead of the income it has produced. Capital Gains Tax (CGT) You make a 'capital gain' if you sell assets such as shares or property for more than they cost you. Each tax year you are allowed to make gains up to a certain amount without paying any tax. For the 2015/16 tax year this figure is £11,100. Everyone has their own individual allowance so it may be possible for couples to make a combined gain of £22,200 before they have to pay the tax - although each individual's circumstances are considered separately. Some gains you make are exempt from capital gains tax. These include gains from the sale of your car and Individual Savings Accounts. Also, you do not have to pay capital gains tax when you sell your home provided certain conditions are met. Capital Growth/Gain Any money you receive in addition to the capital you've invested when you cash in your investment. Capped Interest Rate Where the interest rate can go up or down, but cannot exceed a certain level for a set time. Cash-in Value The amount you get if you cash in an investment. Cautious Managed Fund A fund that aims to provide a combination of income and capital growth, while reducing risk by diversifying your investments. Certificates of Deposit These are money market investments that are generally issued by banks against a security. A certificate of deposit usually pays interest (which can vary) and entitles the bearer to receive a set interest rate up until a set maturity date and can be issued in any currency or denomination. Closed Ended Funds This describes a collective investment scheme which has a limited number of shares (or units). The shares are then traded on an exchange or directly through the fund manager to create a secondary market subject to market forces. Collective Investments These pool money from many different investors into one fund, such as a unit trust, open ended investment company (OEIC) or investment trust. Commission Money paid by a financial company to a third party (eg an Independent Financial Adviser or direct agent) for selling a product. The financial company may recover the cost of the commission through charges to the client. Commodities These are raw materials and foodstuffs that can be divided into 5 main categories: Agriculturals (e.g. wheat and potatoes), Softs (e.g. coffee and cocoa), Precious Metals (e.g. gold and silver), Non­Ferrous Metals (e.g. copper and lead) and Energies (e.g. oil and gas). Company Pension Schemes A pension scheme provided (sponsored) by an employer for its employees. Company pension schemes can be defined benefit schemes (final salary schemes) or defined contribution schemes (money purchase schemes). Compound Interest In, for example, a deposit account. This is where interest is added to both capital and the accrued interest from time to time. The longer a customer leaves an investment the more advantage they can take of compound interest. For example, if in year one a customer is paid 10% on his/her £100 investment, at the end of the year the investment is worth £110. In year two, with compound interest taken into account, the customer now earns 10% on £110, giving £121 at the end of the year. Consumer Price Index (CPI) Measures the prices of a Fixed "basket of goods" bought by a typical consumer. Used as a measurement of inflation Contracted Out/In A pension scheme is contracted out when it provides benefits in place of the State Second Pension (previously known as SERPS). If you're employed you can normally contract out of the State Second Pension by using a personal pension, a stakeholder pension or a company pension scheme. As a result, your State Second Pension/SERPS benefit will be replaced by investing contributions (e.g rebate or minimum payments) with the provider. The Pensions Act 2007 provided for the abolition of contracting out under Money Purchase schemes. This means everyone who is currently contracted out of the State Second Pension under a Money Purchase arrangement will be contracted back in from 6th April 2012. Contributory Pension A company pension scheme where the employee contributes as well as the employer. Conventional Annuity One type of conventional annuity is a guaranteed annuity. A guaranteed annuity is a pension annuity that guarantees to provide you with a regular income usually for the rest of your life in return for you paying over a lump sum from your pension fund. It can provide a guaranteed level of income which stays the same each year, an income that increases by a fixed percentage or one that changes in line with inflation. The level of income you receive will depend on various factors including your age and size of your pension fund. Convertible Bonds (can also be called Deferred Equity) These are corporate bonds that are exchangeable for a set number of another form of investment (for example, common shares) at a prestated price. Convertible bonds typically pay a lower income than is normally available from common bonds. Convertible Term Assurance A life assurance policy which pays out if the policyholder dies within the period of policy, but also allows the customer to convert to another type of plan offered by that provider without requiring any proof of health at the time of conversion within certain limits. Corporate Bond A loan to a company that earns you income in the form of interest. (See also Bond). Coupon The interest rate applied to the value of a corporate bond or gilt (see Government bond). Credit Rating Formal evaluation of a company's loan­-repayment history and current ability to repay its financial liabilities. Awarded by agencies such as Standard & Poor's and Moody's. AAA grade is the highest. Cyclicals Companies whose business prospects are linked to the Business Cycle - construction companies, for example D Back to top of page Dax Index A main Index of the German Stock Exchange. Default Risk This is the possibility that the issuer of a bond will be unable to make payments when they are due. Defensive Stocks Shares in companies whose business conditions are not particularly linked to the Business Cycle. They provide goods for which demand does not tend to be affected by Recession - utilities and basic food producers, for example. Deferred (delayed) Annuity Purchase An option available to a member of certain types of pension scheme, where an annuity income is determined some years before the date income is due to start, and is conditional upon agreed contributions being paid. Defined Benefit Pension Scheme A company pension scheme where the pension an employee receives is linked to their length of scheme service and size of their salary as defined in the scheme rules. They are often referred to as final salary schemes. Defined Contribution Pension Scheme A company pension scheme where the contributions made by the employer and employee are set and the final pension an employee receives depends on a number of factors including the size of their fund on retirement. This final fund is then used to buy an annuity or an unsecured pension (income drawdown). These are also referred to as money purchase schemes. Deflation Fall in the general level of prices of goods and services in the economy. Deposit Account A savings account from a bank or building society that pays interest on the amount of money held in it. Depositary One to whom something is given in trust for storage or safekeeping. (A depository is the facility where things can be deposited for storage or safekeeping.) Open Ended Investment Companies (OEICs) are overseen by an independent body known as the depositary. For unit trusts this is called a trustee. Deposits Money that is invested with banks, building societies and other organisations to earn interest. Derivatives These cover products such as futures and options which are generally an arrangement to buy or sell a standard quantity of a specified asset on a fixed future date at a price agreed today. Also considered to be a financial instrument whose value is dependent upon the value of an underlying asset. Devaluation A drop in the value of a currency compared to other currencies. This could either be a deliberate policy by a government, or the effect of supply and demand for that currency. Distribution When a company pays money (dividends) to its shareholders, or when a unit trust pays income to unit holders. Diversification Spreading your investments to reduce the risk of your portfolio. Dividend A payment made by a company to its shareholders. The size of the payment is usually determined by the size of the company's profits and is usually paid twice a year, although a company does not have to pay a dividend at all. Dividend Yield The Dividend per share expressed as a percentage of the share's market price. Domicile Normally the country where you have your permanent home or principal establishment and to where, whenever you are absent, you intend to return. You can only have one domicile at a time. For inheritance tax purposes for instance, you are deemed domiciled in the UK if you spend 17 out of 20 tax years in the UK. Your 'domicile of origin' is acquired from your father when you are born, or from your mother if they were not married at the time of your birth. You can legally change your domicile in certain circumstances. Domicile is a legal concept and is distinct from residence, which is a HMRC categorisation of how many days per tax year you spend in a country. You are considered resident in the UK for tax purposes if you spend more than 183 days per tax year in the country. Please note - this is only a summary of the requirements, more information is available from HMRC. The above is based on our understanding, as at February 2015 of current legislation and HM Revenue & Customs' practice, all of which is subject to change without notice. The impact of taxation (and any tax reliefs) depends on individual circumstances. This is only a summary of the requirements and more information is available from HMRC. Dow Jones Industrial Average (DJIA) A widely used Index of the US stockmarket. This is a weighted average of the prices of 30 Blue Chip New York Stock Exchange (NYSE) shares. Dual Priced Dual priced funds have a buying (offer) price and selling or (bid) price. The buying price is higher than the selling price - and this difference is known as the spread or bid-offer spread. The difference is typically 5% and may vary to reflect changes in the market. Duration A measure of the sensitivity of the price of a Bond to changes to interest rates. Similarly, the Duration of a Bond fund measures the sensitivity of all the Bonds in that fund to movements in interest rates. It is a widely used measure of how risky a Bond or a portfolio of Bonds is. E Back to top of page Early Retirement When a member starts to take their pension before the normal retirement date of the scheme. Earnings per Share A company's profit after tax has been paid, divided by the number of shares it has in issue. Emergency Fund Cash set aside in a dedicated interest account to cover unanticipated financial emergencies such as property repairs, medical expenses and car repairs. Employer Pension Schemes A pension scheme provided (sponsored) by an employer for its employees. Company pension schemes can be defined benefit schemes (final salary schemes) or defined contribution schemes (money purchase schemes). Endowment A life assurance policy that pays out a lump sum after a specific period of time or on the earlier death of the policyholder. They can be used as a vehicle for saving or as a way to repay a mortgage. It is important to remember that an endowment is a medium to long term commitment. A customer who surrenders early may not get back the amount of money they have invested. Equities Another name for shares held in a company or companies. Equity The value of an asset (e.g. a property) less any money owing on it (e.g. loans/mortgages). Equity also refers to shares held in a company. Equity Investment Funds An investment fund that invests in UK shares or in overseas companies. Equity Release Scheme Schemes that allow homeowners to release cash from the value of their property. There are two types of equity release schemes. A lifetime mortgage scheme allows you to raise money against the value of your property while you still own it and a home reversion scheme allows you to sell all or part of your home to a reversion company. The options for releasing the money are not standardised across the industry and depend upon the product terms. Escalation When an annuity payment is automatically increased at regular intervals by a fixed percentage rate. Estate Assets owned by an individual at death. Ethical Funds These aim to make socially responsible investments (they do not invest in companies that have interests in socially unacceptable markets or produce harmful products or by-products, such as high levels of environmental pollution). Eurobonds A Eurobond is an international bond that is denominated in a currency not native to the country where it is issued. It can be categorized according to the currency in which it is issued. For example, a British company may issue a Eurobond in Germany, denominating it in U.S. dollars. European Central Bank (ECB) The central bank of the member countries of the Eurozone. It sets interest rates throughout the Eurozone. Exchange­-Traded Fund This is an investment vehicle the units of which are traded on a stock exchange. An exchange traded funds can hold a range of assets such as stocks, bonds or even commodities. Most track an index, such as the FTSE All­-Share or the S&P 500. Executor(s) Individual(s) who are appointed in a will to deal with the wishes of the deceased, in administering their estate. F Back to top of page Federal Reserve Board (Fed) The US central bank. Final Salary Scheme A company pension scheme where the final pension an employee receives is linked to the size of their final salary and the number of years they have been a member of the scheme. They are also referred to as defined benefit pension schemes. Financial Adviser There are four main classes of adviser: tied advisers (working for one financial institution), multi-tied advisers (paid by more than one financial institution), whole of market advisers (working with all companies but only on a commission basis) and independent financial advisers. Independent financial advisers must offer their clients the option to pay for advice by fee rather than commission. Financial Conduct Authority (FCA) The FCA is an independent body that regulates the financial services industry in the UK. The FCA has been given a wide range of rule-making, investigatory and enforcement powers in order to meet its four statutory objectives. In meeting these, they are also obliged to have regard to the Principles of Good Regulation. The 4 statutory objectives are: Market confidence - maintaining confidence in the UK financial system; Financial stability - contributing to the protection and enhancement of stability of the UK financial system; Consumer protection - securing the appropriate degree of protection for consumers; and The reduction of financial crime - reducing the extent to which it is possible for a regulated business to be used for a purpose connected with financial crime. Fiscal Policy A government's spending and taxation policy. Fiscal Surplus - Also Budget Surplus The amount by which a government's income (from tax revenues, etc) exceeds its spending (as opposed to Fiscal/Budget Deficit) Fixed Interest Rate An interest rate that does not change during an investment or borrowing period. Fixed Interest Securities More commonly known as "bonds" these are loans issued by companies or by governments in order to raise money. Bonds issued by companies are called corporate bonds, those issued by the UK government are called gilts and those issued by the US government are called treasury bonds. In effect all bonds are IOUs that promise to pay a sum on a specified date and pay a fixed rate of interest along the way. Floating Rate Notes (FRN's) These are basically short-term loans to financial organisations, such as banks, under which the investor receives interest payments from that financial organisation. At the end of an agreed period the financial organisation has to repay the loan. The interest payment rates are linked to a specified "floating" rate typically the London Interbank Offered Rate (LIBOR). This means that interest rate payments may go up or down. Forward Priced If a fund is forward priced , it means that the fund gets the next available price after monies are invested. Forwards Contract (or Forwards) These are agreements between two parties to buy or sell an asset at a fixed future date for a price determined at the time of dealing. Free Standing Additional Voluntary Contribution (FSAVC) A non-compulsory payment made by a member of a company pension scheme who wants to boost their retirement benefits, but keep the payments separate from their occupational fund. Payments are made into a separate FSAVC fund. FTSE 100 Index An index of the share prices of the 100 largest companies (by market capitalisation) in the UK. FTSE is a trademark jointly owned by the London Stock Exchange plc and The Financial Times Limited and is used by FTSE International Limited ("FTSE") under licence. The FTSE 100 index is calculated solely by FTSE. FTSE does not sponsor, endorse, or promote this website and is not in any way connected to it and does not accept any liability in relation to its issue, operation and trading. All copyright in the index values and constituent list vests in FTSE. FTSE All-Share Index An index of the share prices of more than 800 leading companies and investment trusts on the London Stock Exchange. FTSE is a trademark jointly owned by the London Stock Exchange plc and The Financial Times Limited and is used by FTSE International Limited ("FTSE") under licence. The FTSE 100 index is calculated solely by FTSE. FTSE does not sponsor, endorse, or promote this website and is not in any way connected to it and does not accept any liability in relation to its issue, operation and trading. All copyright in the index values and constituent list vests in FTSE. FTSE Europe (ex UK) Index The FTSE Europe ex UK Index is part of a range of indexes designed to help European investors benchmark their international investments. The index comprises Large (43%) and Mid (57%) cap stocks providing coverage of the 20 Developed & Secondary Emerging markets in Europe excluding the UK. FTSE Small Cap Index The FTSE Small Cap consists of companies outside of the FTSE 350 Index and represents approximately 2% of the UK market capitalisation. FTSE World Index An Index that measures the combined performance of the major markets around the world. FTSE World Japan Index The FTSE Japan Index forms part of the FTSE Global Equity Index Series. It contains over 460 large and mid cap stocks capturing 90% of the Japanese market. Fully Contracted Out Policy Pension policy where the only payment received is for 'contracting out' of the State Second Pension (see Rebate Only Personal Pension). Fund A pool of money normally set apart for a purpose, for example a pension fund to provide pensions. Fund Benchmark A measure against which performance of an investment (fund) is to be judged. Fund Manager An individual who is employed by a company to manage money. It is a fund manager's aim to buy shares or other assets such as property or bonds that they believe will increase in value or provide a level of income. Fund of Funds A "fund of funds" (FOF) is an investment strategy of holding a portfolio of other investment funds rather than investing directly in shares, bonds or other securities. This type of investing is often referred to as multi-manager investment. A fund of funds may be 'fettered', meaning that it invests only in funds managed by the same investment company, or 'unfettered', meaning that it can invest in external funds. Fund Value The monetary value of a fund, which is calculated by adding up the value of its underlying assets. For instance, the price of units in a unit trust is worked out from the value of all its holdings divided by the number of units issued. G Back to top of page GDP (Gross Domestic Product) A measure of the value of all goods and services produced in an economy in a year. Gift A transfer of goods or property to another party. There are limits to the value and number of gifts you can make without any immediate or future inheritance tax liability. Gilt A bond issued by the British Government. Government Sovereign Bond A government debt issued in a foreign currency. Gross Earnings Earnings before income tax and other deductions are taken. Gross Income Reinvested Any income that the fund produces ( e.g. interest and dividends) is reinvested back in to the fund and is not liable for UK tax. Gross Interest The amount of interest you receive without any income tax or charges deducted. Gross Pension Contribution A payment to a pension scheme deducted from earnings before the deduction of income tax. Group Personal Pension (GPP) A scheme set up by an employer whereby employees can take out personal pensions. These types of schemes are not compulsory nor does the employer have to contribute to the pension. The employees often benefit from low charges secured by the employer's 'bulk purchase' and the contributions may be deducted directly from their salaries. Growth & Income Fund A fund which maintains a balance between investments aiming to produce growth and those generating income. Growth Fund This aims to maximise growth over the medium to long term by investing in shares, property, fixed interest and other investments. Growth Investing An investment process that chooses to invest in shares that generally produce lower Dividends and have high expectations of future growth. Guaranteed Annuity Rate A guaranteed annuity rate guarantees that the annuity rate we offer will always be at a certain minimum level. If your pension includes a guaranteed annuity rate, it means you could get a higher income than normal, especially when annuity rates are low. Guaranteed Income Bond A guaranteed income from a fixed-term investment - usually three to five years - paid monthly or annually. Capital is generally secure so this is a low risk investment, but penalties usually apply for early withdrawal. Guaranteed Minimum Pension The minimum pension which a company final salary pension scheme must provide in respect of contributions paid between April 1978 and April 1997, as a condition of contracting out of the State Earnings Related Pension Scheme. Guaranteed Pension Annuity This is our conventional annuity - please see conventional annuity. It guarantees to pay a regular income usually for life. Your income can always stay the same, increase each year by a fixed percentage of up to 8.5% or change each year in line with the Retail Prices Index (RPI). H Back to top of page Hedged Back to Sterling This is a specific example of hedging where the trader is trying to protect an existing or anticipated position from an unwanted move in sterling exchange rates. Hedging A strategy employed in order to reduce or mitigate risk. Hedging involves making an off setting transaction in one market in order to protect against possible losses in another. Currency hedging is a specific example of hedging where the fund manager tries to protect an existing or anticipated position from an unwanted move in exchange rates. High Income Bonds A medium risk bond invested over a fixed period with no capital guarantees. These provide a fixed rate of income, either monthly or annually, which is net of basic tax. If you are a higher rate tax payer you will need to pay the additional tax. There may be penalties for early withdrawal. High Yield Bond This is a bond that generally has a low (or "non­-investment grade") credit rating and which offers higher interest payments than a bond with a higher credit rating due to the increased risk of default by the company issuing the bond. It can also be known as a "junk" bond. Higher Rate Tax The higher rate of income tax in the UK, which in the 2015/16 tax year is 40% for those with a taxable income of more than £31,786. Historic Priced If a fund is is historically priced, it means that the unit price is set before money is invested. Home Reversion Plan The sale of part of or your entire home to a reversion company in return for a lump sum, regular income or a combination of the two. You can continue to live in your home until you die or go into long-term care. When your home is sold the percentage you sold will go to the plan provider. I Back to top of page iBoxx Indices iBoxx indices cover the cash bond market. Underlying bond prices and indices are available in real time. The indices can be used as benchmarks,asset allocation and performance evaluation. Illustration An example of the potential growth a customer may expect to receive from an investment. The growth rates used are set by the industry regulator, the Financial Conduct Authority (FCA). It is important to remember that the actual return received could be higher or lower than that shown on the illustration. Income Money received by an individual for example as a salary or from investments which is usually subject to income tax. Cash deposits and bonds will provide income in the form of interest. Most UK shares will provide income in the form of twice-yearly dividends. Income Choice Annuity This is our with-profits pension annuity. It guarantees to pay a regular income usually for life linked to the investment performance of our With-Profits Fund. It lets you choose your starting income from within a set range and includes a Secure Level - an amount we guarantee to pay you which has the potential to increase but can never go down. Income Drawdown Enables people with certain types of pension plans to put off buying an annuity and to take income direct from their pension fund. Income Tax Tax paid by individuals on income received over a certain amount, dependent on the tax thresholds in place for the year in question. Independent Financial Adviser (IFA) (See Financial Adviser) Index In the stock market, an index is a device that measures changes in the prices of a basket of shares, and represents the changes using a single figure. The purpose is to give investors an easy way to see the general direction of shares in the index. Examples of stock market indices are the FTSE 100, FTSE All-Share, Nikkei and Dow Jones. Index Fund A fund that is managed so as to generate the same returns as a specified Index (also known as "Passive" or "Tracker" funds). Index Linked The linking of a payment such as a pension to an inflation index - for example the Retail Prices Index (RPI) - with the aim of keeping pace with inflation. Indexation Another name for index tracking. An investment strategy designed to produce a rate of return in line with a specific financial index. This term is also used to describe automatic increases in pension contributions. Industry Classification Benchmark (ICB) A method of classification developed by FTSE. It is used to segregate markets into economic sectors. The ICB uses a system of 10 industries, partitioned into 19 supersectors, which are further divided into 41 sectors, which then contain 114 subsectors. Inflation The rate of increase in the price of commodity products over time as recorded in an index such as the Retail Prices Index (RPI). This can affect the buying power of investments when cashed in at a future date. Inheritance Tax (IHT) A tax your estate pays at a flat rate of 40% on assets over a certain limit that you leave on your death. IHT can also apply to assets given away during your lifetime and may be payable by the person who receives a gift. The individual IHT threshold for the 2015/16 tax year is £325,000. This is also known as the 'nil rate band'. Married couples and civil partners can now transfer their nil rate band upon death, so if one partner dies and a proportion of their allowance is unused, the remainder can be transferred to the surviving partner. Assets passed between spouses or civil partners are exempt from IHT, regardless of their worth and how soon you die after making them. These rules also apply to gifts made to charities. Additionally, any amount of money you give away outright will not be counted for IHT if you survive for seven years after making the gift. If you die within this period, taper relief on the amount may apply. This can reduce the amount of tax due. Tax laws are subject to change, possibly retrospectively. Also, IHT for domiciled citizens can be charged in the UK and again locally, on for instance a foreign-owned property, so tax and local laws should be investigated by a potential investor. The above is based on our understanding, as at February 2015, of current legislation and HM Revenue & Customs' practice, all of which is subject to change without notice. The impact of taxation (and any tax reliefs) depends on individual circumstances. Initial Charge A charge made by an investment provider to cover the cost of setting up an investment. The amount invested is the amount contributed less the initial charge. Interactive factsheet An online fund factsheet that allows you to choose sections of content and perform tasks such as expanding and adding data. Interest Rate The amount of money a customer can earn on an investment or is charged for borrowing money. It is usually expressed as a percentage of the total amount invested or borrowed. Inter-Spouse/Civil Partner Transfers A tax-free transfer between husband and wife/civil partner under inheritance tax rules. Intestate/Intestacy This refers to a person dying without a valid will. Upon death the person's assets are distributed according to the law, regardless of the person's intent when they were alive. Investment Certificate A document showing details of units held within a unit trust or shares or bonds. Investment Grade A credit rating given to a Government or Corporate bond that indicates that the agency giving the rating(e.g.Standard&Poors) believes that the issuer has a relatively low risk of default. Bonds with credit ratings of AAA,AA,A or BBB are considered investment grade.Low rated bonds with ratings of BB or below are often called High-Yield or Junk Bonds. Investment Trust A company that invests in the shares of other companies, or other assets such as property or bonds. When investing in an investment trust, customers actually own shares in the investment trust rather than owning the shares it invests in. IPO Initial Public Offering. When the shares of a company are available to buy for the first time. ISA (Individual Savings Account) A savings vehicle that allows customers to invest in equities, (stocks and shares) or save cash without having to pay any income or capital gains tax. ISIN An international security identification code. J Back to top of page Joint-Life Annuity An annuity that pays you a regular income for life and then when you die usually pays your dependant a regular income for life too. Junk Bond A high­-risk Bond of below Investment Grade,issued by a company or government. K Back to top of page No glossary term available for this letter. L Back to top of page Legacy plans Plans which are no longer open to new business (but may be available for top- ups) LIBOR (London Interbank Offered Rate) This is the interest rate that London banks charge when lending money to one another over a short period of time.LIBOR is often used as a benchmark when setting other short term interest rates. Life Assurance An assurance policy that pays out a lump sum or instalments on the death of the life assured. Life Funds A pool of money and/or assets such as property or shares held by a fund into which all life assurance policyholders' premiums are paid and from which claims are made . In the context of defining 'Life' or 'Pension' funds, 'Life' funds are those accessed via investment bonds, savings and protection plans Lifetime Allowance If the value across all your pension funds exceeds the Lifetime Allowance at the time you take your benefits, a tax penalty will be payable on the excess amount. The limit for 2015/16 is £1.25 million. A new form of protection called Fixed Protection was introduced in 2014 to protect those who have built up pension pots of more than £1.25m but no more than £1.5 million. If you are affected by this limit you may wish to contact a Financial Adviser, for which you may be charged. Lifetime Mortgage This is a loan secured against the value of your property that can be converted into a cash lump sum or income, without the need to move. You can also do this using a home reversion scheme. These types of plans are sometimes referred to as equity release. Limited Company A British term for a corporation, a limited company is a business entity that limits the liability of shareholders to the extent of their investment. Liquidity This is how quickly an asset, such as equities,corporate bonds or property, can be traded within a market and turned into cash. Listed Company A company that satisfies the listings rules of a stock exchange, and whose shares are quoted and traded on a stock exchange. Loan to Value (LTV) The ratio between the value of an asset (such as property) to the value of the loan that will finance the purchase of that asset. LTV tells the lender if potential losses due to non-payment may be recouped by selling the asset. London Interbank Bid Rate (LIBID) This is the interest rate at which banks bid for cash deposits from each other. Long Term Care Bonds An investment bond that is designed to cover the costs of care in old age. Can be used to cover residential home costs as well as expenses incurred when care takes place within the home. Long ­Dated Bonds Bonds that will not reach Maturity for at least 15 years. Lower Earnings Limit If you are an employee, the lower earnings limit is the point at which your earnings start to build up entitlement to state pension benefits. The 'primary threshold' is the point at which you start to pay National Insurance contributions. M Back to top of page Managed Fund Usually a fund choice within a unit-linked policy. Managed funds are generally made up of units from a wide spread of other specialist funds or investments so spreading the risk of volatility. Marginal Tax Rate The additional tax which someone pays on each £1 increase of their taxable income. In the UK the tax bands for the 2015/16 tax year are: 20% on the first slice of taxable earnings, 40% on the next slice and 45% on the next slice. See also basic rate tax, higher rate tax and additional rate tax. Market Capitalisation This is the total value of a company's issued securities at their current market prices. This figure should include all the different types of security issued by the company, such as shares and bonds, but is often used in relation to the equity or stockmarket capitalisation. The market capitalisation of a company is the market price per share multiplied by the number of shares in issue. Companies are often referred to as large cap(an abbreviation for large market capitalisation),mid cap (an abbreviation for a medium-­sized company by market capitalisation) or Small Cap (an abbreviation for small market capitalisation). Market Value The value of an asset to a third party on the open market. Market Value Reduction (MVR) If you take money out of a with-profits fund, an adjustment may be made to the value of the withdrawal if the value of the underlying assets is less than the value of your plan including bonuses. This adjustment is known as a market value reduction. Maturity The specified date when a policy comes to an end and the policy benefits are paid. In the context of fixed interest investments ( bonds), this means the lifetime of the bond. Medium-­Dated Bonds Bonds that are due to reach Maturity within the next five to 15years. Member A person who has been admitted to membership of a pension scheme. MEXID A security identification code issued by the Financial Times. Minimum Contributions Contributions payable to an appropriate personal pension or stakeholder pension by HM Revenue & Customs in respect of a member who has contracted out of SERPS or the State Second Pension. This could also refer to minimum contribution levels that can be paid into a financial product. Minimum Income Guarantee (MIG) This was a means-tested benefit that helped individuals on low incomes at retirement. It has now been replaced by Pension Credit. Minimum Payments This is the smallest amount an employer is allowed to pay into a contracted out money purchase scheme. This amount will give the employee protected rights. Monetary Policy A way of influencing the economy by controlling the availability and cost of money (mainly through changing interest rates). Monetary Policy Committee (MPC) The MPC is a committee of the Bank of England which meets monthly to vote on whether changes to interest rates should be made. Money Market Investments Defined as cash and near cash such as bank deposits,certificates of deposits,fixed interest securities or floating rate notes, with, where applicable,a maturity date of under a year. Money Purchase Scheme A pension scheme where the contributions made by the individual (and their employer in respect of a company pension scheme) are set and the final fund is then used to buy an annuity. These are also known as defined contribution schemes. N Back to top of page Nasdaq Stands for National Association of Securities Dealers Automated Quotation. A US based stock exchange originally focusing on smaller or new companies, often high­-tech, but now includes big companies such as Microsoft. National Insurance Contributions A tax paid by most employers and employees to the UK government. For the employed it is deducted from income by the employer on a scale related to income levels. The self-employed pay contributions based on profit and like the unemployed may pay a flat-rate voluntary contribution to keep their benefit entitlements up to date. Negative Equity When the amount left outstanding on the mortgage is greater than the value of the related property. If you have taken out a lifetime mortgage, you may be able to secure a 'no negative equity guarantee'. This means that if your property ends up being worth less than the amount you owe after you die or move into permanent long term care, your provider will cover the difference so your family will not have to pay anything. Net This is the sum you have remaining when there is nothing else to be deducted. Net Interest Interest received on a savings account after tax and charges have been deducted. Net Pension Contributions Pension contributions taken from bank accounts or after-tax salary. Tax relief is claimed back from HMRC by the pension provider. Nil-Rate Band This refers to the ceiling on earnings for income tax purposes under which no tax is payable. For the 2015/16 tax year, the personal tax free allowance is £10,500 for those born after 5 April 1948, £10,500 for those born after 5 April 1938 but before April 1948 and £10,660 for those born before 6 April 1938. Where taxable income exceeds certain limits these allowances are reduced. Nil-rate band also applies to the threshold for inheritance tax (IHT). In the 2015/16 tax year the individual threshold is £325,000 - above which anything you leave may be subject to tax at 40%. (Assets passed between spouses or civil partners are exempt from IHT, regardless of their worth and how soon you die after making them. Nominal Value The face value of something, for example a share issue. Non-Contributory Pension A company pension where the employee does not make any type of contribution. It is entirely funded by the employer. Normal Retirement Date Refers to the date at which a member of a pension scheme normally becomes entitled to receive his/her retirement benefits. Notice Of Coding A notice of coding shows your tax code if you are going to pay through the PAYE system. It is usually sent out in January or February for the tax year beginning 6 April. O Back to top of page OAT A French Government Bond. OATi An inflation­ proofed Bond issued by the French Government. OECD Organisation for Economic Co­operation and Development. An organisation set up to help member countries to develop policies to promote continued economic growth. OEIC (Open Ended Investment Company) An investment company where shares can be created or cancelled to match demand, in a way similar to the units of a unit trust. The principal difference lies in the fact that there is a 'single price' to which is added the initial charge for purchase. Offer (Buying) Price The price you buy shares or units for in a unit trust. The price you get when you sell shares or units in a unit trust is known as the Bid (Selling) Price. The difference between the two is often referred to as a Bid Offer Spread. Offer to Bid In the context of measuring performance, offer to bid refers to the comparison between the original purchase cost or offer price - usually of a unit trust - and its current bid price, the price you receive if you sell. This measures the actual return you would get if you sell. Offer to Offer In the context of measuring performance, offer to offer refers to the comparison between the original purchase cost or offer price - usually of a unit trust - and its current offer price. This measures how the investment has performed without taking account of the initial charge. Offshore The concept of 'offshore' has no strict legal definition. Broadly speaking, though, it refers to jurisdictions that offer concessionary taxation regimes compared to major 'onshore' centres, such as the UK or US. Additional characteristics of some offshore centres include such things as banking confidentiality and less strict company formation rules. Options Legal agreements that give the holder the right (but not the obligation) to buy or sell the underlying asset at an expiration date, at a price determined at the time of dealing. Ordinary Residence 'Ordinary residence' applies when you live in the UK year after year. The term 'residence' applies when you are in the UK for 183 days or more in the tax year. You may be resident but not ordinarily resident in the UK for a tax year if, for example, you normally live outside the UK but are in the UK for 183 days or more in the tax year. Or you may be ordinarily resident but not resident for a tax year if for example you usually live in the UK but have gone abroad for a long holiday and do not set foot in the UK during that year. (See also domicile). Please refer to HM Revenue & Customs for full details. The above is based on our understanding, as at February 2015, of current legislation and HM Revenue & Customs' practice, all of which is subject to change without notice. The impact of taxation (and any tax reliefs) depends on individual circumstances. Ordinary Shares Also known as equity shares, these are the most common form of share in the UK. They give the owner a right to share in the profits of a company (dividends) and to vote at general meetings of the company. Overfunding Where a defined benefit/final salary pension arrangement has assets which exceed those required to meet its liabilities (the benefits allowed). P Back to top of page Passive Management An investment approach that aims to mirror or track the performance of a financial index. This is normally done by either investing in the exact constituents of an index or by taking a representative sample of that index. The managers of the fund have lower expenses than active fund managers, and the charges to investors are therefore lower. PAYE (Pay As You Earn) HM Revenue & Customs' system for collecting income tax from the pay of employees as they earn it. Pension Annual Allowance The amount of pension saving that can be made in a tax year, up to which no tax charges will apply. Pension Annuity This is a type of annuity usually bought with the proceeds of an HMRC registered pension scheme. Find out more about pension annuities in our guide. See also Conventional Annuity, Guaranteed Pension Annuity, Income Choice Annuity and Enhanced Annuity. Pension Credit A benefit for people who have a relatively low income, even if they have some savings and modest retirement income, and can be paid on top of a state pension scheme. There are two elements - the Guarantee Credit, which can be claimed by pensioners aged 60 or over, and the Savings Credit for those 65 or over. The latter rewards pensioners with a second pension or modest savings. This term is also used to describe an amount of pension transferred to an ex-spouse following divorce. Pension Fund General term used to describe the investment fund built up in a pension plan and used at retirement to provide a continuing income. Pension Income The regular income provided by a pension annuity. Pension Transfers Refers to the process by which the current value of a pension plan can be transferred from one registered pension scheme to another registered pension scheme. The value is normally transferred direct from one employer or pension provider to another. Pensionable Earnings Earnings on which benefits and contributions in a pension scheme are calculated. Pensionable Service Period of service with a company that is used in the calculation of pension benefits in a defined benefit/final salary scheme. Permanent Interest Bearing Shares (usually referred to as PIBS) These are fixed-­interest securities issued by building societies. Building societies use them in the way public limited companies would use preference shares (see above). Although similar to bonds, PIBS typically exist as long as their issuer does. They typically offer better interest rates than bonds although unlike bonds have no fixed redemption date and so redemption value will be determined by market values at the time of sale. PIBS are not covered by UK government compensation schemes. If the building society is in financial distress, amounts are paid to holders of PIBS only after depositors. Personal Allowance The level of income above which income tax starts to be levied. Personal Equity Plan (PEP) From April 6 2008, Personal Equity Plans (PEPs) ceased to exist and are now treated as stocks and shares ISAs. (They were available for investment between 1987 and 1999, allowing you to enjoy the profits from stock market-related investment, free of income tax and capital gains tax.) Personal Pension A private pension that you can take from job to job. The other main types of personal pension schemes are group personal pensions (GPP), stakeholder pensions and self invested personal pensions (SIPPS). Policy A document giving all of the details of the agreement between the policyholder and the insurer. Policy Conditions The terms of a policy, which sets out the rights and responsibilities of the parties involved. Policyholder Generally taken to mean the owner of the policy. Pooled Investments Investments such as unit trusts, where a number of people put their money together to enable them to buy a wider range of investments, thereby spreading the risk of volatility. Potentially Exempt Transfer Gifts on which inheritance tax will not be payable unless the donor dies within seven years. Pound Cost Averaging The term used to describe the effect of paying a fixed regular amount into a unitised investment fund where the value of units fluctuates. The amount will purchase more units when prices are low and vice versa. Preference Shares (also called Preferred Stock or Preferred Shares) These are shares in a company which give their holders an entitlement to a fixed dividend payment and may or may not carry voting rights. These are a "higher ranking" stock than common stock and usually have specific rights attached to them. Preference shares mean that the holder may get preferred treatment over common share holders - and carry a dividend that is paid out prior to dividends to common share holders. In the event of bankruptcy preferred share holders will be paid out from assets before common share holders and after debt holders. Premium The periodic payments a policyholder makes to an insurance policy or the amount of money an individual pays into a saving or investment product, as either a lump sum or a regular payment. Premium Frequency How often the premium is paid, such as monthly or annually. Preserved Benefits If a member of an occupational pension scheme leaves the company after less than two years' service, the employee can take a refund of any personal contributions, less certain deductions. But if the employee has been a member of the scheme for more than two years, the benefits must be preserved within the scheme or transferred to another pension scheme, and will be paid at a future date. Price/Earnings (p/e) Ratio A measure of a company's value relating to its share price and profitability. (p/e = share price divided by the Earnings Per Share. Also called earnings multiple or multiple). Primary Industry The industrial sector of an economy involved in the extraction and collection of natural resources, such as copper and timber, as well as by activities such as farming and fishing. A company in a primary industry can also be involved in turning natural resources into products. Primary industries tends to make up a larger portion of the economy of developing countries than they do for developed countries. Private Equity This is money invested in private companies (those companies that are not publicly traded on a stock exchange, such as the London Stock Exchange) or which is used to buy out publicly traded companies in order to make them private companies. Property In the context of 'Property' as a type of asset, investment is usually in commercial property such as offices, shops and industrial premises. Protected Rights If you're employed you can normally contract out of the State Second Pension. One option is to contract out using a personal pension or stakeholder pension. This means that you give up your right to benefit from State Second Pension for the period you are contracted out. As a result, your State Second Pension benefit will be reduced. In return, HM Revenue & Customs sends your selected pension provider a rebate of part of your own and your employer's National Insurance contributions. These are invested in your plan and the fund that this produces is called protected rights. There are special rules about the benefits you can get from protected rights and when they can be taken. The Government has confirmed that contracting out of the State Second Pension for this type of pension arrangement will cease with effect from 6 April 2012. If you remain contracted out until then, at this date you will be automatically contracted back in. In addition, the Government has also announced with effect from 6 April 2012 the rules on the type of annuity you can purchase with protected rights funds will no longer apply. Prudential Group Funds These are funds that are managed by either Prudential or M&G fund managers. Prudential International Funds Funds which are available to products issued by Prudential International. Purchased Life Annuity This is a type of annuity bought with a lump sum of money from personal savings or investments. Part of the annuity is deemed to be interest paid on the capital and is taxed. The other part is considered to be a return of capital and so is not liable to tax. The annuity rates for purchased life annuities and pension annuities differ. Q Back to top of page QIS A qualified investor scheme (QIS) is a type of authorised investment fund, regulated by the Financial Conduct Authority (FCA). Investors in a QIS will be institutional investors, such as life and pension funds. Quartile The division of a spread of values into four. A statistical division is generally used in financial services to denote performance of, say, a particular type of fund. Comparisons of similar funds are shown in a league table, which is divided into four quarters or quartiles. R Back to top of page Rating (Credit) See "Credit Rating". Real Interest Rate The interest rate after the effects of inflation have been taken into account - e.g. interest rates that are high may actually be relatively low in "real" terms if inflation is also very high. Real Return The Return from an investment adjusted to take into account the effect of inflation. Recession A fall in economic activity. Technically, for an economy to be in Recession, it must have endured two successive quarters of falling GDP. Recovery Stock Shares in a company whose share price has fallen substantially but is expected to recover. Redemption Date The date on which the borrower will repay the money used to buy a Bond or Gilt. Regular Bonus Bonus that is added to a with-profits investment during the course of the policy. Regulated This means the portfolio or fund has to conform to the regulations laid down by the financial authority it is trading in (i.e. in the UK the FCA protects the investor and provides structure around the products), financial service providers and markets. Repurchase Agreements (also known as Repo) An agreement in which one party sells securities to another party and agrees to repurchase those securities on a specified later date at a specified price. Required Smoothed Return This is the rate of Smoothed Return needed to maintain your chosen level of income under an Income Choice Annuity. Retail Price Index (RPI) The official "cost of living" Index in the UK based on a monthly survey of the prices of a basket of goods and services. The RPI is used to measure inflation. Retirement Date This is the date that you choose to retire at - however you can only get your state pension when you reach state pension age. This is currently 65 for men and will rise gradually to 65 for women between 2010 and 2018. The minimum age from which you can access your personal or occupational pension will increase from 55 to 57 in 2028 and is expected to remain at 10 years below the State Pension Age. The State Pension Age will gradually increase from age 66 to 67 for males and females between 6 April 2026 and 5 April 2028. These ages will be linked to life expectancy and other factors in the future and therefore will change. Prudential is not responsible for the contents or reliability of the linked web sites and does not necessarily support the views expressed within them. The listing of these web sites should not be considered as approval of any kind. We cannot guarantee that these links will work all of the time and we have no control over the availability of the linked pages. Return A measure of performance. It is the total of the increase in value and any income received over a given period, expressed as a percentage. Risk In investment terms, the balance of potential loss and potential gain as perceived by the investor. In insurance terms, the likelihood of a claim being made on a policy during the term. Risk Premium The extra Return that investors require, to hold a risky asset instead of one that has no risks. S Back to top of page Salary Sacrifice A tax-efficient method of increasing the money paid into a pension scheme by giving up existing salary or proposed salary increases, so that the sum forgone can be used as an additional company contribution into a pension scheme. Secondary Industry The industrial sector of an economy that produces finished, usable products. Unlike a primary industry, which collects and produces raw materials for manufacture, a secondary industry makes products that are more likely to be consumed by individuals. Examples of secondary industry divisions include automobile manufacturing, steel production and telecommunications. Section 226 (Retirement Annuity Contract) In effect, an old form of pension. Prior to 1 July 1988, people not in pensionable employment (employment where no pension scheme exists or where a scheme exists but was not joined) or people who were self-employed, were able to qualify for tax relief for contributions made to a pension scheme known as a Retirement Annuity under Section 226 of the Income and Corporation Taxes Act 1970. Securities A term used to describe stocks and shares. SEDOL a security identification code issued by the London Stock Exchange (or the Irish Stock Exchange for Prudential International funds) Segregated Fund Pension scheme investments managed alongside, but separately from, other investments under control of a particular manager. Selling (Bid) Price The price at which you can sell shares or units in a unit trust. The price at which you can buy shares or units in a unit trust is known as a Buying (Offer) Price. SERPS (State Earnings-Related Pension Scheme) SERPS was replaced by the State Second Pension in April 2002. Prior to that date part of an employee's National Insurance contribution went into the scheme, which was paid on top of the basic state pension on retirement. It was dependent on a person's earnings while they were in employment and the National Insurance contributions they paid. Share Capital The money paid (subscribed) for ordinary and preference shares in a limited company. Authorised share capital means the total amount of shares available to be issued. Issued share capital relates to the total amount of shares actually subscribed to. Share Exchange Under a share exchange, shares are sold and the proceeds are put into an investment. There may be dealing charges involved, although these may be less than if the shares were simply sold through a stockbroker in the normal way. Share Option An offer by a company (usually to its employees and directors) to buy its shares at a given price, before a specified date. A number of approved share option schemes offer tax-free capital growth. Shares See Equities Shopping around You don't have to take your retirement income from Prudential. You can shop around and depending on the choices you make, you may be able to get a higher income elsewhere. Short-­Term Interest Rates The interest rate charged on a loan of up to three months expressed in equivalent annual terms. Short-Dated Bonds Bonds which are due to reach Maturity in the next five years. Single Life Annuity An annuity that pays you alone a regular income for life. Single Swinging Price A method of pricing for investment funds. On any trading day, if more cash comes into the fund than leaves it, investors will be buying and selling units at the Offer Price, if there is a net outflow, then the Bid Price is used. SIPPs (Self Invested Personal Pensions) A specialist product that allows more flexibility over where your money is invested. These pensions suit people who want to make their own investment decisions and are comfortable with taking on the higher associated risk. Small Gifts Allowance An annual inheritance tax (IHT) allowance, enabling a donor to give up to £250 per year to any number of separate individuals (donees). Smaller Companies Companies quoted on a recognised exchange that have a market worth below that of blue chip companies. In the UK, smaller companies are typically defined as those with market capitalisations below the top 350 companies in the FTSE All­-Share Index. Smoothed Return This is your share of the overall profits of our With-Profits Fund which we announce each year in relation to an Income Choice Annuity. Spot Rate The price that is quoted for immediate settlement on a commodity, a security or a currency. SRI - Socially Responsible Investment Investments in companies whose activities are considered ethical. Depending on its objective, a fund may not invest in certain types of companies (e.g. tobacco firms or weapons manufacturers). Stakeholder Pension Stakeholder pensions were introduced on 6 April 2001 to give everyone the opportunity to provide for their retirement. They are especially suitable if you can only afford to save small sums. For added protection, the government laid down minimum standards to ensure that all stakeholder pensions met the same basic criteria for payments, costs and terms. For example: - Stakeholder pensions cannot charge more than 1.5% a year of your fund value for the first 10 years. It is then capped at 1% thereafter. - Savers must be able to start, stop, increase and reduce payments without penalty. - The minimum contribution is £20. Stamp Duty Land Tax A tax on the purchase of shares, securities and the purchase of land and/or buildings. For shares and securities the rate is 0.5%. In the case of land and buildings the rate varies according to value. The standard rates for residential property are: Nothing on the first £125,000 of the property price 2% on the next £125,000 5% on the next £675,000 10% on the next £575,000 12% on the rest (above £1.5 million) From 1 April 2015 SDLT wont apply in Scotland. Instead you'll pay Land and Buildings Transaction Tax when you buy a property. For more information on revised tax rates and band please visit Land and Buildings Transaction Tax The above is based on our understanding, as at February 2015, of current legislation and HM Revenue & Customs' practice, all of which is subject to change without notice. The impact of taxation (and any tax reliefs) depends on individual circumstances. State Pension Age This is the age at which state benefits may be taken as pension income. State Pension Schemes Basic state pension - if you have a full National Insurance contribution record you are entitled to the full basic state pension. State Earnings-Related Pension Scheme - depends on your earnings and National Insurance contribution made while you were in employment. SERPS is paid in addition to the basic state pension. The self-employed do not qualify for this pension. State Second Pension - this replaced SERPS in April 2002. More help will be given to the lowest earners, than under SERPS. (See also S2P). State Second Pension (S2P) This is an extra pension you may receive depending on the amount you earn and the additional National Insurance contributions you have made. More help will be given to the lowest earners, particularly those earning about £10,000 a year. This benefit replaced the State Earnings Related Pension Scheme (SERPS) in April 2002. The self-employed do not qualify. You may have contracted-out of the S2P so that part of your National Insurance contribution could be paid into a personal or employer pension Stock Exchange A market where stocks and shares are bought and sold. Stock Market A place where shares or other securities are bought and sold, for instance the London Stock Exchange. Stockbrokers Agents who buy and sell stocks and shares for customers. Stocks and Shares Sold by a company to raise money, these give the owners a right to share in the profits and success of a company through voting rights, dividends and/or capital appreciation. A stock generally refers to fixed interest securities, usually issued in denominations of £100. Sum Assured The guaranteed amount paid on death under a life assurance policy. Depending on the policy held, this sum might be increased through the addition of bonuses. Surrender Value The amount of money that will be paid to a policyholder if they discontinue a policy before it matures. The benefits the customer usually receives are reduced because of the effects of the charges. Switching Transferring sums of money from one unit-linked or with-profits fund to another. This is usually done on a bid-to-bid basis to avoid 'new money' charges when buying units at the offer price. (See Offer To Bid and Offer To Offer). T Back to top of page Taper Relief The purpose of taper relief is to reduce the amount of tax you have to pay to account for the effect of inflation. Taper relief applies to inheritance tax (IHT) if the donor dies between three and seven years after making a potentially exempt transfer (or transfers) of more than the nil rate band. It applies both to business and non-business assets, although different rules apply for each. Taper relief is calculated on the basis of how long you have held the asset for. Taper relief also used to apply to capital gains tax (CGT) to reduce the amount of tax paid through the sale of shares, property or other capital assets, but this was abolished in the 2008 Budget. Tax Credit A state benefit paid to employees through the tax system, which has the effect of increasing net income. Tax Relief The UK government encourages you to save for your retirement by giving you tax relief on pension contributions. Tax relief works by reducing your tax bill or increasing your pension fund. Tax Year A period of time used for tax calculations. In the UK this starts on 6 April each year and finishes on 5 April the following year. Term Assurance A simple life assurance policy that pays out on the death of the customer during the time period in years specified by the policy. Terminal or Final Bonus A discretionary bonus that may be added to a with-profits policy out of a life fund's surplus profit. This bonus would be payable at the end of the term of the policy (at maturity), or when a claim is made e.g. death or surrender. TESSAs (Tax Exempt Special Savings Accounts) A bank or building society account that offers tax-free interest, dividends and bonuses provided the account is maintained for a fixed period of five years. TESSAs were replaced by Individual Savings Accounts (ISAs) in 1999 as a tax-efficient way of saving over the medium- to long-term. Testate A person who dies having made a will is described as testate. Tied Adviser A salesperson who sells the policies of one particular insurance company (to which they have made a contractual agreement). Some sales people are tied to several companies (multi-tied). TIPS Treasury Inflation Protected Securities - a Bond issued by the US Treasury that offers protection from inflation through interest payments that are linked to the Consumer Price Index (CPI). Top-Down Analysis An investment approach where a manager looks at a country's economy before considering an industry to invest in. Next, they determine what industries will perform well, and finally, they buy shares in companies that are attractive within that industry (see also "Bottom­Up Analysis"). Tracker Funds Aim to mirror or 'track' the performance of any of a number of worldwide stock market indices, such as the FTSE 100 Index. (See also Passive Management). Transfer Payment Payment made from a pension scheme to another pension scheme, in lieu of benefits which have accrued to the member, to enable the receiving scheme to provide alternative benefits. The amount transferred is known as the transfer value. Transferable Securities This is a descriptor given to a type of financial security which is traded on capital markets. The term is probably most commonly known and used in association with UCITS in UK and Europe (examples would be UCITS/depositary receipts/some types of warrants). Troy oz This is the basic unit/ measurement of weight used in dealing with gold. Trust An arrangement whereby one person or persons (trustees) agree to take care of assets and to use those assets in particular ways for particular people (beneficiaries). Trustee A person appointed to manage and safeguard the assets of a trust. U Back to top of page UK Resident (for tax purposes) If you are physically present in the UK for 183 days in a tax year then you will be resident in the UK and taxable on your income and capital gains. If you are abroad only temporarily, or if you spend an average of three months a year in the UK for four years, you will be treated as ordinarily resident and therefore taxable. Please refer to HM Revenue & Customs for full details. The above is based on our understanding, as at February 2015, of current legislation and HM Revenue & Customs' practice, all of which is subject to change without notice. The impact of taxation (and any tax reliefs) depends on individual circumstances. Underfunding Generally refers to the valuation of a company final salary pension fund where the actuary perceives that there are insufficient funds to support liabilities within the investment review period. Undertakings for Collective Investment in Transferable Securities (UCITS) These are collective investments which can be sold across national borders within the EU having complied with regulations on investments and administration. Unearned Income Income received from sources such as interest on savings accounts, dividends from shares and bonds that has not been earned by working. Unit Trust A trust that pools together customers' money, allowing them to increase their investment options, therefore potentially reducing the risk. Unit trusts issue units, unlike OEICs which issue shares. Unit trusts generally have two prices: a bid price at which you sell and an offer price at which you buy. The difference between the two is often referred to as a bid offer spread. Note: Prudential Unit Trusts have only one unit price. Unit trusts are overseen by an independent body called the trustee. Unitised With-Profits A form of with-profits fund where the investor buys units whose value increases in line with any declared regular bonuses and to which a final bonus may be added when the units are cashed in. Unit-Linked Where the value of the saver's fund is linked to the value of the units of the fund it is invested in. (The value is directly dependent on the performance of the underlying asset). Unit-Linked Annuity This is a type of pension annuity. The income is linked to the performance of an underlying investment fund. The fund can be low, medium or high risk depending on what is offered by the provider or what risk the annuity owner is willing to take. Units When investing in a unit-linked contract or unit trust, the individual's contribution is used to buy units of equal value. The value of these units will fall or rise in line with the underlying investments. Unregulated This means the portfolio or fund does not need to conform to regulations. V Back to top of page Valuation A statement (verbal or written) confirming a plan's worth. Value Investing An investment process that chooses to invest in shares that are believed to have been under priced by the market. Volatility A measure of how much an investment's price is likely to fluctuate during a set period of time. W Back to top of page Warrants A warrant is a security that entitles the holder to buy shares in the issuing company at a specified price and within a certain time frame. Warrants are freely transferable and traded on major exchanges. Their value will go up or down as the price of the shares to which they relate goes up or down. Whole-of-Life Policy Life assurance a customer pays for throughout the whole of their life that pays out when they die. On some whole-of-life policies, premiums stop at a certain age. Will A document drawn up to administer an estate on death. With-Profits Pension Annuity This is our original with-profits pension annuity and it's no longer available. It guarantees to pay a regular income usually for life linked to the investment performance of our With-Profits Fund. If our With-Profits Fund performs better than expected, your income may increase and over the longer term potentially give you some protection against inflation. With-Profits Bonus An amount that is added to a with-profits life assurance policy. It can be added within the term of the policy (regular) or at the end of a policy (final). With-Profits Fund Essentially a fund made up of shares, property, cash and fixed interest securities, which usually carries a medium risk. The products that use with-profits are typically regular and single premium savings plans and pensions. With-profits funds pool policyholders' investments, and customers share in the company's investment returns and other profits. These returns are smoothed to help reduce the volatility associated with direct equity investments. With-Profits Policies An investment where regular premiums or a lump sum are paid into a with-profits fund made up of shares, property, cash, and fixed interest securities. With-profits policies are usually medium-risk investments that use a smoothing device, when determining any bonus additions that might apply, to provide some protection for the investor from ups and downs of the market. X Back to top of page No glossary term available for this letter. Y Back to top of page Yield A measure of the return on an investment compared to the price paid for it. This is normally expressed as an annual percentage. There are several types of yields. Bonds for instance have a nominal yield, current yield and yield to maturity. Shares have a dividend yield and an earnings yield. Yield can refer to growth or income, while net yield refers to the yield after charges and other deductions have been made. Yield Curve A graph showing the relationship between short-­term and long-­term Yields for a given type of asset, usually Bonds. Z Back to top of page Zero Coupon Bonds A Bond that pays no interest but is bought at a lower price than its Redemption Value. Explore Home Pensions and retirement Investments Insurance Funds Contact a financial adviser About About us Sponsorship Careers Press centre Complaints data Site information Security Legal Glossary Site map Accessibility Prudential websites PruAdviser (for financial advisers only) Prudential PLC Prudential International Employers and trustees Corporate advisers Employees Contact us Contact a financial adviser Find the right number Write to us Send us a secure email