Pensions & Retirement Glossary
Clear, plain-English definitions for terms related to retirement planning, SIPPs, and state pensions.
Jump to letter:
Annuity
A financial product you can purchase with your pension pot at retirement that provides a guaranteed income for life (or a fixed term). Annuity rates depend on factors including your age, health, and prevailing interest rates. Once purchased, an annuity cannot be changed.
Auto-Enrolment
The legal requirement for employers to automatically enrol eligible workers into a workplace pension scheme. Employees can opt out, but doing so means losing employer contributions. Auto-enrolment was introduced to increase pension saving across the UK workforce.
Beneficiary
The person or persons you nominate to receive your pension benefits in the event of your death. Most pension providers allow you to nominate beneficiaries via an Expression of Wishes form, though the trustees retain discretion over who receives the funds.
Defined Benefit (DB) Pension
A workplace pension scheme where your retirement income is calculated based on a formula — typically your final salary or career average earnings multiplied by years of service. DB pensions provide a guaranteed income in retirement, making them highly valuable but increasingly rare in the private sector.
Defined Contribution (DC) Pension
A pension scheme where you and/or your employer make contributions that are invested. The retirement income you receive depends on how much has been contributed and how well the investments have performed. Most modern workplace pensions are defined contribution schemes.
Drawdown
A flexible way of accessing your pension pot in retirement. Rather than buying an annuity, you keep your pension invested and draw an income directly from the fund. Drawdown offers flexibility but carries investment risk — if your fund performs poorly, your income may fall.
Employer Contribution
The amount your employer pays into your workplace pension on top of your own contributions. Under auto-enrolment rules, employers must contribute at least 3% of qualifying earnings. Employer contributions are effectively additional pay and should be maximised where possible.
Expression of Wishes
A non-binding written instruction to your pension provider indicating who you would like to receive your pension benefits on death. While trustees are not legally obliged to follow it, most will take it into account. Keeping your expression of wishes up to date is important.
Final Salary Pension
A type of defined benefit pension where your retirement income is based on your salary at or near retirement, multiplied by years of service and divided by an accrual rate (e.g. 1/60th per year). Final salary pensions are now rare in the private sector but remain common in the public sector.
Lifetime Allowance (LTA)
The maximum total value of pension savings you could build up across all schemes without incurring a tax charge. The LTA was abolished in April 2024, replaced by new lump sum allowances. Tax advice should be sought if you have a large pension pot.
Lump Sum
A one-off cash payment taken from your pension pot. Under current rules, you can typically take up to 25% of your pension pot as a tax-free lump sum from age 55 (rising to 57 in 2028). Any amount above this is taxed as income.
Money Purchase Annual Allowance (MPAA)
A reduced annual allowance that applies once you have flexibly accessed your defined contribution pension pot. The MPAA limits how much you can contribute to a DC pension to £10,000 per year, preventing people from recycling pension income to gain further tax relief.
National Insurance (NI) Contributions
Payments made to the government that count towards your State Pension entitlement. You need 35 qualifying years of NI contributions to receive the full new State Pension. Gaps in your NI record can reduce your State Pension and may be worth filling voluntarily.
Pension Annual Allowance
The maximum amount you can contribute to your pension each tax year and still receive tax relief. The standard annual allowance is currently £60,000 (or 100% of your earnings if lower). Contributions above this limit are subject to a tax charge.
Pension Credit
A means-tested benefit for people of State Pension age on low incomes. Pension Credit tops up your weekly income to a minimum guaranteed level and can also unlock access to other benefits such as free TV licences and help with housing costs.
Pension Tracing Service
A free government service that helps you find contact details for lost or forgotten pension schemes. If you have changed jobs multiple times, you may have several old workplace pensions that are worth tracking down and potentially consolidating.
Personal Pension
A pension plan you set up and contribute to independently of your employer, typically through an insurance company or investment platform. Personal pensions are useful for self-employed people, those who want to save more than their workplace pension allows, or those who want more investment choice.
Self-Invested Personal Pension (SIPP)
A type of personal pension that gives you greater control over where your money is invested. SIPPs allow you to invest in a wide range of assets including individual shares, investment trusts, and commercial property. They are best suited to experienced investors.
State Pension
A regular payment from the government that you can claim when you reach State Pension age (currently 66, rising to 67 between 2026 and 2028). The full new State Pension is currently £221.20 per week (2024/25). The amount you receive depends on your National Insurance record.
Tax Relief
The government's contribution to your pension savings. Basic rate taxpayers receive 20% tax relief, meaning a £80 contribution effectively costs you £80 but £100 goes into your pension. Higher and additional rate taxpayers can claim further relief through their self-assessment tax return.
Transfer Value
The cash equivalent value of your pension benefits if you choose to transfer from one scheme to another. For defined benefit pensions, the transfer value is calculated by the scheme actuary and may be significantly higher than the annual income you would have received — but transferring carries risk.
Update: Check Your Eligibility Today
Click the button below to view your updated credit score and identify any potential errors instantly.
CHECK YOUR CREDIT SCORE NOW*Secure, 256-bit encrypted connection.