Pensions glossary of terms

By Tolley
  • (Updated for Budget 2020)

The following Personal Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Pensions glossary of terms
  • Annual allowance
  • Automatic enrolment
  • Deferred member
  • Defined benefit arrangements
  • Flexi-access drawdown
  • Lifetime allowance
  • Money purchase arrangements
  • Money purchase annual allowance
  • National Employment Savings Trust (NEST)
  • Net payment arrangement
  • Occupational pension schemes
  • Pension commencement lump sum
  • Pension input amount
  • Pension input period
  • Personal pensions
  • Registered pension scheme
  • Regulated investment advice
  • Relevant UK earnings
  • Relief at source
  • Retirement annuity contract
  • Scheme administrator
  • Short service refund lump sum
  • Stakeholder pensions
  • Trivial commutation lump sum
  • Uncrystallised funds pension lump sums (UFPLS)

Annual allowance

The annual allowance is the maximum amount which can be contributed (or deemed to be contributed) in a pension input period without the member incurring a tax charge.

The annual allowance for 2010/11 was £255,000. For 2011/12, the annual allowance was significantly reduced to £50,000 and further reduced to £40,000 with respect to the 2014/15 tax year onwards. From 6 April 2020, the allowance is tapered for those with adjusted income over £240,000. From 6 April 2016 to 5 April 2020, it was tapered for those with adjusted income over £150,000.

This is discussed in detail in the Annual allowance guidance note.

Automatic enrolment

Employers are required to automatically enrol eligible employees into a qualifying pension scheme and make contributions on the employees’ behalf. Employees may voluntarily opt out of the automatic enrolment regime. 

PenA 2008, ss 1–99

Those employees with lifetime allowance protection will need to opt out to ensure the conditions of the protection are not breached. See the Lifetime allowance guidance note.

Some workers may not be entitled to be automatically enrolled into a workplace pension but may opt into one. Whether or not they qualify for an employer contribution depends on the level of their earnings.

For more information, see the Automatic enrolment ― overview guidance note.

Deferred member

This term only relates to occupational schemes which are defined benefit arrangements. A deferred member is an employee who has left the employment but has retained his benefit rights within the scheme.

His pension is deferred until the normal retirement age and he is normally provided with details of his accrued rights when he leaves. His entitlement will normally be index-linked until his normal retirement date.

Defined benefit arrangements

Under a defined benefit arrangement, the contract between the member and the pension scheme specifies the amount of benefits that are to be paid under the arrangement. This is often expressed as a formula. The formula may be based on the salary in the final year (or the last three years) of employment, with such

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