We speak as we find…not always the case in pensions!?
Ey up, tomorrow (1 August) is Yorkshire Day and it’s a time for the staff here in York to celebrate God’s own county and all things Yorkshire, from the obvious Yorkshire Pudding to the more obscure gems that we gave the world, such as the bottle bank, the cat’s eye and the world’s first football club – Sheffield FC (formed in 1857!)
One of the perceived traits of the Yorkshire person is no nonsense, straight forward talking. We like, or at least try our best, to tell it how it is!
With this in mind we thought you’d be chuffed if we decipher some of the jargon the pensions industry is known for and translate so you and your employees know what it all means when you get your annual statements!
Annual Management Charge, basically how much you pay to be a member of your pension scheme, as a percentage of your pension pot. Other charges may also apply. You may want to check what you’re paying as these charges vary a lot.
Essentially just the reduction in investment risk as you approach retirement
Defined Contribution Pension
Builds up a pot of money to provide cash/income or both when you choose to take benefits after age 55. The amount you build up depends on how much you (and often your employer) pay in, the investment returns you receive and the charges you pay.
Defined Benefit Pension
Pays a retirement income based on your salary with the specific employer and how long you have been a member of the pension scheme. Also called Final Salary or Career Average pension scheme.
The maximum that you and an employer can pay into pensions each year (that qualifies for tax relief). Currently £40,000 or capped by your total earnings if less. Some people, such as high income individuals or those who have taken benefits on a flexible basis may have a lower allowance.
The maximum value of pension savings that you can build up without paying an additional tax charge. Currently £1,073,100 for the 2020/21 tax year, so a lovely problem to have!
A form to instruct your pension provider whom you would like your pension pot to be paid to in the event of death (it’s very important to complete this). Sometimes called ‘Expression of Wishes’ form.
It’s just a posh name for a guaranteed pension income, usually paid for life but not always!
Flexi Access Drawdown
Your pension pot is left invested, but you can take an income or cash from it (as much or as little as you like). But be careful, it might run out!
A pension pot that you’ve not cashed in by using drawdown or purchasing an annuity. You may still have access to your pension without crystallising it, using UFPLS (see below). It’s hard to simplify some of this complex pension stuff!
Money Purchase Annual Allowance (MPAA)
The reduced amount that can be paid into a pension scheme and still receive tax relief if you have started to take money out of a Defined Contribution pension pot on a flexible basis (currently £4,000 in the 20/21 tax year). One to watch out for if you want to start taking flexible benefits and keep paying into a pension.
Uncrystallised Funds Pension Lump Sum (UFPLS)
One of the worst bits of jargon! This is an ad-hoc cash sum taken from a pension pot, which will be 25% tax free with the rest being potentially taxable. It’s usually possible to take an unlimited number of UFPLS from a pension until the pot runs out.
Helping your employees
What with all these technical terms kicking around, employees more often than not look to their employers for help with pensions and retirement planning and we can help you to help them. With a great range of employee communications, we can help you positively and effectively assist your employees to try and improve their retirement. Watch them in action below - and get in touch to find out how we can help you.