Jargon Buster

Below you’ll find definitions of some terms used on this site and in other pension material.

A list of acronymns is provided at the end of the list of terms.

If you find a term you don’t understand on the site and it’s not listed here, contact us and we may add it to the list.

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

Abatement

This refers to the amount by which a member's pension may be reduced upon re-commencing employment which is again eligible for membership of the LGPS.

Accrual rate

The rate at which a scheme member's benefits build up for each year and part year of scheme membership (1/80th pension and 3/80ths lump sum for membership before 1st April 2009 - 1/60th pension and no automatic lump sum from 1st April 2009).

Active member

An employee who is currently paying pension contributions.

Actuarial reduction (also called percentage reduction)

The amount by which a scheme member's pension and lump sum benefits are reduced if they are withdrawn before the date of normal retirement.

Actuarial valuation

Every three years the Fund undergoes an actuarial valuation. An actuary assesses whether the Fund has enough money to pay everyone, and how much will need to be paid into the Fund in future to make sure all the benefits can be paid.

Actuary

An actuary is an expert in risks. Actuaries are mathematicians who work in insurance or pensions, and they use their expertise to assess whether there are enough funds to cover future possibilities.

Additional regular contributions (ARCs)

Additional amounts paid into the Local Government Pension Scheme to purchase extra LGPS pension. The amount that you choose to pay is calculated in accordance with guidance issued by the Government Actuary’s Department (GAD). You can purchase £250 of additional pension or multiples thereof up to a maximum of £5,000.

Additional voluntary contributions (AVCs)

Payments made within certain HM Revenue & Customs limits to an approved provider (normally an assurance company) in order to provide additional benefits to those payable from the LGPS.

Administering authority

An administering authority runs a pension fund. Employers pay contributions to the administering authority, who then invest those contributions so there’s enough to pay people’s pensions from it.

Glasgow City Council is the administering authority for the Strathclyde Pension Fund.

Admission agreement

An agreement made between the administering authority, a scheme employer and a contracted company to allow the contractor to become part of the LGPS.

Admitted body (may be called admission body)

An employer who is carrying out work that is normally of a similar nature to local government work and who has entered into a contractual arrangement with the administering authority to be part of the LGPS.

Age retirement

Retirement at age 65.

Annual allowance

If the value of your pension benefits increases by more than the annual allowance in one year, you may have to pay income tax. Most members won’t be affected by this: in 2011 /12 the annual allowance is £50,000.

If you make large AVCs, receive a pay rise of £10,000 or are a very high earner, why not visit our LGPS tax valuer?

Annuity

An amount of additional pension benefit. When you buy an annuity you can choose the type of pension that best suits your circumstances.

Assets

The Fund’s investments.

Augmentation costs

The costs imposed on employing authorities who choose to retire members of the scheme before their normal retirement date and grant them additional periods of membership in compensation for their loss of office. Forms part of the total capital costs for early retirement.

Augmented membership

Membership granted at the discretion of the employing authority.

Authorised payments

Payments that a pension scheme is allowed to make. These payments will not be subject to a specific tax charge.

Bonds

Governments issue bonds in order to borrow money. The purchaser gets a fixed annual interest payment as well as eventual repayment of the purchase price.

The Fund has some bonds from many of the largest governments, as well as “company bonds”, which are similar but are issued by companies not governments.

Cash equivalent value (CEV)

This is the cash value of your pension rights for the purposes of divorce or dissolution of a civil partnership.

Certificate of material change

A certificate issued to a scheme member by an employing authority when the member, as a result of a decision of the employing authority, has to take a reduction in pay. The certificate protects the members higher pay for the purpose of calculating subsequent pension and lump sum entitlements within certain conditions.

Child

Eligible children are your children. They must, at the date of your death:
• Be under 18 and be wholly or mainly dependent on you, or
• Be aged 18 or over and under 23, be dependent on you, and be in full-time education or undertaking vocational training (although a dependent child who commences full-time education or vocational training after the date of your death may be treated as an eligible child up to age 23), or
• In come cases, a dependent child of any age who is disabled may be classed as an eligible child.
In all cases, the children must have been born before or within a year of your death.

Civil partnership

A civil partnership is a legally registered relationship between two people of the same sex.

Compensatory added years (also known as credited period)

Additional membership granted at the discretion of an employing authority to an employee who is made redundant or who retires on efficiency grounds.

Consumer Prices Index (CPI)

This shows the changes in the cost of living. It reflects changes in prices of a cross-section of goods and services over time.

The amount pensions are raised annually has up to April 2010 been based on the Retail Prices Index from the previous period September - September. From April 2010 CPI is used.

Contracted-out

The Local Government Pension Scheme (LGPS) is contracted-out of the State Second Pension Scheme (S2P).

This means you won’t get a State Second Pension when you retire - the LGPS is guaranteed to pay at least as much as S2P. It also means that you’ll probably pay less National Insurance.

Contributions equivalent premium (CEP)

An amount which represents the employer's liability for national insurance contributions at the not contracted out rate in respect of a member who elects to take a refund of pension contributions.

Currency investors

Currency investment involves buying currency when it is cheap and selling for a profit when it becomes stronger.

Death grant

An amount paid to a current or former member's estate or nominated beneficiary(ies) in the event of death in service (equal to three times annual pensionable pay), death after retirement (equal to the balance of 10 years worth of pension where the death occurs before the age of 75) or death of a deferred beneficiary (a multiple of the deferred pension plus pension increases).

Deferred benefits (may be called preserved benefits)

Benefits retained in the Fund when a member leaves without an entitlement to the immediate payment of those benefits. If a transfer of benefits does not take place beforehand, deferred benefits are usually paid from the member's normal retirement date.

Deferred member

A former member of the LGPS who has left the LGPS, but still has benefits in the LGPS and will collect a pension from the LGPS on retirement.

Deficit

If assets are less than liabilities, the Fund is said to be in deficit - there isn’t enough money in the Fund to pay all future pension payments, so contributions may need to go up. This won’t affect your pension because it’s guaranteed by law.

Defined benefit scheme

A scheme where the benefits payable are defined by regulation and are not dependent upon contributions paid or on how well those contributions are invested.

Discretion

Your employer and Strathclyde Pension Fund have the power to choose how to apply certain aspects of your pension.

How your employer deals with discretionary parts of your pension will be set out in their policy statement.

Early retirement

A term used to described the payment of pension and lump sum to a member before the member has attained normal retirement age of 65.

Earmarking

A term used for the part of a divorcing member's benefits which is earmarked for his or her former spouse upon completion of the divorce in accordance with a Court Order.

Efficient exercise of the service

This term describes the circumstances whereby a member who is aged 55 (50 for certain protected members) or over is asked to retire by his employer in the interests of the efficient exercise of the employer's functions.

Enhanced protection

See protection -primary lifetime allowance protection.

Equities

Equities are shares in companies. The owner shares the profits (or losses) and growth (or fall) in the value of the company. The Fund owns shares in all the major markets in the world as well as some smaller, emerging markets.

Final pay

This figure is used to calculate most of your pension benefits and it’s normally pensionable pay received over the last 365 days before retiring. If your pay went down in your last year, it could be the pay from one of the two previous years.

If you work part time, your final pay is normally scaled up to the full-time equivalent.

If your pay is reduced because of sickness, your final pay is taken to be the pensionable pay you would have received had you not been off sick.

If you’re off on maternity, paternity, or adoption leave and are paying (or are considered to be paying) pension contributions, final pay is taken to be your pensionable pay if you were working normally.

Free standing additional voluntary contributions (FSAVCs)

Similar to AVCs but the contributions are paid to a provider of the member's choice and not to the approved in-house AVC scheme provider.

Funding level

The percentage of the Fund’s liabilities which can be paid out of the Fund. If the funding level falls below 100%, more will need to be paid into the Fund. This doesn’t affect your pension because it’s guaranteed by law.

Gainful employment

This means paid employment for not less than 30 hours in each week for a period of not less than 12 months.

Global equity

Investors in global equity can invest in equities from anywhere in the world, although they are limited by other aspects of their mandate. They are expected to give better returns than standard indices like the FTSE 100 or the local equivalent.

Guaranteed minimum pension (GMP)

This is the minimum pension the Local Government Pension Scheme (LGPS) must pay you for the period you were a member of the scheme between 6 April 1978 and 5 April 1997.

It’s worked out using the amount of State Earnings Related Pension Scheme (SERPS) benefits you would have earned if you hadn’t been part of the LGPS between these dates.

The GMP affects yearly increases in your pension paid from the LGPS. Any portion of GMP earned before 1988 won’t go up - that increase is paid through your State Pension.

For example, if you have a basic annual pension of £6,000, and the Department of Work and Pensions (DWP, formerly DSS) has notified you that you have a total annual GMP of £600, the increase would be applied to the £5,400 figure, not to the £6,000.

However, we are responsible for paying pensions increase of up to a maximum of 3% on any portion of the GMP which relates to service after 5 April 1988.

Example

Pre 1988 GMP

£500

Post 1988 GMP

£100

Gross annual pension - 10 April 2005

£6000

Pension increase would be applied as follows:

Gross annual pension

£6000

Example

Less pre 1988 GMP £500

= £5500

Less post 1988 GMP £100

Pension increase of 3.1% due 5400 x 3.1% = £5567.40

Pension increase of 3% due on post 1988 amount £100 x 3% = £103.00

Plus pre 1988 GMP £500

Total new pension payable £6170.40

Ill health retirement

A retirement which occurs when an employer determines to terminate a scheme member's employment on the grounds that his ill health or infirmity of mind or body renders him permanently incapable of discharging efficiently the duties of his current employment.

Index linking

A term used to describe the inflation proofing of LGPS benefits.

Index-linked bonds

A type of bond where the annual interest payment varies with inflation.

Individual adjustment

An adjustment made to the employer contribution rate which reflects the individual circumstances and membership profile of each employing authority.

Inter-fund adjustment

A transfer of pension rights on behalf of a scheme member who has left one local government employment to take up new employment with a different Local Government Authority in a different region of the country.Back to top

Internal disputes resolution procedure (IDRP)

A complaints procedure governed by regulation providing any current or former scheme member with the opportunity to settle any dispute or complaint they may have in respect of any decision made regarding their entitlements under scheme rules.

Back to top

Liabilities

The total expected value of future pension payments from the Fund to its members.

Lifetime allowance

This is the total capital (cash) value of all pension benefits - not just from the Local Government Pension Scheme - you can have before you’ll be asked to pay tax on them. If the total value of pension benefits when you draw them is more than the allowance, you have to pay tax on the excess.

Not many members of the scheme will be affected. The Treasury set the limit for 2011/12 at £1.8 million that will fall to £1.5m in 12/13. “Fixed protection” (of a lifetime allowance) is available up to 5 April 2012.

When a pension starts to be paid you use some of your lifetime allowance, so you need to keep a record of any pensions you receive.

When you draw your Local Government Pension Scheme pension, Strathclyde Pension Fund will ask for the percentage of your lifetime allowance which has been used up by any other pensions. If you don’t answer this promptly, it could delay your payment.

Local government

The term local government also covers Police and Fire civilian staff, a registration officer, and non-teaching staff of educational establishments such as self-governing schools and further education colleges.

Lower earnings limit

This is the amount you have to earn before you pay any National Insurance. For 2011/12 the primary threshold is £7,228 pa.

Multi-asset passive investment

Multi-asset passive investors can invest in global markets and need only match the returns given by indices like the FTSE 100 (or the local equivalent)

Nominated cohabiting partner

A member who has been contributing to the LGPS at some point since 1 April 2009, can nominate a cohabiting partner, of either the opposite or same sex, to receive a partner's pension. Both partners have to sign a joint declaration and satisfy certain conditions.

Nomination

A current or former scheme member can choose whom they would like to receive any death grant payable from the LGPS. This is sometimes called an expression of wish but it should be noted that such a nomination is not legally binding and is an expression of wish only. The administering authority has ultimate discretion when releasing death grant payments.

Normal retirement age

65 (although certain protections apply to certain members).

Pensionable pay

This is your salary or wages plus shift allowance, bonuses, contractual overtime, and any other taxable benefit specified in your contract as pensionable.

Pay doesn’t include non-contractual overtime, expenses, payment in lieu of notice, pay in lieu of lost holidays, any payment as inducement not to leave (“golden handcuffs”) or company cars or payment in lieu of a company car.

Pensionable service

This is used to assess your entitlement to receive benefits and means the calendar length of your employment while a member of the LGPS, plus the calendar length of any service transferred into the LGPS from a previous employer's scheme. In certain circumstances it may also include previous part-time or non contributory service.

Pension sharing

The splitting of a member's benefits upon divorce.

Pensions increase

The amount by which LGPS benefits are increased annually and based on movement in inflation during the 12 months to September.

Policy statement

Your employer must produce a policy statement. It sets out how they will treat discretionary items within the pension scheme.

If any changes are made to the policy statement, you should be told within one month. You can ask your employer or Strathclyde Pension Fund for the latest copies of their policy statements.

Private equity

Private equity is an asset class consisting of equity securities in operating companies that are not publicly traded on a stock exchange.

Property

In investment, property can refer to offices, shops, shopping centres, retail parks and warehouses. Returns from property can include rental income and growth in value (capital growth).

Protection - primary lifetime allowance protection and enhanced protection

When the lifetime allowance was introduced on 6 April 2006, it was decided that benefits accrued up to this point could be protected. If the pension you’d built up by 5 April 2006 exceeded the lifetime allowance, you could apply for primary protection up to 5 April 2009 so you had a new, personal, lifetime allowance.

If you reached the lifetime allowance by 5 April 2006 or thought you might in the future, you could also apply for enhanced protection. Provided your benefits at 5 April 2005 had not increased beyond certain limits (more than 5% per year, the Retail Prices Index, or increases in pensionable pay, whichever is greater) you would not then pay tax on benefits greater than the lifetime allowance.

If you pay into another pension scheme or transfer your Local Government Pension Scheme pension, you will lose your enhanced protection. If you don’t inform Her Majesty's Revenues and Customs within 90 days of this, you could be fined up to £30,000.

Protected members and the 85 year rule

You need your employer's permission to retire before age 60.

If you joined the Local Government Pension Scheme after 30 November 2006 and decide to retire earlier than 65 years of age, your pension and lump sum will be reduced by a percentage relating to the number of years early you retire.

If you were a member of the scheme on or before 30 November 2006, and can satisfy the 85 year rule, you may have transitional protection which could entitle you to retire earlier than 65 years of age and receive your pension and lump sum unreduced.

You satisfy the 85 year rule if:

• Your membership plus your age in whole years adds up to 85 or more.
• If you joined the scheme before 1 April 1998 and the date you would have achieved 25 years’ membership is earlier than the date you satisfy the 85 year rule, the earlier date is used to assess the reduction for early retirement. This makes the reduction smaller.

If you were a member of the scheme on or before 30 November 2006, the following may apply:

If you are 60 or over by 31 March 2020,

And you satisfy the 85 year rule:

• Any benefits accrued before 31 March 2020 will not be reduced.
• Any benefits accrued after 31 March 2020 will be reduced by a percentage relating to the number of years early you retire.

And you do not satisfy the 85 year rule, but would if you kept working to 65:

• Any benefits accrued before 31 March 2020 will be reduced by a percentage relating to the number of years until you would have satisfied the 85 year rule.
• Any benefits accrued after 31 March 2020 will be reduced by a percentage relating to the number of years early you retire.

And you do not, and will not, satisfy the 85 year rule:

• All benefits will be reduced by a percentage relating to the number of years early you retire.

If you are under 60 on 31 March 2020

And you satisfy the 85 year rule:

• Any benefits accrued before 31 March 2008 will not be reduced.
• Any benefits accrued after 31 March 2008 will be reduced by a percentage relating to the number of years early you retire.

And you do not satisfy the 85 year rule, but would if you kept working to 65:

• Any benefits accrued before 31 March 2008 will be reduced by a percentage relating to the number of years until you would have satisfied the 85 year rule.
• Any benefits accrued after 31 March 2008 will be reduced by a percentage relating to the number of years early you retire.

And you do not, and will not, satisfy the 85 year rule:

• All benefits will be reduced by a percentage relating to the number of years early you retire.

The 85 year rule and protected membership can be quite complicated, so you’re advised to contact us for more help.

Retail Prices Index (RPI)

This shows the changes in the cost of living. It reflects changes in prices of a cross-section of goods and services over time.

The amount pensions are raised annually has up to April 2010 been based on the Retail Prices Index from the previous period September - September. From April 2010 CPI is used.

Rule of 85

See protected members and the 85 year rule.

Specialist mandate

An investor with a specialist mandate will invest only in a particular geographical area, industry sector, or other limited field.

State Earnings Related Pension Scheme (SERPS)

SERPS is an earnings-related element of the State Pension. Benefits are paid by the Department for Work and Pensions (DWP, what was previously the DSS).

SERPS is based on the National Insurance contributions you’ve made between 1978 and 2002, with a maximum of 20 years’ contributions counting.

SERPS won’t pay until you reach State Pension age and has been reduced for people who retire after 1998.

State Pension Age (SPA)

For men born before 6 December 1953, SPA remains 65.

For women born before 6 April 1950, SPA remains 60.

To move towards equalising SPA for men and women, women born between 6 April 1950 and 5 December 1953 will have an SPA between 60 and 65.

Women born on or after 6 December 1953 will have an SPA of at least 65 (as the equalised SPA is to be increased above 65 for men and women).

Men and women born between 6 December 1953 and 5 October 1954 will have an SPA between 65 and 66.

Men and women born on or after 6 October 1954 will have an SPA between 66 and 68.

State Second Pension (S2P)

This scheme replaced SERPS – see State Earnings Related Pension Scheme. S2P is a top-up to the basic state pension and members of the LGPS automatically contract-out of S2P for the duration of their LGPS membership.

Surplus

If assets are greater than liabilities, the Fund is said to have a surplus - there’s enough to pay all future pensions to fund members, with some to spare. This is the ideal situation to be in.

Total membership

This is the amount of membership that counts for working out different benefits you may be due.

Working out if you’re entitled to a benefit

There are two different ways your service counts within the Local Government Pension Scheme:

Your service counts in the calculation of your benefits in the scheme.
Your service in the scheme counts towards entitling you to a benefit in the scheme.

Although these statements may seem similar, both periods of service can be different. For example if a member works part-time, lets say 17.5 hours instead of 35 hours, the service for calculating benefits would be half it's actual length, i.e. 3 years service would only count as 1.5 years.

Having less than 2 years service the member would not normally be entitled to a retirement benefit, however, although the reduced service of 1.5 years is used to calculate the members benefits, the full length service of 3 years is used in deciding the member's entitlement to benefit.

For working out the amount of pension you’ll get, your total membership includes:

• The number of years and days you are a member - if you’re part time, this is scaled down to the full time equivalent. For example, if you work exactly half time, every year worked counts for 6 months’ membership.
• The number of years and days bought by transferring in a previous employer’s pension plan, a personal pension plan, or a stakeholder pension scheme.
• Any additional years you’ve opted to buy or which have been granted to you by your employer.
• Any additional years from converting additional voluntary contributions to membership, available only to members who took out AVC contracts prior to 30/06/2005.
• Any membership given because of ill health enhancement.
• Any membership you’re already receiving a pension from, or in an earlier deferred pension, will not be counted.
• If you were over 45 when you joined (or the last time you joined if you have any deferred membership), and you bought extra membership before 1 December 2006, that extra membership won’t count towards lump sum calculations. It will instead be used in your annual payment calculation, but rather than dividing this membership by 80, it will be divided by 60.

Transferred service

Any pension that you have transferred into the LGPS from a previous pension arrangement that now counts towards your LGPS membership (see pensionable service) which also counts towards Rule of 85.

Transfer value

The actuarial value of i) a member's benefits paid to an alternative pension scheme on leaving the LGPS as an alternative to deferred benefits or a refund of contributions; or ii) a member's benefits paid by a previous employer into the LGPS upon joining the LGPS.

Trivial commutation lump sum

Providing an individual's total pension benefits do not exceed 1% of the standard lifetime allowance their pension rights can be fully commuted into a single lump sum payment on or after age 60 and before age 75 (all benefits must be commuted within a 12 month period). They will be taxed as having pension income in that tax year equal to the lump sum payable (after any tax-free cash has been taken).

Upper accruals point

This is the amount of pay beyond which you cease to pay the, lower, contracted-out rate of national insurance contributions. The upper accruals point for 2011/2012 is £770 per week. On earnings above the upper accruals point and up to the upper earnings limit of £817 per week you pay the full 12% national insurance contribution and on earnings above the upper earnings limit you pay a 2% national insurance contribution.

Upper earnings limit

On anything you earn over the upper earnings limit, you only pay 2% national insurance contributions. The upper earnings limit for 2011/12 is £42,484 pa.

ACRONYMS

AAC Annual Allowance Charge
ACT Advance Corporation Tax
AVC Additional Voluntary Contribution
ARC Additonal Regular Contribution
BCE Benefit Crystallisation Event
CA Certified Amount
CAY Compensatory Added Years
CEP Contributions Equivalent Premium
CETV Cash Equivalent Transfer Value
CLG Communities and Local Government
COD Contracted Out Deduction
COEG Contracted-Out Employments Group
COMBS Contracted-Out Mixed Benefit Scheme
COMPS Contracted-Out Money Purchase Scheme
COSRS Contracted-Out Salary Related Scheme
DWP Department of Work & Pensions
ECON Employers Contracting-Out Number
FSAVC Free Standing Additional Voluntary Contribution
FURBS Funded Unapproved Retirement Benefits Scheme
GAD Government Actuary's Department
GMP Guaranteed Minimum Pension
HMRC Her Majesty's Revenue & Customs
IDRP Internal Disputes Resolution Procedure
IFA Inter-fund Adjustment
ILA Individual Lifetime Allowance
LAC Lifetime Allowance Charge
LAEF lifetime Allowance Enhancement Factor
LGE Local Government Employers
LGPC Local Government Pensions Committee
LGPS Local Government Pension Scheme
NAPF National Association of Pension Funds
NRA Normal Retirement Age
NRD Normal Retirement Date
PI Pensions Increase
PIA Pension Input Amount
PIP Pension Input Period
RPI Retail Prices Index
S2P State Second Pension
SCAVC Shared Cost Additional Voluntary Contribution Scheme
SCON Scheme Contracting-Out Number
SERPS State Earnings Related Pension Scheme
SIP Statement of Investment Principles
SLA Standard Lifetime Allowance
SPA State Pension Age
TPAS The Pensions Advisory Service (formerly OPAS)
TV Transfer Value

Pre 1988 GMP	£500
Post 1988 GMP	£100
Gross annual pension - 10 April 2005	£6000

Less pre 1988 GMP	£500
=	£5500
Less post 1988 GMP	£100
Pension increase of 3.1% due	5400 x 3.1% = £5567.40
Pension increase of 3% due on post 1988 amount	£100 x 3% = £103.00
Plus pre 1988 GMP	£500
Total new pension payable	£6170.40