Jargon Buster

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

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.

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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.

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.

Annual allowance

If the value of your pension benefits increases by more than the annual allowance in one year, you’ll have to pay income tax at 40% on the excess. Most members of the scheme won’t be affected by this - the annual allowance is set by the treasury at £235,000 for 2008/09.

If you fill in a self-assessment tax return, ask the pension office about the increase in the value of your benefits, and don’t forget that any other pensions you may have will count as well. An accountant will be able to help you with your tax return.

Assets

The Fund’s investments.

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.

Civil partnership

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

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.

Currency investors

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

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.

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.

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.

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.

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

Index-linked bonds

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

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 2008/09 at £1.65 million.

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.

Lower earnings limit

This is the amount you have to earn before you pay any National Insurance. For 2008/09 it is £5,460 pa. It usually increases every year.

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)

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.

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.

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 should be protected. If the pension you’d built up by 5 April 2006 exceeds the lifetime allowance, you can apply for primary protection so you have a new, personal, lifetime allowance.

If you have reached the lifetime allowance by 5 April 2006 or think you might in the future, you can also apply for enhanced protection. Provided your benefits at 5 April 2005 have not increased beyond certain limits (more than 5% per year, the retail price index, or increases in pensionable pay, whichever is greater) you won’t 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.

You must register for primary or enhanced protection by 5 April 2009.

Enhanced and primary lifetime allowance protection are a complex subject, so if you think you might exceed your lifetime allowance, contact the pension fund office.

Protected members and the 85 year rule

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 is based on the Retail Prices Index from the previous period September - September. It’s very difficult to predict in advance, but past Retail Prices Index levels can be found on the calculating your pension increases page.

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

This is currently 65 for men and 60 for women. From 2010 this difference will start to be phased out, so that by 2020 both men and women retire at 65.

The retirement age for women during this phase-out process is shown below:

Date of birth State Pension age

Before 6 April 1950 60

6 April 1950 - 5 April 1951 Between 60 & 61

6 April 1951 - 5 April 1952 Between 61 & 62

6 April 1952 - 5 April 1953 Between 62 & 63

6 April 1953 - 5 April 1954
Between 63 & 64

6 April 1954 - 5 April 1955 Between 64 & 65

After 5 April 1955 65

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.

Upper earnings limit

On anything you earn over the upper earnings limit, you only pay 1% National Insurance contributions. The upper earnings limit is usually increased annually by Parliament.

For 2008/09 it is £40,040 pa.

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

Date of birth State	Pension age
Before 6 April 1950	60
6 April 1950 - 5 April 1951	Between 60 & 61
6 April 1951 - 5 April 1952	Between 61 & 62
6 April 1952 - 5 April 1953	Between 62 & 63
6 April 1953 - 5 April 1954	Between 63 & 64
6 April 1954 - 5 April 1955	Between 64 & 65
After 5 April 1955	65