Annual Allowance
The total amount that can be paid into a Defined Contribution pension scheme each year before a tax charge is applied. The current limit is £40,000 each tax year. This may be reduced if your annual earnings exceed £110,000 or if you have already started to access your pension savings. For members of defined benefit schemes, a formula is used to calculate the value of any increase in benefits each year.
Annuity
An insurance product that enables you to use your pension savings at retirement to guarantee an income for the rest of your life. These products can offer a number of additional features, including an income to a dependent on your death.
Automatic Enrolment
A policy that applies to all UK employers and requires them to enrol their employees into a workplace pension. There are certain employees that are exempt from being automatically enrolled into a pension. All employees have the option to opt out once they have been enrolled.
Beneficiary
A person or group of people that you would like to receive your pension savings in the event of your death. You can indicate who you would like to be the beneficiary of your pension and change this at any time.
Cash lump sum
This refers to receiving part or all of your pension in the form of a cash lump sum. The first 25% of your pension savings can normally be taken tax-free but tax is applied to the remainder.
Contracted Out (National Insurance Contributions)
Members of a pension scheme who were ‘Contracted Out’ paid lower National Insurance contributions and, in return, didn’t earn the Additional State Pension. It is no longer possible to be ‘Contracted Out’ however members with historic periods of ‘Contracting Out’ may receive a lower State Pension as a result.
Death Benefits
The benefits that are paid from a pension scheme in the event of your death..
Default fund
The investments that your Defined Contribution pension savings are held in if you haven’t made an investment decision yourself. You have the option to change the fund your pension savings are invested in at any time.
Defined Contribution Pension Scheme
A type of pension where contributions are made by you (the member) and possibly by your employer. These contributions are invested and you can choose how you would like to receive your savings at retirement. As the money held in this type of pension is invested there is no guarantee of how much the pension will be worth at retirement. This has become the most common type of pension offered by UK private sector employers.
Defined Benefit Pension Scheme
A type of pension scheme that provides members with a guaranteed income for life at an agreed retirement age. Most UK private sector employers no longer offer these types of pension scheme.
Deferred Member
A member of a pension scheme who has stopped building up benefits in the scheme but whose pension savings are held securely for them to access in the future. Employees of a company who end their employment usually become deferred members of the employer’s pension scheme.
Early retirement on medical grounds
A member of a pension scheme can usually only begin to receive a pension from age 55. Where a member has serious ill health they may be given the option to retire early on medical grounds. In this case, a pension can be received before the age of 55.
Final Salary Scheme
See Defined Benefit Pension Scheme
Foundation Level Contributions
The standard pension contribution structure for Your M&S Pension Saving Plan members. When you pay a 3% pension contribution M&S will pay a 6% employer pension contribution.
Income Drawdown
A method of drawing money from Defined Contribution pension savings at retirement. This normally involves drawing a regular amount on a monthly basis to create an income. It is your responsibility to ensure you do not spend your pension savings too quickly.
Income Tax
The tax that is applied to any income you receive above your Personal Allowance. This is likely to apply to your earnings from M&S but can also apply to pension or investment income you receive.
Inflation
The rising cost of goods and services over time. Where the cost of the things you buy increases, the amount you can buy with your savings reduces.
Inheritance Tax
A type of tax that is charged at the point an individual dies. This tax is applied to the value of a person’s estate above a threshold called the nil rate band but there are a number of exemptions that could result in no tax being due. The value of any pension savings when someone dies are normally exempt from Inheritance Tax.
Investment Growth
The term used to refer to how much an investment rises in value. As investments can also fall in value, the holder of an investment can experience an investment loss.
Lifestyle investment approach (Lifestyle Strategy)
This approach automatically manages the way pension savings are invested up until retirement, gradually moving your savings into lower risk investments. The default investment for contributions made into Your M&S Pension Saving Plan has a lifestyle investment approach. Members have the option to choose an alternative lifestyle investment approach or can choose (i.e. Self-Select) from a range of investment funds.
Lifetime Allowance
The maximum that someone can hold across all of their UK pension savings before incurring a tax charge. This is currently set at £1,055,000.
Money Purchase Annual Allowance (MPAA)
The amount that can be made in Defined Contribution pension savings by an individual after they have begun drawing taxable money from a Defined Contribution pension through a flexible arrangement. (This excludes purchasing a lifetime annuity or income withdrawn from a Defined Benefit pension scheme). The MPAA is currently set at £4,000 pa.
National Insurance Contributions
National Insurance is a form of tax that is paid on income you earn from employment. You and your employer pay National Insurance Contributions to qualify for certain benefits and the State Pension. You may be able to get National Insurance credits if you’re not paying National Insurance contributions, for example when you’re claiming benefits because you’re ill or unemployed.
Pension Wise
Free and impartial government guidance about your Defined Contribution pension options which is available from age 50.
Percentage
A percentage means ‘out of 100’. . For example, 20 out of 100 is 20%. Equally 20p out of £1.00 is 20%.
Premium Level Contributions
The higher pension contribution structure for Your M&S Pension Saving Plan members. When the member pays a 6% pension contribution (or more) M&S will pay a 12% employer pension contribution. To qualify for this structure the member needs to meet one of the following conditions:
- They have been a member of Your M&S Pension Saving Plan for 2 years or more
- They are a Reward level D or above
- They left The M&S Pension Scheme when it closed on 31 March 2017 and immediately joined Your M&S Pension Saving Plan (and have remained a member since)
Salary Exchange
Sometimes referred to as salary sacrifice, this is a special way of making contributions into your workplace pension scheme. This is where you “exchange” part of your salary in return for your employer making your pension contributions on your behalf. By using Salary Exchange, the contributions paid into your pension scheme are free from Income Tax and National Insurance. However, there are certain rules that limit the amount you can contribute without paying any tax.
Self-Select Strategy
This is the term used to describe choosing your own pension investment funds. This option is available to members of Your M&S Pension Saving Plan, where members can choose a variety of investment funds from a specified range made available by the Trustees.
State Pension
The pension you may receive from the government at your State Pension Age. The amount you may receive is determined by the number of years of National Insurance Contributions you have. Those who have less than 10 years of National Insurance Contributions will not receive a State Pension.
State Pension Age
This is the age that you can start receiving a State Pension and is determined by whether you are male or female and your date of birth. You can choose to delay receipt of your State Pension but cannot receive it before your State Pension Age.
Selected Retirement Age (SRA)
The age that you would like to start drawing your pension savings. You should think about when you would like to start receiving your pension and tell your pension scheme to update yourSRA, as it may affect the investments your money is held in. You can normally choose to begin drawing your pension at any time from age 55. For Your M&S Pension Saving Plan this is set a default of 65, but you can update at any time.
Tax code
A code used by your employer or pension provider to work out how much Income Tax to take from your pay or pension. Your tax code is provided by your tax office and will be based on your personal tax situation. You will be able to see your tax code on your pay slip and will usually receive a letter from HMRC when your tax code changes.
Tax Free Lump Sum
All pension schemes allow you to receive part of your pension tax free at retirement. In most cases this is a lump sum up to 25% of the total value of the pension.
Tax Relief (on contributions)
This refers to the special tax treatment that applies to contributions made to a personal pension arrangement.
