jargon buster
Nobody enjoys jargon, so we've collected some common, and not-so-common, terms which might be troubling you. We'll be updating the list regularly, so if you think a term needs adding to it, please get in touch.
ABI
Association of British Insurers, trade body through which insurance companies can air views on matters of common concern.
Accounts Preparation
Summarising all the transactions of the business (what you have bought and sold during the year).
Accrual Rate
The rate at which your pension benefits build up as pensionable service is completed in a Final Salary Scheme.
Actuary
Someone qualified to consider financial issues, particularly ones involving probabilities such as life expectancy.
AER (Annual Equivalent Rate)
The interest paid from current, deposit or savings accounts.
AIFA
Association of Independent Financial Advisers, industry trade body for financial advisers who are not tied agents.
AITC
Association of Investment Trust Companies, the industry trade body of investment trust companies.
Analyst
Person who studies a particular market or industry sector and gives a generic opinion as to the future value of a companies shares.
Annual Volatility
A measure used to assess the risk of a portfolio.
Annuity
This is the contract you purchase from an insurance company using a lump sum of money (e.g. the proceeds of your pension fund) to guarantee you an annual income for a period of time (e.g. for ten years).
APR (Annual Percentage Rate)
The percentage you are charged over a year on the outstanding balance when you borrow money or make a purchase on credit.
Assets
Anything of value can be referred to as an asset, such as your home, jewellery or antiques. Within investments, assets are another word for investments in a unit trust portfolio.
Audit
A detailed checking of the accounts in accordance with statutory requirements.
AUTIF
The Association of Unit Trusts and Investment Funds, the industry trade body of unit trust and investment trust management companies.
AVCs (Annual Voluntary Contributions)
Extra payments you can make in addition to your main occupational pension scheme contributions to boost your retirement benefits. AVCs can be paid either to your employer's scheme or to a separate arrangement. See also FSAVCs.
Base Rate
The interest set by the Bank of England on which other banks base their rates.
Basic Rate Tax
The income tax paid on taxable income above a certain figure, currently 22%.
Basic State Pension
The single person's flat rate State pension paid when you reach state pension age (60 for women, 65 for men, although set to increase to 65 for women by 2020) if you have paid sufficient National Insurance contributions during your working life.
Bid-Offer Spread
The difference between the prices at which you buy units and sell them back.
Bid Price
The price at which you sell units in a unit trust back to the investment manager.
Bonus
An extra payment that with-profits policyholders may have added to their contract depending on the profits the company makes in any one year, or over a period of years.
Capital
A lump sum of money.
Capital Gains Tax
The tax payable on profit made on the sale of assets or property other than your home. See our factsheet for more information.
Capital Growth
An increase in the value of shares or other assets in a fund.
Capital and Interest Mortgage
A mortgage product where the payment you make each month covers the capital and interest on your loan.
Carry Back
Facility for members of personal pension schemes to have their contribution, or part of it, treated as being paid in the preceding tax year.
Carry Forward
The facility for members of personal pension schemes to carry forward any unused tax relief from any of the six years prior to the year in which the contribution was to be paid. Carry forward of unused relief was abolished in April 2001.
Cat Standards
Stands for (reasonable) Charges, (easy) Access and (fair) Terms and is a mark awarded by the Government to mortgages which meet these standards.
Child Tax Credit
A tax credit which is paid to parents or guardians of children. It is composed of a family element (payable to the family) and a child element (for each child that the family cares for).
Commission
The means by which financial advisers or salespeople are paid by an insurance company for placing business with them.
Compliance Work
The routine accounting and taxation administration matters that need to be attended to each and every year.
Contracting In/Out
The process by which you can elect to stay in or opt out of the State Second Pension.
Corporate Bond
A form of investment offered by a corporation with the purpose of raising capital, in which the lump sum is repaid with interest at maturity. Corporate bonds can be bought and sold on the stock market.
Corporation Tax
Applies only to limited liability companies and is chargeable on the company's profits.
Critical Illness Insurance
Pays a lump sum if you are found to suffer from one of a range of designated illnesses (normally including cancer, heart attack, and stroke among others). When a condition requires you to stop working for some time, worries are eased. So, normal practice is to have enough insurance to cover the mortgage, plus provide a year or two's income if your savings or other insurance will not provide. The policy usually pays out after surviving 28 days after diagnosis.
Death after Retirement Benefits
The pension and lump sum paid to the deceased member's spouse and/or other dependants where death occurs after retirement or after the member's normal retirement date if s/he is retiring late.
Death in Service Benefits
The pension and lump sum paid to the deceased member's spouse and/or other dependants where death occurs while still working for his/her employer, before his/her normal retirement date.
Debit Card
Operates like a credit card except that the normal amount is deducted directly from your bank account so that no debt is accrued.
Deed of Covenant
An agreement in a deed to transfer income from one person to another in a tax efficient way.
Defined Benefit Scheme
Also known as a Final Salary Scheme. This is the traditional form of company or occupational pension where your pension is calculated as a proportion of your salary in the last few years of work - with the proportion depending upon how many years you have been in your company scheme.
Defined Contribution Scheme
Also known as a Money Purchase Scheme. A scheme where the amount of a member's retirement benefits depends on the contributions paid into the scheme in respect of the member. The rate of the contributions is decided by the employer.
Depolarisation
The new depolarisation rules are aimed at increasing customer choice and making it easier for people to understand the services and scope of advice available to them, along with the likely costs of that advice. Now, financial advisers can offer advice across the whole market (IFAs); from a limited number of providers (often referred to as multi-tie); or from a single provider (often referred to as single-tie).
Distribution
Payments made to investors of income generated by an investment fund.
Dividend
The distribution to shareholders of a company's profits in proportion to the number of shares held.
Earnings Threshold
The point at which you have to start paying national insurance contributions on your earnings. Until you are earning this amount, you will not pay anything towards national insurance. There is also an upper earnings threshold: when you reach this, you stop making national insurance contributions.
EMU (European Monetary Union)
The process by which the national currencies of the European Union are being replaced by the Euro.
Endowment Policy
A life insurance and savings policy which pays a specified amount of money at the end of an agreed term or on the death of the life assured. Often linked to a mortgage. The most common form of mortgage-linked endowments does not guarantee to return the mortgage amount on maturity.
Equities
The ordinary shares of a company.
ERM (Exchange Rate Mechanism)
An agreement by which most EU countries maintain the exchange rates between their currencies within certain limits.
Euro
The currency adopted by some European countries in place of their national currencies.
Ex-Dividend
See XD.
Final Salary Scheme
Also known as Defined Benefit Scheme. This is the traditional form of company or occupational pension where your pension at retirement is calculated as a proportion of your salary in the last few years of work, with the proportion depending upon how many years you have been in your company scheme.
Fiscal Policy
Influencing an economy through taxation.
Fixed Rate Mortgage
A mortgage product where your monthly payments do not change over a certain agreed period. Your home may be repossessed if you do not keep up repayments on your mortgage.
Flexible Mortgage
A mortgage product where you can vary the amount you pay each month, reduce the term by making extra or increased payments and take breaks from your monthly payments. Your home may be repossessed if you do not keep up repayments on your mortgage.
Flexible Pension Plan
A pension product where you can vary the amount you pay each month and take breaks from your monthly payments.
FOOTSIE (FTSE 100)
The popular name for the Financial Times Stock Exchange 100, the main UK share index which represents the prices of the top 100 shares in public limited companies.
FSA
The Financial Services Authority, the main regulatory body of the financial services industry.
FSAVCs (Free Standing Additional Voluntary Contributions)
Extra payments you can make into an individual plan, which runs alongside your company pension scheme, to top up your pension fund. The plan is independent of your employer's main pension scheme.
Fund
General term for an investment vehicle which pools the money of investors and invests it according to a defined set of investment objectives.
Fund Manager
A professional who takes decisions on what to buy and sell on behalf of a fund's investors.
Fundamentals
The underlying economic factors such as industry output, wages, cost of materials and fluctuations in currency which affect a market, country or sector.
FURBS (Funded Unapproved Retirement Benefits Schemes)
This is an occupational pension scheme that is not designed to be approved. This type of scheme saves up assets to pay members' benefits, unlike an unfunded scheme. Most FURBS are top-up pension schemes.
Futures
A contract to buy or sell a fixed amount of currencies, shares or commodities at a fixed rate in the future at a fixed price.
Gilt (Gilt Edged Security)
A fixed-interest bond or security issued by the British Government.
GPP (Group Personal Pension)
An arrangement made for employees of a particular employer to participate in a personal pension scheme on a group basis.
Hedging
A strategy designed to offset investment risk.
IDD (Initial Disclosure Document)
This will explain the type of service the adviser is allowed to give and the range of products on offer. This will enable consumers to decide whether the services offered are appropriate to them.
IFA (Independent Financial Adviser)
A professional financial expert who must by law give impartial "best advice" on financial companies, markets and products. IFAs are a type of financial advisers who are able to select from all the products available in the marketplace. IFAs are bound to the Financial Services Authority rules, which oblige them to provide advice most suited to your personal requirements. In addition, when making recommendations they have to provide written reasons why they think that it is right for you - again to make sure that you are fully informed before committing yourself to anything. An advisor is not independent if they do not offer a fee only option.
IMRO
Investment Management Regulatory Organisation, the body that regulates the management of unit trusts. Now taken over by the FSA.
Income Drawdown
Facility by which you can draw an income from your pension fund while keeping the rest fully invested until the age of 75 at the latest.
Income Tax
Tax payable if you have income above the minimum level taxable in the UK.
Index
The means of measuring movement of statistics over a period of time used as a benchmark by unit trust managers.
Index-Linked
Payments protected against the effects of inflation by increasing in line with the changes in the index of retail prices.
Inflation
The amount in percentage terms by which prices rise or fall year on year.
Inheritance Tax
Tax payable after you die on the value of your assets in excess of a certain threshold value although gifts between husband and wife are exempt. It is also chargeable in certain circumstances while you are still alive. The inheritance tax threshold is currently £275,000 and will be raised to £285,000 next year (April 2006) and £300,000 in the following year (April 2007). See our factsheet for more information.
Initial Charge
A charge levied by your investment manager to cover administration and sales commission when you invest in a fund.
Inland Revenue
The government body that handles various kinds of tax, including income tax and stamp duty. The Inland Revenue also pays tax credits.
Interest-only Mortgage
A mortgage product where you make a monthly interest payment and rely on the a savings plan or other monies to pay off the capital at the end of the mortgage term. Your home may be repossessed if you do not keep up repayments on your mortgage.
Investment Trust
A company, quoted on the Stock Exchange which invests in other companies' shares.
ISA (Individual Savings Account)
Tax-efficient savings plans which can hold cash or investments, or a combination of the two, which were introduced in 1999 to replace TESSAs and PEPs.
Joint Life
Joint life plans cover two (or more) people, usually a husband and wife. Benefits can be paid following the first death, or following the death of both.
Keyman Insurance
This provides cover, in the short term, against the loss of profits a company is likely to suffer following the death of a key employee.
Key Facts Document
Advisers must now provide customers with two ‘keyfacts’ documents, explaining their status, the services they offer and a menu of their charges. This will enable consumers to properly understand the value and cost of the adviser’s proposition, and to shop around for the best type of advice for them. The menu applies solely to investment business. Mortgage and General Insurance advisers do not use Menus.
Liability
A debt, or amount of money, owed to others.
Limited Company
A company owned by shareholders. The liability of these shareholders is limited to their investment in the company.
Listed Company
A company whose shares are quoted on a recognised stock market.
Managed Exit
The point at which management and other investors enjoy a return on their investment, by selling the business either on the stock market, to a competitor, or to another institution such as a VCT. A Managed exit will be initiated according to a careful strategic plan which is often compiled with professional advice.
Management Accounts
Accounts which are prepared for use when managing the business.
Market Capitalisation
The value of a company measured by the total stock market price of its shares, calculated by multiplying the number of shares by the current market price of a share.
Micropal Star Ratings
Micropal is an independent Mutual Fund analyst which monitors all the UK's unit trust and OEICs and awards stars on a scale of 0-5, with the highest scores being awarded to the best performing funds.
Monetary Policy
Influencing an economy through control of the money supply.
Money Purchase Scheme
Also known as Defined Contribution Scheme. A scheme where the amount of a member's retirement benefits depends on the contributions paid into the scheme in respect of the member. The rate of the contributions is decided by the employer.
Multi-tie Adviser
The multi-tied adviser will offer a choice of products from a limited range of companies they have selected. These advisers must also disclose their association with the providers they work with.
Mutual Company
A company which has no shareholders but is owned instead by its with-profits policyholders.
Mutual Fund
An open-ended fund operated by an investment company which raises money from shareholders and invests in a group of assets in accordance with a stated set of objectives. Shares are issued and redeemed on demand.
NASDAQ
Index of the leading technology stocks in the USA.
National Insurance
Payments made out of earnings by employees, employers and the self-employed to the Government that entitle you to a state pension and other benefits. See our factsheet for more information.
National Insurance Rebate
The amount by which a persons National Insurance Contributions can be redirected into an Appropriate Personal Pension if contracted out of the State Second Pension (S2P).
Negative Equity
This is when the market value of your house is less than the amount outstanding on your mortgage.
Net Yield
The return on an investment after tax has been deducted.
Occupational Pension Scheme
A legal contract set up by an employer to provide pensions and/or other benefits for one or more employees on retirement, death or leaving pensionable service.
OEIC (Open Ended Investment Company)
Managed funds which hold a portfolio of investments which you can buy into. They issue shares instead of units and normally quote a single price.
Offer Price
The price at which you buy units from a unit trust manager.
Offshore Funds
Funds based outside the UK.
OMO (Open Market Option)
Your right at retirement to buy an annuity from a provider other than the one who has administered your pension fund.
OPAS
The Occupational Pensions Advisory Service. This organisation is now called TPAS, which stands for The Pensions Advisory Service, a voluntary organisation which advises on problems with any type of pension scheme other than state schemes.
OPRA
The Occupational Pensions Regulatory Authority. In April 2005 OPRA were taken over by The Pensions Regulator. A body with wide ranging powers to regulate work based pension schemes in the UK.
Option
In investment terms, a contract giving the right to buy or sell commodities, currencies or shares at a fixed date in the future at a fixed price.
PAYE (Pay As You Earn)
Where income tax and National Insurance contributions are collected from your salary, before it is paid to you, by your employer and passed to the Inland Revenue.
Pension Forecast
A service provided by the Department of Work and Pensions which tells you what your state pension is worth.
Pensions Ombudsman
An independent arbitrator for pension disputes with statutory power to enforce his or her decisions.
PEP (Personal Equity Plan)
Tax-efficient savings plans replaced by ISAs in 1999. You can no longer invest in a new PEP but you can still transfer your existing PEP into an ISA.
Personal Pension Scheme
A pension scheme for those who are self-employed, or, if employed, are not members of an occupational scheme and so make their own pension provision. See our factsheet for more information.
Phased Retirement
The facility to use small amounts of your pension fund to buy annuities as and when you need income, rather than buying one annuity at retirement with your whole pension fund.
PHI (Permanent Health Insurance)
Insurance that pays a level of income in the event of long term sickness or disability.
PLC (Public Limited Company)
Any company with a share capital of at least a statutory minimum.
PMI (Private Medical Insurance)
Insurance which will pay for the cost of medical treatment in accordance with the policy cover.
Portfolio
A collection of shares owned by an investor.
Price/Earnings Ratio
Calculated by dividing the market price of a company's ordinary shares by its earning-per-share figure as an indicator of the company's performance potential.
Qualifying (life policy)
a type of insurance policy that can have tax benefits.
Quartile
Most UK funds are grouped into sectors and each sector is divided into four quartiles with the best performing funds being in the top quartile.
Return
The amount by which the value of your investment increases.
Rights Issue
New shares sold by a company to raise capital.
Risk
Refers to the fact that the value of your savings and investments can fall as well as rise.
RPI - Retail Price Index
The official measure of inflation calculated by weighting the costs of goods and services to approximate a typical family spending pattern.
Scrip Issue
The issue of new share certificates to existing shareholders to reflect an accumulation of profits on a company's balance sheet.
Securities
The general name for stocks and shares.
Self-Assessment
A system whereby you work out for yourself the amount of tax you need to pay to the Inland Revenue.
SERPS (State Earnings Related Pension Scheme)
A state pension in addition to the basic state pension based on earnings. Replaced by the State Second Pension (S2P) on 6th April 2002.
Shares
A stake in a company which entitles you to vote at annual meetings and benefit from the company's profits in the form of a dividend. See our factsheet for more information.
Single-tie Adviser
These advisers can only sell products of a single provider and must make a full disclosure of their link to the provider. The same advisers will also be allowed to sell another company’s products to fill any gaps in the range of products offered by their employer.
Small Caps
Another name for small companies.
SOFA
SOFA has now merged with the LIA now to become the PFS (The Personal Finance Society).
SSAS (Small Self Administered Scheme)
Small Self Administered Scheme, an occupational scheme where the members are trustees and are directly responsible for administering the fund and paying out the benefits. Some funds are invested in assets other than insurance premiums.
Stakeholder Pension
Low cost pension schemes introduced by the government in 2001 to encourage people to make provision for their financial future. They are aimed at those who may not have been able to afford a personal pension and were not eligible for an occupational or group scheme. See our factsheet for more information.
Stamp Duty
A tax levied on certain legal transactions. Among other things, it must be paid when you buy a property, or when you buy shares. See our factsheet for more information.
Statutory Accounts
Accounts which must be submitted to Companies House by all limited companies.
Stock Market
The marketplace for the sale and purchase of shares, government bonds and other securities.
Switching
Moving an investment out of one fund and into another.
Tax Codes
Codes supplied by the Inland Revenue. They instruct your employer as to how much tax should be deducted from your wages.
Tax Payable
This can be Capital Gains Tax, Inheritance tax, Income tax for individuals or Corporation Tax for companies.
Tax Return
The annual summary of all your income from various sources, and allowances you are eligible for.
Term Assurance
A life assurance contract with a fixed term and a sum assured which is paid out only if the life assured dies within the term specified.
TESSA
Tax-exempt special savings accounts replaced by ISAs in 1999. You can no longer invest in a new TESSA but you can transfer your existing TESSA into an ISA.
Tied Agent
Financial advisers who have an agreement with one particular company to recommend its products. They can range from self employed individuals to banks and building societies and can give you advice on your financial circumstances but they cannot survey the whole market for you.
Total Return
The combination of capital growth and reinvested income at the end of any given period.
Transfer Value
The amount of money which is available to be transferred to another pension or investment arrangement.
UCITS
Undertaking for Collective Investments in Transferable Securities. A Ucits fund is theoretically one that is authorised for sale in any of the EU member states. However, many EU countries also have their own requirements which must be fulfilled if a fund is to be offered for sale there.
Unit Linked Policy
An insurance policy in which the benefits depend on the performance of units in a fund invested in shares, bonds and property.
Unit Trust
An investment contract which invests in a variety of different stocks and shares and is divided into units which are issued to its members instead of shares.
Variable Rate Mortgage
A mortgage product where the amount of the monthly payment goes up or down in accordance with variations in the interest rate, based on the Bank of England rate. Your home may be repossessed if you do not keep up repayments on your mortgage.
Venture Capital Trusts (VCTs)
VCT's were devised in the 1993 budget as a way for new and unquoted companies to obtain money from investors. VCT's are essentially investment trusts. Like other investment trusts their shares are often traded in the stock market. Investors receive tax relief at 40% on the money they put in. Any dividends or capital gains will also be free of tax.
VAT (Value Added Tax)
A tax that is added to the cost of certain goods and services. Certain VAT-registered businesses can claim back the VAT they have been charged.
Volatility
The degree by which share prices in a particular market or sector go up or down.
Whole Life Policy
A life insurance policy which pays a specified amount on the death of the life assured.
Winding Up
The legal termination of a pension scheme.
With Profits Policy
A policy which usually has annual bonuses added to the sum insured. On death or maturity a terminal bonus may also be applied to the fund value.
Working Capital
The amount of money tied up in the day to day operations of the business.
Working Tax Credit
A tax credit which is paid to people over the age of 16 in paid work. Various different criteria are used to determine how much you will receive.
Work-out Solutions
An informal reorganisation of the business and settlement of its affairs outside of formal insolvency proceedings.
XD - Ex-Dividend
The interval between the announcement and payment of the next dividend or, in the case of a unit trust, the next income distribution.
Yield
The annual dividend or income from an investment.
Zero Rated
Goods or services that are taxable for VAT but with a tax rate of zero.
