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Pension glossary

Plain-English definitions for UK pension terms.

Thirty-two essential terms every scheme member and administrator should know — from auto-enrolment basics to targeted support and the PPF.

Active member
A scheme member who is currently employed and actively building up pension benefits. Active members make regular contributions and continue to accrue entitlement under the scheme rules. Contrast with a deferred member (left the scheme but not yet drawing) and a pensioner member (already receiving their pension).
Additional Voluntary Contributions (AVCs)
Extra pension contributions a member can make above the standard rate to boost their retirement pot. AVCs are paid into the same scheme or a linked arrangement and benefit from the same tax relief as normal contributions. Many schemes offer AVCs as a way for members to top up benefits they feel are insufficient.
Annual Allowance
The maximum total pension contributions — from both employer and employee — that can be paid in a tax year and still qualify for tax relief. From 2023/24 the standard annual allowance is £60,000. Members with high earnings may face a tapered allowance. Exceeding the annual allowance results in a tax charge on the excess.
Annuity
An insurance product that converts a defined contribution pension pot into a guaranteed income for life. The amount paid depends on the pot size, the member's age and health, and prevailing interest rates at the time of purchase. Annuities can be level (fixed income) or escalating (rising with inflation). Once purchased, an annuity cannot be reversed.
Auto-enrolment
The legal duty requiring UK employers to automatically enrol eligible workers into a qualifying pension scheme and make minimum contributions. Workers aged 22 to State Pension age who earn above the earnings trigger (£10,000 in 2024/25) must be enrolled. Members can opt out but are re-enrolled every three years. Introduced by the Pensions Act 2008 and phased in from 2012.
Cash Equivalent Transfer Value (CETV)
The lump sum value placed on a defined benefit pension for the purpose of transferring it to another pension arrangement, such as a defined contribution scheme. The CETV is calculated by the scheme actuary using assumptions about future investment returns and life expectancy. Members considering a DB transfer should take regulated financial advice for transfers above £30,000.
Contracting out
The historic arrangement that allowed employers and employees to opt out of the State Earnings-Related Pension Scheme (SERPS) or the State Second Pension (S2P), in exchange for providing an occupational pension of at least equivalent value. Contracting out was abolished for defined contribution schemes in 2012 and for defined benefit schemes in April 2016. Members who contracted out between 1978 and 1997 built up a Guaranteed Minimum Pension (GMP) in their occupational scheme instead of accruing SERPS entitlement.
Death-in-service benefit
A lump sum paid to a member's nominated beneficiaries if they die while employed and an active member of the scheme. The benefit is typically expressed as a multiple of salary — for example, four times annual salary. It is usually written in trust, meaning it falls outside the member's estate for inheritance tax purposes. Trustees consider the member's expression of wishes when deciding who receives the payment.
Default fund
The investment fund into which defined contribution pension contributions are automatically placed if the member makes no active investment choice. Default funds are typically lifestyle or lifecycle strategies that manage risk as the member approaches their target retirement date. Trustees are required by law to review the default fund regularly and must demonstrate it is suitable for the likely membership profile.
Deferred member
A former employee who has left the scheme but has not yet started drawing their pension. Their benefits are preserved in the scheme and will be revalued in line with legislation (or scheme rules, if more generous) until they reach retirement age. Deferred members have the same entitlement to scheme information as active members.
Defined Benefit (DB) pension
A pension scheme where the retirement income is calculated from salary and years of pensionable service, not investment performance. The most common formula is: accrual rate × pensionable pay × years of service. The employer bears the investment risk. DB schemes are sometimes called final salary or career average revalued earnings (CARE) schemes, depending on how pensionable pay is measured.
Defined Contribution (DC) pension
A pension scheme where contributions from the employer, employee, or both are invested in funds chosen by the member. The retirement income depends on the size of the accumulated pot and how it is drawn down. The member bears the investment risk. Also called money purchase schemes. The majority of new workplace pension schemes are DC, and all auto-enrolment schemes must be DC or hybrid.
Drawdown (flexi-access drawdown)
A way of accessing a defined contribution pension pot that allows the member to take a flexible income rather than converting the whole pot to an annuity. The member moves their pot (or part of it) into a drawdown wrapper and withdraws income as needed, while the remaining funds stay invested. Triggering flexi-access drawdown activates the Money Purchase Annual Allowance (MPAA), limiting future defined contribution contributions to £10,000 per year.
Expression of wishes
A written nomination — sometimes called a nomination of beneficiaries form — that tells the trustees who a member would like to receive their death benefits. Because death benefits are usually held in trust, trustees have discretion over who receives the payment, but they must consider the expression of wishes. It is not legally binding. Members should review and update their nomination after major life events such as marriage, divorce, or the birth of a child.
GMP equalisation
The legal process of equalising Guaranteed Minimum Pension benefits between male and female scheme members. The Lloyds Bank High Court ruling in 2018 confirmed that schemes contracted out of SERPS between 1990 and 1997 must equalise GMPs, following the 1990 Barber ruling that unequal pension ages breach EU equal pay law. Equalisation is complex and affects a large proportion of DB schemes.
Guaranteed Minimum Pension (GMP)
The minimum pension that a contracted-out defined benefit scheme must provide to members who contracted out of the State Earnings-Related Pension Scheme (SERPS) between April 1978 and April 1997. The GMP replaces part of the State pension the member would otherwise have received. GMP rights are complex, particularly in relation to revaluation, indexation, and equalisation.
Hybrid pension scheme
A pension scheme with both defined benefit and defined contribution elements. Common hybrid structures include a DC scheme with a DB underpin (a minimum guaranteed benefit), or a career average DB scheme layered over a DC AVC pot. Hybrid schemes are designed to offer some of the security of DB while controlling employer costs.
Lifestyling
An automatic investment strategy used in defined contribution schemes that gradually shifts a member's investments from higher-risk growth assets (such as equities) to lower-risk assets (such as bonds and cash) as they approach their target retirement date. Lifestyling is designed to protect accumulated savings from a large market fall close to retirement. Default lifecycle strategies are the most common form of default fund in workplace DC schemes.
Master trust
An occupational pension scheme that provides benefits to employees from multiple unconnected employers. Each employer participates as a separate section of the scheme with its own contribution rates and rules, but shares the governance infrastructure and trustees. Master trusts must be authorised by The Pensions Regulator under the Pension Schemes Act 2017. Well-known examples include Nest, People's Pension, and Smart Pension.
Money Purchase Annual Allowance (MPAA)
A reduced annual allowance of £10,000 that applies to defined contribution pension contributions once a member has flexibly accessed their DC pension — for example, by taking income through drawdown or an uncrystallised funds pension lump sum (UFPLS). It was introduced to prevent members recycling pension income back into tax-relieved contributions. The MPAA does not apply to DB accrual.
Normal Retirement Age (NRA)
The age defined in the scheme rules at which a member can take their full pension without actuarial reduction. NRA varies by scheme — commonly 60, 65, or now 67. It is distinct from the minimum pension access age (currently 55, rising to 57 in 2028). Members who take their pension before NRA may have their benefit reduced to account for the longer payment period.
Pension Commencement Lump Sum (PCLS)
The tax-free cash a member can take when they start drawing their pension, typically up to 25% of the value of their benefits. Following the abolition of the lifetime allowance in 2024, PCLS is now subject to a lump sum allowance of £268,275. PCLS taken above this threshold is taxed as income. Also informally called tax-free cash.
Pension Protection Fund (PPF)
A statutory fund that compensates members of defined benefit pension schemes when their employer becomes insolvent and the scheme does not have enough assets to pay the benefits promised. PPF compensation is subject to a cap and is typically 90% of the promised benefit (100% for those already in retirement). Schemes pay an annual levy to the PPF based on their funding level and the employer's insolvency risk.
Pensionable pay
The portion of a member's earnings used to calculate pension contributions and, in defined benefit schemes, the benefit formula. What counts as pensionable pay varies by scheme — some schemes use basic salary only, others include overtime or bonuses. Understanding pensionable pay is essential for members comparing contribution rates and projecting retirement income.
Pensioner member
A scheme member who has started drawing their pension. Pensioner members receive regular income payments from the scheme and are no longer accruing benefits. They remain subject to scheme rules on issues such as annual indexation increases and surviving dependant benefits. Contrast with an active member (still accruing) and a deferred member (benefits preserved, not yet in payment).
Qualifying earnings
The band of earnings used to calculate the minimum contributions required under auto-enrolment legislation. For 2024/25, the qualifying earnings band runs from £6,240 to £50,270. Contributions are calculated only on earnings within this band, not on total pay. Some schemes use a different basis for contributions — such as total pensionable pay — provided it passes the auto-enrolment quality test.
Salary sacrifice
An arrangement where an employee agrees to reduce their contractual salary in exchange for an equivalent employer pension contribution. Because the employee is paid less, both employer and employee pay less National Insurance. The employer usually passes some or all of the NI saving into the employee's pension pot. Salary sacrifice requires a formal change to the employment contract and must be set up correctly to preserve tax efficiency.
Scheme trustee
The person or corporate body legally responsible for managing an occupational pension scheme and acting in members' best interests. Trustees have a fiduciary duty that overrides their personal interests or those of the employer. They are responsible for investment strategy, scheme governance, and ensuring benefits are paid correctly. Most schemes have a board of trustees including member-nominated trustees.
SERPS (State Earnings-Related Pension Scheme)
The additional state pension that supplemented the basic State Pension based on an employee's National Insurance contributions and earnings. SERPS operated from 1978 to 2002, when it was replaced by the State Second Pension (S2P). Both were eventually absorbed into the new flat-rate State Pension introduced in April 2016. Members who contracted out of SERPS between 1978 and 1997 built up a Guaranteed Minimum Pension (GMP) in their occupational scheme instead.
Targeted support
A regulatory category introduced by the FCA under Policy Statement PS25/22 in April 2026. Targeted support sits between generic guidance and regulated financial advice. It allows pension schemes and other regulated firms to provide cohort-based, personalised suggestions to members — acknowledging that people in similar situations often benefit from similar nudges — without the regulatory burden of individual advice. Targeted support must be delivered within a governed, auditable framework.
The Pensions Regulator (TPR)
The UK regulatory body responsible for overseeing workplace pension schemes. TPR sets standards for scheme governance, funding, and administration, and has powers to investigate and take enforcement action against trustees, employers, and administrators who fail to meet their obligations. TPR authorises and supervises master trusts under the Pension Schemes Act 2017 and publishes codes of practice on scheme governance and member communications.
Transfer value
The sum a scheme offers to a member who wishes to move their pension rights to another arrangement. For defined contribution schemes, the transfer value is broadly the current fund value. For defined benefit schemes it is the Cash Equivalent Transfer Value (CETV) — a lump sum representing the actuarial equivalent of the promised benefits. DB transfers above £30,000 require the member to take regulated financial advice before proceeding.

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