AVC
Additional Voluntary Contribution scheme: a pension top-up for an occupational pension. You pay contributions into an AVC scheme run by your employer to boost the size of your fund.
Alternatively Secured Pension (ASP)
Available only since April 2006, an ASP is a form of pension which doesn’t force the owner to purchase a lifetime annuity, but instead allows income to be drawn down from the pension fund.
Annuity
An annuity converts a lump sum (usually from a pension fund) into retirement income. Whenever you are seeking to purchase an annuity it would be wise to make use of the Open Market Option, which allows you to seek out the best provider for income. Those with a history of ill-health, or smokers, may obtain a higher income, and your Sovereign adviser will help you.
Buy-to-Let Mortgage
A loan you take out to buy a property which you intend to rent to tenants.
Commercial Mortgage
The most popular type of mortgage used to buy buildings and land for business purposes
Critical Illness (CIC)
Pays out a lump sum when you are diagnosed as having one or more very serious medical conditions, as specified in your policy. Policies vary greatly in comprehensiveness and quality and almost all include life insurance. CIC is thus ideal for mortgage cover and as a top-up to Income Protection.
Equity Release
A way in which older people may benefit from the equity within their home without having to move out – by borrowing on it or selling all or part of it for a regular income or a lump sum.
FSAVC
A Free-Standing Additional Voluntary Contribution scheme works in the same way an AVC does, but is run independently of your employment and may be with a company of your choice.
Family Income Benefit
A form of Life Assurance which pays out regular monthly payments to replace lost income, rather than a lump sum. Often the least expensive form of cover.
Final Salary (or Defined Benefit) Scheme
A form of company pension scheme which pays a pension as a percentage of your final salary, dependent upon your final salary and the amount of years in service.
Group Personal Pension
A form of company pension scheme which is based upon individual contributors’ contributions built up over a period of time, and which may be used to purchase an annuity to provide pension income. These are rapidly replacing Final Salary Pension Schemes.
ISA
Individual Savings Account: savings or investment products that earn tax-free interest or growth. You can only invest up to a set limit in each tax year, either in cash-based investments or equities, or a combination of the two.
Income Protection
Insurance that pays you a monthly income if you’re unable to work due to sickness or injury, until you are able to return to work, or retirement age, whichever is the sooner.
Investment Trusts
A form of pooled or collective investment. You buy shares in a company that invests in other investments. It has shares in itself and is quoted on the stock exchange. It is a closed-ended fund as there are a set number of shares available.
Key Person Protection
Also known as Keyman or Business Protection Insurance. A policy designed to pay out an agreed cash sum if a key employee suddenly stops work due to death or a critical illness. Payouts are made directly to the company to purchase employee shares or fund a replacement employee.
Money Purchase (or Defined Contribution) Scheme
A pension where your contributions are invested in, for example, the stock market. The size of your fund depends on your contributions and how well your investments do. At retirement, you have a choice of options to provide you with a retirement income.
OEICS
Open-Ended Investment Companies. A type of open-ended investment fund.
Personal Pension
A form of private pension, usually money purchase, taken out by an individual where no company scheme is offered, or where the individual is self-employed.
Protected Rights Pension
Part of your pension fund which has been funded from your contracted-out SERPS or SP2 payments. A Protected Rights Annuity must be purchased.
Residential Mortgage
A loan taken out to purchase your own private property.
SIPPs
A Self-Invested Person Pension. A pension for people who want to manage their own pension fund by dealing with, and switching, their investments when they choose. A SIPP often provides a wider range of investment possibilities than a simple Personal Pension.
Shareholder Protection
A form of Business Protection Insurance which allows Directors to purchase the shares of a deceased colleague.
Stakeholder Pension
A type of personal pension that has to meet certain standards set by the government. The only type of pension which enables to contribute without relevant earnings. May be offered by employers.
Term Assurance
Life assurance which pays out a pre-determined sum if death occurs within a set time-scale. For example, £100,000 worth of cover for 15 years. If no claim is made within the set period then the policy lapses without value.
Unit Trusts
A form of pooled or collective investment which is ‘open-ended’. The fund grows as more people invest and reduces in size when they take money out.
Unsecured Pension
Also known as Income Drawdown, Unsecured Pensions are a popular alternative to buying a lifetime annuity. They allow you to draw an income from your pension fund while the fund remains invested. The Government Actuary sets annual limits on the amount which can be drawn down.
Whole of Life Assurance (WOL)
An open-ended form of life assurance which is designed to pay out when you die, with no pre-determined end date. WOL Assurance may contain an investment element at an increased cost.
