Glossary of Terms

This list is by no means exhaustive and if you come across any technical terms on our website which are not explained below, please let us know.

Personal Pension

This is a pension policy that’s taken out through a pension company, into which you pay contributions and will at retirement provide some or all of your pension income. These are invested in funds, which you can choose according to your attitude to risk and plans for the future. A personal pension is set up on a money purchase (defined contribution) basis.

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Qualifying Years

Qualifying years are those tax years in which you’ve paid a certain amount of National Insurance contributions. A minimum number of qualifying years must be built up during your working life to qualify for the full basic state pension. This can also be the number of years’ service with an employer in which pension benefits in a Defined Benefit Scheme have been built up.

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Repayment Mortgage

This is a mortgage that pays off both the capital borrowed and interest due at the same time. Pay all the repayments and the mortgage will be fully repaid at the end of the term.

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Retail Price Index (RPI)

The Retail Prices Index (RPI) is a government defined measure of inflation which tracks the change in the cost of a basket of retail goods and services.

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Risk

Some investments are riskier than others. For example, an investment in the stock market is riskier than money put into savings accounts – there’s more chance of something going wrong and you losing money. Riskier investments tend to offer potentially higher returns as compensation for the risks involved. This is also known as the ‘risk premium’.

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Self Invested Personal Pensions (SIPPs)

A Self Invested Personal Pension is a type of plan that allows you, or your appointed fund manager, to make choices from a wider range of investments than other personal pension schemes offer. With a SIPP you can invest such things as in the shares of any company listed on a stock exchange, commercial property, mutual funds.

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Stakeholder Pension

This is a personal pension in its most simple form. A stakeholder pension will allow you to make a minimum investment of £20 per month and offer a range of funds in which to invest – and there must be no penalties for transferring away from the fund. Your employer may offer access to a stakeholder pension scheme.

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State Pension

Your basic State Pension is based on your National Insurance contributions. You may also qualify for the additional State Second Pension if you are employed, based on your earnings and National Insurance contributions.

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State Second Pension

The State Second Pension is an additional pension that’s paid on top of your basic State Pension. It was called SERPS until 2002. Self-employed people are not entitled to a State Second Pension.

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Stocks and Shares

Both terms mean the same thing: companies’ stocks and shares that can be bought and sold. Owning a share in a company means owning a part of that company, or owning some of that company's stock and an entitlement to a share in the profits in the form of dividends.

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Tax Credits

Tax credits are payments made by the government. Usually, they’re made to people on low incomes, to families with children, or to registered carers.

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Tax Efficient Investing

Tax Efficient Investing is the process of investing in such a way as to minimise the amount of tax paid. This could mean using tax-efficient investments such as ISAs, or making contributions to your pension. This should not be mistaken for Tax Evasion which is deliberately acting in a way which

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Tax Exempt Special Savings Account (TESSA)

From April 2008, TESSAs automatically became ISAs.

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Term Assurance

This is a policy that provides a guarantee to pay a specific amount of money, during a pre-agreed period of time, if you die. It is a form of Life Assurance.

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Unit Trusts

These are ‘open-ended’ investments in which the underlying value of the assets is directly calculated by the total number of units issued multiplied by the unit price less the transaction or management fee charged and any other associated costs. There are many different unit trusts available, all investing in different assets.

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Unsecured Pension

An unsecured pension is a way of taking an income from your pension fund,. It does involve incurring some risk to the value of your pension fund. There are two types of unsecured pension – a short-term annuity and income withdrawal (also known as Flexible Drawdown).

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Variable Interest Rate

These are interest rates, offered by banks and financial institutions on loans or deposits, that may change according to circumstances. For example, a movement in the interest base rate set by the Bank of England would usually be an influence.

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Whole-of-life Assurance

A whole-of-life assurance policy lasts throughout your life so that your dependents are guaranteed a payout should you die as long as the premiums are kept up.

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Wills and Probate Law

This is the area of law that governs the interpretation of wills and the distribution of the estate of people who have died.

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Yield

Yield is a general term for the rate of income that comes from an investment, expressed as an annualised percentage and based on its current capital value.

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Tuning out the Noise

When factors outside our control impact on your investments, an eloquent overview from David Gow in our recent newsletter.

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