An A to Z guide to words and terms commonly used in pensions.
An employee who is currently paying into their employer's pension scheme.
An actuary is an expert on pension scheme assets and liabilities, life expectancy and probabilities (the likelihood of things happening). They usually help during scheme valuations to assess if a scheme has enough funds and money being paid into a defined benefit pension scheme to pay the benefits when they are due.
Additional Voluntary Contributions (AVCs) are extra contributions you pay into the Scheme, on top of the regular contributions you and your employer pay in. You can either make AVCs regularly, or as one-off payments. Members of the defined benefit (DB) sections of the Scheme have access to two AVC arrangements: BRASS and AVC Extra.
The Annual Allowance is the maximum amount of money that can be paid into your pensions each year, without paying tax. If more than this amount is paid in, you’ll only get tax relief up to the allowance. This means you’ll pay income tax on everything over that amount. The Annual Allowance amount is set by the government. For the 2023/2024 tax year, it is £60,000 for most people. A lower amount may apply for high earners (see ‘Tapered Annual Allowance’), and those who have taken benefits from defined contribution (DC) arrangements using the flexibilities that were introduced in April 2015 (see ‘Money Purchase Annual Allowance’). For more information check the Annual Allowance Read as You Need Guide.
Your Annual Benefit Statement (ABS) is sent every year around the month of your birthday. It lets you know what you might be entitled to when you come to take your pension, and the information we have used to calculate it. You can use your ABS to think about whether your retirement planning is on track or if you need to save a bit more.
A fee pension providers charge for managing your pension or investment fund. This charge is based on the value of a person’s fund. Annual management charges are automatically taken from the assets of the pension fund on a regular basis. DC funds, including those used for Additional Voluntary Contributions (AVC), all have an associated annual management charge. You can find the charges that apply for the Scheme in the fund factsheets on the fund choices page.
An annuity is a guaranteed regular income that you buy when you retire, using the money in your pension. Most annuities are for life, but you can also buy one that lasts for a fixed term. Find out more on the understanding annuities page.
If you meet certain criteria, your employer is legally required to enrol you into a pension scheme that meets minimum quality requirements. This process is known as ‘auto-enrolment’. If you opt out, your employer must re-enrol you every 3 years. This is known as ‘automatic re-enrolment’.
The amount you need to earn to be automatically enrolled into a pension scheme by your employer. This is set by the government.
A pension scheme that meets the minimum standards required to allow it to be used for auto-enrolment.
AVC Extra is an Additional Voluntary Contribution (AVC) arrangement for members who are paying into one of the defined benefit (DB) sections of the Scheme. It is available to members who already pay the maximum amount that you can pay into BRASS and still want to pay more. You can find out more on the AVC Extra pages.
An income paid by the government once you reach State Pension age, if you have paid enough National Insurance contributions. Find out more on the State Pension page.
A person, or organisation, who will get a pension, lump sum or other benefits from the Scheme when you die.
BRASS is an Additional Voluntary Contribution (AVC) arrangement for the Scheme's defined benefit (DB) members. You can apply to join BRASS if you are currently paying into one of the defined benefit (DB) sections of the RPS. Visit the BRASS pages for more details.
Career Average Revalued Earnings (CARE) is a type of defined benefit (DB) pension arrangement. Your pension and benefits are based on the average earnings during the time you contributed to the Scheme. Each year your benefits are increased so they keep their value against inflation. You can read more about DB pensions and how they work in the DB members’ area of the website.
A Cash Equivalent Transfer Value (CETV) tells you how much your pension benefits would currently be worth in cash terms if you wish to transfer them to another scheme.
Until 5 April 2016, some schemes could 'contract out' of the additional state pension, while others were 'contracted-in'. If a member was 'contracted out' of the additional state pension, they did not receive the additional state pension. However, the scheme had to provide the member with contracted-out benefits that were broadly at least as good as the additional state pension that had been given up. In addition both the member and employer paid lower National Insurance contributions.
The money paid into your pension/pension pot by you and your employer.
The pension benefits paid out when you die.
This is the fund that members of defined contribution (DC) pension arrangements will automatically be invested in, unless they choose to invest in other funds. There are different default funds for the Industry-Wide Defined Contribution Section (IWDC), BRASS and AVC Extra. You can find out more on the how investments work page for IWDC and for BRASS/AVC Extra.
A person who is no longer paying into their employer's pension scheme, but has benefits in it that they have not yet claimed. Also known as a 'preserved member'.
In a Defined Benefit (DB) scheme, the amount you get at retirement is based on a number of things. These could include your earnings and how long you have been a member of the scheme. When you retire you can take some of your pension as a tax-free cash lump sum. The rest you get as a regular income, on which you might pay tax.
There are two types of DB pension: final salary and CARE – Career Average Revalued Earnings. A final salary pension is based on how much you’re paid at the point you leave the scheme, or retire if you’re still working for the employer. CARE is based on the average of your salary throughout your career.
You can find out more in the DB members section of the site.
Sometimes known as a money purchase pension. This type of pension scheme builds up a pension pot based on how much you or your employer (or both) contribute and how much this grows. The IWDC Section and Additional Voluntary Contribution arrangements such as BRASS and AVC Extra are defined contribution
The Department for Work and Pensions (DWP) is the government department responsible for pension policy.
A person who has been wholly or partially financially dependent upon a member or pensioner at, or near to, the time of their death or retirement.
Disinvestment, means selling shares. It also refers to the process of an investor selling all of a company’s debt or equity instruments, if already invested.
For DC members, drawdown is one of the options for how you can take the money in your pension pot/Personal Retirement Account (PRA). Using drawdown means you take some of your money from your pension pot as a regular annual income, and you leave the rest invested. The amount you take as income will reduce the value of your pension pot. The amount that stays invested can either rise or fall in value, depending on how your investments perform. See the understanding drawdown page for more details.
A member who leaves a pension scheme before reaching their Normal Retirement Age.
The amount you are paid before tax. This is not always the same as pensionable earnings.
A worker who is 'eligible' for automatic-enrolment under the Pensions Act 2008.
When you take your pension pot as cash. This is available to members of defined contribution pension arrangements, including the IWDC Section, BRASS and AVC Extra. Find out more on the understanding encashment page.
Another name for shares, stocks or units of ownership in a company.
The amount of taxable pay that you think you may get over the next 12 months.
A type of defined benefits pension scheme where benefits are based on a member's service and salary close to retirement.
The FCA is the organisation responsible for regulating advice on pensions, and registering firms and individuals.
A fund is a way to invest money. Depending on what type of fund it is, your money could be invested in property, shares in companies, bonds or a mixture of different types of financial products.
A professional who runs an investment fund and decides which shares, bonds or gilts the fund should invest in.
The amount of extra BRASS funds that you could build up in the future with different contributions, plus a projection of how much it could be worth in the future.
A bond issued through the United Kingdom Treasury and guaranteed by the British government, widely used by pension funds.
The risk that falls on the Trustees of a pension scheme to look after it and run it properly.
Guaranteed Minimum Pension (GMP) is the minimum amount of pension promised to members of pension schemes that contracted out of the State Earnings Related Pension Scheme (SERPS). You may have a GMP if you were a member of the RPS between 6 April 1978 and 5 April 1997.
Reducing risk by making an investment that offsets existing or expected risks.
UK Government department responsible for collection of taxes, payment of some State benefits and prevention of organised financial crime.
Ill-health retirement is where a member is permitted to draw their pension before the age of 55 (or the scheme's ordinary retirement date) due to sickness, disability or other medical condition. For more details see the when to retire page for DB members or IWDC members.
Independent Financial Advisers (IFAs) are professionals who offer independent advice on financial matters. You can find IFAs in your local area at unbiased.co.uk
A scheme set up for members of a particular industry.
The rate of increase in prices over a given period of time.
You may be able to postpone taking your benefits up to the maximum age of 75. Your benefits will be 'preserved'. If you elect to defer payment of your benefits, late retirement factors (LRFs) will be applied. For more details see the when to retire page for DB members or IWDC members.
A level pension is an option you can choose if you’d like to start taking your RPS pension before your State Pension Age. It’s a way of levelling out the total income you get before and after you start claiming the State Pension. It means you’ll get a higher RPS pension before you claim your State Pension. Then, once you reach State Pension age, you’ll get a lower RPS pension.
Lifestyle strategies build your pension savings while you’re still working and reduce the risk of a fall in value as you near retirement. They do this by investing in a selection of underlying funds and changing your allocation to each fund as you get closer to your ‘target retirement age’ (TRA). Find out more on the how investments work pages for IWDC members and for BRASS/AVC Extra.
The Lifetime Allowance (LTA) is the maximum amount you can save into all your pensions throughout your working life before you have to pay tax. The LTA for the tax year 6 April 2023 to 5 April 2024 is £1,073,100. You would have to pay tax on any pension savings you have that are over the LTA limit. The amount of tax you owe will depend on your income tax rate, rather than the LTA charge that was in place before 5 April 2023 and has now been abolished. You should be aware that from 6 April 2024, there is a limit of £268,275 on the amount you can take as a lump sum when you take your pension. This limit may not affect you if you have Lifetime Allowance protections.
When you take your RPS pension or pension pot you can choose to take a lump sum in cash. You may be able to tax up to 25% of your pension benefits as a lump sum, tax-free. This is up to a maximum of £268,275 (unless you have Lifetime Allowance protections).
A fund, comprising of a mixture of equity, property, fixed-interest investments, along with cash, which are managed. Units are issued to investors.
A trustee chosen by the members of an occupational pension scheme. You can read more about Trustees of the RPS in the Trustee area of the website.
If you start to take money from a defined contribution pension pot, the amount that can be contributed to your defined contribution pensions while still getting tax relief on might reduce. This is known as the Money Purchase Annual Allowance or MPAA. The MPAA is currently £10,000. You can read more about the MPAA and when it might be triggered on the tax limits page.
Another name for a defined contribution (DC) pension. See the definition of defined contribution for more details
A pension scheme in which more than one employer participates, such as the RPS.
National Insurance contributions are a tax on earnings paid by employees and employers. They can help to build your entitlement to certain benefits such as the State Pension and other State benefits.
By completing a nomination form you can let the Trustee know who you’d like to get a lump sum if you die before taking your pension / pot. The Trustee does not have to follow your wishes, but must take them into consideration. Please see the nominations for death benefits page for details
The people, charities or organisations chosen or ‘nominated’ by you to receive any death benefits from the pension scheme if you die before claiming your pension. You can nominate online (when you sign into your myRPS account) or by submitting a form. Read more in the nominations definition above and on the nominations for death benefits page.
A worker who is not eligible to be automatically enrolled but who can 'opt in' to a pension scheme if they choose.
The amount of pension benefits that are deducted from the value of other assets, such as cash, a car or family home, upon divorce.
Pension administrators handle the day-to-day running of pension schemes. Railpen is the administrator for the Railways Pension Scheme (RPS).
When you start taking your pension, the amount you get will increase every year to keep up with inflation. The way we calculate these increases is set by the government. At the moment, RPS pensions increase in line with the Consumer Price Index. Find out more on the pension increase page.
The Pension Protection Fund (PPF) pays compensation to members of eligible defined benefit (DB) pension schemes, when there is a qualifying insolvency event in relation to the employer and where there are insufficient assets in the pension scheme to cover PPF levels of compensation.
This is the pay used to calculate your contributions to the Scheme. Your employer decides what is included in your pensionable pay, which may not always be 100 per cent of your annual salary. In general, your pensionable pay is your basic annual salary from 1 April each year.
For DC members, your Personal Retirement Account (PRA), also known as your pension pot, is the total value of your pension at any point in time. It’s made up of all the money you and your employer have put in, plus government top-ups and growth in the value of your investments. It doesn’t include the State Pension.
A person who is no longer paying into their employer's pension scheme, but has benefits in it that they have not yet claimed. Also known as a 'deferred member'.
A pension scheme that is registered with HMRC and satisfies its requirements. The RPS is a registered pension scheme.
Restructuring premiums are one element of a member’s pay that is used to work out their pension amount. They are applied to your pension when your employer restructures your pay, and new parts of your pay become ‘pensionable’. From this point onwards, your new restructuring premium will be used to help work out your pension and lump sum. You might have several different restructuring premiums. Find out more in the Read as You Need guide to pay restructuring.
The period of time after you stop working and take your pension. May it be long and happy!
This is an arrangement between you and your employer. You give up part of your pay, and your employer pays this amount into your pension pot instead. You might see this referred to as ‘salary sacrifice’ or ‘SMART’. Both you and your employer potentially save on National Insurance contributions with such an arrangement.
This will depend on the rules of your Section. However, for most sections:
An income paid by the government once you reach State Pension age. There are 2 main versions - the new State Pension and the old State Pension. These are explained below. You can also learn more on the State Pension page page and the Gov.uk website.
New: The new basic State Pension is paid to those who reach State Pension age on or after 6 April 2016. The amount an individual receives can vary, depending on National Insurance contributions or credits. You need at least 10 qualifying National Insurance years to qualify for any of the new basic State Pension.
Old: The old basic State Pension is paid to those who reached State Pension age before 6 April 2016. The amount an individual receives can vary, depending on National Insurance contributions, or credits and any paid by a spouse or civil partner.
The Annual Allowance is currently £60,000 for most people. But for high earners, the Annual Allowance reduces on a sliding scale called the Tapered Annual Allowance.
The Tapered Annual Allowance will currently apply to you if:
For every £2 of adjusted income over £260,000, your Annual Allowance will reduce by £1. The minimum Annual Allowance is £10,000.
You can contact Railpen if you think you may be affected. For more information check the Annual Allowance Read As You Need Guide.
If you choose to invest in a Lifestyle strategy, you should set a Target Retirement Age (TRA). This is essentially the age that you are planning to take your pot from IWDC, BRASS or AVC Extra. It can be different from your Normal Retirement Age (NRA). Read more on the Target Retirement Age page.
Tax relief means some of your money that would have gone to the government as tax, goes into your pension instead. See the pension tax limits page for more details.
An institution set up to investigate complaints regarding UK pensions. Visit pensions-ombudsman.org.uk
You may be eligible to exchange all your pensions for a one-off cash payment. To do this, you must be over age 55 and the value of your pension benefits from all registered schemes must not be over £30,000. This doesn’t include the State Pension. The first 25 per cent will be paid to you tax-free, and the remaining 75 per cent will be taxed at your marginal rate of income tax.
A trustee is a person or company, acting separately from the employer, who holds assets in the trust for the beneficiaries of the scheme. Trustees are responsible for ensuring that the pension scheme is run properly and that members' benefits are secure. You can read more about the RPS Trustees in the Trustee area of the website.
A Transfer of Undertakings (Protection of Employment) or ‘TUPE’ is the legislation intended to protect employees after a business is sold and employees are transferred to a new employer.
In investment terms, all funds are divided into smaller parts called units. When you make contributions, these are used to buy units in that particular fund. The unit price reflects how much each unit held by a member is worth from day to day. Units are priced daily. So if you have 10 units worth £1 each on the day they’re sold, they’ll be worth £10 in total. You can find out more on the fund prices and performance page.
When a pension scheme's assets (incomings) are less than its liabilities (outgoings).
The calculation of a Scheme’s assets (incomings), liabilities (outgoings) and overall funding position at a given point in time.
The Trustee is legally required to carry out a formal valuation, also known as an actuarial valuation, every three years and to provide a report to The Pensions Regulator of its funding position. You can read more on the valuation page.
The requirement (under the Pensions Act 2004) on trustees, administrators, professional advisers and employers to inform the Pensions Regulator of breaches of law relevant to the running and administration of a scheme.
This is the pension that will be payable at your retirement date.