Pensions Glossary

As a fund, we try to implement a “Plain English” style of writing to convey what are often confusing subjects in a friendly, conversational tone. However, many areas of pensions are historically complex. If you want to be able to differentiate between your AVC’s and your APC’s and separate your Annual Allowance from your Lifetime Allowance, then read on for our Pensions Glossary which aims to clarify the most mystifying pension buzzwords.

Active Member: This term refers to members who are currently paying contributions into the scheme to build up their pension pot.

Annual Allowance: Annual Allowance is simply a limit on how much pension you can save in any one year before you pay a tax charge. The Annual Allowance limit for most members is £40,000 per year (higher earners, over £200,000 per year, may have a lower allowance). Most members are not affected by the Annual Allowance limit.

APCs: Additional Pension Contributions (APCs) are extra contributions that increase your pension. APCs are taken off your pay, along with your normal contributions and go directly to your NESPF pension account where they remain, increasing with the cost of living until you take your pension.

Auto Enrolment: Most individuals who join the pension scheme are automatically put into the LGPS - this is known as auto enrolment. There is a certain criterion which has to be met for members to be auto enrolled for example, you must have a contract of employment of 3 months or more, earn at least £10,000 per year, and be under age 75.

AVCs: Additional Voluntary Contributions (AVC) AVCs are extra pension contributions that are invested separately in funds managed by our AVC provider Prudential. AVCs are taken off your pay, just like normal contributions and are transferred to your Prudential account. Here your contributions and returns on investments will remain until you retire or transfer them to another provider.

CARE: “CARE” stands for “Career Average Revalued Earnings” a type of defined benefit scheme where your pension is based on your earnings and length of membership in the scheme.

Contribution rate: This is the percentage of your salary that you pay into the scheme. How much you pay depends on how much you earn. When you first join and every April after, your employer will decide your contribution rate by comparing your annual pay with the pension scheme's contribution rates.

DB: DB, or Defined Benefit schemes such as the LGPS provide a guaranteed income for life at retirement. DB pensions are based on how many years you’ve been in the pension scheme and your salary.

DC: DC, or Defined Contribution schemes, can be personal or stakeholder pensions. With DC pensions you build up a ‘pot’ which you can use to fund your retirement. How much income you might get from a DC scheme depends on the amount you pay in, investment choices and performances, and the choices you make at retirement. The value of your pension can go up or down depending on how the investments perform.

Deferred Member: Deferred members are those who have a pension on hold within the scheme, so they are no longer paying in, but their pension pot remains with us until it is paid out.

ESG: This stands for environmental, social and governance which are three areas of growing importance. In regards to pensions, investors are increasing their awareness to ESG practices. As a Fund, we have a duty to engage with the companies we invest in on ESG issues, and to work with others to effect change on ESG issues.

Flexible Retirement: Flexible retirement is a type of retirement which allows you to reduce your hours or pay grade and begin to draw some or all of your pension benefits.

IDPR: Internal Disputes Resolution Procedure is the written procedure which deals with disputes between beneficiaries and the pension fund.

Ill Health Retirement: With ill health retirement, you can retire at any age provided you have been a member of the pension scheme for at least 2 years and your employer, based on the opinion of an independent occupational health advisor is satisfied you are permanently incapable of doing your job.

Lifetime Allowance: Lifetime Allowance is the total value of all pension benefits you can have without triggering a tax charge. If the value of your pension benefits when you draw them is more than the Lifetime Allowance, you will have to pay tax on the excess. The Lifetime Allowance is currently £1,073,100.

LGPS: This abbreviation stands for Local Government Pension Scheme. Our Fund is a part of this scheme which serves employees working in local government or others working for organisations enrolled in the scheme.

Normal Pension Age: Normal Pension Age (NPA) is simply the age you can retire and receive your pension benefits in full, unreduced. Normal Pension Age differs depending on when you were paying in to the scheme.

Pension Board: Each Pension Fund in the LGPS is required to establish a Pension Board. The Board is responsible for assisting the Scheme Manager (Aberdeen City Council) in relation to compliance with Scheme regulations and the requirements of the Pensions Regulator.

Pension Committee: The Pension Committee carries out a role similar to that of the trustees of a private sector pension scheme and is the key decision maker for all matters regarding administration and investment management.

PI: This stands for Pensions Increase. Pensions increase every April in line with the cost of living. How much it increases is based on the Consumer Prices Index (CPI) from the previous September.

Redundancy and Efficiency Retirement: If you are 55 and over, and you lose your job on grounds of redundancy or business efficiency you pension will be paid immediately. For those who have been in the scheme continually since 5 April 2006, your pension can be paid from age 50 in these circumstances.

Rule of 85: Member's whose age plus scheme membership (in whole years) equals 85 may be able to take their pension before their Normal Pension Age, without it being reduced for early payment.