6 April 2006 - the day that new pensions legislation comes into force in the UK. This legislation deals with the tax on pensions savings and is also known as Pensions Tax Simplification.

Actuary

A professionally qualified adviser who advises the Trustee and Company on the funding of the Plan – for example, the level of contributions needed to ensure that the Plan can continue to afford to pay all our members their promised benefits.

The amount by which the value of your pension savings can go up in any year before you have to pay tax at 40%. The Annual Allowance applies to the total value of yearly savings from all your pension arrangements, including AVCs. In 2006/07 the allowance is £215,000.

Base Rate

The Bank of England Base Rate, set by its Monetary Policy Committee every month, determines lending rates in the UK. For most people, this is significant as mortgage interest rates are based on this.

The pension paid by the government. It is not linked to earnings but is paid provided you have enough qualifying years, which are the amount of years for which you have paid National Insurance Contributions.

Benchmark

A target figure, often related to an index, such as the Financial Times All Share Index. Actual results are then compared to this, giving a measurement of investment performance.

An event (such as retirement) that triggers a member's lifetime allowance to be tested. Refers to any occasion that benefits are paid - these benefits could include occupational pensions, lump sums, death benefits and/or transfers to overseas pensions schemes. Our website and our other documentation has steered clear of using this term, but you may come across it in pensions information from other sources.

Blue chip

Refers to some of the largest public companies who consistently perform well in terms of their share value.

Bonds

These are like shares, but are loans issued by the Government or by companies to finance spending for a fixed period of time, known as a term. The investor is paid a fixed rate of interest during that term and at the end of the term the investor gets the original capital investment back. Those bonds issued by major Governments, such as the UK, are typically seen as low risk investments. See UK Fixed Interest Gilts and Corporate Bonds.

Corporate Bonds

Bonds issued by Companies offer higher interest rates than Government bonds but are also a higher risk investment, since companies can fail.

Death Benefits

Benefits payable on the death of a member. These may take the form of a lump sum and/or a pension depending on whether death occurs before or after a member starts to draw their pension. The recipients of the lump sum are always selected at the discretion of the Trustee. If you are married, at least some of your dependant’s pension may be required by law to be paid to your spouse, but beyond that the Trustee has discretion to pay a dependant’s pension to a person in respect of whom there is evidence of financial dependence or inter-dependence. See Expression of Wish for more information.

Deferred Member

Someone who has left the Plan who has a right to receive a pension when they reach Normal Retirement Age (or an earlier date of retirement).

Equities

General term for stocks and shares – another way of investing in a company, which entails buying a proportion of the company. They carry a higher risk than bonds but also can give greater rewards since the return on investment is not fixed.

Ethical fund

Fund invested in companies and institutions which follow a policy of either avoiding certain activities and behaviours regarded as harmful (in a way stated by the fund concerned) or are involved in activities and behaviour intended to benefit the environment and community, locally or globally.

Expression of Wish (EOW)

Form that a member should complete to tell the Trustee who they would wish to receive any benefits payable on their death. The Trustee uses this information to guide it, but is not legally bound by the EOW. This is to allow lump sum benefits to be paid without being subject to Inheritance tax.

Financial Services Authority (FSA)

Government-appointed watchdog set up to regulate the financial services industry.

Fixed interest

Stocks issued by companies, Governments or local authorities, where the amount of interest is fixed at the time of issue. (See also Bonds.)

Gilts

Loans issued on behalf of the Government to help fund its spending. Also known as Government bonds (see Bonds).

Growth

Increase in the value of shares or other investments. If you buy shares in a company whose share price goes up, you will be able to sell your shares for more than the price you bought them at, so the initial capital (money) you invested has grown.

Hedge Funds

The term usually refers to unquoted investment vehicles that may utilise a wide range of investment strategies and instruments. They can include traditional stock and bond investments, but generally combine these with relatively sophisticated and technical forms of investing which include the likes of ‘short sales' (borrowing stock to sell immediately with the intent of buying it back later at a lower price) and ‘leverage' (borrowing to increase investment with the aim of achieving a return which exceeds the cost of borrowing). Although hedging is sometimes perceived as a higher risk investment approach, it can also be used to reduce the investment risk and volatility of a portfolio.

HMRC was formed following the merger of the Inland Revenue and Customs and Excise Departments. It is the body which deals with the taxation of, among other things, pension payments.

High Yield Bonds

Bonds issued by companies who tend to have a low credit rating. They are therefore higher risk so to attract investment they have to pay out a higher rate of interest, giving a higher potential return on investment.

Individual Savings Account (ISA)

ISA stands for Individual Savings Account. These were introduced in 1999, and are designed to encourage savings. They allow you to invest from as little as £10 up to a maximum of £7,000 each tax year until April 2006. After that time the maximum limit is expected to reduce to £5,000. ISAs enjoy significant tax breaks and differ from ordinary bank or building society accounts, where tax is deducted.

The amount by which prices grow each year. See the jargon buster entry for Retail Price Index for more information.

Life assurance

A form of insurance provided by a Life Assurance company that pays out either a lump sum or a series of payments when the policy holder dies. These payments are normally paid without any tax being deducted. The proceeds of a Life Assurance policy can used to pay off a debt such as a mortgage or to provide an income for dependents.

The LTA is the total value of all your private and work pensions savings, ignoring State Pension, which have benefited from tax relief. The allowance is initially set at £1.5m. To give you some idea of whether this affects you, you can take your pension from a final salary scheme (such as Coats) and multiply it by 20 if you are not yet drawing your pension, or 25 if you are. An individual with benefits coming from a final salary scheme would have to be entitled to a pension of over £75,000 a year before hitting this limit (or £60,000 a year if already retired). If the value of your pension benefits takes you over the LTA, you will have to pay any tax due on the the excess.

An amount approximately equal to the Basic State Pension, and represents the level of earnings at which you start to qualify for a National Insurance rebate for contracting-out of SERPS. See also Disregard.

Managed fund

A form of pooled investment, where investors hold shares in the managed fund, and the manager decides which individual stocks and shares to hold and which markets to invest in. Fund growth is linked directly to market conditions and the performance of those investments held. Managed funds generally have more exposure to equities than with-profits funds, and therefore more potential for real growth. The value of an investment in the managed fund can fall as well as rise. Also known as Unit-linked funds.

Occupational pension scheme

Scheme set up by an employer to provide pension benefits for employees. Also called a Company Pension Scheme. Coats Pension Plan is an Occupational Pension Scheme, as opposed to a Personal Pension Scheme.

The Pension Input Value is important for tax purposes and you may be required to include this figure on your annual tax return form. The calculation is complex but essentially it is the value by which your pension benefits have increased from one year to the next. For example, for 2007 the PIV will be the value of your pension at 31 March 2007 less its value at 6 April 2006. Active Coats members will see their PIV on their annual benefit statement beginning in 2007.

The Pension Pot, also known as the Lifetime Allowance (LTA), is a term used to describe the amount of money you have built up towards your pension from all the
different sources. It may include pensions from more than one employer, a personal pension and any Additional Voluntary Contributions (AVCs) that you have made.

The PPF acts as a safety net for members of final salary pension schemes like Coats. It pays out compensation if the employer who operates the scheme becomes insolvent and the scheme cannot meet the cost of the pension benefits it has promised. The PPF is paid for by charges placed on all final salary pension schemes in the private sector. In 2005 this cost the Coats fund over £440,000.

Personal Pension

A pension arrangement set up by an individual directly with a pension provider (normally an insurance company, bank or building society). There is no link with an employer and the limits on benefits, contributions and tax treatment are currently different from an occupational pension scheme. Also described as a private pension.

Preference shares

Shares whose owners have the right to receive dividends before ordinary shareholders but after holders of debenture and loan stock.

Retirement planning

Although this should be about planning the whole of your lifestyle after you stop working and start drawing your pension, when people talk about retirement planning it is usually about ensuring that you have enough money to enjoy your retirement. Although most attention is placed on the provision of a pension, it is also wise to consider the timing of any debt repayment to ensure at least most of it is repaid before you retire. This is especially important on any mortgage on your home. Pension planning is normally a long-term commitment. The Government is trying to encourage more people to build up a pension fund of their own with the introduction of Stakeholder Pensions and changes to Contracting Out from the State Second Pension (S2P), which has replaced the old State Earnings Related Pensions (SERPS).

The general term 'Simplification' refers more specifically to the Pensions Tax Simplification which comes into effect on 6 April 2006 (also known as 'A' day). Simplification will sweep away the eight existing tax regimes and replace them with a single universal regime for tax-priveleged pension savings.

Specialist fund

Fund in which investments are limited to one market or sector.

Stakeholder pension

Stakeholder Pensions are a form of Personal Pension where certain conditions, laid down by the Government, must be met. These conditions relate to the maximum amount that the Pension Provider may charge for the product, the minimum level of contribution they must accept and the abolition of a fixed frequency for your contributions. There are also conditions which prevent someone earning over £30.000 a year who is a member of a company pension scheme from contributing to a Stakeholder pension. Other people are allowed to make a contribution to a Stakeholder pension even if they are not working or receiving income. The amount you can contribute to a Stakeholder pension depends on your age and income, but even with no income, you are allowed to invest £3,600 a year (£300 per month) towards your retirement.

Also calling themselves 'Pension Liberators', Trust Busters are companies who offer to unlock (or 'cash in') your pension benefits and provide an immediate cash lump sum. They do this by requesting a transfer payment from a member's existing pension scheme to a new scheme in the name of a fictitious employer. The Trust Buster then deducts a very hefty commission (sometimes up to 30%) of the transfer payment and, in spite of the Trust Buster's assurance that the payment is tax-free, you could end up paying a further 40% tax on the total amount, leaving you only 30% of your hard-earned pensions savings.

The DWP, HMRC and the Pensions Regulator have all expressed concern over these practices, and a number of organisations are currently being investigated. The Coats Pension Plan believes that trust busting puts the finances of vulnerable people at risk, and we will only pay out a transfer value if we are sure that the new scheme is genuine.

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