Pension and investment jargon

A little help to explain the financial terms you may come across.

Bonds
A loan to a company or the government.
Bond funds
Pooled investments in a range of corporate and government bonds. Each have various rates and various maturity rates. Due to the mixture of investments these cannot guarantee a fixed return, but a target return.
Corporate bonds
A loan to a company. These are issued by companies as a way of raising money to invest in their business. They have a nominal value and pay interest each year which is usually at a fixed amount. These are bought on the stock market and their price can go up or down.
Gilts (or gilt-edged stocks)
A loan to the government. These pay a fixed rate of interest twice a year. These are bought on the stock market and their price can go up or down.
Equities
Another name for shares in a company.
Investment trusts
A pooled investment. You buy shares in a company which invests in other investments. It has shares and is quoted on the stock exchange.
ISA
Individual Savings Account – a tax-efficient way of saving or investing, with limits on how much you can pay in each tax year. For current allowances please select the following link. https://www.moneyadviceservice.org.uk/en/articles/cash-isas
Occupational pension
Available through employers, there are two types – money purchase (defined contribution) and salary-related (defined benefit). Money Purchase means that the employee has their ‘own pot’ within the occupational pension fund. What you get when you retire depends upon how much was paid in (by you and your employer), how much the fund has grown and the annuity rate (both at the time you took it out and the time you retire). In Salary-related the size of the pension depends on the final salary and the number of years that contributions have been made. Contributions are held in trust and pooled to invest. The investment is then made to try and achieve growth value. A new type of pension is Career Average Re-valued Earnings pension(CARE). Both employees and employers contribute. Your final pension depends on the length of time served, the career average earnings and the proportion of salary received for each year of service.
OEIC
An Open-Ended Investment Company, or ICVC, which provides an open-ended investment fund. This is a type of company that invests in other companies. It has the ability to constantly alter its investment criteria and fund size. The shares are listed on the Stock Market and the price of its shares fluctuate according to the assets of the fund.
PEP
Personal equity plans are no longer available as all PEPs automatically became stocks and shares ISAs from 6 April 2008.
Personal pension
A pension policy you take out with an insurance company or another financial institution where you pay contributions. Some employers offer them to their employees.
Salary-related pension scheme (final salary or defined benefit)
A type of occupational pension. The amount of pension you will receive is based on your actual pay at or near retirement, or when you left employment.
Shares
A share of the stake in a company.
SIPP
Self-invested personal pension, a government approved scheme allowing an individual to make their own investment decisions from the full range of HM Revenue & Customs (HMRC) approved investments.
Stakeholder pension
A type of personal pension which meets certain standards set by the government. It can be provided by an employer or you can take one out yourself. For further information please select the link below.
http://www.direct.gov.uk/en/Pensionsandretirementplanning/Companyandpersonalpensions/PersonalPensions/DG_4017567
State pension
The Department for Work and Pensions (DWP) will pay your basic State Pension based on your National Insurance contribution record. You may also be eligible for the additional State Second Pension which is based on your earnings and National Insurance contributions – see below. For further information please select the link below.
https://www.gov.uk/calculate-state-pension
State second pension
The State Second Pension is an additional State pension paid on top of your basic State Pension. This was called SERPS. A self-employed person cannot build up a State Second Pension.
Stocks
Another term for shares.
Unit trusts
A pooled investment, which is an open-ended investment that becomes bigger when more people invest and smaller when they withdraw money.