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Financial Glossary
Here are some common financial terms & acronyms. Click on a letter or scroll down through the list below to view.
A
Accrual Rate
If you have a final salary pension, this refers to the rate at which pension benefits build up in it each year.
Active Management
The traditional investment approach where fund managers actively build and change a portfolio of assets (e.g. stocks and shares) in order to take advantage of what they believe are the best opportunities.
Actuary
An actuary is an expert on pension scheme assets and liabilities, life expectancy and probabilities for insurance purposes (the likelihood of things happening). An actuary works out whether enough money is being paid into a pension scheme to pay the pensions when they are due.
Added Years (of Service)
Buying a specific number of added years in a final salary scheme which will increase the service on which your pension is based.
Additional Rate Tax
The top rate of Income Tax in the UK. Paying Additional Rate Tax will depend on your income and where you reside in the UK.
Adviser Charging
An agreement between you and your financial adviser to pay him or her directly for the services you receive initially and ongoing. The payment may be made directly, as a fee, or taken directly from your investment as a matched deduction which will be facilitated by a product provider.
AER
The AER (Annual Equivalent Rate) shows the rate of interest earned in a year on savings or investments. The higher the AER, the better the return. All adverts for interest-bearing savings accounts quote the AER, so you can compare returns.
Annual Allowance
The Annual Allowance is a limit to the amount of pension savings you can make, before you face a tax charge. You may be able to "carry forward" unused allowance from the last three years to increase your limit for the current year. Your annual allowance includes all the payments made into your pension by you, your employer, or any third party. It also includes most increases in benefits if you are an active member of a defined benefit scheme (also called final salary, or career average scheme).
Annual Management Charge (AMC)
A yearly fee taken for managing your investment, generally applied as a percentage of the fund.
Annuity
An annuity converts a pension fund into retirement income. Once purchased you can’t change your annuity provider.
Annuity Rate
The factor used to calculate the amount of income payable, following investment of a lump sum in an annuity.
Appointed Representatives
Some firms on the Financial Services Register are listed as 'Appointed Representatives' (ARs). This means they are carrying out activities on behalf of another firm, known as their 'Principal'. The Principal firm agrees what activities the AR can do and is responsible for making sure the AR is fit and proper and complies with FCA rules.
APR
The APR (Annual Percentage Rate of change) shows the overall cost of borrowing on a credit card or loan. Generally, the lower the APR, the better the deal. Used to compare different credit and loan offers.
Approval in Principle
This is the certificate that some lenders issue to show how much they’d be prepared to lend you. It’s not a guarantee, but it can be helpful when you’re looking at property to purchase.
Arrangement Fee
The fee that you pay a lender to set up a mortgage for you.
Arrears
This term describes falling behind with regular payments (for example, monthly mortgage or rent payments) or not paying the amount that is required.
Asset Allocation
The proportion of investments in a fund or portfolio held in different asset classes such as equities, fixed interest and cash.
Asset Classes
The different types of assets available to investors. For example, equities (also known as stocks and shares), cash, fixed interest or property.
Assets
Items that are owned by an individual such as property and investments. Money in a bank or building society account is known as a liquid asset. Assets may also be held in a fund.
Attitude to Risk (ATR)
Attitude to risk or risk appetite are terms used to describe the level of risk an investor is willing to take when choosing investments to reach their savings goal.
Authorised Firm
An authorised firm is one that has permission from the Financial Conduct Authority (FCA) to carry out regulated activities.
AVC (Additional Voluntary Contribution)
Non compulsory additional payment you can pay into an employer's pension scheme to help fund for retirement.
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B
Balanced Managed Fund
A fund that invests money in a diversified portfolio across asset classes, including a mix of both stocks and bonds. Balanced funds invest with the goal of both income (from bonds) and capital appreciation or growth (from stocks).
Bank of England (BoE)
The BoE is the UK's central bank. They deliver monetary and financial stability for the UK, by setting the main interest or base rate, they produce banknotes (cash) and oversee many of the other payment systems (eg debit & credit cards). They also regulate UK banks and other financial firms through the Prudential Regulation Authority (PRA).
Base Rate
An interest rate set by the Bank of England which is used as a benchmark by many financial institutions & lenders to set the interest rates they charge and pay customers.
Basic Rate Tax
This is the basic rate of income tax in the UK.
Basic State Pension
The flat rate (not earnings-related) state pension paid to all who have met the minimum National Insurance contribution requirements. This changes each year on 6 April.
To satisfy the minimum National Insurance contributions requirement you need to have built up enough qualifying years. You will need 30 qualifying years for a full basic state pension.
Bear Market
A financial market where prices are falling against a background of gloomy investors.
Benchmark
A tool with which to measure a fund's performance - often a market Index or model portfolio.
Beneficiary
This is someone who benefits from a will, trust, pension fund or a life assurance policy.
Benefit Statement
If employees are in an occupational pension scheme, they receive regular benefit statements which explain how much pension benefit they have earned.
Bid (Selling) Price
The price you get when you sell shares, bonds or units in a unit trust. The price you buy shares, bonds or units in a unit trust is known as the Offer (Buying) Price. The difference between the two is often referred to as a Bid Offer Spread.
Bond
Lower to medium risk loans to the government or companies that pay you a fixed rate of interest.
Bridging Loan
A short-term loan that covers the shortfall between buying one property and selling another. They are commonly used when you find a place you want to buy before managing to sell your current home. They are expensive and you should only get one if you can repay it within six months.
Bull Market
A financial market where prices increase against a background of optimistic investors.
Buying (Offer) Price
The price at which you can buy shares, bonds or units in a unit trust.
Buy-to-Let Mortgage
This is a loan you take out to buy a property that you intend to let to tenants. Buy-to-let investors need to be aware that properties can fall in value as well as rise.
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C
Capital
The amount you invest in any type of savings or investment product.
Capital Charge
When a unit trust manager takes the management charges out of the fund's capital instead of the income it has produced.
Capital Gains Tax
You make a 'capital gain' if you sell assets such as shares or property for more than they cost you. Each tax year you are allowed to make gains up to a certain amount without paying any tax.
Capital Growth/Gain
Any money you receive in addition to the capital you've invested when you cash in your investment.
Capped Interest Rate
Where the interest rate can go up or down, but cannot exceed a certain level for a set time.
Cashback Mortgage
This is a mortgage that comes with a cash sum from the lender at the beginning of the mortgage loan.
Cash-in Value
The amount you get if you cash in an investment.
CAT Standard
The Government has created a system to show which ISAs meet stated standards for Charges, Access and Terms. The ISAs which meet these will have reached the CAT standard.
Cautious Managed Fund
A fund that aims to provide a combination of income and capital growth, while reducing risk by diversifying your investments.
Caveat Emptor
This is a Latin expression which means 'buyer beware'. The whole phrase is "Caveat emptor, quia ignorare non debuit quod jus alienum emit" which translates into "Let a purchaser beware, for they ought not to be ignorant of the nature of the property which they are buying from another party."
Chancellor of the Exchequer
The chief finance minister who prepares the UK Government's Budget.
Collective Investments
These pool money from many different investors into one fund, such as a unit trust, open ended investment company (OEIC) or investment trust. They invest in assets, such as bonds, equities or cash. The collective assets owned by the fund are called a portfolio, and they are managed by a professional fund manager.
Commission
Money paid by a financial company to a third party (eg an Independent Financial Adviser or direct agent) for selling a product. The financial company may recover the cost of the commission through charges to the client.
Commodities
These are raw materials and foodstuffs that can be divided into 5 main categories: Agriculturals (e.g. wheat and potatoes), Softs (e.g. coffee and cocoa), Precious Metals (e.g. gold and silver), NonFerrous Metals (e.g. copper and lead) and Energies (e.g. oil and gas).
Company Pension Schemes
A pension scheme provided by an employer for its employees. Company pension schemes can be defined benefit schemes (final salary schemes) or defined contribution schemes (money purchase schemes).
Compound Interest
Any interest you earn or owe is added to the original amount that interest is calculated on. You are effectively earning interest on interest. This can help your savings grow quicker, but will accelerate your debts.
Consumer Duty
On 31 July 2023, the FCA introduced additional rules for financial services firms, known as Consumer Duty. Essentially it sets the standard of care that firms should give to customers in retail financial markets. It sets higher and clearer standards for reporting and communicating with individuals, to support good value & outcomes for customers, so increasing consumer protection.
Consumer Prices Index (CPI)
Measures the prices of a Fixed "basket of goods" bought by a typical consumer and used as a measurement of inflation.
Contracted Out/In
Contracting out was a system where employees gave up their right to additional state pension, firstly in the form or the state earnings related pension scheme (Serps) then from 2002 in the form of the state second pension (S2P). In return workers and their employers paid reduced national insurance.
Contributory Pension
A company pension scheme where the employee contributes as well as the employer.
Conveyancing
This is the name for carrying out all the actions needed to transfer the ownership of a property or piece of land.
Conventional Annuity
One type of conventional annuity is a guaranteed annuity. A guaranteed annuity is a pension annuity that guarantees to provide you with a regular income usually for the rest of your life in return for you paying over a lump sum from your pension fund. It can provide a guaranteed level of income which stays the same each year, an income that increases by a fixed percentage or one that changes in line with inflation. The level of income you receive will depend on various factors including your age and size of your pension fund.
Convertible Term Assurance
A life assurance policy which pays out if the policyholder dies within the period of policy, but also allows the customer to convert to another type of plan offered by that provider without requiring any proof of health at the time of conversion within certain limits.
Corporate Bond
A loan to a company that earns you income in the form of interest.
Credit Rating
Formal evaluation of a company's loan repayment history and current ability to repay its financial liabilities. Awarded by agencies such as Standard & Poor's and Moody's. AAA grade is the highest.
Credit Report
A record of your past borrowing and how you managed the repayments.
Credit Score
Helps your lender decide whether to lend you money. The lender uses your credit record and the information on your application form to award you with a credit score.
Critical Illness Cover
This is a type of insurance cover which pays out if the policyholder gets a serious illness such as heart disease or cancer. Both critical and terminal illnesses refer to serious medical conditions, but the difference is that a critical illness refers to a specified serious injury, illness or medical episode, whereas a terminal diagnosis means a hospital consultant expects the illness will lead to death within the next 12 months.
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D
Default
The failure to pay back a loan.
Deferred (delayed) Annuity Purchase
An option available to a member of certain types of pension scheme, where an annuity income is determined some years before the date income is due to start, and is conditional upon agreed contributions being paid.
Defined Benefit
A company pension scheme where the pension an employee receives is linked to their length of scheme service and size of their salary as defined in the scheme rules. They are often referred to as final salary schemes.
Defined Benefit Pension Scheme
A company pension scheme where the pension an employee receives is linked to their length of scheme service and size of their salary as defined in the scheme rules. They are often referred to as final salary schemes.
Defined Contribution Pension Scheme
A company pension scheme where the contributions made by the employer and employee are set and the final pension an employee receives depends on a number of factors including the size of their fund on retirement. This final fund is then used to buy an annuity or an unsecured pension (income drawdown). These are also referred to as money purchase schemes.
Deflation
Fall in the general level of prices of goods and services in the economy.
Deposit Account
A savings account from a bank or building society that pays interest on the amount of money held in it.
Devaluation
A drop in the value of a currency compared to other currencies. This could either be a deliberate policy by a government, or the effect of supply and demand for that currency.
Discounted Mortgage
A mortgage with a discounted variable rate of interest for an initial set period, after which the rate may increase.
Distribution
When a company pays money (dividends) to its shareholders, or when a unit trust pays income to unit holders.
Diversification
Strategy of investing broadly across a number of different investments or markets to help reduce the risk within a portfolio.
Dividend
Payments that a company makes to its shareholders. The size of the payment is usually determined by the size of the company's profits, although a company does not have to pay a dividend at all.
Dividend Yield
The Dividend per share expressed as a percentage of the share's market price.
Domicile
Normally the country where you have your permanent home or principal establishment and to where, whenever you are absent, you intend to return. You can only have one domicile at a time. For inheritance tax purposes for instance, you are deemed domiciled in the UK if you spend 17 out of 20 tax years in the UK.
Dual Priced
Dual priced funds have a buying (offer) price and selling or (bid) price. The buying price is higher than the selling price - and this difference is known as the spread or bid-offer spread. The difference is typically 5% and may vary to reflect changes in the market.
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E
Early Retirement
When a member of a pension scheme starts to take their pension before the normal retirement date of the scheme. The earliest you can usually start taking a workplace or private pension is from age 55 (increasing to 57 from April 2028). The earliest you can get your State Pension is when you reach your State Pension age.
Economic Growth
The growth of GDP or GNP expressed in real terms, usually over the course of a calendar year. Often used as a barometer of an economy’s health.
Emergency Fund
Cash set aside in a dedicated interest account to cover unanticipated financial expenses in an emergency such as property repairs, medical expenses or car repairs. It’s also a good idea to save enough money to cover at least three months essential outgoings to give yourself a solid financial cushion.
Emerging Market
A country which is developing the characteristics of a developed market, but is not yet fully developed. Normally a country experiencing rapid growth and industrialisation.
Employer Pension Schemes
A pension scheme provided (sponsored) by an employer for its employees. Company pension schemes can be defined benefit schemes (final salary schemes) or defined contribution schemes (money purchase schemes).
Endowment
A life assurance policy & investment plan that you pay into monthly for a fixed period of time. It pays out a lump sum at the end of the term or on the earlier death of the policyholder. They can be used as a vehicle for saving or as a way to repay a mortgage. It is important to remember that an endowment is a medium to long term commitment. A customer who surrenders early may not get back the amount of money they have invested.
Environmental, Social, and Governance (ESG)
ESG investing refers to a set of standards measuring a company’s behavioural impact on the environment, society, and how accountable it is. Used by socially conscious investors to screen potential investments.
Environmental criteria consider how a company safeguards the environment, including corporate policies addressing climate change. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.
Equities
Also known as shares or stocks, these represent a share of the ownership of a company. Shares can provide regular payments, known as dividends, and share price changes as the value of the company changes. Over the longer term, equities can offer greater growth potential than many other asset types, but the value of the equities can go up and down and carry a risk you may not get back the full amount you invested.
Equity Release
A way that allows homeowners to release cash from the value of their property without having to move out, either by borrowing on it or by selling all or part of it for a regular income or lump sum. The options for releasing the money are not standardised across the industry and depend upon the product terms.
Escalation
When an annuity payment is automatically increased at regular intervals by a fixed percentage rate.
Estate
Assets owned by an individual at death.
Estate Planning
Preparing a plan of action for transferring your assets to your beneficiaries or next of kin. This can allow you to pass over more of your estate by transferring assets in a tax-efficient manner, to mitigate any possible inheritance tax (IHT)which might become due at time of death.
Ethical Funds
These aim to make socially responsible investments (they do not invest in companies that have interests in socially unacceptable markets or produce harmful products or by-products, such as high levels of environmental pollution).
European Central Bank (ECB)
The central bank of the member countries of the Eurozone. It sets interest rates throughout the Eurozone.
Excess
The amount you must pay towards any claim. The excess applies to each insured person and each event that leads to a claim.
Executor(s)
Individual(s) who are appointed in a will to deal with the wishes of the deceased, in administering their estate.
Exit Fee
A fee paid when you choose to close an account or investment before it is supposed to end.
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F
Final Salary Scheme
A type of occupational pension scheme where the final pension an employee receives is linked to the size of their final salary and the number of years they have been a member of the scheme. They are also referred to as defined benefit pension schemes.
Financial Adviser
A Financial Adviser can make recommendations on how to manage your finances. This may include investments, pensions, mortgages, insurance or planning for the future. There are two different types of financial advisers; ‘independent’ and ‘restricted’. An Independent Financial Adviser (IFA) can offer unbiased advice based on a comprehensive and fair analysis of the full range of financial products and providers available. But many other advisers have chosen to offer ‘restricted advice’ and will focus on a limited selection of products and/or providers. All financial advisers have to be approved or authorised by the FCA, they must all pass the same qualifications and requirements to ensure they are providing suitable advice.
Financial Conduct Authority (FCA)
The FCA is an independent body that regulates the financial services industry in the UK.
Financial Ombudsman Service
The Financial Ombudsman Service has been set up by law to help settle individual disputes between consumers and financial firms. It gives consumers a free, independent service to help resolve disputes, but you usually have to have first taken your complaint to the financial firm yourself before the Ombudsman can step in.
Financial Services Compensation Scheme (FSCS)
The Financial Services Compensation Scheme is the UK's statutory compensation scheme for customers of authorised financial services firms. This means that FSCS can pay compensation if a firm is unable, or likely to be unable, to pay claims against it.
Financial Services Register
The Financial Services Register is a public record of firms, individuals and other bodies that are, or have been, authorised by the FCA or the PRA.
Fiscal Policy
A government's spending and taxation policy.
Fiscal Year
Fiscal years, also called Tax years, in the UK run from 6 April to 5 April. They are the periods of assessment for income tax and capital gains tax.
Fixed Interest Rate
An interest rate that does not change during an investment or borrowing period.
Fixed Interest Securities
More commonly known as "bonds" these are loans issued by companies or by governments in order to raise money. Bonds issued by companies are called corporate bonds, those issued by the UK government are called gilts and those issued by the US government are called treasury bonds. In effect all bonds are IOUs that promise to pay a sum on a specified date and pay a fixed rate of interest along the way.
Fixed-rate bonds
Fixed rate bonds are usually savings accounts that pay a set rate of interest, agreed at the outset, for a certain term.
Fixed Rate Mortgage
A mortgage which offers a period of time, often 2 to 5 years, during which the interest rate is fixed. After this time, it will revert to the lender's Standard Variable Mortgage Rate (often referred to as SVR). Fixed rate mortgages can make budgeting for mortgage payments easier for borrowers as the monthly payments stay the same.
Flexi-access Drawdown
A form of drawdown which allows you to take an unlimited amount of income or lump sums from a pension fund. This replaces flexible and capped drawdown, although existing capped drawdown plans are continuing.
Flexible Mortgage
A mortgage that gives you some options to overpay or underpay the monthly repayment.
Free Standing Additional Voluntary Contribution (FSAVC)
A non-compulsory payment made by a member of a company pension scheme who wants to boost their retirement benefits, but keep the payments separate from their occupational fund. Payments are made into a separate FSAVC fund.
FTSE 100 Index*
An index of the share prices of the 100 largest companies (by market capitalisation) in the UK.
FTSE 250*
UK share index based on the 250 shares immediately below the top 100.
FTSE 350*
Index combining the FTSE 100 and FTSE 250 indices.
FTSE All-Share Index*
An index of the share prices of more than 800 leading companies and investment trusts on the London Stock Exchange.
Fund
A pool of money normally set apart for a purpose, for example a pension fund to provide pensions.
Fund Benchmark
A measure against which performance of an investment (fund) is to be judged.
Fund Manager
Firm or an individual who is employed to run an investment scheme and decides what the scheme should invest in. It is a fund manager's aim to buy shares or other assets such as property or bonds that they believe will increase in value or provide a level of income.
Fund of Funds
A "fund of funds" (FOF) is an investment strategy of holding a portfolio of other investment funds rather than investing directly in shares, bonds or other securities. This type of investing is often referred to as multi-manager investment. A fund of funds may be 'fettered', meaning that it invests only in funds managed by the same investment company, or 'unfettered', meaning that it can invest in external funds.
Fund Value
The monetary value of a fund, which is calculated by adding up the value of its underlying assets. For instance, the price of units in a unit trust is worked out from the value of all its holdings divided by the number of units issued.
*"FTSE" is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under licence.
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G
GDP (Gross Domestic Product)
A measure of the value of all goods and services produced in a country's economy in a year.
Gift
A transfer of goods or property to another party. There are limits to the value and number of gifts you can make without any immediate or future inheritance tax liability.
Gilt
A bond issued by the British Government.
GNP (Gross national product)
GNP is the value of all finished goods and services produced by a country's citizens, both domestically and abroad.
Gross Earnings
Earnings before income tax and other deductions are taken.
Gross Income Reinvested
Any income that the fund produces ( e.g. interest and dividends) is reinvested back in to the fund and is not liable for UK tax.
Gross Interest
The amount of interest you receive without any income tax or charges deducted.
Gross Pension Contribution
A payment to a pension scheme deducted from earnings before the deduction of income tax.
Group Personal Pension (GPP)
A fund that aims to maintain a balance between investments aiming to produce growth and those generating income.
Growth & Income Fund
A fund which maintains a balance between investments aiming to produce growth and those generating income.
Growth Fund
A fund which aims to maximise growth over the medium to long term by investing in shares, property, fixed interest and other investments.
Growth Investing
An investment process that chooses to invest in shares that generally produce lower Dividends and have high expectations of future growth.
Guaranteed Annuity Rate
A guaranteed annuity rate guarantees that the annuity rate offered will always be at a certain minimum level. If your pension includes a guaranteed annuity rate, it means you could get a higher income than normal, especially when annuity rates are low.
Guaranteed Income Bond
A guaranteed income from a fixed-term investment - usually three to five years - paid monthly or annually. Capital is generally secure so this is a low risk investment, but penalties usually apply for early withdrawal.
Guaranteed Minimum Pension
The minimum pension which a company final salary pension scheme must provide in respect of contributions paid between April 1978 and April 1997, as a condition of contracting out of the State Earnings Related Pension Scheme.
Guaranteed Pension Annuity
This is our conventional annuity - please see conventional annuity. It guarantees to pay a regular income usually for life. Your income can always stay the same, increase each year by a fixed percentage or change each year in line with the Retail Prices Index (RPI).
Guarantee period
This is the minimum number of years from the start of your annuity in which income will continue to be paid, even if you die during that period. Although there's technically no limit on the length of a guarantee period, the maximum guarantee period you can usually select is 10 years and it must be included at the start.
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H
Hedge Fund
A high-risk investment vehicle which uses advanced and aggressive investment financial techniques in order to make maximum gains.
High Income Bonds
A medium risk bond invested over a fixed period with no capital guarantees. These provide a fixed rate of income, either monthly or annually, which is net of basic tax. If you are a higher rate tax payer you will need to pay the additional tax. There may be penalties for early withdrawal.
High Yield Bond
This is a bond that generally has a low (or "noninvestment grade") credit rating and which offers higher interest payments than a bond with a higher credit rating due to the increased risk of default by the company issuing the bond. It can also be known as a "junk" bond.
Higher Rate Tax
The higher rate of income tax in the UK.
HM Treasury
HM Treasury is the UK government department responsible for the UK’s finance and economic policy.
HMRC
His Majesty's Revenue and Customs - UK Government department responsible for collecting taxes, paying some forms of state support and administering some regulatory regimes such as the national minimum wage.
Home Reversion Plan
The sale of part of or your entire home to a reversion company in return for a lump sum, regular income or a combination of the two. You can continue to live in your home until you die or go into long-term care. When your home is sold the percentage you sold will go to the plan provider.
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I
Illustration
An example of the potential growth you may expect to receive from an investment. The growth rates used are set by the industry regulator, the Financial Conduct Authority (FCA). It is important to remember that the actual return received could be higher or lower than that shown on the illustration.
Income
Money received by an individual for example as a salary or from investments which is usually subject to income tax. Cash deposits and bonds will provide income in the form of interest. Most UK shares will provide income in the form of twice-yearly dividends.
Income drawdown
A type of pension where you withdraw money directly from the fund while the pension fund remains invested. Also known as income withdrawal.
Income Tax
Tax paid by individuals on savings and income, excluding the ‘personal allowance’ amount that an individual can earn each year tax-free. The amount paid is dependent on the tax thresholds in place for the year in question.
Independent Financial Adviser (IFA)
An IFA establishes the financial planning needs of a client, and satisfies those needs by recommending the most appropriate products after researching the whole market. (See also Financial Advisers)
Index
In the stock market, an index is a device that measures changes in the prices of a basket of shares, and represents the changes using a single figure. The purpose is to give investors an easy way to see the general direction of shares in the index. Examples of stock market indices are the FTSE 100, FTSE All-Share, Nikkei and Dow Jones.
Index Fund
A fund that is managed so as to generate the same returns as a specified Index (also known as "Passive" or "Tracker" funds).
Indexation
Another name for index tracking. An investment strategy designed to produce a rate of return in line with a specific financial index. This term is also used to describe automatic increases in pension contributions.
Index Linked
An investment can be linked to an inflation index (CPI – Consumer Price Index, or RPI – Retail Price Index) with the aim of keeping pace with inflation.
Individual Savings Account (ISA)
A regular savings or investment vehicle that allows customers to invest in equities (stocks and shares) or to save cash, without having to pay any income or capital gains tax. There is a limit to the amount you can invest each year.
Inflation
The rate of increase in the price of commodity products over time as recorded in an index such as the Retail Prices Index (RPI).
Inheritance Tax
A tax paid on your estate (property, money and possessions, minus your debts) if it’s valued over a certain amount after you die.
Initial Charge
A charge made by an investment provider to cover the cost of setting up an investment. The amount invested is the amount contributed less the initial charge.
Insurance
Insurance is an arrangement by which an insurance company undertakes to provide a guarantee of compensation in the event of an accident, loss, damage, illness, or death occuring during the term of the policy, in return for payment of an agreed premium.
Interest Rate
The amount of money a customer can earn on an investment or is charged for borrowing money. It is usually expressed as a percentage of the total amount invested or borrowed.
Interest Only Mortgage
A mortgage where you only repay the interest each month. This means you are not reducing the loan itself, and must find a way to repay it at the end of the mortgage term.
Intestate/Intestacy
This refers to a person dying without a valid will. Upon death the person's assets are distributed according to the law, regardless of the person's intent when they were alive.
Investment Certificate
A document showing details of units held within a unit trust or shares or bonds.
Investment Grade
A credit rating given to a Government or Corporate bond that indicates that the agency giving the rating (e.g. Standards & Poor's) believes that the issuer has a relatively low risk of default. Bonds with credit ratings of AAA, AA, A or BBB are considered investment grade. Low rated bonds with ratings of BB or below are often called High-Yield or Junk Bonds.
Investment Trust
A company that invests in the shares of other companies, or other assets such as property or bonds. When investing in an investment trust, customers actually own shares in the investment trust rather than owning the shares it invests in.
IVA
An Individual Voluntary Arrangement (IVA) is a way to avoid bankruptcy. It is a formal arrangement through the county court to pay an agreed amount off your debts.
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J
Joint-Life Annuity
An annuity that pays you a regular income for life and then when you die usually pays your dependant a regular income for life too.
Junk Bond
A high-risk Bond of below Investment Grade, issued by a company or government.
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K
Key Man Insurance
‘Key man insurance’ means the same thing as key person insurance, and refers to insurance policies that protect businesses from the loss of a key individual – men and women – who are unable to work due to a critical or terminal illness, or have passed away during the length of a policy.
Know Your Client (KYC)
Know Your Client guidelines and regulations in financial services require professionals to verify the identity, suitability, and risks involved when maintaining an ongoing business relationship with a client.
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L
Lasting Power of Attorney (LPA)
A lasting power of attorney is a legal document that lets you (the ‘donor’) appoint one or more people (known as ‘attorneys’) to help you make decisions or to make decisions on your behalf. This gives you more control over what happens to you if you have an accident or an illness and cannot make your own decisions (you ‘lack mental capacity’). In England and Wales there are 2 types of LPA: Health & Welfare and Property & Financial Affairs.
Life Assurance
An assurance policy that pays out a lump sum or instalments on the death of the life assured.
Life Fund
A pool of money and/or assets such as property or shares held by a fund into which all life assurance policyholders' premiums are paid and from which claims are made.
Lifetime Allowance
There is no limit on how big your pension fund can grow to, however you will have a lifetime allowance in relation to the maximum amount of tax-relieved benefits you can build up over your lifetime.
Lifetime Mortgage
This is a loan secured against the value of your property that can be converted into a cash lump sum or income, without the need to move. You can also do this using a home reversion scheme. These types of plans are sometimes referred to as equity release.
Liquidity
This is how quickly an asset, such as equities, corporate bonds or property, can be traded within a market and turned into cash.
Listed Company
A company that satisfies the listings rules of a stock exchange, and whose shares are quoted and traded on a stock exchange.
Loan to Value (LTV)
The ratio between the value of an asset (such as property) to the value of the loan that will finance the purchase of that asset. LTV tells the lender if potential losses due to non-payment may be recouped by selling the asset.
Long Term Care Bonds
An investment bond that is designed to cover the costs of care in old age. Can be used to cover residential home costs as well as expenses incurred when care takes place within the home.
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M
Managed Fund
Usually a fund choice within a unit-linked policy. Managed funds are generally made up of units from a wide spread of other specialist funds or investments so spreading the risk of volatility.
Market Risk
Market risk is the chance of incurring losses due to factors that affect the overall performance of financial markets. It may arise due to changes to interest rates, exchange rates, geopolitical events, or recessions.
Market Value
The value of an asset to a third party on the open market.
Maturity
The specified date when a policy comes to an end and the policy benefits are paid. In the context of fixed interest investments ( bonds), this means the lifetime of the bond.
Member
A person who has been admitted to membership of a pension scheme.
Monetary Policy
A way of influencing the economy by controlling the availability and cost of money (mainly through changing interest rates).
Monetary Policy Committee (MPC)
The MPC is a committee of the Bank of England which meets monthly to vote on whether changes to interest rates should be made.
Money Laundering
Money laundering involves disguising financial assets so they can be used without detection of the illegal activity that produced them. The government has introduced tough money laundering laws in a bid to combat international crime and terrorism. This means that financial advisers, solicitors and other professionals need to check that you are who you say you are when you first instruct them. They may also ask for proof of identity in the form of a photographic identity document – such as your passport or driving licence.
Money Purchase Pension
A pension scheme where the contributions made by the individual (and their employer in respect of a company pension scheme) are set and the final fund is then used to buy an annuity. These are also known as defined contribution schemes.
Mortgage
A mortgage is using a property as security for a debt.
Mortgage Broker
A mortgage broker can research & recommend a mortgage for you or they can give you information that helps you make your own choice. Mortgage brokers can be independent, or have a restricted range of mortgages available to them. All mortgage brokers operating in the UK must be qualified and regulated by the FCA or work as an agent of a regulated firm. (See also Financial Advisers)
Mortgage Indemnity Guarantee
A type of mortgage insurance that you pay for but that benefits the lender. It protects them against loss if you borrow a high proportion of your property’s value and can’t repay the mortgage.
Mortgage Protection Insurance
Accident, sickness and sometimes unemployment insurance (also known as payment protection insurance) is a policy that’s used to help pay for your mortgage if your income is reduced due to certain circumstances.
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N
National Insurance Contributions
A tax paid by most employers and employees to the UK government. For the employed it is deducted from income by the employer on a scale related to income levels. The self-employed pay contributions based on profit and may pay a flat-rate voluntary contribution to keep their benefit entitlements up to date.
Negative equity
When the value of your home is less than the amount you owe the mortgage lender.
Net
This is the sum you have remaining when there is nothing else to be deducted.
Net asset value
The value of the underlying assets in an investment trust.
Net Interest
Interest received on a savings account after tax and charges have been deducted.
Net Pension Contributions
Pension contributions taken from bank accounts or after-tax salary. Tax relief is claimed back from HMRC by the pension provider.
Nominal Value
The face value of something, for example a share issue.
Non-Contributory Pension
A company pension where the employee does not make any type of contribution. It is entirely funded by the employer.
Normal Minimum Pension Age
The normal minimum pension age (NMPA), excluding individuals who are suffering from ill-health, is the earliest age from which pension benefits can be taken. This is currently 55 and will increase to 57 from 6 April 2028.
Normal Retirement Date
Refers to the date at which a member of a pension scheme normally becomes entitled to receive his/her retirement benefits.
Notice Of Coding
A notice of coding shows your tax code if you are going to pay through the PAYE system. It is usually sent out in January or February for the tax year beginning 6 April.
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O
Occupational Pension Scheme
A pension scheme provided (sponsored) by an employer for its employees. Occupational pension schemes can be defined benefit schemes (final salary schemes) or defined contribution schemes (money purchase schemes).
Offer (Buying) Price
The price you buy shares or units for in a unit trust. The price you get when you sell shares or units in a unit trust is known as the Bid (Selling) Price. The difference between the two is often referred to as a Bid Offer Spread.
Offer to Bid
In the context of measuring performance, offer to bid refers to the comparison between the original purchase cost or offer price - usually of a unit trust - and its current bid price, the price you receive if you sell. This measures the actual return you would get if you sell.
Offer to Offer
In the context of measuring performance, offer to offer refers to the comparison between the original purchase cost or offer price - usually of a unit trust - and its current offer price. This measures how the investment has performed without taking account of the initial charge.
Offshore
The concept of 'offshore' has no strict legal definition. Generally though, it is taken to mean jurisdictions that offer concessionary taxation regimes compared to major 'onshore' centres, such as the UK or US. Additional characteristics of some offshore centres may include banking confidentiality and less strict company formation rules.
Open-Ended Investment Company (OEIC)
An OEIC is a type of investment fund domiciled in the United Kingdom that is structured as a company in its own right to invest in stocks and other securities. OEIC shares do not trade on the London Stock Exchange.
Ordinary Residence
'Ordinary residence' applies when you live in the UK year after year. The term 'residence' applies when you are in the UK for 183 days or more in the tax year. You may be resident but not ordinarily resident in the UK for a tax year if, for example, you normally live outside the UK but are in the UK for 183 days or more in the tax year. Or you may be ordinarily resident but not resident for a tax year if for example you usually live in the UK but have gone abroad for a long holiday and do not set foot in the UK during that year. (See also Domicile).
Ordinary Shares
Also known as equity shares, these are the most common form of share in the UK. They give the owner a right to share in the profits of a company (dividends) and to vote at general meetings of the company.
Overfunding
Where a defined benefit/final salary pension arrangement has assets which exceed those required to meet its liabilities (the benefits allowed).
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P
Passive Management
An investment approach that aims to mirror or track the performance of a financial index. This is normally done by either investing in the exact constituents of an index or by taking a representative sample of that index. The managers of the fund have lower expenses than active fund managers, and the charges to investors are therefore lower.
Pay As You Earn (PAYE)
HM Revenue & Customs' system for collecting income tax from the pay of employees as they earn it.
Payment Protection Insurance
An insurance policy that helps you keep up loan repayments if you can’t pay them because of redundancy, accident or illness.
Pension Annuity
This is a type of annuity usually bought with the proceeds of an HMRC registered pension scheme. (See also Conventional Annuity)
Pension Credit
A benefit for people who have a relatively low income, even if they have some savings and modest retirement income, and can be paid on top of a state pension scheme. There are two elements - the Guarantee Credit, which can be claimed by pensioners aged 60 or over, and the Savings Credit for those 65 or over. The latter rewards pensioners with a second pension or modest savings. This term is also used to describe an amount of pension transferred to an ex-spouse following divorce.
Pension Fund
General term used to describe the investment fund built up in a pension plan and used at retirement to provide a continuing income.
Pension Income
The regular income provided by a pension annuity or via flexi-access drawdown.
Pension Transfers
Refers to the process by which the current value of a pension plan can be transferred from one registered pension scheme to another registered pension scheme. The value is normally transferred direct from one employer or pension provider to another.
Pensionable Earnings
Earnings on which benefits and contributions in a pension scheme are calculated.
Pensionable Service
Period of service with a company that is used in the calculation of pension benefits in a defined benefit/final salary scheme.
Permanent Health Insurance
Type of insurance policy which pays a regular income if the policyholder can’t work because of a long−term illness or disability.
Personal Allowance
The Personal Allowance is the amount of income you can earn before paying tax in the UK.
Personal Equity Plan (PEP)
From April 6 2008, Personal Equity Plans (PEPs) ceased to exist and are now treated as stocks and shares ISAs. (They were available for investment between 1987 and 1999, allowing you to enjoy the profits from stock market-related investment, free of income tax and capital gains tax.)
Personal Pension
A private pension you take out yourself, if you’re self-employed or want to take it from job to job. The other main types of personal pension schemes are group personal pensions (GPP), stakeholder pensions and self invested personal pensions (SIPPS).
Policy
A document giving all of the details of the agreement between the policyholder and the insurer.
Policy Conditions
The terms of a policy, which sets out the rights and responsibilities of the parties involved.
Policyholder
Generally taken to mean the owner of the policy.
Pooled Investments
Investments such as unit trusts, where a number of people put their money together to enable them to buy a wider range of investments, thereby spreading the risk of volatility.
Potentially Exempt Transfer
Gifts on which inheritance tax will not be payable unless the donor dies within seven years.
Pound Cost Averaging
The term used to describe the effect of paying a fixed regular amount into a unitised investment fund where the value of units fluctuates. The amount will purchase more units when prices are low and vice versa.
PRA
The Prudential Regulation Authority (PRA) is a part of the Bank of England, responsible for the prudential regulation and supervision of banks, building societies, credit unions, insurers and major investment firms.
Preference Shares (also called Preferred Stock or Preferred Shares)
These are shares in a company which give their holders an entitlement to a fixed dividend payment and may or may not carry voting rights. These are a "higher ranking" stock than common stock and usually have specific rights attached to them. Preference shares mean that the holder may get preferred treatment over common share holders - and carry a dividend that is paid out prior to dividends to common share holders. In the event of bankruptcy preferred share holders will be paid out from assets before common share holders and after debt holders.
Premium
The periodic payments a policyholder makes to an insurance policy or the amount of money an individual pays into a saving or investment product, as either a lump sum or a regular payment.
Premium Frequency
How often the premium is paid, such as monthly or annually.
Preserved Benefits
If a member of an occupational pension scheme leaves the company after less than two years' service, the employee can take a refund of any personal contributions, less certain deductions. But if the employee has been a member of the scheme for more than two years, the benefits must be preserved within the scheme or transferred to another pension scheme, and will be paid at a future date.
Private Equity
This is money invested in private companies (those companies that are not publicly traded on a stock exchange, such as the London Stock Exchange) or which is used to buy out publicly traded companies in order to make them private companies.
Private Health Insurance
This is a type of insurance policy that pays for you to receive private medical treatment.
Probate
Probate is the legal right to deal with someone’s property, money and possessions (their ‘estate’) when they die. Only certain people can apply for probate. Who can apply depends on whether or not there’s a will.
Property
In the context of 'Property' as a type of asset, investment is usually in commercial property such as offices, shops and industrial premises.
Protected Rights
Protected Rights are a type of pension fund. The pension fund is built up by money coming in from the government for those who, have been in the past or still are, "contracted out" of the State Second Pension, now commonly known as S2P.
Purchased Life Annuity
This is a type of annuity bought with a lump sum of money from personal savings or investments. Part of the annuity is deemed to be interest paid on the capital and is taxed. The other part is considered to be a return of capital and so is not liable to tax.
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Q
Quarter
Three months of the calender or fiscal year, often used as a basis for reporting performance. Often expressed as Q1 Q2 Q3 and Q4.
Quartile
The statistical division of a spread of values into four. It is used to see what position a fund has in terms of return obtained compared to other comparable funds. Quartiles represent sets of 25% of the funds in the total list of funds of a specific category, grouped according to descending profitability. For instance, if a given fund category has 100 funds, each quartile will be made up of 25 funds. The 25 funds with the highest profitability, ordered from highest to lowest, will belong to the first quartile, the next best 25 funds to the second quartile and so on.
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R
Real Return
The Return from an investment adjusted to take into account the effect of inflation.
Recession
A significant decline economic activity, when unemployment rises and the GDP goes down. Technically, for an economy to be in Recession, it must have endured two successive quarters of falling GDP.
Redemption Date
The date on which the borrower will repay the money used to buy a Bond or Gilt.
Regular Bonus
Bonus that is added to a with-profits investment during the course of the policy.
Regulated
In the UK, firms are authorised and regulated by the FCA to carry out financial activities. It also means that financial products, portfolios or funds have to conform to FCA regulations, which protects the investor and provides structure around the products.
Remortgage
When you change your mortgage deal without moving house. You may be able to save money if you remortgage, but remember you may have to pay a fee to your old and new lenders.
Repayment Mortgage
A mortgage where you pay off both the initial loan and the interest that accumulates each month. It is a clear and simple way to ensure the amount owed is fully repaid at the end of the term.
Retail Prices Index (RPI)
The official “cost of living” Index used to measure inflation in the UK. It is calculated each month by taking a sample of the prices of a basket of goods and services that a typical household might buy. This includes food, heating, housing, bus fares and petrol.
Retirement Date
This is the date that you choose to retire. The minimum age from which you can access a personal or occupational pension is 55. This will increase to age 57 from from 6 April 2028. You can only get your State pension when you reach State pension age.
Return
A measure of performance. It is the total of the increase in value and any income received over a given period, expressed as a percentage.
Risk
In investment terms, risk refers to the possibility of an investment falling in value. The degree of uncertainty and/or potential financial loss inherent in an investment decision as perceived by the investor. For example, an investment value might rise or fall because of a risk that applies only to a particular company, industry, or market sector, or because of overall market conditions (See also Market Risk).
Risk Premium
The extra Return that investors require, to hold a risky asset instead of one that has no risks.
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S
Stagflation
Stagflation, or recession-inflation, is an economic cycle in which the inflation rate is high or increasing, the economic growth rate slows, and unemployment remains steadily high. It presents a dilemma for economic policy, since actions intended to lower inflation may exacerbate unemployment.
Secured Loan
A loan that is secured on your home or other asset, meaning that if you fail to keep up with repayment, the property or asset could be taken by the lender and sold to cover the loan. A mortgage is a type of secured loan.
Securities
A term used to describe stocks and shares.
Self Invested Personal Pensions (SIPPs)
A specialist Personal Pension plan that allows more flexibility over where your money is invested than other personal pension schemes offer. These pensions suit people who want to make their own investment decisions and are comfortable with taking on the higher associated risk.
Selling (Bid) Price
The price at which you can sell shares or units in a unit trust. The price at which you can buy shares or units in a unit trust is known as a Buying (Offer) Price.
State Earnings-Related Pension Scheme (SERPS)
SERPS was replaced by the State Second Pension in April 2002. Prior to that date part of an employee's National Insurance contribution went into the scheme, which was paid on top of the basic state pension on retirement. It was dependent on a person's earnings while they were in employment and the National Insurance contributions they paid.
Share Capital
The money paid (subscribed) for ordinary and preference shares in a limited company. Authorised share capital means the total amount of shares available to be issued. Issued share capital relates to the total amount of shares actually subscribed to.
Share Exchange
Under a share exchange, shares are sold and the proceeds are put into an investment. There may be dealing charges involved, although these may be less than if the shares were simply sold through a stockbroker in the normal way.
Share Option
An offer by a company (usually to its employees and directors) to buy its shares at a given price, before a specified date. A number of approved share option schemes offer tax-free capital growth.
Single Life Annuity
An annuity that pays you alone a regular income for life.
Small Gifts Allowance
An annual inheritance tax (IHT) allowance, enabling a donor to give up to £250 per tax year to any number of separate individuals (donees), as long as they have not used another allowance on the same person.
Socially Responsible Investment (SRI)
Investments in companies whose activities are considered ethical. Depending on its objective, a fund may not invest in certain types of companies (e.g. tobacco firms or weapons manufacturers).
Stakeholder Pension
Stakeholder pensions were introduced on 6 April 2001 to give everyone the opportunity to provide for their retirement. They are especially suitable if you can only afford to save small sums. For added protection, the government laid down minimum standards to ensure that all stakeholder pensions met the same basic criteria for payments, costs and terms.
Stamp Duty Land Tax (SDLT)
A tiered tax that buyers must pay on properties or land over a certain value in England, Wales and Northern Ireland. SDLT no longer applies in Scotland.
Standard Variable Rate (SVR)
Standard variable rate mortgage is a loan that’s arranged at the lender's normal mortgage rate without any discounts or deals. A standard variable rate, or SVR, is the interest rate that will be charged once an initial deal period on a fixed or tracker rate mortgage comes to an end.
Statement of Professional Standing (SPS)
The FCA requires that all retail investment advisers now hold a Statement of Professional Standing. An SPS can only be issued by an FCA appointed accredited body. It is renewed anually, confirming their agreement to comply with the FCA's 'Statement of Principles & Code of Practice for Approved Persons' and that they have maintained their Continuing Professional Development (CPD) over the previous 12 months.
State Pension
The flat rate (not earnings-related) state pension paid to all who have met the minimum National Insurance contribution requirements. You will need 30 qualifying years for a full basic state pension.
State Pension Age
The State Pension Age is the date when you are eligible to receive a State Pension. State Pension Age for both men and women is currently 66. State Pension Age will increase from age 66 to age 67 between 6 April 2026 and 5 April 2028. These ages may change in future as result of changes in life expectancy and other factors.
Standard Variable Rate (SVR)
A loan at the lender’s normal mortgage rate. The lender may choose to move it up or down.
Stock Exchange
A market where stocks and shares are bought and sold.
Stock Market
A place where shares or other securities are bought and sold, for instance the London Stock Exchange.
Stockbrokers
Agents who buy and sell stocks and shares for customers.
Stocks and Shares
Sold by a company to raise money, these give the owners a right to share in the profits and success of a company through voting rights, dividends and/or capital appreciation. A stock generally refers to fixed interest securities, usually issued in denominations of £100.
Sub-Prime
If a mortgage borrower has a poor credit record, such as County Court Judgments (CCJs) or bankruptcy, they can find sometimes a loan from a Sub-Prime lender. However, borrowers can expect to pay interest rates that are higher than the normal lending rate because lenders see them as potentially being at a higher risk of default.
Sum Assured
The guaranteed amount paid on death under a life assurance policy. Depending on the policy held, this sum might be increased through the addition of bonuses.
Surrender Value
The amount of money that will be paid to a policyholder if they discontinue a policy before it matures. The benefits the customer usually receives are reduced because of the effects of the charges.
Switching
Transferring sums of money from one unit-linked or with-profits fund to another. This is usually done on a bid-to-bid basis to avoid 'new money' charges when buying units at the offer price. (See Offer To Bid and Offer To Offer).
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T
Taper Relief
The purpose of taper relief is to reduce the amount of tax you have to pay to account for the effect of inflation. Taper relief applies to inheritance tax (IHT) if the donor dies between three and seven years after making a potentially exempt transfer (or transfers) of more than the nil rate band. It applies both to business and non-business assets, although different rules apply for each. Taper relief is calculated on the basis of how long you have held the asset for.
Tax Code
Used by your employer or pension provider to calculate the amount of tax to deduct from your salary or pension. If you have the wrong tax code, you could end up paying too much or too little in tax.
Tax Credit
A state benefit paid to employees through the tax system, which has the effect of increasing net income.
Tax Avoidance
A legal attempt to reduce the amount of tax owed.
Tax-efficient Investing
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 a pension.
Tax Evasion
An illegal attempt to mimimise the mount of tax owed.
Tax Relief
The UK government encourages you to save for your retirement by giving you tax relief on pension contributions. Tax relief works by reducing your tax bill or increasing your pension fund.
Tax Year
A period of time used for tax calculations. In the UK this starts on 6 April each year and finishes on 5 April the following year.
Term
The length of the contract you make with your mortgage, policy or investment provider.
Term Assurance
A simple life assurance policy that pays out on the death of the customer during the fixed time period in years specified by the policy.
Terminal or Final Bonus
A discretionary bonus that may be added to a with-profits policy out of a life fund's surplus profit. This bonus would be payable at the end of the term of the policy (at maturity), or when a claim is made e.g. death or surrender.
Terminal Illness Insurance
Terminal illness cover pays out a capital sum if the policyholder is diagnosed with a terminal illness from which the policyholder is expected to die within 12 months of diagnosis by a hospital Consultant who specialises in that illness or condition.
TESSAs (Tax Exempt Special Savings Accounts)
A bank or building society account that offered tax-free interest, dividends and bonuses provided the account was maintained for a fixed period of five years. TESSAs were replaced by Individual Savings Accounts (ISAs) in 1999 as a tax-efficient way of saving over the medium to long-term.
Testate
A person who dies having made a will is described as testate.
Tied Adviser
A salesperson who sells the policies of one particular insurance company (to which they have made a contractual agreement). Some sales people are tied to several companies (multi-tied). (See also Financial Adviser)
Title Deeds
These are the documents which prove who owns a property and under what terms.
Tracker Funds
Aim to mirror or 'track' the performance of any of a number of worldwide stock market indices, such as the FTSE 100 Index. (See also Passive Management).
Tracker Mortgage
A type of variable rate mortgage which "tracks" a rate (usually the Bank of England's base rate), set independently from the lender. The level of interest you’ll pay (and monthly mortgage repayments) will move up and down, as the rate moves up or down. Tracker mortgage rates do not exactly match the interest rates they track, but are set at a level just above the "tracked" rate.
Transfer Payment
Payment made from a pension scheme to another pension scheme (i.e. a company scheme to a personal pension), in lieu of benefits which have accrued to the member, to enable the receiving scheme to provide alternative benefits. The amount transferred is known as the transfer value. By law, this must be fair to you.
Trust
An arrangement whereby one person or persons (trustees) agree to take care of assets and to use those assets in particular ways for particular people (beneficiaries).
Trustee
A person appointed to manage and safeguard the assets of a trust.
Tolerance for Loss
Tolerance for loss refers to the amount of market volatility and loss in value an investor is willing or able to endure within their investment portfolio.
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U
UK Gilts
A bond issued by the British Government.
UK Resident (for tax purposes)
If you are physically present in the UK for 183 days in a tax year then you will be resident in the UK and taxable on your income and capital gains. If you are abroad only temporarily, or if you spend an average of three months a year in the UK for four years, you will be treated as ordinarily resident and therefore taxable.
Uncrystallised Funds Pensions Lump Sum (UFPLS)
Since the 6 April 2015, from age 55 (57 from 6 April 2028, unless you have a protected pension age) you are able to take all of a pension fund as a single or series of cash lump sums. The first 25% would be tax free, with the remaining added to your income and taxed accordingly.
Underfunding
Generally refers to the valuation of a company final salary pension fund where the actuary perceives that there are insufficient funds to support liabilities within the investment review period.
Unearned Income
Income received from sources such as interest on savings accounts, dividends from shares and bonds that has not been earned by working.
Unit Trust
A trust that pools together customers' money, allowing them to increase their investment options, therefore potentially reducing the risk. Unit trusts issue units, unlike OEICs which issue shares. Unit trusts generally have two prices: a bid price at which you sell and an offer price at which you buy. The difference between the two is often referred to as a bid offer spread.
Unitised With-Profits
A form of with-profits fund where the investor buys units whose value increases in line with any declared regular bonuses and to which a final bonus may be added when the units are cashed in.
Unit-Linked
Where the value of the saver's fund is linked to the value of the units of the fund it is invested in. (The value is directly dependent on the performance of the underlying asset).
Unit-Linked Annuity
This is a type of pension annuity. The income is linked to the performance of an underlying investment fund. The fund can be low, medium or high risk depending on what is offered by the provider or what risk the annuity owner is willing to take.
Units
When investing in a unit-linked contract or unit trust, the individual's contribution is used to buy units of equal value. The value of these units will fall or rise in line with the underlying investments.
Unregulated
In the UK an unregulated investment means the portfolio or fund are not regulated by the Financial Conduct Authority. Unregulated investments often look too good to be true, offer a very high level of risk, have no protection through the FCA or the Financial Services Compensation Scheme, and no protection from the Pension Protection Fund. Often difficulties occur when trying to withdraw money from such investments. They are inappropriate for the vast majority of the general public but experienced professional investors may get involved in property, forestry, land development and cryptocurrency sectors.
Unregulated Collective Investment Scheme (UCIS)
UCIS are high risk investments and the FCA do not regulate how UCIS are run, but they do regulate the promotion of these schemes. UCIS can’t be promoted to the public in the UK, except to some specific types of investors, such as high-net-worth individuals.
Unsecured loan
A loan that isn’t secured against your home or other asset you own. You agree to pay back the loan within a set period. The lender is taking a bigger risk than with a secured loan, so interest rates tend to be higher.
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V
Valuation
A statement (verbal or written) confirming a plan's worth.
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.
Variable Rate Mortgage
A mortgage where the interest rate is not fixed, so the monthly payment can go up or down depending on the terms of the mortgage. There are three main types of variable rate mortgages - tracker rate mortgages, discount rate mortgages, and the standard variable rate set by your lender.
Volatility
A measure of how much an investment's price is likely to fluctuate during a set period of time.
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W
Waiver of premium
A feature on a personal pension plan or life insurance policy that guarantees your contributions will be paid for a period of time, usually by the insurer, if you are ill or lose your job. It usually costs extra.
Whole-of-Life Policy
Life assurance a customer pays for throughout the whole of their life that pays out when they die. On some whole-of-life policies, premiums stop at a certain age.
Will
A document drawn up to administer an estate on death.
With-Profits Bonus
An amount that is added to a with-profits life assurance policy. It can be added within the term of the policy (regular) or at the end of a policy (final).
With-Profits Fund
Essentially a fund made up of shares, property, cash and fixed interest securities, which usually carries a medium risk. The products that use with-profits are typically regular and single premium savings plans and pensions. With-profits funds pool policyholders' investments, and customers share in the company's investment returns and other profits. These returns are smoothed to help reduce the volatility associated with direct equity investments.
With-Profits Policies
An investment where regular premiums or a lump sum are paid into a with-profits fund made up of shares, property, cash, and fixed interest securities. With-profits policies are usually medium-risk investments that use a smoothing device, when determining any bonus additions that might apply, to provide some protection for the investor from ups and downs of the market.
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X Y Z
Xenocurrency
Xenocurrency is another way of saying foreign currency, it refers to any currency that is invested, deposited, or traded in markets outside the country where it’s issued. Its name derives from the Greek prefix "xeno," meaning "foreign."
Yield
A measure of the return on an investment compared to the price paid for it. This is normally expressed as an annual percentage. There are several types of yields. Bonds for instance have a nominal yield, current yield and yield to maturity. Shares have a dividend yield and an earnings yield. Yield can refer to growth or income, while net yield refers to the yield after charges and other deductions have been made.
Yield Curve
A graph showing the relationship between short-term and long-term Yields for a given type of asset, usually Bonds.
Zombie Debt
A term for a debt that has fallen off your credit report but, for various reasons, someone is still trying to collect. Zombie debt has often been long forgotten and has probably been written off as uncollectible by the original lender. But zombie debt can rise from the grave if a debt collecting firm has purchased the debt and attempts to collect on it all over again.
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It is important to take professional financial advice before making any decisions regarding your personal finances.
The above glossary terms are not intended to provide individual financial advice or personal recommendations and are for general information only. While we have reviewed the above terms & definitions, the accuracy and completeness of them cannot be guaranteed and should not be relied upon alone in making (or not making) any financial decisions. We cannot assume legal liability for any errors or omissions the text may contain. Any references to taxation are based on our understanding of current legislation and HMRC's practice, all of which is subject to change in the future without notice. The impact of taxation (and any tax reliefs) depends on individual circumstances. Some rules may vary in different parts of the UK.
A pension is a long term investment. The fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.
The value of investments can go down in value as well as up, so you may not get back the full amount you invested. Past performance is no guarantee of future performance. It is important to remember that all investments carry some risk.
A mortgage is a loan secured against your home or property. Your home may be repossesed if you do not keep up repayments on your mortgage or any other debt secured on it.
Some forms of Buy to Let advice are not regulated by the Financial Conduct Authority (FCA).
The Financial Conduct Authority (FCA) does not regulate Tax Planning, Estate Planning, Trust or Will Writing advice.
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