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 Definitions

Personal Savings Allowance - Since 6 April 2016, most UK taxpayers have a new Personal Savings Allowance (PSA). This means that up to £1,000 of income from savings (e.g. any credit interest earned) will be tax-free for basic rate taxpayers, and up to £500 of savings income will be tax-free for higher rate taxpayers. Additional rate taxpayers will not be entitled to any PSA.

Flexi-Access Drawdown - Since 6 April 2015, Flexi-Access Drawdown plans allow you to have complete flexibility on how you draw your pension; it is even possible to take the whole of your pension out as one lump sum. 25% of your pension fund will be paid out tax-free and the remainder will be taxed at your marginal rate.

Capped Drawdown - From 6 April 2015, no new capped drawdown plans can be opened, but existing plans can continue as normal. With capped drawdown, your pension pot (after you have taken your tax-free amount) is invested into funds designed to pay you an income. The amount you can take as income is capped at 150% of the income a healthy person of the same age could get from a lifetime annuity.

Money Purchase Annual Allowance - Should you draw any pension savings in excess of 25% tax-free cash, your annual allowance for Money Purchase pensions will be reduced from £40,000 per annum to £10,000 per annum.

Retirement Planning - A process involving all aspects of financial planning that helps an individual understand the resources available - and the additional resources that must be accumulated - to support an anticipated retirement lifestyle.

Stakeholder Pensions - Stakeholder Pensions are a form of defined-contribution personal pension. They have low and flexible minimum contributions, capped charges and a default investment strategy if you do not want too much choice. Some employers offer them, but you can start one yourself.

Personal Pension - A Personal Pension is a type of defined-contribution pension. You choose the provider and make arrangements for your contributions to be paid. If you have not got a workplace pension, getting a personal pension could be a good way of saving for retirement.

Group Personal Pensions - Group Personal Pensions (GPPs) are a type of defined-contribution pension which some employers offer to their workers. As with other types of defined-contribution scheme, members in a GPP build up a personal fund, which they then convert into an income at retirement.

Self-Invested Personal Pension (SIPP) - A Self-Invested Personal Pension (SIPP) is a pension ‘wrapper’ that holds investments until you retire and start to draw a pension income. It is a type of Personal Pension and works in a similar way to a standard Personal Pension. The main difference is that, with a SIPP, you have more flexibility with the investments you can choose.

Income Drawdown - Income Drawdown is a type of pension product that lets you take an income from your pension fund while leaving it invested so you can continue to benefit from growth in the fund. By using income drawdown, you avoid or defer having to turn your fund into an annuity. There are two kinds of income withdrawal: capped drawdown and flexi-access drawdown. In both cases, any income you take from your pension is taxed in the same way as all other pension income.

Annuity - An annuity is essentially a regular income for life and is usually purchased with your pension fund when you retire. The income you receive from the annuity depends on how old you are, when you buy it and how much you invest. The older you are, the more you will receive - because your life expectancy is lower. There are lots of annuity options: for example the income can be index-linked or remain the same throughout your life.

State Pension - This is the amount of money you will receive from the government when you reach State Pension age. Those eligible for the full basic State Pension currently receive £115.65 per week (for 2016/17).

National Employment Savings Trust (NEST) - A new national workplace pension scheme that was launched in October 2012. For more on NEST see our guide.

Investments - A process involving all aspects of financial planning that helps an individual understand all the investments available, and their tax treatment to allow an individual to accumulate wealth in an appropriate way.

Stocks & Shares ISAs - Stocks & Sshares Individual Savings Accounts (Stocks & Shares ISAs) are investment accounts into which you can put certain types of investments to minimise the amount of tax you pay on them. You can put unit trusts, open-ended investment companies (OEICs), investment trusts, corporate bonds and government bonds in a stocks & shares ISA. You can also put individual shares in an ISA known as self-select ISAs which are usually offered by stockbrokers. Stocks & Shares ISAs are also called equity ISAs.

Cash ISAs - Cash Individual Savings Accounts (Cash ISAs) are tax-free savings accounts. They work just like other savings accounts except there is no tax to pay on the interest you earn regardless of the tax rate of the individual. Cash ISAs are offered by banks, building societies and other financial organisations. They can be operated via a branch, by telephone or post and there are limits on how much you can save each tax year.

NISA - From 1 July 2014, all existing ISAs were automatically converted to NISAs (New Individual Savings Accounts). The Government has removed the ruling that only half of your annual allowance can be saved in cash. NISAs now offer flexibility to the amount you can save in cash, stocks and shares or any combination of the two.

Junior ISAs (JISAs) - Junior ISAs (JISAs) are tax-free savings accounts for children up to the age of 18. Like ISAs for adults, any savings or investments in a JISA earn tax-free (or largely tax-free) returns.
JISAs were launched on 1 November 2011 and replace the government's Child Trust Funds (CTFs). Any child born on or after 1 January 2011 and older children who did not qualify for a CTF are entitled to have a JISA, but unlike CTFs they will not receive any free government investment. Children who already have a CTF can keep this but cannot open a JISA and cannot transfer their CTF to an ISA.

Child Trust Fund - The Child Trust Fund (CTF) is a long-term savings and investment account for children. In December 2010, the Government decided to stop offering CTFs, but those already set up are designed to make sure that your children have savings up until the age of 18.

Personal Equity Plan (PEP) - These were tax-efficient investments and are no longer available. PEPs automatically became stocks and shares ISAs in April 2008.

Venture Capital Trusts (VCTs) - Venture Capital Trusts (VCTs) are listed companies that are run by a fund manager and which, in turn, invest mainly in smaller companies that are not quoted on stock exchanges.

Open Ended Investment Companies (OEICs) - These are investment funds which pool together investors' money and invest this in a broad range of shares and other assets. They are similar to unit trusts except the fund issues shares and there is only one price for these with charges shown separately.

Unit Trusts - Unit trusts and OEICs are professionally managed collective investment funds. Managers pool money from many investors and buy shares, bonds, property or cash assets and other investments.

Investment Bonds - Single premium investment with no fixed end date taxed under Life Assurance rules. You may be able to invest in a range of different funds.

Enterprise Investment Schemes - The Enterprise Investment Scheme (EIS) is a series of tax reliefs designed to encourage investments in small unquoted companies carrying on a qualifying trade in the United Kingdom.

Discretionary Investment Portfolio - Discretionary Investment Portfolios are generally only suitable if you have significant fund to invest. They are a bespoke investment management service operated by Discretionary Fund Managers (DFMs). You will be assigned an investment manager who will work with you to understand your specific needs in order to devise the best strategy for you. Ongoing, your investment manager will make day to day decisions within an agreed framework and risk profile. Your investment manager will liaise with your other advisers and will take into account any existing investments to ensure your portfolio fits your overall financial strategy. The stocks in the Portfolio’s research universe are actively monitored by the DFM’s in-house research team and their investment strategies are regularly updated to reflect underlying market conditions.

Index-Linked Savings Certificates - Savings Certificates issued by National Savings & Investments (NS&I) which ensure your savings are not eroded by inflation. They pay tax-free interest of inflation (as measured by the Retail Price Index) plus some additional interest providing you keep them for at least a year.

Premium Bonds - Bonds issued by National Savings & Investments which do not pay interest but instead are entered into a monthly prize draw.

Shares - Shares are also called equities and give you a stake in a company. There are various types of shares which come with different rights.

Endowment policy - This is a policy which combines investment with insurance and runs for a specific period. It builds up a cash value - generally on either a with-profit or unit-linked basis - and is paid out at the end of the policy term or when you die (whichever happens first). Endowment plans are long-term investment plans with life cover. They typically run for 10 to 25 years and have been sold as savings plans or repayment vehicles for interest-only mortgages. If you have an endowment plan and an interest-only mortgage, this is usually referred to as an endowment mortgage.

Protection - A process that enables individuals to arrange appropriate protection for themselves and there family.

Life Assurance - Life insurance pays out a lump sum or sometimes an income if you die. You might want it to provide your family with an income on which to live or to cover a specific regular expense. Or you might want your family to receive a lump sum which they can then invest/use for income or to pay for something specific such as an outstanding mortgage or inheritance tax bill.

Critical Illness Cover - An insurance policy which will pay out a lump sum if you are diagnosed with or suffer from any of the life-threatening conditions (such as cancer, heart attack or stroke) listed on the policy.

Income Protection - This is designed to provide you with an income if you are unable to work due to illness, accident or injury. After an agreed period of time (known as the deferred period) the policy starts to pay out. With the most comprehensive policies this continues until you can return to your normal job, retire or die, whichever comes first.

Family Income Benefit Family income benefit (FIB) is a type of life insurance. Policies run for a set period of time known as the term. If you die within this period, the policy pays out a regular tax-free income until the end of the term.

Whole of life policy - A life insurance policy that covers you for your whole life and pays out on death. These policies can build up a cash value and are sometimes used as an investment. They are often used for Inheritance Tax Planning.

Wills & Inheritance Tax Planning - This service allows individuals to plan how they would like their assets to be distributed on death, and in a way that either reduces or provides the funds to pay Inheritance Tax.

Will - A way of ensuring your assets go to the people you want to benefit when you die. If you die without a Will (intestate) your estate will be distributed under the rules of intestacy.

Inheritance Tax - Inheritance tax (IHT) is charged on an estate after a person’s death. It is currently charged at 40% on amounts above the IHT threshold, which can change every year. A person's estate includes the total of everything owned, less any liabilities at the time of their death. If this amount is less than the threshold, no IHT is payable (there are some assets that do not count for the purpose of calculating your IHT liability).

Lasting Power of Attorney - This is a legal document where you appoint someone you trust to manage your financial affairs and to make decisions about your health and welfare when you are no longer able to do this for yourself. To be legal the document must be registered with the Office of the Public Guardian.

Estate Planning - For Inheritance tax (IHT) purposes, an individual's estate is calculated as being his or her total assets less any liabilities at the time of their death. Proper estate planning could save your family hundreds of thousands of pounds, because IHT (sometimes called ‘death duty’) will be charged on what you leave behind, over the IHT threshold at time of death. Currently, IHT is due at 40% of the value of all the assets you leave behind on death above the IHT threshold.

Death in Service benefit - If you are in a company pension scheme when you die, your spouse, children or other dependents may get a payout under this benefit.

Auto-Enrolment - The process by which employees will be automatically enrolled into an employer's qualifying pension scheme. There is a minimum employer contribution requirement. Larger employers must start automatically enrolling employees from 1 October 2012. Employees will subsequently have the right to 'opt out' if they wish. In this case, the employer is not obliged to make contributions.

Company Pensions - Sometimes known as an occupational pension, this is a pension scheme set up by an employer to provide retirement benefits for employees. Normally, the employer and the employee will both make regular contributions to the scheme.

Employee Benefits - Benefits offered employees at their place of work covering medical expenses, disability, retirement and death. These benefits are usually insurance cover and are paid in whole or in part by the employer. These may attract a P11D benefit.

Shareholder Protection - Shareholder protection insurance protects each of the shareholders. On the death or diagnosis of a critical illness of a shareholder, the other shareholders receive a cash lump sum which can then be used to buy the affected shareholder’s shares.

Keyman Insurance - An insurance policy taken out by a business to compensate that business for financial losses that would arise from the death of an executive whose absence would cause the business significant to falter or close. The aim is to compensate the business for losses and help ensure business continuity.

Mortgages - A loan (usually to buy a property) that is secured against your home. With this type of loan, if you do not keep up with the repayments you could lose your home. For more on the types of mortgages available and how to choose a mortgage, see our Mortgage section.

Equity release - Equity release is the process of using the value of your home to raise cash releasing the equity. There are two main types of equity release scheme available: lifetime mortgage (sometimes known as equity release mortgages) and home reversion schemes. When the property is sold, the plan provider reclaims their loan and any interest due with the remainder going towards the plan owner or to their estate. Often guarantees are in place to ensure that the loan is never more that the value of the property.

Lifetime mortgages - These are also known as ‘equity release mortgages’. They are products that release a share of the equity in your property and put a mortgage into place, to repay the amount of money that has been released. A lifetime mortgage is different from a traditional mortgage: the interest charged is ‘rolled-up’, so that borrowers never have to make monthly mortgage repayments. The minimum age of the youngest borrower is usually 55. The older the borrower, the higher the portion of the equity of the home may be borrowed. This tends to be in the region of 15% of the property value at age 55, rising to a maximum of 55% at age 85.

Buy to Let - 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. You should always avoid borrowing more than a reasonable percentage of the overall value, and make sure that you budget for periods when you are not receiving rental income.

Salary sacrifice - Some employers offer you benefits, such as childcare vouchers, for which you ‘sacrifice’ part of your pre-tax salary. Salary sacrifice means you save the tax you’d otherwise pay on that part of your salary. It can save on National Insurance contributions.

Capital Gains tax (CGT) - Tax paid on the profits or gains made from the sale of investments and some fixed assets. There is an annual CGT-free allowance.

Corporation tax - Tax chargeable on the profits of a UK company.

National Insurance contributions (NICs) - These are contributions into the National Insurance system which pays for state benefits if you fall ill, are unemployed, or on a low income. Anyone aged between 16 and the state pension age who is working must pay National Insurance contributions unless they are on a low income.

SMEs - Small and Medium Enterprises (also SMEs, small and medium businesses, SMBs, and variations thereof) are companies whose headcount or turnover falls below certain limits.

Change of Agency - These allow us to obtain information directly from the company concerned with regard to your existing financial arrangements. Where possible these forms will appoint Ward Williams Financial Services Ltd as your Independent Financial Adviser.

Risk - Some investments are riskier than others. For example, an investment in the stock market is riskier than money put into savings accounts there is more chance of something going wrong and you losing money. Riskier investments tend to offer potentially higher returns as compensation for the risks involved.

Attitude to Risk - Ascertaining a customer's true attitude to risk is critical for any adviser in assessing suitability and making an investment recommendation. Individual customers may have different appetites for risk at different times in their life, dependent on the circumstances and their investment objectives. It is important that a customers Attitude to Risk is established and agreed between the Adviser and the customer as ensuring such understanding will enable firms to make appropriate recommendations, improving the quality of advice. Sometimes Advisers will use risk profiling and/or asset allocation tools to help in the risk assessment process. A customer can have different attitudes to risk towards different objectives e.g. pension planning, savings, investments.

Generally accpeted risk criteria are as follows:

  • Defensive;
  • Cautious;
  • Balanced;
  • Growth;
  • Speculative.

Risk Profile - A tool to help your Adviser decide on your Attitude to Risk.

Capacity for Loss - This is the amount of money you could actually afford to lose when making your investment. Where an investment is a major part of your financial future, your ability to tolerate losses may be reduced given the impact it would have on your standard of living. Investing in a lower risk portfolio would reduce the likelihood of suffering losses, but these typically offer lower rates of return.

Personal Allowance - A personal allowance is the amount of income that you can earn each tax year before you start paying tax.

Interest - When you deposit your money in a bank or building society you may receive an amount of money in return. This is known as interest. You also have to pay interest on loans or mortgages when you borrow money.

Capital - The amount of money you originally invest or borrow.

Bank of England Base Rate - This is now called the bank rate. It is the main interest rate used in the economy. It is set by the Bank of England and used by other financial institutions to set their interest rates.

Regulated - Financial Advisers and Financial Adviser firms are regulated by the Financial Conduct Authority (FCA) and each Adviser and Firm will have a FCA number. The FCA regulates for four main reasons:

  • Market Confidence;
  • Pubic Awareness;
  • Consumer Protection; and
  • Reduction in Financial Crime.

Wrap Platform - An investment platform which is essentially a trading platform enabling investment funds, pensions, direct equity holdings and some life assurance contracts to be held in the same administrative account rather than as separate holdings.

Lifetime allowance -This is the maximum amount of money that you can accumulate as pension savings throughout your lifetime and still benefit from tax relief. If the amount you save exceeds the lifetime allowance, then you will have to pay tax on these savings.

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.

Pension Regulator - The Pensions Regulator is the UK regulator of work-based pension schemes. They are empowered by the UK government to regulate these schemes.

 Calculators

Ward Williams has a number of financial calculators which may be of interest to you.