Retirement glossary

Retirement planning can be confusing, especially for those who aren’t familiar with the finance industry’s jargon. You’re often flooded with information, much of which may go over your head. The choices you’re left with can also feel overwhelming. 

We do everything we can to ease your concerns, and explain all your options in as much detail as possible. 

But we understand you may want a bit of time to reflect on everything we’ve discussed with you in your own time. You may even want to do a bit of research on what some of the terms you heard actually mean in plain English!

To help, we’ve created this glossary breaking down the key terms you’ll need to know to fully wrap your head around the retirement landscape. Feel free to come back to this document for reference whenever you need it and remember, our advisers will be happy to break down how these terms may come into play based on your individual circumstances.

This is more of an industry term, but decumulation refers to the stage of life/process of moving from working into retirement. Here, plans will be put in place to take the savings you’ve built during your working life, and start utilising them for your retirement. The specifics on exactly how this is done will depend on your circumstances. 

The process used to forecast your expected income and expenses over a period of time. It’s primarily used to assess if your assets (pensions, investments, savings etc) could sustain your lifestyle in retirement, and cover potential unexpected costs down the line. 

If it looks like your cash-flow will struggle under your current circumstances, changes may need to be made. Cash-flow modelling is a key part of retirement income planning, and we utilise it often to support our clients, and ensure their retirement plans are on track. 

This is a process which allows people to gradually transition out of the workforce by reducing their hours or responsibilities, while also drawing on a portion of their pension savings. The specifics may vary from person to person, but this broadly allows people to ease into retirement without stopping work completely. Retirement doesn’t have to be so black and white, and we can determine what’s right for you together with tailored financial advice. 

Also referred to as a final salary pension, it is a workplace pension scheme whereby what you receive in retirement is based on your salary, and the number of years you’ve been in the scheme. A defined benefit pension provides a regular income for life, and the payments tend to rise in line with inflation. Employers are responsible for making sure there is enough money to pay scheme members. 

These pensions can be very expensive to run, and so are increasingly rare. We cannot advise on defined benefit pensions.

A private pension that is contributed to on a regular basis. You control how much is paid into it, and the funding is then invested on your behalf. They can come in two different formats: a workplace pension, or a personal pension. A workplace pension will also be topped up by the employer, with the aim of building you a pot that’s big enough to support you throughout your retirement. 

When retirement comes, and you need to access your defined contribution pensions, it should be remembered that you’ll be faced with many options. There could be multiple choices ahead of you, and not all of them will be suitable for your circumstances. This is where financial advice could prove to be essential, as we could help identify the right options for your circumstances. 

This is a regular payment from the Government most people can claim when they reach their state pension age, which is currently 66/67. You’ll need at least 10 qualifying years of national insurance contributions to qualify for a state pension, and 35 years to receive the full state pension amount.

A pension annuity is a financial product that’s bought with your pension pot(s) which provides a guaranteed income. Think of it as a wage after you retire. A lifetime pension annuity pays you a guaranteed income for the rest of your life. 

Fixed-term pension annuities provide temporary income for a set period of time. Sometimes referred to as short-term annuities, these provide an income for a short period (often a few years). A person may opt to choose a fixed-term annuity if they believe rates might improve in the future, or if they’re trying to bridge a gap until they reach their state pension age. Some fixed-term products offer a maturity value.

Most people will be able to receive a payment of (normally) 25% worth of their pensions when they start accessing their retirement savings. This payment is tax free and applies to defined contribution pensions though may also available with some defined benefit schemes.

Tax treatment depends on the individual circumstances of each client and may be subject to change in the future.

A product/option that allows you to draw on your pension savings, while keeping any remaining funds invested. From the age of 55 (going up to 57 in 2028), you can begin accessing your private pensions. Advice could prove useful here in managing the risks associated with drawdown (making sure your savings last).

Like flexi-access drawdown, uncrystallised funds pension lump sums provide a flexible option for accessing your pensions. It allows you to take money directly from your pension pot without setting up a formal drawdown. Each withdrawal is split so that 25% is tax-free, and 75% is taxed as income. 

This more concerns estate planning, but a beneficiary is anyone who receives money or other kinds of advantages from your assets. Pension pots can be passed on to beneficiaries, although policy changes arriving in 2027 may result in most unused pension funds and pension death benefits being included in the valuation of a person's estate after they die. This means they may be subject to inheritance tax. 

When any financial product provides a guaranteed income, it means that the income is contractually payable for a period of time and not dependent on investment performance or previous withdrawals. For example, income from a state pension, defined benefit pension or annuity is guaranteed, but income from flexi-access drawdown is not. The length of a guarantee will depend on the product. 

The rising of prices in both goods and services. Inflation is tracked by the Office for National Statistics (ONS) and the Bank of England aims to keep the inflation rate at 2%. One of the challenges with retirement and financial planning is to try and make sure a person’s savings, investments, and income isn’t outpaced by inflation. 

The risk of outliving your retirement assets, and the incomes they may provide. We are living longer than ever, and retirements can easily last for 30+ years. Action may be needed to ensure our savings last the test of time.  

This is your financial and psychological ability to endure fluctuations in your investments, and experience potential losses. Generally with accumulating wealth for retirement, riskier investments could offer higher potential returns compared to less-risky ones. With investing, profits are never guaranteed, values can go down as well as up and you may not get back what you put in. We can work together to determine the risk-return trade off that’s right for you.

When it comes to retirement income planning, we will assess your risk tolerance through the options and products available to you. For example, if your circumstances reveal little-to-no risk tolerance, an annuity which provides guaranteed income could be of most use. 

We hope this document has been helpful for you. If you would like to discuss your retirement plans further or just get even more clarity on the terms listed here you can book a free, no obligation call with one of our team today. 

There are no hidden fees or charges, and you’ll only pay if you choose to go ahead with the recommendations in your personalised financial plan

This article is for information purposes only. It is not intended as financial advice. 

The retirement benefits you receive from your pension plan depend on a number of factors including the value of your plan when you decide to take your benefits which isn't guaranteed and can do down as well as up. The benefits of your plan could fall below the amount(s) paid in.

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