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Welcome to EJ Financial Limited

Impartial Investment, Pension and Tax Planning

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Glossary of Terms

Additional Voluntary Contributions (AVCs)

Employee contributions payable to a salary-related occupational pension scheme that are over and above the normal contributions required by the scheme rules. This can be a useful way for people to get additional benefits from their occupational scheme. Also see free-standing additional voluntary contributions (FSAVC).

Annual Allowance (Pensions)

The maximum gross contribution from all sources that can be made to a pension arrangement in a tax year without a tax charge being applied. In the tax year 2016/2017, the annual allowance is £40,000 gross per annum. Lower limits, £10,000 pa gross, (£4,000 FROM 6/4/17), may apply to those that have already drawn tax free cash and income from their pensions. Also, tapering of this allowance can occur for those who have higher earnings/income (above £150,000 pa gross) reducing down to £10,000 for those with income/benefits above £210,000 pa gross.

Annual Gift Allowance

Each tax year you are normally allowed to gift away up to £3,000. Any part of this which is unused from the last tax year can be carried forward to the next one. So you may give away £6,000 if you have not used the previous year's £3,000 allowance.


Purchased with an individual pension pot built up in a money purchase arrangement to provide a pension that is usually payable for life.


Property, or resources, which have a monetary value. These might be in the form of cash, investments, property, shares or bonds.

Auto-Enrolment (Workplace Pension)

An employer’s pension scheme established to meet legislative requirements to allow all qualifying employees to save for their retirements, receiving tax relief and employer contributions at the same time.

Basic State Pension

The flat rate part of the State Pension that is paid to everyone who has enough qualifying years through having paid, or being treated as having paid, or been credited with, National Insurance (NI) contributions. (Currently 35 years). A new single-tier, flat rate State Pension has replaced the former system of basic and additional State Pension for individual reaching State Pension age from 06 April 2016.


Usually used to describe a person entitled to benefits under a pension scheme. The term can also refer to an individual or organisation for whom a trust is created, and who will benefit from the trust, or to an individual or organisation eligible to receive distributions from a will.


In general, 'Bonds' fall into two main categories.

'Fixed-interest securities' are investment vehicles issued by public companies, local authorities, government and also private companies (corporate bonds) which carry a fixed rate of interest normally payable over a specified period. UK Government fixed interest securities are called 'gilts' and can be bought and sold on the market. Their value generally rises when interest rates are low and falls when interest rates are high. Corporate bonds tend to pay a higher rate of interest than those issued by public bodies because of the higher risk of default.

'Index-linked securities' were devised specifically for pension schemes and were first introduced in the UK in 1981. The index link refers to the amount of capital invested and a fixed rate of interest is also payable on the current capital value and so is itself indexed.

Capital Gains Tax Allowance

You only have to pay Capital Gains Tax on your overall gains above your tax-free allowance (called the Annual Exempt Amount). In the tax year 2016/2017, the annual Tax-free allowance is £11,300. Tax above this limit is currently charged at a flat rate of 10% for basic rate tax payers and 20% for higher rate tax payers, with a surcharge of 8% for residential property and carried interest. The allowances are different for trusts – in the tax year 2016/2017, the annual Tax-free allowance for a trust is £5,650 unless the beneficiary is disabled.

Child Trust Fund (CTF)

A Child Trust Fund (CTF) is a long-term, tax-free savings or investment account for children. Most children born between 1 September 2002 and 2 January 2011 were entitled to open a CTF. CTFs are now closed to new accounts and have been replaced by Junior ISAs.

Combined Pension Forecast

Provides members of private pension schemes with an estimate of how much they are likely to get from both their State and their current private pension.


It is our intention to always provide the highest quality level of advice and service. If however you become dissatisfied with our provision of, or our failure to provide, a financial service, and you wish to register a complaint please contact Ted Shaw Dip PFS, at EJ Financial Limited, 2nd Floor, Johnsons Building, The Broadway, Crowborough, East Sussex TN6 1DE, telephone 01892 2348984. Your complaint will be investigated in accordance with the firm’s complaints handling procedure, a copy of which will be supplied to you. If you are not happy with the way we have carried out our investigation or the result, you may be entitled to refer it to the Financial Ombudsman Service (FOS). Further information about the FOS is available from their website

Corporate Bonds

Investments offered by corporate institutions by selling packaged debt providing a return to the bond holder, subject to the companies’ ability to pay.

Critical Illness Insurance

A protection policy that usually provides a fixed lump sum on diagnosis of a Critical Illness, typically after a 28 day period, subject to the definitions within the plan.


A non-taxable benefit provided to an employee to protect their dependants, usually 3 or 4 times basic salary.


A failure to make agreed payments of interest or principal.

Defined benefit scheme (DB pension scheme)

An occupational pension scheme that provides benefits that are usually related to the scheme member's salary rather than how much is paid into the scheme and how well the payment has been invested. See also Final salary scheme.

Defined contribution scheme (DC pension scheme)

An occupational pension scheme providing benefits on a money-purchase basis, with the exception of death benefits. The amount payable is based upon the amount paid in and how well that money has been invested, along with the prevailing annuity terms at the time of purchase of pension benefits.


EJF would normally recommend that you diversify your investments across a range of funds / assets to meet your attitude to investment risk. We can make recommendations to suit your needs and your attitude to risk.

Earnings threshold

This is an amount of earnings stipulated within certain tax rules that allow you to invest more than £3,600 gross per annum in a personal pension if you meet other requirements relating to your age and your earnings.

Employment service

The length of time you have worked for an employer. This is not to be confused with ‘pensionable’ service.

Endowment (policy)

A policy usually issued by an insurance company which offers life cover and an investment return over a fixed period, say 25 years. Historically used to protect and repay a mortgage loan.


Equities are investments in a stock exchange listed company, where the value of the investment (shares) is dependent upon the performance of the company and the general state of the stock market. They also, normally, generate income through the payment of dividends. Equities held in UK pension funds generally fall into two categories – those listed on the London Stock Exchange (UK equities) and those listed on a foreign stock exchange (overseas equities).

Final salary scheme (pension)

A type of defined benefit pension scheme where the pension payable is based on the length of time that someone has been a member of the scheme and his or her earnings in the final years leading to retirement. These types of scheme usually have significant value.

Free-standing additional voluntary contribution (FSAVCs)

Employee contributions that are made to a pension provider under the terms of an existing occupational pension contract but are entirely separate from the occupational pension scheme.

Financial Conduct Authority (FCA)

A body which is operationally independent of the Government but accountable to the Treasury which regulates the financial services industry, promotes understanding of the UK’s financial systems and helps protect consumers.

Financial Services Compensation Scheme (FSCS)

We are covered by the FSCS. You may be entitled to compensation from the scheme if we cannot meet our obligations. This depends on the type of business and the circumstances of the claim. Most types of investment business are covered up to a maximum of £50,000, per authorised firm.

Group personal pension scheme (GPP)

An arrangement with a personal pension provider that allows a group of individuals to take out a personal pension on a group basis. GPP schemes are usually set up by an employer on behalf of its employees but can also be set up by a group of self-employed individuals. The main advantage of such an arrangement is that it can result in the scheme making lower administration charges.

Guarantee period (Annuity purchase)

Usually purchased at the time of buying an annuity to protect future income payments in the event of death, commonly seen as 5 or 10 year protection periods.

HM Revenue & Customs (HMRC)

A Government department formed on 18 April 2005 following the merger of Customs and Excise and the Inland Revenue.

Hybrid scheme

See Mixed benefit scheme.

Income Drawdown

A flexible way of drawing taxable income from your private pension arrangements, usually after the withdrawal of tax free cash.

Income Protection (PHI)

A protection cover that provides income to the beneficiary in the event of the inability to work through accident or illness after a set period (e.g. six months).

Independent financial adviser (IFA)

A financial adviser that is not restricted in the pension or investment providers and products that can be recommended.


The process of steadily rising prices resulting in the diminishing purchasing power of a given nominal sum of money. Measured by an over-all price index which follows the price changes of a basket of goods and services through time. This is usually the Retail Price Index (RPI) or the Consumer Price Index (CPI). One of the differences is that RPI calculation of inflation contains housing costs whereas CPI does not. However it isn’t that simple. If it was, we might have seen RPI fall below CPI as mortgage rates collapsed from 2008. The complicated bit – and the more relevant difference between the two – comes in the calculations.

The RPI is an arithmetic mean – i.e. The prices of everything to be included in it are simply added up and divided by the number of items.

The CPI is a geometric mean. i.e. It is calculated by multiplying the prices of all the items together and then taking the nth root of them, where ‘n’ is the number of items involved.

CPI is more often lower than RPI.

RPI has now been discredited as an inflation measurement althought it is still used by Govt in some areas. CPI is the monthly measure of the Consumer Price Index but does not consider owner-occupier housing costs. CPI H has now been accredited by the Office of National Statistics (ONS) as a credible measurement of inflation. CPI H includes owner-occupier housing costs, including Council Tax but NOT the moevement in house prices. It includes a hypothetical measurement of the cost for homeowners to rent their own home.

Inheritance Tax (IHT)

A tax of 40% charged to an estate, usually in the event of death, on the value of the estate which falls above the nil rate band for inheritance tax, which is currently £325,000 (2016/2017 tax year). This individual threshold can be amalgamated by spouses to a current level of £650,000 in total.

There is also the Additional Nil Rate Band (ANRB). See the EJF website for more information on the ability to use this to have an amalgamated threshold of £1,000,000.

Interest Rate

A rate which is charged or paid for the use of money. An interest rate is often expressed as an annual percentage of the principal. It is calculated by dividing the amount of interest by the amount of principal. Interest rates often change as a result of inflation and Bank of England monetary policies. For example, if a lender (such as a bank) charges a customer £90 in a year on a loan of £1000, then the interest rate would be 9% per annum (p.a.).


The process by which income or capital is used to secure holdings in a variety of asset classes, such as equities, fixed interest stocks, bonds and property.

ISA (Individual Savings Account)

This is a tax efficient investment with an annual allowance limit on the amount you can invest each tax year. ISAs are now sometimes called NISAs (New ISAs) and can invest in either cash or stocks & shares or a combination of both. Existing ISAs can be transferred to other providers if needed/prudent. ISAs replaced Personal Equity Plans (PEPs), which were tax-efficient investment accounts available in the 1980s and 1990s.

Junior ISA (JISA)

Children (under 18) can also have ISA investments in the form of a Junior ISA (or JISA for short. This contribution may be subject to existing Child Trust Fund arrangements.

Life Insurance

An insurance policy that, in return for the payment of regular premiums, pays a lump sum on the death of the insured.

Lifetime Allowance (LTA)

The maximum level of pension benefit that can be accumulated (without suitable protection) without a tax charge being applied to your pension benefits above this limit. 

Lower Earnings Limit

The minimum amount that someone must earn in a tax year in order to build up entitlement to State benefits, including Incapacity Benefit, Jobseeker's Allowance and the basic State Pension.

Member (Pension scheme)

A person who has joined a pension scheme and is entitled to benefit under the scheme.

National Insurance (NI) contributions

Regular payments to the State to help build up entitlement to benefits, including Jobseeker’s Allowance, Incapacity Benefit and State Pension.

Normal Retirement Age/Date (sometimes known as NRA/NRD)

The earliest age at which a member of an occupational pension scheme can be paid a pension without a reduction in benefits.

Occupational pension scheme

A type of private pension scheme run by some employers to provide a pension for their employees. Sometimes referred to as a works pension, a company pension or superannuation scheme.

Occupational pension scheme managers

The people responsible for ensuring that occupational pension schemes operate effectively and within the law.

Occupational pension scheme trustees

The people who represent the interests of scheme members. They must act independently of the employer. Where one of the trustees is also the employer, the trustee duties and the responsibilities arising from the role as employer must be kept separate.

Pension Income

Regular payments from a pension scheme run by the State, a former employer, private financial company or annuity that are usually payable for life. These payments are subject to income tax.

Pension Credit

Pension Credit is an income-related benefit for people aged over 65. It is made up of two parts: Guarantee Credit and Savings Credit. Guarantee Credit will top up weekly income if it is below the current threshold for either single people or couples. Savings Credit is an extra payment for those who have saved towards their retirement.

You may also receive a ‘Pension Credit’ in the situation of a divorce settlement from a previous spouse.

Pension Protection Fund (PPF)

Will compensate members of eligible defined benefit schemes when there is a qualifying insolvency event in relation to the employer and there are insufficient assets in the pension scheme to cover Pension Protection Fund levels of compensation.

Pension Plan

A type of savings account set up to provide an income in retirement.

The Pensions Advisory Service (TPAS)

TPAS is a voluntary independent organisation that provides information about occupational pensions, personal pensions and stakeholder pensions.

The Pension Service (Newcastle)

Part of the Department for Work and Pensions (DWP) which provides information about State pensions to both existing and future pensioners.

Pension Sharing Order

Sometimes applied by court order for the transfer of pension benefits between spouses in the event of a divorce.

Pensionable service

The length of time that someone has been a member of a pension scheme. This is not to be confused with ‘employment service’.


A person who is claiming or receiving money from his pension scheme. They do not have to be retired.

The Pensions Regulator (TPR)

The Pensions Act 2004 introduced a new independent body, The Pensions Regulator, to help protect members of occupational pension schemes by focusing on those schemes it considers to be at most risk from either fraud or poor management and administration.

Permanent Health Insurance (PHI)

See Income Protection.

Personal pension plan

A type of private pension plan, including a stakeholder pension plan, run by banks, investment companies and building societies.

Premium Bonds

Offered by National Savings & Investments (NS&I) with a maximum investment limit of £50,000. They offer the potential to receive tax efficient winnings after the first month, whilst also offering security of capital.

Private pension plan

This can be a personal pension plan, including a stakeholder pension, or an occupational pension plan.

Protected rights

Protected rights were the value of National Insurance contributions paid into your own pension plan if you contracted-out of the State Earnings-Related Pension Scheme (SERPS) or the State Second Pension (S2P). Non-protected rights were the value of the contributions that you and/or your employer paid into your pension plan. Contracting-out of SERPS/S2P ended in April 2012 and protected and non-protected rights are now treated in the same way.

Qualifying year

A tax year in which you have sufficient earnings upon which you have paid, are treated as having paid or have been credited with, National Insurance contributions.


See State Pension deferral.

Retirement age

This is the age when you choose to leave work. It can also be used in reference to the Normal Retirement Age stated under certain private pension schemes, which relates to when you can start collecting your private pension. It is not necessarily the same as your State Pension age. There is no definitive age for when you have to retire.


Investment risk is the possibility that an investment’s actual return will not match the expected return. There are a range of risks that can affect the value of an investment, such as interest rate risk, inflation risk or default risk.

Safeguarded rights

Where a pension plan is subject to a pension sharing order in a divorce situation, the member’s pension will be subject to a pension debit in favour of the member’s ex-spouse or civil partner. If the scheme was contracted-out of SERPS/S2P at any point, part of this pension debit would relate to contracted-out, or protected, rights. Safeguarded rights is the term used to define the portion of the member’s contracted-out rights which becomes part of the ex-partner’s pension credit. Special rules applied to safeguarded rights. Safeguarded rights were abolished in April 2009 and there is now no difference between these and other shared rights.

Stakeholder pension plan

A type of personal pension plan that has to meet minimum standards set down in law. Stakeholder pensions are flexible and portable with a cap on annual management charges.

State Earnings Related Pension Scheme (SERPS)

The State Earnings Related Pension Scheme was replaced by the State Second Pension in 2002. Continued accrual in SERPS ended with the introduction of the Second State Pension (S2P), which has now also ceased further accrual.

State Pension

The pension payable by the State, which is based on an individual's National Insurance contribution record. See additional State Pension and basic State Pension.

State Pension age

The earliest age at which someone can receive the State Pension.

State Pension deferral

A term used to describe the decision to put off claiming the State Pension.

State Pension forecast

The State Pension forecast gives details of State Pension already built up and the amount that someone is likely to get at State Pension age.

State Second Pension (S2P)

The additional State Pension which replaced the State Earnings Related Pension Scheme (SERPS) pension in April 2002 to provide a more generous pension for low and moderate earners.

Stranded Pension Pots

To access your pension as a Stranded Pot, it needs to be under £10,000. You can take advantage of this three times in your lifetime.

Sum Assured

The amount of cover agreed within a protection policy for a set term. This may stay level, increase or decrease dependent on the plan used.

Tax Free Cash (Pension) or Pension Commencement Lump Sum (PCLS)

Paid from a pension policy at a time of drawing benefits. The amount can vary between occupational schemes and is usually restricted to 25% of a fund value from a personal pension plan. Also referred to as a pension commencement lump sum. (PCLS)

Tax relief

Generally, contributions payable to a pension scheme that is approved by the HM Revenue & Customs for tax purposes, are not subject to Income Tax.

Tracker (Passive) funds

Tracker funds, sometimes referred to as index funds, aim to replicate or copy the performance of a given share index or sector of the market. Because they do not involve time consuming research by analysts and expensive stock selection and company visits, it ought to be possible for the charges levied on investors to be lower than is ordinarily the case.

Triviality (Pensions)

Additional flexibility is currently available to those with total pension benefits under £30,000. This flexibility has been extended to all pension plans from April 2015.


A life assurance or investment may be placed or assigned into a legal trust to provide benefits to that trust in the future in the event of a death as an example. This may be tax efficient for inheritance tax purposes.

Unit-linked investment

A type of personal pension where contributions are used to buy shares in funds chosen from a wide range of investments. The value of these investments can fall as well as rise but over the longer period they may offer higher returns. Costs are normally deducted from the fund.


When making investments or pension contributions, investors need to understand that the value of the funds invested can fall as well as rise and is not guaranteed. Your fund is likely to see volatility in its value over the investment term.

With-profits investment

A type of personal pension with contributions that are invested in equities and gilt-edged securities. Investments grow as bonuses are added. Bonuses reflect stock market performance and other factors, such as administration charges. The provider smooths returns so that some gain in a good year, is held back to potentially increase returns in a low return year.

Workplace Pension

An employer’s pension scheme established to meet legislative requirements to allow all qualifying employees to save for their retirements, receiving tax relief and employer contributions at the same time.

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EJ Financial Limited • 2nd Floor • Johnsons Building • The Broadway • Crowborough • East Sussex • TN6 1DE

07484 138682

EJ Financial Ltd. Registered in England and Wales No 9370740
EJ Financial Ltd is authorised and regulated by the Financial Conduct Authority No 670594

The Financial Conduct Authority does not regulate taxation and trust advice.

The value of your investment can go down as well as up and you may get back less than you have invested.

The information contained within the website is subject to the UK regulatory regime and is therefore primarily targeted at customers in the UK.

NOTE: None of the above constitutes advice, always consult a professional adviser before making any investment decisions.

Please talk to Ted on 07484 138682 for further information.

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