UK pension terms, explained in plain English.

The yearly percentage fee a pension provider charges for managing your pension pot. It's deducted from your fund value, not billed separately.

The fraction of your salary that you earn as annual pension for each year of service in a defined benefit scheme.

The maximum amount you can contribute to all your pensions in a tax year while still receiving tax relief — £60,000 for 2025/26.

A financial product that converts your pension pot into a guaranteed income for life. Once purchased, it cannot be reversed.

The UK requirement since 2012 for employers to automatically enrol eligible workers into a workplace pension with minimum contributions.

A type of defined benefit pension where each year's pension is based on that year's pay, revalued annually until retirement.

The ability to use unused annual allowance from the previous three tax years to make larger pension contributions in the current year.

Exchanging part of your annual pension for a one-off tax-free lump sum at retirement, typically at a rate of £12 of lump sum per £1 of pension given up.

A pension that promises a guaranteed income in retirement based on your salary and years of service, rather than a pot of money.

A pension where you and your employer contribute to a pot that's invested in the stock market. The final value depends on contributions and investment performance.

The investment fund your workplace pension contributions go into automatically unless you actively choose a different one.

Taking income from your pension pot while keeping it invested, giving you flexibility over how much you withdraw and when.

A defined benefit pension where your retirement income is based on your salary at or near the time you leave the scheme.

A movement focused on aggressive saving and investing to achieve financial independence — the point where investment income covers living expenses — and optional early retirement.

A guaranteed minimum annuity rate attached to some older pension policies, often far more generous than anything available on the open market today.

A tax charge that claws back child benefit from households where the highest earner has adjusted net income between £60,000 and £80,000.

The UK's largest public sector pension scheme by membership (~6.5 million members), covering local council workers, university staff, charity employees, and many others.

The maximum amount you can take as a tax-free lump sum from your pensions — £268,275 for 2025/26. Replaced the lifetime allowance in April 2024.

A court ruling that the 2015 UK public sector pension reforms were age-discriminatory, giving affected members a choice between legacy and reformed scheme benefits for the 2015-2022 period.

A reduced annual allowance of £10,000 that applies to DC pension contributions after you've flexibly accessed any DC pension income.

The UK government-backed pension scheme created in 2012 as the default for auto-enrolment. The largest workplace pension scheme by membership.

The total annual cost of a fund, including the fund manager's charge and other operating costs. Previously called the TER (Total Expense Ratio).

The amount of income you can earn each year before paying income tax — £12,570 for 2025/26. Tapered away for incomes above £100,000.

The band of earnings used to calculate auto-enrolment pension contributions — between £6,240 and £50,270 for 2025/26.

The most common method of pension tax relief where you pay from taxed income, and the provider claims back 20% basic rate from HMRC automatically.

An arrangement where you reduce your gross salary and your employer pays the difference directly into your pension, saving both income tax and National Insurance.

A personal pension that gives you full control over how your pot is invested — including individual shares, funds, ETFs, and investment trusts.

The age at which you can first claim the UK state pension — currently 66, rising to 67 between 2026 and 2028, and to 68 from 2044.

A reduced annual allowance for high earners — the £60,000 limit drops by £1 for every £2 of adjusted income above £260,000, to a floor of £10,000.

An older name for the OCF (Ongoing Charges Figure) — the total annual cost of a fund. The term TER is still widely used but has been officially replaced by OCF.

The government's guarantee that the state pension increases each year by the highest of average earnings growth, CPI inflation, or 2.5%.

Taking a lump sum directly from your pension pot without first designating it for drawdown. 25% is tax-free and 75% is taxed as income.