A to Z of pensions speak

3rd June 2005 at 01:00
Accrual rate

The rate at which rights build up for each year of reckonable service - 180th for the Teachers' Pensions Scheme, and 380ths for the lump sum.

Additional voluntary contributions

Contributions teachers choose to make on top of basic TPS contributions, and any additional TPS contributions, for example, for past added years.

The Prudential manages teachers' AVCs.


Following completion of an AVC arrangement, a policy bought from an insurance company that promises to pay a lifetime income. Under certain circumstances the TPS pays annuities.

Basic state pension

Weekly payment teachers receive at state retirement age if they have paid enough national insurance contributions.


TPS members pay in 6 per cent of salary. Other contributions, for past added years etc, of up to 9 per cent attract tax relief. Teachers'

employers pay in 13.5 per cent.


The exchange of annual pension income for tax-free lump sum. Currently TPS allows commutation of 'trivial' pensions (pound;260). A teacher whose life expectancy is less than a year may also have ill-health pension commuted.

Current added years

Teachers who leave pensionable employment can continue paying contributions to the TPS for three years, six if they move abroad.

Death grant

Lump sum which may be paid following death in service, while paying current added years contributions, or within a year of becoming incapacitated.

Short and long-term pensions are payable to members' surviving spouses, children and nominated dependants.

Defined benefit scheme

A scheme where rules define the benefits independently of contributions payable.

Elected Further Employment

Teachers who continue teaching after claiming retirement benefits can elect for that service to be pensionable.

Extra contributions

Teachers pay 6 per cent of salary into the TPS. Currently, the Inland Revenue allows them tax relief only on an additional 9 per cent set aside for pension purposes. Limit to be reviewed next year.

Final salary scheme

Where pension is determined by final salary. Teachers' final salaries are defined as "the highest amount of full salary for any consecutive 365 days of reckonable service", whether continuous or not, during the last three years of reckonable service. Most pension benefits are based on final average salary.

Free-standing AVCs Similar to ordinary AVCs but independent of the occupational scheme.

Teachers could invest with an insurance company, building society or other pension provider.

Home responsibilities protection

Government scheme to protect the NI contributions of people who have been unable to work due to sickness, unemployment, or caring responsibilities.

Independent financial adviser

A licensed and unbiased adviser paid either upfront or through commission on products you buy.

Money purchase

Members of these schemes, also known as defined contribution, are not promised a particular amount of pension. Instead, the scheme invests employee and employer contributions.

Normal retirement age

The age, currently 60, at which TPS members can draw full retirement benefits.

Opting out

Employees may decide to leave or not join a pension scheme. Teachers who opt out of the TPS, or part-timers who don't join, should get financial advice.

Past added years

The option of topping up pension through buying, by means of instalments or a lump sum, extra years of reckonable service. An employer may buy you added years.

Pensions earmarking

At the time of a divorce, courts may order a pension scheme to set aside part of a pension to be paid to an ex-spouse on retirement. Transfer values can also be awarded at the time of a divorce, called pensions sharing.

Pensionable employment

The period of full or part-time employment during which contributions are paid.

Personal pension

Also known as a private pension. Provided by pensions companies, generally for people without occupational schemes.

Reckonable service

Service which counts for TPS benefits. Includes service arising from pensionable employment, purchase of current and past added years and service transferred from other schemes.

State Earnings-related Pension Scheme

Introduced in 1978 for employed people in addition to the basic state pension. In 2002, it was replaced by State Second Pension (S2P). The TPS is contracted out of SERPS and S2P because its benefits will be at least as good as S2P.

Stakeholder pension

Low-cost alternative to personal pensions introduced by the Government.

Teachers earning less than pound;30,000 a year may consider them as a possible second pension.


The TPS allows teachers leaving the profession to transfer credits into another approved pension scheme. It will also accept credits from other approved schemes. Teachers wishing to transfer credit into the TPS must do so within a year of joining.

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