We've tried to avoid using financial jargon as much as possible. However, inevitably, there are some technical terms which are unavoidable.
We hope you find this Jargon Translator helpful to clarify their meaning. Just click on the initial letter to reveal the words and phrases.
The letter A
Accumulation shares
- ‘accumulation’ refers to the fact that any income earned by the shares is held within the fund (so that it grows). If you’re investing for income, you should look for funds offering ‘income shares’ instead.
- ‘accumulation’ refers to the fact that any income earned by the shares is held within the fund (so that it grows). If you’re investing for income, you should look for funds offering ‘income shares’ instead.
Active management
- involves a fund manager trying to outperform the stock market by actively selecting stocks which they anticipate performing well. This contrasts with ‘passive management’, whereby stocks are bought according to their position and weighting in a market index, such as the FTSE 100 index.
- involves a fund manager trying to outperform the stock market by actively selecting stocks which they anticipate performing well. This contrasts with ‘passive management’, whereby stocks are bought according to their position and weighting in a market index, such as the FTSE 100 index.
Actuarial services
- are services involved in analysing future financial events to minimise risk. For certain pension schemes, this includes valuing schemes on a regular basis to ensure that they are performing adequately.
- are services involved in analysing future financial events to minimise risk. For certain pension schemes, this includes valuing schemes on a regular basis to ensure that they are performing adequately.
Administration services
- are the day-to-day services required to administer a typical final salary pension scheme, such as operating the trustees’ cash account and producing valuations.
- are the day-to-day services required to administer a typical final salary pension scheme, such as operating the trustees’ cash account and producing valuations.
Annuity
- is a plan that ensures a series of regular payments are made to a person, in exchange for a lump sum payment. An annuity is usually bought with the value of your pension scheme at retirement.
- is a plan that ensures a series of regular payments are made to a person, in exchange for a lump sum payment. An annuity is usually bought with the value of your pension scheme at retirement.
Asset allocation
- refers to how invested money is distributed across different industry sectors, asset classes and geographical regions, depending on the investment objectives of a fund. This is an important factor to get right, as returns on investment can rely heavily on this factor.
- refers to how invested money is distributed across different industry sectors, asset classes and geographical regions, depending on the investment objectives of a fund. This is an important factor to get right, as returns on investment can rely heavily on this factor.
Asset class
- are types of investment which, within each class, share certain characteristics, such as similar risk and return profiles. The main asset classes are equities, bonds, cash and property.
- are types of investment which, within each class, share certain characteristics, such as similar risk and return profiles. The main asset classes are equities, bonds, cash and property.
The letter B
Base rate
- is the interest rate set by the Bank of England’s Monetary Policy Committee. It is the minimum rate at which banks are prepared to lend money. Most loans are expressed in terms of a certain percentage over the base rate.
- is the interest rate set by the Bank of England’s Monetary Policy Committee. It is the minimum rate at which banks are prepared to lend money. Most loans are expressed in terms of a certain percentage over the base rate.
Bond
- a type of investment offered by governments, companies and corporations, whereby investors ‘lend’ them money over a set period for an agreed rate of interest, which is due to be repaid at the end of the term. This rate may be fixed (also known as fixed interest securities) at the outset or index linked (e.g. to the Retail Price Index). Rates of return depend on, for example, the duration of the loan and the level of risk involved. A bond can also be the name given to a type of investment issued by a life assurance company.
- a type of investment offered by governments, companies and corporations, whereby investors ‘lend’ them money over a set period for an agreed rate of interest, which is due to be repaid at the end of the term. This rate may be fixed (also known as fixed interest securities) at the outset or index linked (e.g. to the Retail Price Index). Rates of return depend on, for example, the duration of the loan and the level of risk involved. A bond can also be the name given to a type of investment issued by a life assurance company.
The letter C
Capital gains tax (CGT)
- is a tax charged on the gain made by selling assets e.g. a business, a second home or shares. Everyone is allowed to make a certain level of profit each year before capital gains tax is charged. The allowance is £9,600 for the 2008/09 tax year. Once you pass this threshold, CGT is normally charged at your highest rate. ISAs and UK Government bonds are all exempt from CGT. The sale of your main home is also exempt in most cases.
- is a tax charged on the gain made by selling assets e.g. a business, a second home or shares. Everyone is allowed to make a certain level of profit each year before capital gains tax is charged. The allowance is £9,600 for the 2008/09 tax year. Once you pass this threshold, CGT is normally charged at your highest rate. ISAs and UK Government bonds are all exempt from CGT. The sale of your main home is also exempt in most cases.
Company pension
- describes a pension scheme set up by an employer to provide either a lump sum on retirement or regular payments after retirement. Typically, both the employer and the employee make regular contributions into the scheme. These are also known as occupational pensions.
- describes a pension scheme set up by an employer to provide either a lump sum on retirement or regular payments after retirement. Typically, both the employer and the employee make regular contributions into the scheme. These are also known as occupational pensions.
Corporate bond
- is a bond issued by a company or bank, which generally pays a fixed rate of interest (in the form of a coupon). Rates of return depend on, for example, the duration of the loan and the level of risk involved. The loan is due to be repaid at the end of the term.
- is a bond issued by a company or bank, which generally pays a fixed rate of interest (in the form of a coupon). Rates of return depend on, for example, the duration of the loan and the level of risk involved. The loan is due to be repaid at the end of the term.
Corporation tax
- is the tax paid by Limited companies on their profits. It is not payable by the self-employed, but some organisations such as trade and housing associations are liable.
- is the tax paid by Limited companies on their profits. It is not payable by the self-employed, but some organisations such as trade and housing associations are liable.
Credit ratings
- are used to assess the probability that a company or government will honour the fixed interest securities or bonds that it has issued (rather than default or make late interest payments). Independent providers of credit ratings include the widely quoted Standard & Poor’s, whose ratings range from AAA (best) to D (worst).
- are used to assess the probability that a company or government will honour the fixed interest securities or bonds that it has issued (rather than default or make late interest payments). Independent providers of credit ratings include the widely quoted Standard & Poor’s, whose ratings range from AAA (best) to D (worst).
The letter D
Decreasing term assurance
- a type of life insurance that is taken out for a decreasing lump sum (a repayment mortgage for example). This type of policy pays out if you die during the plan term but the amount of cover decreases throughout the plan term, making it a cheaper option than a policy providing level cover.
- a type of life insurance that is taken out for a decreasing lump sum (a repayment mortgage for example). This type of policy pays out if you die during the plan term but the amount of cover decreases throughout the plan term, making it a cheaper option than a policy providing level cover.
Defined benefits
- describes an occupational pension provided by some employers. With these schemes the pension amount is related to the duration of employment and the level of the employee’s salary when they leave. They are also known as final salary pensions.
- describes an occupational pension provided by some employers. With these schemes the pension amount is related to the duration of employment and the level of the employee’s salary when they leave. They are also known as final salary pensions.
Derivatives
- is a general term for money market instruments such as futures, options and warrants. Typically, they are used only by professionals.
- is a general term for money market instruments such as futures, options and warrants. Typically, they are used only by professionals.
Dilution adjustment
- is an adjustment which might be made to the share price of a fund, for example an OEIC, when there are large amounts of cash going into or coming out of the fund. The adjustment reflects the difference between the buying and selling prices of the investments of the fund and any costs incurred, including taxes.
- is an adjustment which might be made to the share price of a fund, for example an OEIC, when there are large amounts of cash going into or coming out of the fund. The adjustment reflects the difference between the buying and selling prices of the investments of the fund and any costs incurred, including taxes.
Diversification
- refers to the practice of spreading investments across different asset classes to create a suitable balance of risk and return in a portfolio.
- refers to the practice of spreading investments across different asset classes to create a suitable balance of risk and return in a portfolio.
The letter E
Equities
- are ordinary shares in companies listed on the stock exchange. Holders of equities qualify for a share of the company’s profits and have voting rights.
- are ordinary shares in companies listed on the stock exchange. Holders of equities qualify for a share of the company’s profits and have voting rights.
The letter F
Final salary pension
- a type of occupational pension provided by some employers. The pension amount is directly related to how many years the recipient has been with the company and how much they are earning when they retire. These are also called defined benefits.
- a type of occupational pension provided by some employers. The pension amount is directly related to how many years the recipient has been with the company and how much they are earning when they retire. These are also called defined benefits.
Fixed interest securities
- are financial instruments that promise the lender one or more fixed cash payments in the future. They may be issued by central or local government or a company in order to raise capital. Rates of return depend on, for example, the duration of the loan and the level of risk involved.
- are financial instruments that promise the lender one or more fixed cash payments in the future. They may be issued by central or local government or a company in order to raise capital. Rates of return depend on, for example, the duration of the loan and the level of risk involved.
Fund
- describes an investment vehicle where money is pooled together and managed by professionals to the advantage of all investors.
- describes an investment vehicle where money is pooled together and managed by professionals to the advantage of all investors.
The letter G
Gilts
- are bonds or securities issued by the UK Government to raise public funds. They are usually safe and secure (known as ‘gilt-edged’) but they are not entirely without risk.
- are bonds or securities issued by the UK Government to raise public funds. They are usually safe and secure (known as ‘gilt-edged’) but they are not entirely without risk.
Guaranteed Investment Bond (GIB)
- is a fixed-term stock market-linked investment with a built-in capital guarantee if held to maturity. It lets investors share in stock market growth potential without risking their original investment, however if cashed in early investors may get back less than they invested.
- is a fixed-term stock market-linked investment with a built-in capital guarantee if held to maturity. It lets investors share in stock market growth potential without risking their original investment, however if cashed in early investors may get back less than they invested.
Guaranteed Minimum Pension (GMP)
- refers to the minimum amount a member of a contracted-out occupational pension scheme will receive, subject to certain conditions.
- refers to the minimum amount a member of a contracted-out occupational pension scheme will receive, subject to certain conditions.
The letter H
Hedge funds
- are exclusive funds with a high minimum investment level which are not generally made available to the public. They are unregulated and exempt from many of the rules governing our collective investment schemes, which allows them to use aggressive investment strategies that are unavailable to FSA authorised funds. While some hedge funds may pursue conservative investment strategies, others take risky positions on market or individual share movements.
- are exclusive funds with a high minimum investment level which are not generally made available to the public. They are unregulated and exempt from many of the rules governing our collective investment schemes, which allows them to use aggressive investment strategies that are unavailable to FSA authorised funds. While some hedge funds may pursue conservative investment strategies, others take risky positions on market or individual share movements.
The letter I
Income shares
- are shares in, for example, an OEIC fund which could provide you with a regular pay-out of income. If you’re investing for growth, you may want to consider funds offering ‘accumulation shares’ instead.
- are shares in, for example, an OEIC fund which could provide you with a regular pay-out of income. If you’re investing for growth, you may want to consider funds offering ‘accumulation shares’ instead.
Index tracker
- refers to an investment fund that follows the make-up of a market index, such as the FTSE 100 index. The value of the investment will go up and down in line with the index that it aims to match.
- refers to an investment fund that follows the make-up of a market index, such as the FTSE 100 index. The value of the investment will go up and down in line with the index that it aims to match.
Individual Savings Accounts (ISAs)
- are potentially tax-efficient savings plans which enable you to keep your savings as cash, or in stocks and shares.
- are potentially tax-efficient savings plans which enable you to keep your savings as cash, or in stocks and shares.
Inflation
- refers to the continual increase in prices. As prices rise, the value of money falls, so the pound has progressively less buying power.
- refers to the continual increase in prices. As prices rise, the value of money falls, so the pound has progressively less buying power.
The letter L
Level term assurance
- is a straightforward form of life insurance, designed to pay out a fixed (or level) sum should you die or be diagnosed with a critical illness, depending on the type of plan chosen, during the period (or term) of the plan.
- is a straightforward form of life insurance, designed to pay out a fixed (or level) sum should you die or be diagnosed with a critical illness, depending on the type of plan chosen, during the period (or term) of the plan.
Life assurance
- refers to a type of protection policy designed to pay out a cash lump sum in the event of a person’s death. This lump sum can help to protect the financial security of any dependants, and/or a mortgage or business.
- refers to a type of protection policy designed to pay out a cash lump sum in the event of a person’s death. This lump sum can help to protect the financial security of any dependants, and/or a mortgage or business.
The letter M
Money market instruments
- are techniques and strategies used by professional traders to reduce risk. They include futures, options and warrants, which are collectively known as derivatives.
- are techniques and strategies used by professional traders to reduce risk. They include futures, options and warrants, which are collectively known as derivatives.
Multi-manager investing
- a way of investing developed to lessen risk, through diversification, by using several investment managers.
- a way of investing developed to lessen risk, through diversification, by using several investment managers.
The letter O
Occupational pension
- describes a pension scheme set up by an employer to provide either a lump sum on retirement or regular payments after retirement. Typically, both the employer and the employee make regular contributions into the scheme. Also known as a company pension.
- describes a pension scheme set up by an employer to provide either a lump sum on retirement or regular payments after retirement. Typically, both the employer and the employee make regular contributions into the scheme. Also known as a company pension.
Open-Ended Investment Companies (OEICs)
- are investments which enable shareholders to pool their money and can be split into different sub-funds, often in different market sectors. The value of an OEIC is usually determined on a daily basis and divided into shares each with the same value. They are similar to unit trusts, the major difference being that an OEIC quotes a single unit price rather than a bid price and an offer price, which are usually quoted by a unit trust.
- are investments which enable shareholders to pool their money and can be split into different sub-funds, often in different market sectors. The value of an OEIC is usually determined on a daily basis and divided into shares each with the same value. They are similar to unit trusts, the major difference being that an OEIC quotes a single unit price rather than a bid price and an offer price, which are usually quoted by a unit trust.
Options
- refers to the ‘option contract’ which gives the right to buy or sell a fixed amount of a commodity or a financial instrument at a specific future date. There is no obligation on the holder to do this (hence ‘option’).
- refers to the ‘option contract’ which gives the right to buy or sell a fixed amount of a commodity or a financial instrument at a specific future date. There is no obligation on the holder to do this (hence ‘option’).
The letter P
Personal Equity Plan
- the forerunner to ISAs, PEPs were designed to offer a simple, flexible and potentially tax-efficient way for individuals to invest in the stock market. On 6 April 2008 all PEPs were automatically reclassified as stocks and shares ISAs and became subject to ISA rules.
- the forerunner to ISAs, PEPs were designed to offer a simple, flexible and potentially tax-efficient way for individuals to invest in the stock market. On 6 April 2008 all PEPs were automatically reclassified as stocks and shares ISAs and became subject to ISA rules.
Probate (England and Wales)
- ‘getting probate’ refers to the process of securing clearance to deal with the assets of someone who has died. This process ensures that any liability to inheritance tax is assessed and paid, before the remaining assets are distributed in accordance with the will.
- ‘getting probate’ refers to the process of securing clearance to deal with the assets of someone who has died. This process ensures that any liability to inheritance tax is assessed and paid, before the remaining assets are distributed in accordance with the will.
The letter R
Retiral quote
- refers to the likely value of a pension, quoted to the member as they approach retirement.
- refers to the likely value of a pension, quoted to the member as they approach retirement.
The letter S
Securities/Stocks
- is a general term for any financial instrument (such as shares and bonds) traded on a stock exchange.
- is a general term for any financial instrument (such as shares and bonds) traded on a stock exchange.
Share price
- refers to the cost of buying shares, for example, in companies on the stock market.
- refers to the cost of buying shares, for example, in companies on the stock market.
Shares
- represent ownership in a company or fund. Shares generally give the holder a fraction of the decision-making power, and potentially a fraction of the profits, which may be issued as dividends. The value of a share is based on how a company or fund is performing at any given time and, in the case of company shares, how much in demand they are – hence their ability to fluctuate on a daily or even hourly basis.
- represent ownership in a company or fund. Shares generally give the holder a fraction of the decision-making power, and potentially a fraction of the profits, which may be issued as dividends. The value of a share is based on how a company or fund is performing at any given time and, in the case of company shares, how much in demand they are – hence their ability to fluctuate on a daily or even hourly basis.
Stakeholder pension
- is a type of flexible low-cost pension, introduced in 2001 to encourage people on lower incomes to start saving for retirement.
- is a type of flexible low-cost pension, introduced in 2001 to encourage people on lower incomes to start saving for retirement.
Stamp duty
- is a tax on certain financial transactions including the purchase and/or transfer of shares. This is currently charged at 0.5% of the amount paid. Gilts and corporate bonds are currently exempt from stamp duty.
- is a tax on certain financial transactions including the purchase and/or transfer of shares. This is currently charged at 0.5% of the amount paid. Gilts and corporate bonds are currently exempt from stamp duty.
Stamp duty reserve tax (SDRT)
- we may be liable to stamp duty reserve tax on some of our OEIC funds. This is normally a tax incurred when shares in the fund are cashed in, and is paid for out of the value of the fund. However, the payment of SDRT may also be required on large investments or encashments, or on a transfer between third parties, in which case we may deduct it from the amount invested or from what you get back, and pay it back to the fund to offset any tax charge.
- we may be liable to stamp duty reserve tax on some of our OEIC funds. This is normally a tax incurred when shares in the fund are cashed in, and is paid for out of the value of the fund. However, the payment of SDRT may also be required on large investments or encashments, or on a transfer between third parties, in which case we may deduct it from the amount invested or from what you get back, and pay it back to the fund to offset any tax charge.
State pension
- refers to the money you may receive from the Government at State retirement age. This is currently 65 for men and 60 for women.
- refers to the money you may receive from the Government at State retirement age. This is currently 65 for men and 60 for women.
Stock exchange
- a place where stocks and shares are bought and sold. The Financial Times Stock Exchange 100 Index (FTSE 100) is an index that tracks the share price of the 100 largest companies, by market value, listed on the London Stock Exchange.
- a place where stocks and shares are bought and sold. The Financial Times Stock Exchange 100 Index (FTSE 100) is an index that tracks the share price of the 100 largest companies, by market value, listed on the London Stock Exchange.
Sum assured
- for life assurance policies with no investment element, this is the amount for which a person is covered and is payable on death during the plan term. For life assurance policies with an investment element, the amount payable will be the higher of the policy unit value immediately before the date of death or the sum assured. For investment bonds, the sum assured is normally equal to 101% of the policy unit value immediately before the date of death.
- for life assurance policies with no investment element, this is the amount for which a person is covered and is payable on death during the plan term. For life assurance policies with an investment element, the amount payable will be the higher of the policy unit value immediately before the date of death or the sum assured. For investment bonds, the sum assured is normally equal to 101% of the policy unit value immediately before the date of death.
The letter T
Terminal illness
- advanced or rapidly progressing incurable illness where, in the opinion of an attending consultant and our Chief Medical Officer, the life expectancy is no greater than 12 months.
- advanced or rapidly progressing incurable illness where, in the opinion of an attending consultant and our Chief Medical Officer, the life expectancy is no greater than 12 months.
Transfer value analysis
- refers to the analysis of the amount that a pension scheme may pay when a member leaves. This amount can either be transferred into a new scheme, or be used to purchase a buy-out policy. ‘Analysis’ refers to the process of deciding whether or not it’s beneficial for the member to transfer.
- refers to the analysis of the amount that a pension scheme may pay when a member leaves. This amount can either be transferred into a new scheme, or be used to purchase a buy-out policy. ‘Analysis’ refers to the process of deciding whether or not it’s beneficial for the member to transfer.
The letter U
UK dividends
- are the part of a company’s profits paid to shareholders. Payments are made at the discretion of the director(s) and are not guaranteed.
- are the part of a company’s profits paid to shareholders. Payments are made at the discretion of the director(s) and are not guaranteed.
Unit price
- refers to the price of one unit of trading: the minimum number of shares, bonds or commodities which can be traded on an exchange.
- refers to the price of one unit of trading: the minimum number of shares, bonds or commodities which can be traded on an exchange.
Unit trusts
- are collective investment schemes which allow investors to pool their money, with the aim of reducing risk associated with direct stock market investment while benefiting from professional fund management. This shared portfolio is divided into individual units which can be bought or sold by investors (hence ‘unit’ trusts).
- are collective investment schemes which allow investors to pool their money, with the aim of reducing risk associated with direct stock market investment while benefiting from professional fund management. This shared portfolio is divided into individual units which can be bought or sold by investors (hence ‘unit’ trusts).
The letter V
Venture Capital Trusts (VCTs)
- are a type of trust established by the Government to encourage investment in high-risk small young companies. They have traditionally offered lucrative tax concessions to attract risk capital from higher rate taxpayers.
- are a type of trust established by the Government to encourage investment in high-risk small young companies. They have traditionally offered lucrative tax concessions to attract risk capital from higher rate taxpayers.
The letter W
Wind-up services
- refers to the process of winding up a final salary pension scheme as it approaches its termination date.
- refers to the process of winding up a final salary pension scheme as it approaches its termination date.
