If a unit trust manager takes the management charges out of the fund’s capital instead of the income it has generated, it is called a capital charge.

If you sell or give away an asset that has increased in value, you may have to pay Capital Gains Tax (CGT) on the profit. This typically applies to shares and other investments, including property that’s not your main home. Each tax year you are allowed to make gains up to a certain amount without paying any tax. For more information, visit the HMRC website at hmrc.gov.uk or seek professional tax advice.

Where the interest rate you earn can go up or down, but not beyond a certain level for a set time.

Pensions that are based on your earnings and how long you have been in the scheme.

An investment fund that aims to provide a combination of income and capital growth, while reducing risk by diversifying investments in a broad range of types and locations.

These pool money from many different investors into one fund. Examples are a unit trust, open ended investment company (OEIC) or investment trust.

Money paid by a financial services company to a third party for selling a product. The 3rd party may be an Independent Financial Adviser or direct agent. The financial company can recover the cost of the commission through charges to the client.

A pension provided or sponsored by an employer for its employees. Company pension schemes can be defined benefit (final salary schemes) or defined contribution schemes (money purchase schemes).

This where interest is added to both capital and the accrued (previously earned) interest, from time to time. The longer you leave an investment the more advantage you can take of compound interest.
For example, if in year one a customer is paid 10% on his/her £100 investment, at the end of the year the investment is worth £110. In year two, with compound interest taken into account, the customer now earns 10% on £110, giving £121 at the end of the second year.

A measure of inflation that takes the prices of a fixed “basket of goods” bought by a typical consumer. Used as a measurement of inflation. Compare this to RPI and CPIH, the consumer prices index with Housing. See my blog on the impact of inflation on your savings and investments. Full explanation given in this government blog.

Contracting out was a system where employees gave up their right to additional state pension, firstly in the form or the state earnings related pension scheme (SERPS), then from 2002 in the form of the state second pension (S2P) In return workers and their employers paid reduced national insurance. Instead, they paid into a private pension scheme which had to meet certain conditions. Not used nowadays.

One type of conventional annuity is a guaranteed annuity, which provides you with a regular income for the rest of your life, in return for you paying over a lump sum from your pension fund. It can provide a guaranteed level of income which stays the same each year, an income that increases by a fixed percentage or one that changes in line with inflation. The level of income you receive will depend on various factors including your age, health and size of your pension fund.

The amount of time you have to change your mind and get your money back after buying something or signing a contract. Check the paperwork to find out how long you have.

Glossary of Personal Financial Terms

AAA Rating

In short, AAA ratings (‘triple-A‘ ratings) are the highest credit rating available for an investment, such as a bond or company.

AAA ratings are issued to investment-grade debt that has a high level of creditworthiness with the strongest capacity to repay investors.

Similarly, the AA+ rating is issued by S&P (Standard and Poor) and is similar to the Aa1 rating issued by Moody’s. It comes with very low credit risk and indicates the issuer has a strong capacity to repay.