Naz Financial

A Personal Financial Blog from Naz Miller

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Company pension scheme where the final pension an employee receives is linked to the size of final salary and the number of years of membership of the pension scheme. Also referred to as defined benefit pension schemes. 

There are 4 primary classes of financial adviser:

  1. tied advisers (working for one financial institution),
  2. multi-tied advisers (paid by more than one financial institution),
  3. whole of market advisers (working with all companies but only on a commission basis) and
  4. independent financial advisers. Independent Financial Advisers (IFAs) must offer their clients the option to pay for advice by fee rather than commission.

The FSCS is the UK’s statutory compensation scheme for customers of authorised financial services firms. The FSCS can pay compensation if a firm is unable, or likely to be unable, to pay claims against it.

Generally known as ‘bonds’.  These are loans issued by companies or governments to raise money. Bonds issued by companies are called corporate bonds, those issued by the UK government are called gilts and those issued by the US government are called treasury bonds. In effect, all bonds are IOUs that promise to pay a sum on a specified date and pay a fixed rate of interest along the way. Very low risk investments, generally.

A form of drawdown where you to take an unlimited amount of income or lump sums from a pension fund. This replaces flexible and capped drawdown, although existing capped drawdown plans are continuing.

A non-compulsory payment made by a member of a company pension scheme to boost their retirement benefits, yet separate the payments from their occupational fund. Payments are made into a separate FSAVC fund.

The financial services regulator in the UK.

Financial Times Stock Exchange Index . An index of the share prices of the largest companies (by market capitalisation) in the UK. 

FTSE 100 is the index of the top 100 companies.

FTSE All-Share is the index of all listed companies. There are other FTSE indices too.

FTSE is a trademark jointly owned by the London Stock Exchange plc and The Financial Times Limited and is used by FTSE International Limited (“FTSE”) under licence. The FTSE 100 index is calculated solely by FTSE. FTSE does not sponsor, endorse, or promote this website and is not in any way connected to it and does not accept any liability in relation to its issue, operation and trading. All copyright in the index values and constituent list vests in FTSE.

An individual employed by a company to manage money. It’s a fund manager’s role to buy shares or other assets that they believe will increase in value or provide a level of income, in line with the fund’s stated objectives.

A “fund of funds” (FOF) is an investment strategy of holding a portfolio of other investment funds rather than investing directly in shares, bonds or other securities. Sometimes known as multi-manager investment, a fund of funds may be ‘fettered’, meaning that it invests only in funds managed by the same investment company, or ‘unfettered’, meaning that it may invest in other funds.

Monetary value of a fund, calculated by adding up the value of its underlying assets. For example, the price of units in a unit trust is calculated from the value of all its holdings divided by the number of units issued.

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A gift is a transfer of goods or property which is free of charge. There are limits to the value and number of gifts you can make without any immediate or future inheritance tax liability. Check with HMRC or a professional adviser.

Bonds issued by the British Government. Called Gilts as the original bond certificates were gilded around the edges.

Earnings before income tax and other deductions are taken.

Any income that a fund produces (e.g., interest and dividends) is reinvested back into the fund and is not liable for UK tax.

A payment into a pension savings plan, deducted from earnings before income tax is taken.

Guarantees that the annuity rate will always be at a certain minimum level.

The minimum pension that a company final salary pension scheme must provide in respect of contributions paid between April 1978 and April 1997, as a condition of contracting out of SERPS, the State Earnings Related Pension Scheme.

The same as Conventional Annuity (above).  It pays a regular, guaranteed income, usually for life. Your annual income can stay the same, increase each year by a fixed percentage or change each year in line with inflation.

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A strategy employed to reduce or mitigate risk. Hedging involves making an offsetting transaction in one market to protect against possible losses in another. Currency hedging is a specific example of hedging where the fund manager tries to protect an existing or anticipated position from an unwanted move in exchange rates.

This is a form of credit which allows the purchaser to have possession of the goods shown in the hire purchase agreement. Ownership passes to the purchaser when they have paid all the instalments and any fee

The sale of part of or your entire home to a reversion company in return for a lump sum, regular income or a combination of the two. You can continue to live in your home until you die or go into long-term care. When your home is sold the percentage you sold will go to the plan provider.

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An example of the potential growth you may expect to receive from an investment. The growth rates used are set by the industry regulator, the Financial Conduct Authority (FCA). It is important to remember that actual returns could be higher or lower than that shown on the illustration.

Enables those with a certain type of pension to draw an income and/or cash lump sums from their pension fund. This is an alternative to buying an annuity and takes income direct from their pension funds.

A specific type of Financial Adviser. IFAs must offer their clients the option to pay for advice by fee, rather than commission. See Financial Adviser, above.

An index is a statistical term that shows rate of change in a single figure. Indices may be applied to anything that changes in value, such as currencies, inflation or equity prices.
In the stock market, an index is a device that measures changes in the prices of a fixed basket of shares. The purpose is to give investors an easy way to see the general direction of shares in the index. Examples of stock market indices are the FTSE 100, FTSE All-Share, Nikkei and Dow Jones.

A fund that is managed to generate the same returns as a specified Index (also known as “Passive” or “Tracker” funds).

The linking of a payment, such as a pension, to an inflation index – for example the Retail Prices Index (RPI) – with the aim of keeping pace with inflation.

A method of classification developed by FTSE. It’s used to segment markets into economic sectors. The ICB uses a system of 10 industries, partitioned into 19 super-sectors, which are further divided into 41 sectors, which then contain 114 subsectors.

A charge made by an investment provider to cover the cost of setting up an investment. The amount invested is the amount contributed less the initial charge.

A mortgage where you only repay the interest each month. This means you are not reducing the loan itself and must find a way to repay it at the end of the mortgage term. These are common among buy-to-let mortgages, where the investor relies upon rising property values to repay the original loan.

The amount of money a customer can earn on an investment or is charged for borrowing money. It is usually expressed as a percentage of the total amount invested or borrowed.

Intestate or intestacy refers to a person dying without a valid will. Upon death their assets are distributed according to the law, regardless of the person’s intent when they were alive.

A credit rating given to a government or corporate bond that indicates that the agency giving the rating (e.g., Standard & Poor) believes that the issuer has a relatively low risk of default. Bonds with credit ratings of AAA, AA, A or BBB are considered investment grade. Low-rated bonds, with ratings of BB or below, are often called High-Yield or Junk Bonds.

A company that invests in the shares of other companies, or other assets such as property or bonds. When investing in an investment trust, clients own shares in the trust rather than owning the shares it invests in.

When the shares of a company are available to buy on an open market for the first time.

A savings vehicle that allows customers to invest in equities or save cash without having to pay any income or capital gains tax, subject to limits.

Different types of ISA include:

  • Cash ISA – for cash savings. Up to £85,000 is protected by FSCS.
  • Help to Buy ISA (now closed to new applicants).
  • Lifetime ISA – save up to £4,00 p.a. and the Government tops it up by 25%. Accessible only when you buy your first home r reach age 60.
  • Stocks & Shares ISA – hold shares or funds without paying tax on the returns. Usual risks of investing in the stock market.
  • Innovative Finance ISA – allows you tax-free access to Peer-to-Peer (P2P) lending markets. Risky as not protected by FSCS.
  • Junior ISA – anyone can save on behalf of a child, up to £9,000 in 2022/23. Ownership reverts to child at 16, they can withdraw from 18. Good for university fees savings.
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An annuity that pays you a regular income for life and then when you die, pays your dependant a regular income for life too.

A high­-risk Bond of below Investment Grade, issued by a company or government.

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.