Pensions Glossary - C

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Cafeteria Benefits. A system of remuneration provision which offers core benefits e.g. minimum salary, leaving the balance of benefits to be chosen by the individual from a suitable list within an agreed budget.

Call Option. An option to buy, e.g. shares, at a fixed price on or before a set date in the future.

Cancellation. Used in conjunction with unit linked funds, whereby units are cancelled (sold) to pay for certain expenses of the fund or contract.

Cancellation Period. A cooling off period after the purchase of certain investment products. During the period the purchaser can change his or her mind about going ahead, and opt to have any initial payments repaid. Applies to certain contract variations e.g. increases to existing premium of more then 10%. Does not apply to "off the page" purchases. See "Cooling off Period".

Cap. Used in a number of ways to indicate an upper level or ceiling e.g. Mortgage Cap - an upper limit to mortgage rate fluctuations; Earnings Cap - an upper limit to the amount of salary which can be used to calculate pension.

Capital. Can be used in a number of ways: To differentiate certain assets from income and cash flow. To refer to the value of a business owner's investment i.e. the equity in the business In a limited company, this equity is represented by share capital plus reserves. Capital expenditure is the purchase of new fixed assets. A capital asset is one likely to be held for a long period. A fixed asset recorded in the accounts is said to be 'capitalised'. Note that the above do not constitute the full range of usage Capital Allowances. Tax allowances which enable the owner of an asset to take into account depreciation on the asset against taxable income. Capital Gain. The increase in value of an asset or investment.

Capital Gains Tax. A tax levied on the investment gains of an individual in a tax year, provided those gains exceed the current exemption. Husband and wife pay the tax separately and have separate allowances.

Capital Taxes Office. Part of the Inland Revenue which deal with inheritance tax.

Capital Transfer Tax. Preceded Inheritance Tax as the tax on transfers from estates.

Capital Units. See 'Initial Units'.

Carry Back Rules. Ceased to be available for use with personal pensions for contributions paid after 5 April 2001, unless combined with carry forward when available until 31 January 2002. Continues to be available for use with retirement annuities. Carry back results in payments made to a contract being treated, for tax purposes, as if paid in a previous year.

Carry Forward. Ceased to be available for use with personal pensions, except in limited circumstances, from 5 April 2001. Can still be used for retirement annuity contracts. Enables higher than normally permitted levels of contributions to be paid to pension policy by using unused relief from earlier years. Unused relief from up to six previous years can be carried forward. Maximum contributions permitted in current year must be made before carry forward can be used.

Cartel. A group of individuals or businesses which try to profit from a trading situation by fixing prices and/or regulating/restricting the supply of a product.

Cash Accounting. The system of accounting for income and expenditure as and when cash is received or paid. Compare 'Accrual Accounting'.

Cash Equivalent. The cash equivalent of accrued benefit under a defined benefit pension scheme which may be applied as a transfer payment to another approved pension arrangement or to purchase a S32 buy out policy.

Cash Flow. The pattern of cash income and cash expenditure during a period of time.

Cash Sum at Retirement. For most people with a personal or occupational pension, an option at retirement is to forego an amount of pension for its equivalent in cash. The cash is paid, up to permissible levels, free of tax.

Category 1 Member. Most personal and occupational pensions allow some benefits to be taken as tax free lump sums, subject to certain restrictions. Commutation of pension for cash results in a lower residual pension.

Category 2 Member.
Registration under Category 2 enables Registered Individuals to deal as Category 1 individuals, but not as a principal. Consequently, when dealing with securities, dealings must be done through an SFA member. Termed by PIA 'Moneyholders'.

Category 3 Member. Individuals under this category can deal as Category 2 members, except client money cannot be handled, client investments cannot be held, and client property cannot be held. Termed by PIA 'Arrangers'. CAT Standards. Cost, Access, Terms Standards on certain types of contract which ensure that contract changes are reasonable and that access and terms are fair meeting specific requirements. CAT standards can apply to mortgages and ISAs

CAT Standards. Cost, Access, Terms Standards on certain types of contract which ensure that contract changes are reasonable and that access and terms are fair meeting specific requirements. CAT standards can apply to mortgages and ISAs.

Caveat. To enter a caveat means to give legal warning of an interest in a situation.

Caveat Emptor. Under normal buying/selling contractual arrangements, this is taken to mean 'let the buyer beware', and usually no greater duty of care is due. Because of the greater duty of care required when dealing with investments, however, caveat emptor is not taken as a guiding principle. The onus in financial transactions lies with the adviser, and the 'best advice' principle. Caveat venditor - let the seller beware, used in the sense that the seller has legal duty to ensure the goods sold are in order.

Central Bank. The main government controlled/influenced bank in a country, which controls the internal and external financial affairs of the country e.g. setting interest rates, controlling currency and foreign exchange rate.

Centralised Scheme. A pension Scheme operated on behalf of a number of large organisations, such as local authorities.

Cestui Que Trust. A beneficiary under a trust. Chamber of Commerce. An organisation effectively controlled by local businesses to help promote business and commerce for the benefit of the local business community as a whole.

Chancery Division. A division of the High Court dealing with company law, partnership, bankruptcy, mortgages and trusts. Charge. A creditor's right over a debtor's property, which may be enforced in the event of default.

Chargeable Event. Chargeable events occur when certain payments are made from packaged life and investment products. They may or may not give rise to a tax charge. Any tax liability which might arise falls within income tax rules.

Chargeable Gain. A chargeable gain is the taxable element of a gain arising from a chargeable event. Any gain can be said to be the 'excess' of returns over investments into certain packaged products. There is no income tax liability for basic rate, nor any CGT liability. The maximum rate chargeable will be 17%, being the difference between basic rate tax and higher rate income tax, any gains being assumed to have already attracted tax at basic rate.

Chargeable Transfer. This is a transfer or gift of value which does not attract any IHT relief, is not covered by any IHT allowance, nor is it a transfer that qualifies as an exempt transfer, and so will be taxable.

Charging Structure. Most investments and investment products incur expenses in their development, management and selling. To ensure that each stage of the product is properly costed, expenses are deducted at different stages to reflect the expenses of that particular element e.g. bid/offer spread, policy fee, annual management charge.

Charting. A way of analysing trends, using different types of chart, to forecast future movement, particularly in respect of share movements. A 'chartist' is a person who makes use of such a method.

Chattel. A moveable object, usually taken to be a personal possession. You can receive up to £6,000 p.a. on the sale of personal chattels each year without affecting the CGT allowance.

Chief Medical Officer. Many large insurance companies appoint a senior medical consultant to oversee their medical underwriting guidelines. This is intended to help with consistency of approach, maintaining up to date knowledge, and providing expert guidance in difficult cases.

Child Benefit. State benefit paid for children under 16, and for 16/17/18 year olds in full time education, or, in some circumstances, on an approved training scheme.

Children's Tax Credit. Tax credit issued via tax codes to individuals who have a child or children aged under 16 living with them. Introduced from April 2001.

Chinese Walls. Taken to mean organisational barriers between different operations in the same organisation to avoid conflicts of interest, e.g. a professional firm advising two competitors in the same market place.

Chop. A mark made on a document (in the far east) to acknowledge the content of the document, rather like an official seal in the UK.

Chose. Something belonging to someone. Chose in action - a personal right which can be enforced by legal action e.g. recovery of a debt.

Chose in possession - a tangible item capable of being held and enjoyed e.g. personal belongings.

Churning. The practice of moving investments merely to attract additional commissions.

City. Refers to the City of London; the square mile that is the heart of Britain's financial community.

Claim. Generally taken to mean a demand for payment under a policy, whether on surrender, maturity or death.

Class of Potential Beneficiaries. Under certain types of trust, such as flexible trusts, it is possible to have a general reference to a class of beneficiaries, as well as specific appointments as beneficiary.

Clawback. Money claimed back which has previously been paid out e.g. life assurance commission may be claimed back if the policy is cancelled within a certain period.

Clearing. Taken as a banking term, the process of presenting cheques to the drawers bank for payment.

Clearing House. An organisation set up to arrange settlements of money between a number of parties, e.g. banks or stockmarkets, so that only one balance has to be settled between any two parties at the end of each day or trading period.

Client. Generally taken to mean someone with whom you do business; more specifically, it should be used to refer to someone whom you know, and with whom you do business on a regular basis.

Client Account. An account held on behalf of clients which is kept separate from the business finances of a company or partnership.

Client Agreement. A Client Agreement is an extended version of the Terms of Business letter, used as a long-term notice where business is transacted regularly. Two copies are generally used, both client and adviser keeping a signed (by both parties) and dated copy with their respective papers.

Close Company. Company controlled by five or fewer individuals, and not traded on the stock exchange.

Closing Years. There are special tax calculation rules governing opening and closing years of a business.

Clustering. The subdivision of what would otherwise be one large policy into a number of smaller policies. Used for endowments, investment bonds and pension policies. Provides flexibility as allows policyholder to encash/surrender/use part of investment rather than whole.

Code of Mortgage Practice. A voluntary code which was introduced in July 1997 to set minimum standards of good mortgage lending practice.

Introduced by the Council of Mortgage Lenders. Co-efficient. Another name for a constant, something which is fixed for the purpose of analysis, such as price per unit.

Codicil. A document intended as a supplement to a will, executed in the same manner as a will.

Cold Calling. A personal visit or oral communication made without invitation.

Collar. An option on some mortgages which prevents interest rate payments dropping below an agreed minimum rate.

Collateral. Security used to guarantee a loan.

Collective Investment Schemes. Also known as pooled investments. Refers to unitised schemes where investor's contributions are pooled and they receive units in the fund in exchange for their contribution e.g. unit trusts.

Commission. Money payable to an agent or third party for services, usually introducing business.

Commodities. Generally taken to refer to investments involving future pricing of raw materials in foodstuffs and metals.

Commorientes. People who died at the same time, (where order of death is uncertain).

Commutation. The option of exchanging pension for cash at retirement at a fixed rate.

Compensation Fund. Fund set up by a regulatory body to protect investors against a member's fraud or bankruptcy. See Investors Compensation Scheme.

Compensation Package. The elements of pay and other benefits that go with a particular job.

Completion. The end of a transaction, generally used in property purchase transactions to signify the point at which the ownership of property changes hands.

Compliance. A word taken to indicate the process of following agreed procedures; e.g. compliance with FSA 1986 and related regulations means that things are being done 'by the book'.

Composite. Made up of different elements e.g. a composite insurance company is one which may have a general insurance arm and a life assurance arm.

Composite Rate Tax. A system of deduction of tax from bank and building society interest payments which came to an end on 5th April 1991. The rate of tax deducted was set at a level below basic rate to reflect the fact that tax was deducted from those not liable to pay it, and who could not reclaim it.

Compound Interest. Interest which is added to the principal sum, and which earns interest in addition to the principal sum.

Comptroller. Usually taken to mean a senior financial controller or manager.

Compulsory Purchase Annuity. An annuity purchased with funds from a personal pension scheme or an occupational pension scheme to provide retirement income.

Concurrency. Term used to describe the ability to be an active member of more than one pension scheme at the same time in respect of the same employment. Introduced from April 2001 to coincide with the introduction of stakeholder pensions.

Confirmation Dative. Scottish equivalent of letters of representation. Confirmation Nominate. Scottish equivalent of grant of probate.

Conglomerate. Widely differing businesses grouped together as subsidiaries of a 'parent' company. Consensus Ad Idem. An essential element of a valid contract, meaning 'a meeting of minds', of like mind i.e. both parties to a contract must be in complete agreement.

Consideration. Something of value exchanged as part of a contract; an essential of a valid contract. Sometimes used in the sense of 'payment', e.g. premium, or promise to pay a premium.

Consolidation. The combining of financial information from separate accounts e.g. companies within a group, as though they were a single account.

Consols. Government bonds which pay interest but which do not have a maturity date.

Consortium. Independent elements (people or firms) grouped together for a particular purpose e.g. banks to fund the channel tunnel.

Constant. See Co-efficient.

Consumer. Domestic and business purchasers of goods and services. Consumables, or consumable goods/services, are those goods and services purchased by consumers.

Contango. The fee paid by a buyer of shares for deferring the purchase of stocks and shares. Also called 'forwardation'.

Contingent Life Policy. A policy where payment is made on death only if certain preconditions (contingencies) are met e.g. death before another person.

Continuation Option. Some occupational pension schemes may offer scheme members, upon their leaving the scheme, a chance to continue any life assurance benefit that may have been linked to the scheme. An advantage usually lies in the fact that evidence of health will not be required.

Contra. An amount which offsets another.

Contract. An agreement between two parties, usually taken to be enforceable at law.

Contract Hire. A fixed term contract (usually) for the hire of an asset on a set rental.

Contract Note. The confirmation received when shares are bought or sold - proof of the transaction for tax purposes.

Contracted Out Money Purchase Scheme (COMPS). Type of occupational pension scheme used to contract-out of SERPS on a money purchase basis.

Contracting Out. In relation to State pensions, opting out of the earnings related part (SERPS) of the State pension arrangements.

Contracting Out Certificate. A certificate issued by the Department of Social Security acknowledging that all contracting out conditions have been met.

Contracting Out Incentive. This was an additional payment over and above the Contracting Out rebate, designed to encourage certain individuals to contract out of SERPS. Incentive payments ceased on 5th April 1997.

Contracting Out Rebate. Amount by which the employer's and employee's National Insurance contributions are reduced by virtue of an employee's membership of a contracted out pension arrangement.

Contribution. Alternative word to premium, usually used in connection with personal payments into a pension scheme, or investment based products.

Contribution Holiday. A period during which contributions of employer and/or employee are suspended, generally when the pension fund is in surplus over acceptable levels.

Contribution Limits. Contributions to pension arrangements are usually limited in some way. Those into occupational schemes are in effect limited by the maximum benefit rules. Contributions into personal pension plans are limited by payment ceilings related to age bands. Member contributions to an occupational scheme are fixed at a maximum of 15% of total taxable remuneration in any tax year. All contributions are limited by the earnings cap (but not for RACs).

Contribution Rate. Payments into group pension schemes are dependent on a number of factors, such as ages, balance of sexes in the group and certain financial projections. Rather than change the payment level each time one of the assumptions changes, the scheme actuary will recommend a fixed rate to be paid for, say, three years. This will be the contribution or funding rate, and will usually be expressed as a percentage of the total payroll of all the scheme members.

Contributions Equivalent Premium (CEP). A premium payable to the State to purchase SERPS rights, when an individual has been contracted out for less than 2 years (5 years prior to 6 April 1988), and ceases to be contracted out under an occupational scheme. The member is reinstated into SERPS, for the period originally contracted out, and State scheme will then provide any GMP.

Controlled Funding. A method of estimating the size of the pension fund needed to secure the benefits of members of a group pension. It operates on the basis that the scheme is invested only to the extent that its expected liabilities (i.e. scheme withdrawals, retirements, deaths) can be met, plus an allowance for flexibility. Members in the scheme do not have 'earmarked' funds as with PPPs or EPPs, so being a general fund, sums can be taken out as and when needed.

Controlling Director. A person who is a company director who owns, or who has control of, 20% or more of the ordinary shares in a company. The definition is wider for a director joining a pension scheme on or after 1st December 1987.

Convertible i. As in 'convertible term assurance', meaning that the policy contains an option to switch or change to another type of policy, usually an endowment or whole of life policy.

Convertible ii. A form of loan stock - a hybrid between a share and a stock or bond. It pays a fixed rate of interest and may be converted into a specified number of shares at a future date.

Convertible Preference Share. A specific kind of preference share which allows conversion of an investment into a certain number of ordinary shares at a fixed price and within a specified period of time.

Conveyance. A document, usually a deed, which transfers an interest in property.

Cooling Off Period. A period of 14 days from receipt of the statutory cancellation notice during which a policyholder may cancel a life assurance policy. For policies not covered by the Financial Services Act cancellation rules e.g. term assurances of less than 10 years, the relevant cooling off period is 10 days. For other regulated agreements e.g. hire purchase, the consumer may serve notice of cancellation before the end of the fifth day after receiving the required second copy of the agreement.

Core Rules. These form the second tier of a three tier approach to regulation originally established under SIB and continued by PIA. Core rules provide a framework for SROs rule books. The FSA will replace the three tier approach to regulation when it receives its full powers after N2 date.

Copyright. The legal ownership of 'intellectual property' such as written, taped, filmed or computerised material. It gives the basis of legal protection to the owner against copying by others.

Core Rules. The S.I.B. adopts a three-tiered approach to regulation, the second tier being the core rules, which effectively act as a code of conduct and provide an outline for the SROs own rule books. The three tier approach will be replaced when the Financial Services Authority is granted its full powers during the year 2000.

Corner. Control of the supply of a commodity or security, enabling the controller to manipulate its market price.

Corporate. Having to do with company affairs.

Corporate Bonds. Similar to Government Stock (gilts) but with higher risk profile. They are loans to corporate bodies, usually on fixed rate for a fixed period.

Corporation. Used in the sense of large scale in local authorities, public or private business.

Corporation Tax. Tax on companies, levied on trading profits and capital gains. Tax rates applicable for the Financial Year, which is 1/4 to 31/3. Cost Centre. An activity or function within a business to which specific costs may be attributed for control purposes.

Cost of Capital. The average cost of financing business capital eg loan interest and share dividends. If the average return on investment is less than the cost of financing, the business will be facing problems.

Council of Mortgage Lenders. (CML) Trade body representing mortgage lenders. They set up the Code of Mortgage Practice. See Code of Mortgage Practice.

Counter Offer. An offer which replaces and supersedes a previous offer.

Coupon. A slip of paper representing a monetary value. Often used with reference to the interest payable on gilts, because the coupon attached to the certificate represents annual interest, and can be encashed.

Covenant. A promise, contained in a deed, to do something.

Cover Note. Temporary confirmation of insurance cover, particularly in motor insurance, pending delivery of the policy and/or certificate.

Credit. A sum of money or equivalent purchasing power available for a person's or business use. A positive balance in a bank account. The practice of making goods or services available before payment. Entries on the right hand side of an account.

Credit Reference Agency. A business which collects, collates and maintains a data base of information containing the assumed creditworthiness of individuals. For the payment of a fee, information can be supplied to enquirers, generally potential creditors.

Creditors. Anyone to whom a business or individual owes money (or services).

Crest. The London Stock Exchange's computerised share trading system.

Critical Illness. Also known as 'dread disease'. Such policies can stand alone or maybe written as an add-on to a variety of other contracts e.g. whole of life. Critical illness policies pay out a tax-free capital sum in the event of a qualifying illness being diagnosed e.g.

certain cancers. This is an advance of the sum assured, rather than a surrender of the policy.

Cross Option. Also called Double Option or Put and Call Option. A flexible form of buy and sell agreement whereby e.g. in the event of the death of a partner, the estate of the deceased has the option to sell and the surviving partners have the option to buy. When one option is exercised, the other must follow.

Crossed Cheque. A cheque with two lines across to denote that it must be paid into a bank. Crossing. In banking, 'crossing' a cheque with two perpendicular lines across the face of the cheque means that it must be paid into a bank account.

Cum Div. Indicates that a share price includes the right to a company dividend declared but not paid.

Cumulation Principle. In IHT terms this refers to the build up of chargeable transfers over a seven year period e.g. if chargeable transfers are made each year 1990 to 1996, in 1997, those made in 1990 drop out of calculation, and so on. P.E.T.s only come into the calculations if the transferor dies within seven years of the transfer.

Cumulative Preference Share. A type of share bearing the right to receive unpaid dividends on a cumulative basis, taking priority over ordinary share dividend entitlement. Also available as a Redeemable Preference Share.

Cumulative Redeemable Preference Share. A redeemable preference share which gives an extra degree of security: if the company misses a dividend payment one year, it is carried forward to the next year and so on until it is eventually paid.

Current Assets. Cash and other assets capable of converting to cash or being used to produce other current assets.

Current Cost Accounting. Accounting method which is based on recording the value of assets and liabilities at their current market value rather than the historical cost.

Current Liabilities. Debts due on demand, or within a year.

Current Ratio. A test of liquidity showing the difference between current assets and current liabilities. See also Quick Ratio.

Current Value. The spending power, in today's terms, of a cash sum available at a future date after allowing for projected inflation. See Future Value and Present Value.

Current Yield. The dividend or interest payment on an investment expressed as a percentage of its current price.

Pensions.co.uk is part of a large network of financial sites created to help advise you on life events, such as buying a house (Mortgages.co.uk), insuring your car (Carinsurances.co.uk), your life (Lifeinsurance.co.uk) and your home (Homeinsurance.co.uk). Remember that your ISA allowance allows you to save upto £7000 each year tax free. Try 0800 ISAs portal to find some of the best options.

1998 - 2007 UK Pensions - Planning before, at the onset and during retirement - Pensions.co.uk