A helpful guide to pension terminology

We know pensions can sometimes come with unfamiliar terms, and that can make things feel more complicated than they need to be. We always try to keep things easy and straightforward, but some terms and phrases are important because they have quite specific meanings.

This page has been created to help explain some of the most common pension’s terminology you may come across. The definitions below will help to explain what they mean, to make you feel more informed and confident when thinking about your pension and the choices you have.

The RS Group Pension Scheme (‘the Scheme’) is a Defined Benefit (DB) pension, which means your pension at retirement is based on your final DB Pensionable Salary and your length of membership in the Scheme, also known as your Pensionable Service. You may sometimes see references to Defined Contribution (DC) pensions, which work differently. The terms below are explained in the context of your DB pension.

Defined Benefit pension:

This is the type of pension you have with the Scheme. Sometimes called a ‘final salary’ or ‘career average’ pension. A DB pension will provide a guaranteed, predictable income for life in retirement. It is calculated based on your final Pensionable Salary and your length of membership within the Scheme.

Defined Contribution pension:

Sometimes referred to as a ‘money purchase’ scheme, this type of pension involves you and/or your employer paying money into a pot which is then invested to grow. The final retirement outcome isn’t guaranteed, and depends on numerous factors like total contributions made, investment performance, and fees. The value of the pension can fluctuate and can be accessed in different ways.

Normal retirement date (NRD):

In DB schemes like yours, your NRD will be determined by the rules that govern the scheme; for most members, that will be their 65th birthday. Having an idea of when you’d like to start receiving your pension is a great first step in planning your retirement. You can apply to take your pension early, for most people, that’s anytime from age 55 (this will change to 57 from 6 April 2028), or you may choose to take it later. If you choose to retire earlier than your NRD, your yearly income will be reduced because you’ll be receiving your pension for longer – and if you choose to retire later than your NRD, your income will be increased, as you’ll be receiving your pension over a smaller period of time.

Pension Commencement Lump Sum (PCLS):

It’s just as important to consider how you want to take your pension as it is to think about when you’d like to start receiving it.

Another option you have, besides taking your full pension, is to take a tax-free cash lump sum first (known as a PCLS) and then take a smaller guaranteed, yearly pension. Generally, the first quarter (25%) of the total value of your pension benefits can be taken as a tax-free cash lump sum.

Cash Equivalent Transfer Value (CETV):

You have the option to take a transfer value, or CETV, instead of a guaranteed yearly pension.

Your CETV includes the amount it would cost to provide you with a yearly pension for the rest of your life, as well as any spouse’s pension, and is intended to be the amount of money that’s needed to give you the pension benefits promised to you as part of your DB pension. Your CETV will also include any increases to your pension that are built into the Scheme Rules.

Taking a CETV offers flexibility, because it allows you to move that money into a different type of pension arrangement, and access it anytime from age 55 (this will change to 57 from 6 April 2028).

It’s worth keeping in mind however, that taking a transfer value can’t be reversed once you’ve made this decision so you should consider it carefully and get financial advice before you take this option.

Trivial commutation:

You may be able to take your pension all as cash, if the total value of your benefits is worth less than £30,000. This is different to a transfer value because you don’t need to transfer your benefits out of the Scheme to take it – you just need to make sure that the value of all your pension savings (not just the ones held in your RS pension) are no more than £30,000 in total.

Please note that if you’re considering taking a transfer value (worth £30,000 or more), you must take financial advice from a Financial Conduct Authority (FCA) regulated financial advisor beforehand and provide evidence that you have done so.

Independent Financial Advisor (IFA):

As everyone’s needs are different, there can be some big decisions to make when making a decision about your pension benefits, but an IFA can help you by providing expert, impartial advice.

Speaking with an IFA means sharing your financial information, as well as your goals for the future – but with this information, they can usually recommend how and when you should access your pension and ensure you’re making the right decisions for you.

An IFA will usually charge a fee for their expertise and time.

Early Retirement Factors (ERFs):

Your benefits may be reduced if you decide to take your pension before your NRA. This is an actuarial adjustment (not a penalty) that reflects the longer period of time your pension is paid over. 

ERFs help to ensure fairness for all members and protect the long-term sustainability of the Scheme.

Commutation Factors:

Commutation factors help to determine how much cash you receive if you choose to exchange part of your pension for a lump sum. These factors are designed to reflect current economic conditions and life expectancy and are reviewed regularly to ensure fairness and consistency.

Late Retirement Factors (LRFs):

Your pension may be increased to reflect the shorter period over which your pension is paid if you choose to retire after your NRA. These increases are calculated LRFs which – like commutation factors – are reviewed regularly.