From Annuities to transfer values, drawdown to AVCs, the world of financial planning can seem alien to the uninitiated.

We’ve created this list to help you make sense of some of the financial planning terms commonly used in our industry.

Accrual Rate

The rate at which interest builds over time on pensions and investments, mortgages and loans.

Additional Voluntary Contribution (AVC)

Additional regular payments you can make into your workplace pension.


Annual Equivalent Rate (AER) is a type of interest rate for savings. Annual Percentage Rate (APR) shows the yearly cost of borrowing money, including interest and any fees. For borrowing, aim for a low or 0% APR, but a higher AER is preferable for savings.


A product you buy with some or all of your pension savings that, in return, gives you a regular income, either to see you through your retirement, or for a set period.

For more on this subject, go to: Should I buy an annuity with my pension?

financial planning jargon


Capital can mean the amount of money you have available to spend. It can also apply to the total amount of wealth a person, or business, has in money or assets.

Capital at risk

This is a warning that investment companies use in their documentation and advertising, typically letting you know about the risks of investing in the stock market, and the fact that you could lose the money you put in.

Capital Gains Tax (CGT)

A tax payable on the profit you make when you give away, or sell, an asset. Capital Gains tax typically applies to shares, second properties and other investments.

To learn more, see: What is Capital Gains Tax and how to reduce it?

Care Fees Planning

The term used to describe a plan that funds the cost of long-term care in return for a lump sum payment.

Read more: Planning ahead for your later life care

Compound Interest

When interest is earned, it’s added to the original amount invested. Every time interest is due, it’s calculated on the total amount. This means your money will grow faster because you’re earning interest on top of interest. However, it works the same way for debt, which means you’re being charged interest on top of the interest you already owe.

Crystallised Pension

A personal pension becomes ‘crystallised’ when you start withdrawing money from it. You can do this from age 55, through drawdown or by purchasing an annuity.

For more on this, head to: What is a crystallised pension?

Defined Benefit Pension

This type of pension scheme, also known as a final salary scheme, is one where the income you’d receive in retirement is based on how many years you’ve worked for your employer and the salary you were paid at the point you retired.

Defined Contribution Pension

A company pension scheme, which both you and your employer pay in to. In this type of pension, the income you receive in retirement depends on the total amount contributed, the fund’s investment performance and the choices you make at retirement.


The opposite of inflation and usually happens during a recession. Deflation is a decrease in the price of goods, services, and the value of wages.


This this value of something you own. For instance, if you buy a house with a 10% deposit, you initially own 10% equity in the property. Your equity increases as you pay off the mortgage or if the property’s value rises. Conversely, if the property’s value falls, your equity diminishes, which could result in negative equity.

Equity Release

A way of receiving money against the value of your home without having to sell and move out.

Find out more: What are the downsides of equity release?


Everything you own, minus your debts.

Estate Planning

A plan that helps you reduce the amount of tax your estate might be liable for upon your death, and to ensure any remaining assets are passed on in accordance with your wishes.

For more on estate planning, see: 5 reasons why you need an estate plan

Final Salary Scheme

See Defined Benefit Scheme.


The Financial Conduct Authority (FCA) is a regulatory body that oversees how financial planning firms are run, making sure they always act in the best interests of their clients.


The transfer of money or property to another party. There are limits to the value and number of gifts you can make without any immediate or future inheritance tax liability.

For more on gifting, go to: Gifting in your lifetime to reduce inheritance tax

Immediate Needs Annuity

A product that pays an income to a care provider in return for a lump sum. Typically used as part of care fees planning.

Income Drawdown

One of the choices you have at retirement is to withdraw money directly from your pension fund, rather than buying an annuity. This means your pension remains invested and could benefit from further growth. It’s also often referred to as income withdrawal or pension drawdown.

Read our Guide to Pension Drawdown

Inheritance Tax (IHT)

A tax paid on death on estates worth over a certain amount.

To find out how to manage the inheritance tax on your estate, see: 9 ways to reduce the inheritance tax bill for your family


When a person dies without a valid will. On death, the person’s assets are distributed according to the law, regardless of the person’s intent when they were alive.


A type of savings account where you don’t pay income tax on the interest you earn. There are different types of ISA available, including a Cash ISA, Stocks and Shares ISA, Junior ISA and Lifetime ISA. Each has a maximum limit, or ‘allowance’ that you can save each year.


A long-term plan designed for the purpose of saving money that can then be converted to a regular income when you stop work. There are three types of pension: State pension, workplace pension, and private pension. This is the most tax-efficient way to save for your retirement because the Government tops up your contributions through tax relief.

For more on pensions, see Why a pension is a good starting point for you financial plan


An umbrella term covering many different types of insurance, such as life insurance, critical illness cover and income protection.

Find out more from Tara Dixon, IFA: Why protection is the bedrock of financial planning

Personal Finance Society (PFS)

A professional body dedicated to building trust in the financial planning profession.

Power of Attorney

An agreement that allows a person, or group of people, to look after the money, health and wellbeing of someone who’s no longer able to look after it themselves. Otherwise known as a Lasting Power of Attorney, they can be taken out while the individual is still healthy and capable, and initiated at the point they need their attorneys to step in.

For more information, see Why everyone should set up a Lasting Power of Attorney


A significant economic decline, where unemployment goes up and the value of all the goods and services a country produces in a year (Gross Domestic Product) goes down.

Self-Invested Personal Pension (SIPP)

A tax-efficient way of investing money for retirement. Similar to a personal pension, a SIPP gives you more flexibility and choice over how and where you invest your money.

Time Horizon

A period where an individual expects to keep their money invested in order to achieve a specific goal.

Transfer Value

The amount of money you’ll receive if you transfer your workplace pension to another company scheme, or personal pension.


An arrangement where one or more people (trustees) agree to take care of assets for someone and make sure those assets are used for the benefit of named individuals or companies (beneficiaries).

For more on trusts and gifting, head to: Setting up trusts and gifting in your lifetime

Wealth Management

A general term for the work a financial adviser carries out in looking after a full range of financial services and products for a client.

For more, go to: What’s the difference between a Wealth Manager, a Financial Planner and a Financial Adviser?

Get in touch

If there’s anything you’re unclear about and would like to speak to one of our financial advisers, call 0800 915 0000, or alternatively use our contact form here.