Retirement and pension glossary

A

Annual allowance (pensions) #

The most that can go into your pensions in a tax year with tax relief, counting your own, your employer’s and any third-party contributions. It is £60,000 in the current tax year, and can be lower for very high earners or if the Money Purchase Annual Allowance applies. See the Money Purchase Annual Allowance.

Annuity #

A guaranteed income you buy with some or all of a defined contribution pension. It can be paid for life or for a fixed term, and it is taxed as income, like a salary.

Auto-enrolment #

The law that requires employers to put eligible workers into a workplace pension and pay in alongside them. You can choose to opt out, but you then lose your employer’s contributions.

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B

Bridge years #

The years between dialling down or stopping work and your State Pension or other pensions starting. Planning how to cover them is often the trickiest part of a gradual retirement. Read more in bridge years.

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C

Class 3 voluntary National Insurance #

Contributions you can choose to pay to fill a gap in your National Insurance record, so the year counts towards your State Pension. In 2026 to 2027 they cost £18.40 a week. Check whether it would help first, using our guide to checking your State Pension forecast.

Compressed hours #

Working your usual total hours over fewer, longer days. Your pay does not change, so it is a different thing from part-time working, though both can be asked for through a flexible working request.

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D

Defined benefit pension #

A workplace pension that promises an income based on your salary and how long you were a member, often called final salary or career average. The scheme, not you, carries the investment risk.

Defined contribution pension #

A pension pot built from what you and your employer pay in, plus any investment growth. What you end up with is not guaranteed and can go down as well as up. Most workplace and personal pensions today are this type, also called money purchase.

Dialling down #

Semi Sweet’s name for working less gradually, such as fewer or shorter days or a lighter role, instead of stopping all at once. Dial down, don’t drop out. See what it could mean for your take-home pay with the part-time pay calculator.

Drawdown (flexi-access drawdown) #

A way to take money from a defined contribution pension while the rest stays invested. You can usually take some tax-free cash and then draw a taxable income when you choose. Taking taxable income this way triggers the Money Purchase Annual Allowance.

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E

Emergency tax code (on pensions) #

The first time you take a flexible payment from a pension, your provider often has to use a temporary tax code, so you may pay too much tax at first. You can claim it back from HMRC, or it is usually put right later in the tax year. Estimate the tax with the pension tax calculator.

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F

Flexible working request #

A formal request to change how much, when or where you work. Every employee in Great Britain can make one from their first day in a job, and the employer must handle it reasonably. See how to ask to reduce your hours.

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G

Glide path (glide) #

A planned route from full-time work to full retirement in steps, for example from 100% to 80% to 60% of your hours over a few years. Sketch your own with the glide planner.

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H

Healthy life expectancy #

The number of years a person can expect to live in good health. In the UK it is about 61 years at birth (ONS, 2022 to 2024), which is earlier than State Pension age for many people. Try the healthy years calculator.

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I

Income tax bands #

The slices of income taxed at different rates. In England, Wales and Northern Ireland for 2026 to 2027: 0% up to £12,570, 20% basic rate up to £50,270, 40% higher rate up to £125,140, and 45% above that. Scotland has its own bands.

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L

Lump Sum Allowance #

The limit on the total tax-free cash you can usually take from your pensions in your lifetime: £268,275, unless you hold a protection that gives you more. See tax-free cash.

Lump Sum and Death Benefit Allowance #

A wider limit, £1,073,100 for most people, on tax-free lump sums paid in your lifetime plus certain tax-free lump sums paid to others when you die.

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M

MoneyHelper #

A free, impartial, government-backed service for money and pension questions. It runs Pension Wise and has tools and guides on retirement income. Visit MoneyHelper.

Money Purchase Annual Allowance (MPAA) #

A lower limit of £10,000 a year on tax-relieved payments into defined contribution pensions. It starts once you flexibly access a pension, for example by taking taxable income from drawdown or an UFPLS. Taking only your tax-free cash does not usually trigger it, which matters if you plan to keep working and saving.

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N

National Insurance qualifying years #

Tax years in which you paid or were credited with enough National Insurance to count towards your State Pension. You usually need 35 for the full new State Pension and at least 10 to get any. Model yours with the State Pension calculator.

Net pay arrangement #

A way of paying into a workplace pension where your employer takes your contribution from your pay before income tax, so you get tax relief at your highest rate straight away.

New State Pension #

The State Pension for people who reached State Pension age on or after 6 April 2016. The full amount is £241.30 a week in 2026 to 2027, and what you get depends on your National Insurance record.

Normal minimum pension age #

The earliest age you can usually take money from a personal or workplace pension: 55 now, rising to 57 from 6 April 2028. It is separate from State Pension age. Check yours with the pension age checker.

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P

Part-time working #

Working fewer hours than a full-time colleague in the same role, with pay and holiday usually worked out pro rata. It is the most common way to dial down. Compare take-home pay with the part-time pay calculator.

Pension Credit #

Extra money for people over State Pension age on a low income. It can also open the door to other help, such as with housing costs or council tax, so it is worth checking even if you think you may not qualify.

Pension Wise #

A free guidance appointment from MoneyHelper for people aged 50 or over with a defined contribution pension. It explains your options for taking your pension, but does not recommend what to do.

Personal allowance #

The income you can have each tax year before paying income tax: £12,570 in 2026 to 2027. It goes down by £1 for every £2 of income above £100,000.

Phased retirement #

Retiring in stages instead of all at once. It can mean reducing your hours or role over time, taking your pensions bit by bit, or both.

Pro rata #

In proportion. If you work 60% of full-time hours on a pro rata basis, you usually get 60% of the full-time salary and holiday.

Protected pension age #

A right some people have to take their pension earlier than the normal minimum pension age, for example 55 after April 2028. It usually depends on your scheme’s rules as at 11 February 2021 and on you being a member by 3 November 2021, so ask your provider if you are unsure.

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R

Relief at source #

A way of getting tax relief on pension contributions where you pay in from your taxed pay and your provider adds basic-rate relief (20%). Higher and additional rate taxpayers can claim the extra through HMRC.

Retirement Living Standards #

Yearly budgets for three lifestyles in retirement. In June 2026 one person needed about £13,900 for minimum, £32,700 for moderate and £45,400 for comfortable; a couple £22,500, £45,400 and £62,700. Test your own number with how much do I need to retire.

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S

Salary sacrifice #

An agreement to give up part of your salary in return for your employer paying the same amount into your pension. It can save National Insurance as well as tax, but a lower salary can affect things like mortgage applications and some statutory pay.

Semi-retirement #

Still working, but less than before, often alongside some pension income. Read our guide to semi-retirement in the UK.

Small pots #

Small pension pots, often left behind in old jobs. Special small pot rules can let you take a small pot as a lump sum without triggering the MPAA. You may also be able to combine pots, though check for charges or lost benefits first.

State Pension age #

The earliest age you can get your State Pension. It is 66 now and rising to 67 for anyone born between 6 March 1961 and 5 April 1977. Check yours with the pension age checker.

State Pension deferral #

Choosing to claim your State Pension later than State Pension age. For the new State Pension, every 9 weeks you defer adds 1% to your weekly payment for life, just under 5.8% a year.

State Pension forecast #

A free statement from GOV.UK showing how much State Pension you could get, when, and whether filling gaps could increase it. See how to check your State Pension forecast.

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T

Tax-free cash (pension commencement lump sum) #

The part of a defined contribution pension you can usually take without paying tax, normally 25%, up to the Lump Sum Allowance. Its formal name is a pension commencement lump sum. Estimate the tax on the rest with the pension tax calculator.

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U

UFPLS (uncrystallised funds pension lump sum) #

Taking a lump sum straight from a defined contribution pot without moving it into drawdown first. Usually 25% of each lump sum is tax-free and the rest is taxed as income. It triggers the MPAA.

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