Financial jargon buster
Money and finance have a language of their own. It will be easier to find your way around if you know the terms. This list explains some of the words you might commonly come across while you are sorting out your finances.
A health condition that is sudden and can be substantially relieved or cured through treatment.
Fixed, increasing or sometimes variable sums of money paid to someone each year, typically for the rest of their life.
A person who is given powers to manage someone else's affairs.
Basic State Pension
The main part of the State Pension that nearly everyone can get. For each qualifying year that you have built up, you will get some basic State Pension. You may be able to increase your State Pension if you don't have enough qualifying years. To check how much State Pension you may get, get a State Pension forecast from Directgov or call 0845 3000 168 .
A person who receives money or other assets from, for example, an insurance payout or inheritance on someone's death.
Statement from an occupational or personal pension scheme showing how much pension you may get at retirement. It's based on various assumptions, for example, about your pay or investment returns and inflation between now and retirement.
Capital gains tax
When you sell or give something away, such as shares or property (other than your only or main home), you pay tax on its increase in value during the time you have owned it. This only applies if your total gains (profit) exceed the yearly tax-free allowance. If you have capital gains tax to pay, or a loss you want to claim, you will need to complete a tax return. For more information, visit hmrc.gov.uk/cgt/intro/basics.htm
Child Trust Fund
Scheme where children born between 1 September 2002 and 31 December 2010 have an account into which the government paid some money. Friends and family can add extra. Withdrawals are not normally permitted before the child turns 18.
A health condition that continues over a long period or periodically comes back.
The name in Scotland for the probate process.
Continuing power of attorney
A legal arrangement in Scotland giving someone else the power to manage your financial affairs on your behalf. It continues or can be set up to start if you lose mental capacity.
A state benefit that you may be able to get if you have paid or been credited with enough national insurance contributions.
Credit reference agency
An organisation that holds data that can help lenders decide whether or not to lend to someone and on what terms.
Someone you owe money to.
A rating based on factors such as your employment status and how long you’ve lived in your present home. It helps lenders assess any risk that you may not repay a loan.
Money you owe.
Person who owes money.
How much money you have left over after you have paid your essential living expenses.
A weekly state benefit for people who can't work or have a reduced ability to work because of illness or disability. You have to meet certain conditions to qualify.
Enduring power of attorney
A legal arrangement in Northern Ireland, and in England and Wales where the power was set up before 1 October 2007, giving someone else the power to manage your financial affairs on your behalf. It continues or can be set up to start if you lose mental capacity.
Everything you own less everything you owe.
The first part of a claim that you must meet yourself. For example, if you have a successful claim for £750 and an excess of £500, the insurer will pay you £250.
Something that is specifically not covered by the insurance, so there is no payout if it happens.
Person named in a will who takes on the job of sorting out the estate. A will can appoint more than one executor.
Financial Services Authority (FSA)
The financial watchdog set up by the government to regulate financial services and protect your rights. It has also set up a consumer financial education body to provide information and guidance on money matters to the general public through the Money Advice Service. Two new watchdogs - the Financial Conduct Authority (FCA) and Prudential Regulatory Authority (PRA) - are due to take over from the FSA in 2013.
A household budget that shows how much income you have, and how much you need for basic living expenses. You will need your financial statement at all stages when sorting out your debts.
Generic (general) advice
Guidance on the options available to people in situations similar to yours and signposting to relevant organisations and firms for more specific information and advice. Generic advice doesn’t include specific recommendations about what you should do or which products you should choose.
Your full wages before tax and national insurance, have been taken out.
This a request for more time to sort out your debt plan. It explains your situation and asks creditors to temporarily stop any action against you. Always ask them to freeze the interest and stop any penalty fees, so your debt doesn’t get worse.
A weekly state benefit for people who can't work because of illness. It was replaced by Employment and Support Allowance in October 2008. Between October 2010 and 2014, the government is reviewing existing Incapacity Benefit claims and switching eligible claimants to Employment and Support Allowance.
Tax paid on earnings, profits from a business, pensions, interest from savings and other income if the total exceeds a yearly tax-free allowance that most people get.
Independent financial adviser (IFA)
A person who studies your goals and personal circumstances and recommends suitable financial products, services or practical things you can do to meet your needs. They must be authorised by the Financial Services Authority.
Individual savings account (ISA)
Savings accounts that give a tax-free return and share-based investments that give a largely tax-free return.
A tax that may be payable on your estate when you die, and on some gifts you make during your lifetime.
Instant access account
An account with a bank or building society where you can withdraw money at any time without losing any interest.
Investment-type life insurance
Type of life insurance policy that is designed mainly to provide a lump sum or income during your lifetime, rather than a payout on death as with an endowment policy, for example.
New individual savings account for children who do not have a Child Trust Fund. The government does not contribute any money to these, but family and friends can pay in. Withdrawals are not normally permitted before the child turns 18.
There are two types of life insurance: term insurance and investment-type. Term insurance pays out if you die within a set time (the term) but nothing if you do not. Investment-type life insurance pays out an agreed sum when you die, but can also be cashed in during your lifetime and so can be used as an investment.
Investment where you give up a lump sum (for example, from your pension scheme) and in return get a pension for the rest of your life.
A state benefit that you may be able to get if your income and savings are below a certain level.
The ability to make a particular decision for yourself. You are assumed to have mental capacity unless it can be proved that you don't.
A tax you pay while working. You may be treated as if you have paid the tax (by getting credits) if you're unable to work.
Your wages after paying tax and national insurance.
A debt that should be paid, but which has less serious consequences for you. These debts are paid after you have met your priority debts.
Occupational (company) pension
Retirement pension from a scheme run by or on behalf of your employer who normally contributes to the scheme.
Ordinary power of attorney
A legal arrangement giving someone else the power to manage your financial affairs on your behalf for a set period. It automatically stops if you lose mental capacity.
A system for collecting income tax and national insurance contributions if you work for an employer or get a pension from a previous employer or pension provider. Tax due on all your income from all sources is automatically deducted from your pay or pension before you get it.
Payment protection insurance
Insurance that takes over repayments for a loan or credit card if you become ill or unemployed. It doesn't cover health conditions you already have at the time you take out the insurance and often doesn’t cover self-employment and casual jobs.
Personal Independence Payment
Disability Living Allowance will be replaced by a Personal Independence Payment (PIP) for people of working age from April 2013. Between 2013 and 2016, everyone aged 16-64 receiving Disability Living Allowance will be reassessed to see whether they are entitled to PIP. People entitled to PIP will have their claims transferred over and their Disability Living Allowance will stop. Those people not found to be entitled to PIP will be informed and their Disability Living Allowance will stop. They may be able to claim other benefits instead.
Retirement pension you take out through your workplace or arrange for yourself, usually offered by insurance companies. If it's arranged through your workplace, you still keep your personal pension even if you change jobs.
Power of attorney
Legal power to manage someone's affairs on their behalf, as if you were that person.
Pre-existing medical condition
A health condition you have at the time you take out an insurance policy or have had in recent years.
What you pay for insurance.
A debt where the consequences for not paying it are particularly severe. For example, if you don't keep up you mortgage repayments your home could be repossessed.
The process of proving what you owned and owed at death. Once complete, your executors get a certificate which allows them to collect up everything in your estate and distribute it to your beneficiaries.
Property and affairs lasting power of attorney
A legal arrangement in England and Wales giving someone else the power to manage your financial affairs on your behalf. It continues or can be set up to start if you lose mental capacity.
Pro rata payment
This means your payment is in proportion to the size of each debt. For example, if you owe £1,000 to one creditor, their payment will be twice the amount you offer to a creditor owed £500.
Type of borrowing where, if you fail to keep up the repayments, the lender can sell your home to get its money back. Loans can be secured against other valuable things you own, but most are secured against your home.
A system for collecting tax from people outside the PAYE system (for example, self-employed people) or where extra tax is due on top of the amount collected through PAYE.
An investment fund (for example, a unit trust) that invests in shares or a direct holding of shares in a company. The value of these investments can fall as well as rise.
The amount by which your spending exceeds your income.
A charge you pay if you cash in an investment part-way through its term or within the first few years. Applies in particular to investment-type life insurance products.
Retirement pension paid by the State. You qualify by paying national insurance contributions while in work or being credited with contributions while out of work. Provided you have at least one year's worth of national insurance contributions and/or credits, you will get at least some State Pension.
A refund of tax you have overpaid.
A form you fill out that gives information about your income and certain types of spending so that your tax bill for the year can be worked out.
The period from 6 April one year to 5 April the following year.
A legal arrangement where people or a company (the trustees) look after money and/or assets (the trust property) on behalf of other people (the beneficiaries). The trust exists independently of the person (the settler) who gave the money and/or assets. For example, you may put money into trust to provide for your children or a person with a disability. You may set up a trust in your will so that your partner can use what you leave during his or her lifetime, after which time it passes to your children.
A new single payment for people who are looking for work or on a low income. It will be launched in October 2013 (or earlier for certain claimants in Oldham, Tameside, Warrington and Wigan) and replaces six older, income related (means tested) benefits.
These loans are not backed by property such as your home or car, so your property can’t be repossessed for non-payment.
A delay between the start of an illness and the start of the payout from an insurance policy.
Waiver of premium benefit
An option with some insurance policies, so that the premiums are paid for you if you can't work because of illness or disability.
Legally binding instructions about who should inherit your estate when you die.