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Glossary
At PensionReforms, we are conscious of the need for the accurate use of language
to describe particular things. As we build our library of abstracts, we have decided
to adopt a formal use of definitions, in legal style, that have capital initial
letters when used in our material.
a pension plan that provides benefits based on individual contributions plus the investment return
Ageing of population
increased ratio of older to younger persons that takes place as fertility and/or mortality rates decline.
increased ratio of older to younger persons that takes place as fertility and/or mortality rates decline.
Defined Benefit (DB)
a pension plan that provides benefits based on individual contributions plus the investment return.
a pension plan that provides benefits based on individual contributions plus the investment return.
Defined Contribution (DC)
a retirement benefit plan that provides benefits based on individual contributions (from the member, employer and/or government) plus the investment returns.
a retirement benefit plan that provides benefits based on individual contributions (from the member, employer and/or government) plus the investment returns.
EET, TET, TTE etc.
the taxonomy of retirement saving treatment is summarised by three letters with some combination of "E" (exempt from tax or, in the case of contributions, fully deductible from other income and, therefore, from pre-tax earnings), "T" (fully taxable or, in the case of contributions, paid from after-tax earnings) or "t" (partially favoured under the tax regime). The first letter describes the way contributions are treated; the second letter the investment income in the savings plan and the third letter, the way benefits are taxed. The common international treatment of retirement saving is EET (Exempt contributions; Exempt investment income and Taxable benefits). Benefits can be described as "tax neutral" under the normal income tax treatment if they are TTE. By contrast, EET can be seen as "neutral" by reference to an expenditure tax regime.
the taxonomy of retirement saving treatment is summarised by three letters with some combination of "E" (exempt from tax or, in the case of contributions, fully deductible from other income and, therefore, from pre-tax earnings), "T" (fully taxable or, in the case of contributions, paid from after-tax earnings) or "t" (partially favoured under the tax regime). The first letter describes the way contributions are treated; the second letter the investment income in the savings plan and the third letter, the way benefits are taxed. The common international treatment of retirement saving is EET (Exempt contributions; Exempt investment income and Taxable benefits). Benefits can be described as "tax neutral" under the normal income tax treatment if they are TTE. By contrast, EET can be seen as "neutral" by reference to an expenditure tax regime.
Effective Marginal Tax Rate (EMTR)
The interaction of income-tested state income benefits and tax rates can reduce significantly the value of a citizen's net income after allowing for the reduced state entitlement. That can apply to someone in work as well as retirees.
The interaction of income-tested state income benefits and tax rates can reduce significantly the value of a citizen's net income after allowing for the reduced state entitlement. That can apply to someone in work as well as retirees.
Home Equity Conversion (HEC)
using the home to provide financial resources in retirement through some form of borrowing or annuity arrangement. This coversreverse annuities, reverse mortgages, line of credit and similar decumulation instruments.
using the home to provide financial resources in retirement through some form of borrowing or annuity arrangement. This covers
Means-Tested Pension
benefits targeted to the poor, or that exclude the wealthy, by making payment conditional on earnings, income, or assets separate tests of this nature are sometimes called Income-Tests or Asset-Tests.
benefits targeted to the poor, or that exclude the wealthy, by making payment conditional on earnings, income, or assets separate tests of this nature are sometimes called Income-Tests or Asset-Tests.
Minimum Pension Guarantee
a guarantee provided by a government to bring pensions to some minimum level, possibly by adding a flat top-up to the contributions-based or earnings-related pension.
a guarantee provided by a government to bring pensions to some minimum level, possibly by adding a flat top-up to the contributions-based or earnings-related pension.
Notional Defined Contribution (NDC)
a pay-as-you-go pension plan that provides benefits based on individual contributions plus credited notional interest on these contributions (sometimes referred to asnon-financial defined contribution).
a pay-as-you-go pension plan that provides benefits based on individual contributions plus credited notional interest on these contributions (sometimes referred to as
Pay-As-You-Go (PAYG)
method of financing in which current benefits are paid out of current revenues, often revenues from earmarked taxes (sometimes called contributions), and most often from payroll taxes.
method of financing in which current benefits are paid out of current revenues, often revenues from earmarked taxes (sometimes called contributions), and most often from payroll taxes.
Pillars (Tiers) of pensions
of many definitions, PensionReforms prefers the three defined by the World Bank in its 1994 studyAverting the Old Age Crisis: (1) basic pension (DB), (2) earnings-related pension (DB or DC or NDC, public or private, pre-funded or PAYG) with mandatory contributions, (3) voluntary retirement savings either workplace-related or individually arranged (and not just traditional pension plans).
of many definitions, PensionReforms prefers the three defined by the World Bank in its 1994 study
Pre-funded Pension
accumulation of enough reserves of financial instruments to pay all promised benefits (sometimes referred to as afunded pension)
accumulation of enough reserves of financial instruments to pay all promised benefits (sometimes referred to as a
State Pension Age
the age from which the "normal" state pension becomes payable and without adjustment for early or late retirement.
the age from which the "normal" state pension becomes payable and without adjustment for early or late retirement.
Universal Pension
pensions paid solely on the basis of age and citizenship (or residence), without regard to prior work history, earnings or contributions (known also as acitizens pension or demogrant ).
pensions paid solely on the basis of age and citizenship (or residence), without regard to prior work history, earnings or contributions (known also as a
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