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Pensions Terminology

Pensions Terminology is a glossary of terms which is produced in conjunction with the Pensions Research Accountants Group (PRAG).

Its purpose is to encourage all pensions professionals to speak the same language. It is revised and updated periodically and the current (eighth) edition was launched in June 2011.  It is now recognised as a standard reference work.

If you have any comments regarding Pensions Terminology contact the Qualifications Department at qualifications@pensions-pmi.org.uk


The Eighth edition of Pensions Terminology is now available for free as a pdf only. You can download it here.

Pensions Terminology (Eighth Edition) is sponsored by Willis Towers Watson.

Willis Towers


Copyright to Pensions Terminology has been ceded by PRAG to The Pensions Management Institute in recognition of our educational role. Attention of users is drawn to the existence of this copyright, but as both organisations are anxious to encourage standardisation of terminology for all those associated with pensions, the use of definitions of individual terms is encouraged.

Reproduction of larger sections will normally be permitted on application, provided that such use is acknowledged.


Neither PRAG, nor the members of any working party or committee thereof, can accept any responsibility or liability whatsoever (whether in respect of negligence or otherwise) to any pension scheme trustee or member or third party, wherever situate, as a result of anything contained in or omitted from this publication nor the consequences of reliance or otherwise on the content of this publication.

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A test of actuarial value which compares benefits immediately before and after a modification of benefits.

For the test to be satisfied the total value of a [member's subsisting rights] immediately after the modification must be no less than the value of those rights immediately before the modification. This term is used in connection with [Section 67] of PA95 (as amended by PA2004).


Used in [FRS 17] and [IAS 19] to mean changes in [actuarial deficiency] or [actuarial surplus] that arise because:

a) events have not coincided with the [actuarial assumptions] made for the last valuation (experience gains and losses); or

b) the actuarial assumptions have changed.


An enhancement of benefits to compensate for the deferment of pension beyond the [normal pension date].


The value placed on the liability of a [pension fund] for outgoings (future benefit payments and expenses) due after the date to which the calculations relate.


A reduction made to a [member's accrued benefits] in order to offset any additional cost arising from payment in advance of the [normal pension date].


Under PA2004 a written actuarial report (funding update) prepared and signed by the [scheme actuary] on the developments affecting the scheme's technical provisions since the last [actuarial valuation] or report was prepared.

The relevant statutory provisions are the Occupational Pension Schemes (Scheme Funding) Regulations 2005 (SI 2005/3377).


The statement signed by the [scheme actuary] to a [defined benefit scheme] that is required by the [Disclosure Regulations] to be included in the [annual report] of the scheme. It must state the amounts necessary to be paid into the scheme in order to protect the security of prospective rights. The statement must also state the actuarial method and assumptions adopted. This is not needed for actuarial valuations from 21 September 2005.


The excess of the [actuarial value of assets] over the [actuarial liability] on the basis of the [funding method] and [actuarial assumptions] used.

See also note under [actuarial deficiency].


Commonly refers to an investigation by an [actuary] into the ability of a [defined benefit scheme] to meet its [liabilities]. The purpose is usually to assess the [funding level] and contribution rate, based on the agreed valuation method and assumptions.

Under PA2004, actuarial valuation refers specifically to a written report, prepared and signed by the [scheme actuary], valuing the scheme's [assets] and calculating its [technical provisions]. This is generally issued triennially.

See also [actuarial report]


Assumptions used by a [scheme actuary] when carrying out an [actuarial valuation]. They can be divided into financial and demographic assumptions.

1. Financial assumptions are generally about future economic factors. They include assumptions for investment return, inflation, general salary and pension increases, and discount rates.

2. Demographic assumptions are about what happens to scheme [members], for example the likelihood of leaving the scheme, retiring or dying.

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