Glossary of pension terms

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Family Law (Divorce) Act, 1996

The Family Law (Divorce) Act, 1996, contains the primary mechanism for the granting of decrees of divorce as well as facilitating the redistribution of property, including pensions, between parties to a divorce action.

Family Law Act, 1995

The Family Law Act, 1995, enables the courts to allocate part of a member’s pension entitlement under a pension scheme to the spouse/civil partner/qualified cohabitant who is not a member of the pension scheme in the course of judicial separation or foreign divorce.

Family status ground

Discrimination on the family status ground occurs where less favourable treatment is based on the fact that one person has family status and the other person does not. A parent has family status to a person under the age of 18, or a parent or resident primary carer to a person over 18 with a disability needing continuing regular or frequent support.

Final pensionable salary

The pensionable earnings, at or near retirement or earlier leaving service, on which a defined benefit pension is typically calculated. This may be fixed at a particular date or averaged over a number of years and will typically be defined in the member’s handbook and the trust deed and rules of the pension scheme.

Final salary scheme

A defined benefit scheme whose benefits are generally calculated by reference to salary at, or close to, retirement or earlier leaving service.

Fit and proper requirement

The trustees of a pension scheme must be collectively ‘fit’ and individually ‘proper’. Key function holders must be individually fit and proper. See the Pensions Authority’s Code of Practice for trustees for details of what ‘fit’ and ‘proper’ mean for trustees and key function holders.

Forfeiture of benefits

Termination or suspension of all or part of the benefits under an occupational pension scheme. Forbidden in relation to preserved benefits by the Pensions Act, however it can still happen in public sector schemes which are exempted from Part III of the Pensions Act.

Frozen scheme

A pension scheme which provides benefits only for members whose service has terminated; or a pension scheme where continuing service in employment does not entitle members to accrue new pension benefits, and to which no new members are admitted.

Funded schemes

Occupational pension schemes set up by employers that are usually financed by setting aside money in a trust fund, which is separate from the employer’s business, to finance the payment of retirement benefits. Separating the scheme’s assets from the employer’s business should ensure that these assets will be available to pay members’ pensions, whether or not the employer stays in business.


The provision in advance for future benefit obligations/liabilities of a pension scheme by setting aside money in a trust, which is separate from the employer’s business, to finance the payment of benefits when they arise.

Funding certificate

A certificate issued by the actuary under the funding standard provisions of the Pensions Act.

Funding level

The relationship, usually expressed as a percentage, between the actuarial value of a pension scheme’s assets and its actuarial liability.

Funding method

The approach used by an actuary in an actuarial valuation. A variety of methods can be used, but whatever method is employed should be adequately described in the valuation report.

Funding plan

A plan setting out the agreed rate of contributions to a defined benefit pension scheme aimed at meeting the cost of member benefits as they fall due.

Funding proposal

If a defined benefit pension scheme does not meet the funding standard requirements set out in the Pensions Act, the pension scheme trustees must submit a funding proposal to the Pensions Authority setting out how the pension scheme’s funding level will be restored by a future date. A funding proposal will include details of the proposed rates of contributions from the employer and members, as well as plans for the investment of the pension scheme’s assets.

Funding rate

The rate of which contributions are payable to support the liability for benefits. Often used as shorthand for recommended contribution rate.

Funding standard

The Pensions Act sets out a funding standard for funded defined benefit (DB) pension schemes. The funding standard provisions of the Pensions Act set out the minimum assets that a pension scheme must hold and the rules that apply if a pension scheme falls short. The funding standard is designed to provide a level of protection for pension scheme members of the pensions they have already built up or ‘accrued’ in a DB pension scheme.

Funding standard reserve

Funded defined benefit pension schemes are required to hold a funding standard reserve, i.e., additional assets or ‘risk reserves’. The funding standard reserve is broadly calculated as 10% of ‘unmatched’ funding standard liabilities plus the net effect of a 0.5% fall in interest rates.

Funding standard reserve certificate (FSRC)

A certificate prepared by the actuary and submitted to the Pensions Authority which indicates whether or not the pension scheme can meet an additional risk reserve known as the ‘funding standard reserve’. A pension scheme needs to hold a risk reserve to allow for adverse future experience relating to the pension scheme’s assets and/or liabilities. This is submitted to the Authority at least once every three years along with the actuarial funding certificate.