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Pension Terminology: FAQ

GMP - Guaranteed Minimum Pension

Most DB and some DC schemes will have a GMP figure; this is the legal minimum that the scheme is required to pay a member

PCLS - Payment Commencement Lump-Sum

PCLS – Payment Commencement Lump-Sum. This is a tax-free amount that can be taken from DB/DC schemes (not state pension) up to 25%. If taken from a DB scheme the member will see a reduction in their benefits and if taken from a DC scheme the member will see a reduction in their pot value.

CETV - Cash Equivalent Transfer Value.

The CETV is the amount a DB scheme will give to a member who requests to leave the scheme. It is supposed to represent the value of the benefits given up. It is important to note that the CETV will change, going up and down depending predominantly on interest rates. The CETV is calculated by looking at what amount would be needed as a lump sum for an individual member to maintain an equal level of benefits once they move to a private pension.

PPF - PPF – Pension Protection Fund.

The PPF was set up to protect members of schemes that become insolvent. It is funded by all the schemes that are still solvent that would fall into the PPF if they became insolvent.

BCE – Benefit Crystallisation event.

A test usually has to be carried out each time benefits are taken from a registered pension scheme, to make sure the tax charge is applied if the lifetime allowance is exceeded. The occasions when this test is carried out are called benefit crystallisation events (BCE).

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