Jargon-buster

AGM Questions:

Shareholders have the right to hold companies accountable at their Annual General Meetings (AGMs). One of the ways they can do so is by asking questions directly to the board.

Annual management charge (AMC):

The amount of money your pension provider charges you for managing your money – usually expressed as a percentage. This is capped at 0.75% for default funds.

Asset manager:

A company which receives money from investors such as pension providers, and manages some investment processes, such as the buying of company shares and engagement.

Automatic enrolment:

A government policy, brought into force in 2012 which meant that every employee is automatically enrolled into a pension provider by their employer. In the past, employees needed to opt-in to save for a pension. Now, they have to opt-out.

Bond:

A type of investment that pension providers invest in. When companies or governments want to fund a project, but can’t afford it, they will offer bonds to investors like pension providers. Investors lend money for the project and receive it back with extra interest as the project makes money.

Company shares (also known as equities):

A type of investment that pension providers invest in. Publicly listed companies are divided into shares. If you own all of the shares in a company, you own all of that company, if you own a tenth of the shares, you own a tenth of the company etc… Shares go up and down in value depending on how a company performs. Owning shares means you can hold companies to account, for instance by asking questions and voting on company matters at their annual general meetings (AGMs). As more investors buy shares, share price goes up. As more investors sell shares, share price goes down. Having a high share price makes it easier for companies to raise new funds, takeover other businesses and keep hold of staff. Our pensions being invested in the biggest companies keeps their share price high.

Contribution:

The percentage of your income that you and your employer pay into your pension every month.

Default Fund:

The fund you automatically go into if you’re in a defined contribution pension.

Defined benefit (or final salary scheme):

A type of pension scheme where the responsibility for retirement income lies with the employer. Both employer and employee contribute money to the pension, but ultimately the employer guarantees a certain amount of retirement income – usually based on the amount of time spent working for that employer. If you’re in this type of scheme, you rarely have more than one fund to choose from.

Defined contribution:

A type of pension scheme where the responsibility for retirement income lies with the employee. Both employer and employee contribute money to a pension pot, but the retirement income isn’t guaranteed. It’s based on how much money you build up from your contributions and, because your money’s invested for you, how well your investments perform. You usually have at least 2 funds to choose from in these schemes.

Divestment:

Selling all of your shares in a company or those in a certain sector, done on both ethical and financial grounds.

ESG:

Environmental, Social and Governance factors that responsible investors should take into account when investing in, and engaging with companies. An environmental factor could be a company’s carbon emissions, a social factor could be whether a company pays a living wage, and a governance issue could be whether a company board is diverse.

Ethical Fund:

A fund you can usually choose to switch into in a defined contribution scheme. It will choose to not invest in certain companies or sectors on ethical grounds.

Fiduciary Duty:

A law which governs the duties of a person or organisation that manages money (a fiduciary, such as your pension provider) to those whose money it is (the beneficiary – you). Under this law, your pension providers must act in your “best interest.” Classically, this has been interpreted to mean they should make you as much money as possible. From October 2019, a clarification is coming into place stating that providers must consider ESG issues such as climate change when making investment decisions.

Fund:

A pool of lots of people’s money that is invested in company shares, bonds and more.

Paris Agreement:

An international agreement to combat the climate crisis, by providing measures that aim to limit global heating to 1.5 degrees Celsius. Read more here.

Pension Provider:

A company who manage pensions for people. They create funds, make decisions about how to invest people’s money and make sure you get your pension money when you retire.

Personal pension:

A pension which you arrange for yourself with a pension provider, rather than having your employer do it for you.

Responsible investment:

Responsible investment is an approach to investing that aims to incorporate environmental, social and governance (ESG) factors into investment decisions, to better manage risk and generate sustainable, long-term returns.”

Risk:

The chance that the value of your investments (and so your pension pot) could go down in value. Certain types of investments are riskier than others. Company shares, for instance, fluctuate in value on the stock market. So they’re risker than investments such as bonds, which deliver a consistent return.

Shareholder Resolutions:

Shareholders have the right to hold companies accountable at their Annual General Meetings (AGMs). One of the ways they can do so is by filing and voting on shareholder resolutions. These are votes on a proposal, such as whether a company should tie its business model to the Paris Agreement. For a shareholder resolution to pass in the UK, you need 75% of shareholders to vote in favour of your resolution.

SIPP:

A self-invested personal pension is a type of pension which you arrange for yourself with a pension provider, rather than having your employer do it for you. In a SIPP you make investment decisions for yourself.

UN Sustainable Development Goals:

Internationally agreed goals to tackle global challenges such as poverty, inequality and the climate crisis. Find out more here.

Voting on company matters:

Shareholders have the right to hold companies accountable at their Annual General Meetings (AGMs). One of the ways they can do so is by voting on company matters. These are a list of votes including approving accounts and electing board members. Voting against the re-election of the Chair of the company board is one of the most common ways for shareholders like our pension providers to make their dissent heard.