Glossary P – Q terms used in Financial Services

‘Packaged’ Products: Phrase used in financial services legislation to distinguish policies made up of risk and investment elements from ‘pure’ investment business, e.g. endowment policy compared with a gilt.
Paid Up: It is possible with certain policies having an investment content e.g. endowment, PPP, to cease paying premiums and retain a paid-up policy that will pay out on eventual claim.
Partially Contracted-out: Pension policy which receives both a premium from the policyholder and a DSS rebate.
Partner: In a legal sense, someone with whom you carry on a business.
Pay and File: System of reporting profits and paying corporation tax, based on comprehensive questionnaire rather than assessment.
Pay As You Earn (PAYE): System of collection and payment of income tax operated by employers.
Pay As You Go (PAYG): The State pays out benefits from revenue received from taxation and other sources, rather than funding and investing to produce income. Also termed ‘assessmentism’.
Pension: A regular income paid to a person when he/she retires from work. An insured pension is paid by a life company from funds built up from contributions paid while working.
Pension Annuities: Annuities which become payable on the vesting of pension policies.
Pension Fund: General term used to describe an investment fund built up during working life and used at retirement to purchase an annuity to provide a continuing income.
Pension Increases: Once in payment, pensions may remain at the same level, increase occasionally at the discretion of the company or have contractual annual increases.
Pension Mortgage: A mortgage secured by repayment of the loan from the tax-free cash option available from a pension scheme at retirement.
Pensions Ombudsman: Set up by the Social Security Act 1990 to review and settle disputes between pension scheme members and their pension scheme.
Pension Schemes Office: An office of the Inland Revenue whose task it is to vet approval of all occupational and Personal Pension Schemes. Replaced the Superannuation Funds Office.
Pension Transfers: Refers to a transfer of the cash value of a pension from an approved scheme to another approved contract. The cash is transferred direct from one pension provider to another, never via a third party.
Periodic Charge: An Inheritance Tax charge imposed on the capital of certain discretionary trusts, where the capital exceeds the nil rate band.
Permanent Health Insurance (PHI): A policy that pays an income for as long as the policyholder is unable to work as a result of accident or illness. The benefit is usually payable until retirement date.
Permanent Interest Bearing Shares (PIBS): Investment offered by building societies, giving a fixed rate of interest, paid twice yearly net of basic rate income tax but free of Capital Gains Tax.
Persistency: The rate at which policyholders keep their policies with a life insurer.
Personal Accident Insurance: A policy that pays specified amounts of money if the policyholder is injured in an accident. Depending on the type of disability, the payments may be made weekly, for a set period, or as a lump sum.
Personal Chattels: Tangible and moveable property, personal belongings.
Personal Equity Plan (PEP): Introduced in 1987 to encourage wider share ownership, PEPs are investment schemes whereby investors buy shares, unit trusts, bonds or investment trusts through a PEP manager. All profits and dividends are tax free but a number of conditions apply such as an annual maximum investment limit. No new PEPs can be taken out as they have been superseded by ISAs.
Personal Equity Plan Mortgage: A mortgage relying on the growth of a series of PEPs to repay the outstanding loan.
Personal Investment Authority (PIA): Regulatory organisation which has taken over from FIMBRA and LAUTRO
Personal Pensions: Contracts under which payments are made to an insurance company by an individual policyholder during his/her working life, in return for a regular income, to be paid after retirement.
Personal Pension Policy (PPP): A Pension policy available to employed persons who do not qualify for, or are not members of, an occupational scheme. Also available to the self employed with Net Relevant Earnings.
Personal Financial Planning: Generic term covering financial assessment and needs analysis, with a view to maintaining and improving the current financial situation, and securing the future.
Personal Representative: Person who deals with the estate of a deceased person under the terms of a will or the rules of intestacy. Duties and responsibilities end when the estate has been dispersed and all taxes and debts paid.
Placing: This is when a merchant bank or broker advising a company arranges for other institutions or individuals to buy that company’s shares at a fixed price. The advantage of this is that placing the shares for the company then cuts out the broker (i.e. the middle man). It is often used when there are a small amount of shares available in a new issue or alternatively if a large stake in a company is for sale. A placing is often used by institutions prior to a public offer. A placing helps ensure that a minimum sum is raised and therefore, that the launch will be a success.
Pluvius Insurance: Covers against losses arising as a result of bad weather.
Polarisation: Concept introduced by the financial services regulations whereby it is mandatory for financial advisors to make clear to clients whether they are independent or tied to one company only.
Policy: The document providing full details of the contract between the insurer and the policyholder.
Policyholder: Person or organisation to whom the insurer issues the policy. Normally the person to whom benefits are payable.
Policy Conditions: The ‘small print’ of a policy that sets out the rights and responsibilities of the parties involved.
Policy Document: The paperwork that makes up the policy – the formal document, and any schedules or amendments.
Policy Exclusions: The policy document may, if relevant, make a clear statement regarding any instances or situations upon which the insurance company will not pay out; these are the exclusions.
Policy Fee: Generally used to refer to an administration fee, usually charged monthly or annually.
Policyholder: Person or organisation to whom the insurer issues the policy. Normally the person to whom benefits are payable.
Policyholders Protection Board: Established by the Policyholders Protection Act 1975 to supervise protection for policyholders in the event of an insurer failing to meet its liabilities.
Policy Lapse: When the policyholder fails to maintain premium payments, the policy will eventually lapse, or cease to operate as a ‘live’ policy. Depending on the type of policy, there may be residual value in the event of a claim.
Policy Year: The period from commencement to the ‘anniversary’ date twelve months later.
Portability: Generally taken to refer to the ability to take pension arrangements from job to job without changing the policies involved and without suffering penalties.
Portfolio: In financial terms, taken to mean the various securities and investments held by an individual.
Potentially Exempt Transfer (PET): Gifts on which Inheritance Tax will not be payable unless the donor dies within 7 years. If this happens, PETs become chargeable transfers and tax is calculated subject to a tapering scale.
Pound cost averaging: By investing relatively small amounts of cash on a regular basis, investors essentially minimise the risk of purchasing all their shares or units at the top of the market (highest price). By putting money into the Stockmarket gradually, they will benefit from the smoothing effect of having purchased some shares or units cheaply (when the price is low) whilst others are purchased at an expensive price in another month. If the unit or share price falls the investor will benefit because the regular monthly investment will purchase more shares over the long term and avoids the investor from having to try to guess when it is a good time to buy. A sample of pound cost averaging is benefiting from regularly investing, e.g.. monthly saving, smoothing out the peaks and the troughs of share prices.
Power of Appointment: The ability under certain trusts to be able to change, or appoint new, beneficiaries.
Precatory Trust: Similar to a discretionary will, and allows an expression of wish in a will be to exercised as though written in the will itself.
Preceding Year Basis: Method of assessing tax for the self employed.
Preference shares: Preference shares are shares issued by companies but are different to ordinary shares because they pay a predetermined fixed price dividend, shareholders receive priority over ordinary shareholders in receiving their dividends, if a company collapses preference shareholders rank more highly in any distribution of assets than ordinary shareholders and shareholders often have limited voting rights at the company’s annual meeting.
Premium: It is sometimes known as ‘contribution’ and is a regular payment of money into a policy to secure the contract; also describes what is paid for a share over its par value.
Premium Bonds: Purchased in units of £10 value with minimum purchase of £100, maximum £20,000. The bond numbers are entered in a monthly draw for tax-free cash prizes.
Premium Frequency: How often the premium is paid, e.g. monthly or annually.
Premium Rates: The actual cost of a policy depends on a number of factors which, when taken together, produce the premium rate.
Preserved Benefits: After two years as a member of an occupational pension scheme, benefits accrued to date must be preserved when leaving service. Less than two years service gives the option of taking a refund of personal contributions.
Price/earnings (P/e) ratio: The share price of a company divided by its earnings per share, i.e. if Tim Brown Co has earnings per share of 45.5p and the market price is 400p , the shares have a PE ratio of 8.8 (400 ¸ 45.5p). Another common way of expressing the P/e ratio is: ‘the shares sell at 8.8 times earning’ or ‘the shares are on a multiple of 8.8’. The price earning ratio is usually used for comparing companies investment potential.
Primary Market: The new issue market on the UK stock exchange.
Private Investor: A category of investor under the financial services regulations, equating to the ‘average person on the street’, and to whom the highest duty of care is owed.
Privatisation: Process where the government puts state owned industries into the private sector, e.g., water, electricity. Usually involves an offer for sale to the general public of its shares.
Private Medical Insurance: A policy which covers the cost of private medical treatment.
Products: Generic term for life assurance, pensions, savings and investment policies.
Product Liability Policy: Protects businesses against liability claims resulting from defects in the products they sell.
Profit and Loss Account: A record of income and expenditure over a period of time, balanced to show profit or loss.
Profit Related Pay: Company remuneration scheme where, if registered, an agreed amount of income is tax exempt, but not National Insurance Contributions exempt.
Profit Sharing Schemes: The distribution of company profits in cash or share form to employees.
Professional Indemnity Insurance: Protects professionals against liability claims resulting from negligent work.
Professional Investor: A category of investor under the financial services regulations, and one who would be transacting similar types of investment to the adviser.
Property Damage: Property policies cover specified property that may be damaged or destroyed by events or perils, such as fire, storm or theft.
Proposal: A formal application for insurance.
Proposer: Person or company who applies to take out insurance.
Proprietory Companies: Insurance companies owned by shareholders, so that any profit is divided by shareholders and the reserves distributed between with profits policyholders.
Protected Rights: Pension provided by DSS rebates.
Protection Policy: A policy providing cash sums as compensation for losses, rather than one with investment content.
Public Liability Policy: Covers legal liability for injury or damage caused to others.
Pure Endowment: An endowment policy with no insurance content i.e. pays out only upon the life assured reaching the maturity date.
Qualifying Policy: Qualifying rules vary slightly for each type of policy, but in general terms must be certified by the Revenue, have a 10 year term or longer, have regular premiums and have a sum assured of at least 75% of premiums paid.
Quick Succession Relief: A relief which reduces, on a sliding scale (100% in year one; 80% year two; 60% year three; 40% year four; 20% year five) the amount of inheritance tax payable on a gift received by someone who dies within 5 years of receiving it.

Glossary P – Q terms used in Financial Services

Legals