This glossary provides an explanation of commonly used terms relating to super investments and pensions to help you understand your superannuation better.
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A
Account-based pension
Also known as account based income stream or super income stream. A flexible retirement income stream or pension purchased with a superannuation payout on retirement. There are minimum and maximum withdrawal levels set by law. Your super money is progressively drawn down until it runs out. For most people aged 60 and over, these pension payments have been tax-free since July 2007. Account-based pensions were previously known as allocated pensions.
Accumulation fund
Also known as an accumulation (Defined Contribution) Fund. A superannuation fund where your retirement benefit equals total contributions by you and your employers and the investment return generated by the fund, less any fees, taxes and the cost of insurance. Distinct from a defined benefit fund.
After-tax super contribution
Also called non-concessional, undeducted or personal contribution. Contributions made to a super fund after income tax has been paid. These contributions count towards the non-concessional contributions cap or limits and are not taxed when they are invested into the super fund or when they are withdrawn. Different from pre-tax contributions (salary sacrificing), which are contributions made before income tax or where a tax deduction is claimed. Also see non-concessional contributions, undeducted contributions and personal super contributions.
AFSL
See Australian Financial Services Licence.
Age pension
Subject to eligibility, a regular fortnightly safety-net payment from the government when you reach retirement age.
Aggressive investment
An investment or series of investments which aims for high long-term returns by taking on greater short-term risk and volatility and usually consists mostly of assets such as shares and property. Also see asset allocation.
Allocated pension
See account-based pension.
Annuity
A guaranteed regular income stream paid to an individual from a lump sum investment for a set period of time, either a number of years or for life. There is no capital (money) left at the end of the specified period. The income may be indexed each year, often in line with inflation. Some annuities allow for reversionary beneficiaries. See revisionary income stream.
Asset allocation
The manner in which an investment portfolio is divided across different assets like shares, property, fixed interest or cash. The allocation mix may be conservative, balanced or aggressive.
Australian Financial Services Licence (AFSL)
A licence given by ASIC to approved people or companies that carry on a financial services business, including selling, advising or dealing in financial products.
Australian Prudential Regulation Authority (APRA)
The prudential regulator of the Australian financial services industry. It oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance companies, friendly societies, and most of the superannuation industry.
Australian Securities and Investments Commission (ASIC)
The Australian Federal Government agency that enforces laws relating to companies, securities, financial services and credit, in order to protect consumers, investors and creditors.
Australian Securities Exchange (ASX)
Australia's biggest exchange, where shares in public companies, futures, options, warrants, bonds and other securities and derivatives are traded.
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B
Balanced fund
A fund that invests across a mix of asset classes like cash, fixed interest investments, property and shares, to achieve medium- to long-term capital growth and a reasonable level of income. Also see asset allocation.
Before-tax contribution
Contributions to super for which the contributor can claim an income tax deduction, such as super guarantee and salary sacrifice contributions made by employers. Contributions by the self-employed, for which they lodge a notice of intent to claim a deduction, are also included. These are sometimes called 'concessional' (as they are included in the member's concessional contributions), 'taxable' (as the fund must include them in its assessable income and pay tax on them) or 'deducted' contributions (because the contributor may claim an income tax deduction. Also see after-tax contribution.
Beneficiary
A person who has been nominated to receive a benefit or asset in the event of the owner's death such as a superannuation payment or insurance benefit.
Binding nomination
In relation to your superannuation, this is where the fund, in the event of your death, must pay your superannuation benefit to your nominated beneficiary, unless it would be unlawful to do so. Binding nominations usually require renewal after a period of time, typically three years.
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C
Capital gains tax
A tax on financial gains made from buying or selling certain assets.
Capital growth
The increase in market value of an asset over time. Also known as capital gain.
Capital stable fund
A fund that invests across a range of asset classes with a significant portion in defensive assets such as fixed interest investments, cash and a small portion in growth assets such as shares and property. This type of fund aims to provide a moderate level of income with some capital growth.
Cash investments
Money invested in interest-paying investments. Having money in a bank account is an example of a cash investment.
Churning
The process of moving a customer from one financial product to another in order for an adviser or broker to earn a fee. This practice rarely has any benefit to the customer.
Co-contribution
A matching payment made by the government to the super fund of a low or middle income earner when they have made a personal contribution to super themselves.
Commission
A fee paid to a financial adviser or salesperson as an incentive for selling a particular product. An upfront commission is based on the sale amount of the product. An ongoing commission is based on the balance of the account. Commissions can over time seriously erode accumulation accounts such as superannuation.
Commutation
The process of converting part or all of a pension or annuity into a lump sum.
Compound interest
Interest calculated on the initial principal and the accumulated interest of money borrowed or invested.
Concessional contributions
In the case of superannuation; contributions that have concessional tax treatment. Also see before-tax contribution.
Concessional contributions cap
The maximum level of concessional contributions that a person is entitled to contribute, per year, to superannuation at the concessional tax rate of 15 per cent. Also see before-tax contribution.
Condition of release
A specified event or condition you must satisfy to be able to access superannuation savings. Examples include permanently retiring from the workforce after reaching preservation age, reaching retirement age or becoming totally and permanently disabled.
Conflict of interest
A situation in which an individual has a personal interest in a matter that is the subject of a decision or duty of that person. For example, a financial adviser or broker may sell you a product that benefits them more than it does you. Also see commissions.
Consolidation
In relation to superannuation funds, the movement of one or more superannuation accounts into a single account, which results in savings in fees, including account administration fees.
Contributions
The amount invested in a super fund by both an individual and/or their employer.
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D
Death benefit
A payment made to a beneficiary when a fund member dies.
Default fund
A superannuation fund that is used by an employer for the payment of compulsory superannuation guarantee (SG) payments when an employee fails to exercise choice of fund. In some instances the default fund or funds that an employer can use are named in an industrial instrument such as a modern award or enterprise agreement. Also see modern award and enterprise agreement.
Default investment strategy
The investment strategy that will apply when a member of a fund does not nominate an investment strategy. Usually the balanced investment option. Also see asset allocation.
Defensive investment
Cash or fixed interest investments that are generally low risk and less volatile than growth investments and over time usually provide a lower investment return. Also see asset allocation.
Defined benefit fund
A fund where the final superannuation benefit is determined by a formula involving a number of factors, most importantly salary at retirement age, and period of membership of the fund. Market fluctuations will have no effect on the value of your benefit.
Dependant
A person who financially relies on you e.g. children under 18, a spouse (including de facto and same-sex couples) or a person in your care.
Dispute resolution
A means of resolving issues instead of going to court. All Australian Financial Services (AFS) licensees, banks and other credit providers must belong to a dispute resolution scheme. Also see Superannuation Complaints Tribunal.
Diversification
Spreading an investment over a range of asset classes such as shares, property, fixed-interest securities and cash with the aim of reducing risk. Also see asset allocation.
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E
Eligible rollover fund (ERF)
A holding account designed to receive the super benefits of lost members and those with low account balances that are no longer receiving contributions.
Eligible termination payment (EFP)
A payment on the termination of employment, following retirement, disability, resignation, retrenchment or death. The payment can be a mix of cash and amounts rolled over into a super fund.
Employer contribution
A contribution employers make for their employees to a super fund, including salary sacrificed contributions. These are tax deductible (subject to certain rules) to employers and are assessable contributions to the super fund.
Enterprise agreement
Also known as collective agreement, workplace agreement or enterprise bargaining agreement. Is an agreement reached between an employer and it's employees at a single workplace or multiple workplaces. The agreement will replace the provisions of the safety-net pay and conditions included in a Modern Award and will be subject to the approval of the regulatory body Fair Work Australia and will be required to meet certain minimum standards, including a no disadvantage test. Enterprise Agreements often deal with superannuation matters, including, but not limited to; additional superannuation payments and the naming of the fund that superannuation contributions will be made to.
Equities
See shares.
Estate
All of a person's assets, whether real property or personal property, and liabilities or debts. Following death the estate is distributed to beneficiaries either by the instructions within a valid will or in accordance with estate law. In certain circumstances superannuation beneficiaries can also be nominated within a will. Also see will.
Ethical investment
An investment strategy that promotes positive environmental, social or ethical issues. Also known as socially responsible, sustainable or socially conscious investing.
Exclusion
Something that is specifically not covered under an insurance policy. Depending on the type of policy these may include specific events, illnesses or pre-existing conditions.
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F
Fee for service
An amount paid to a service provider such as an accountant, financial adviser or lawyer, for specific work, completed at your request, for your benefit. Different to commission.
Financial adviser
A person licensed by ASIC to provide advice on some or all of these areas: investing, superannuation, retirement planning, estate planning, risk management, insurance and taxation. The adviser may receive payments, including commissions from product providers when these products are sold to you, or may charge an up-front hourly based fee.
Financial plan
A plan, usually created with help from a financial planner or adviser that defines your financial goals and sets out investment strategies to reach your stated goals, with reference to your personal circumstances.
Financial planner
See financial adviser.
Financial product
A facility that helps you to save, invest, get insurance or borrow money.
Financial services guide (FSG)
A guide that contains information about the entity providing you with financial advice. It should explain the financial service offered, the fees charged and how the person or company providing the service will deal with complaints.
Fund choice
Where an employee can choose the super fund their employer pays their super contributions into. Also see super choice.
Fund manager
Individual or organisation responsible for investing funds on behalf of a financial institution. See also investment manager.
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G
Government co-contribution
A contribution made by the Australian Government to a person's superannuation account based on that person's income, source of income and personal super contribution. It is designed to help lower income earners build up their super before retirement.
Growth investment
Investments in assets such as shares and property that not only produce an income but have the potential to grow in value over the long-term but can be more volatile in the short-term. Also see asset allocation.
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I
Inactive account of unidentifiable member (insoluble lost member account)
This is a lost member super account that has been inactive for a period of five years, the super provider is satisfied that it will never be possible to pay an amount to the member and the account is not a defined benefit fund.Depending on the type of fund, funds must report and pay these accounts to the ATO as unclaimed super. Also see unclaimed super and lost member.
Income Stream
See 'Super Income Stream'
Income protection insurance
Provides a regular income when work is not possible due to illness or injury. Most policies offer cover for up to 75% of gross wages for a specified number of years and have an initial waiting period. Can usually be purchased cost effectively within existing superannuation.
Index
Measures the changes in value of a market or various sectors of a market. For example, the Australian All Ordinaries Index measures the change in the overall value of shares listed on that market.
Index fund
A fund that aims to match the investment performance of a selected index.
Industry fund
A superannuation fund that originally catered to workers from a particular employment industry or industrial award. With equal employer and employee representative arrangements the funds are operated in the best interests of the members with all profits being returned to members rather than shareholders. On average lower costs and fees apply.
Industry SuperFund
An Industry Superannuation fund that is part of a collective group that shares resources, including a joint advertising and policy campaign. See industrysuper.com
Inflation
The increase in the cost of goods and services over time.
Interest rate
The relationship between the amount of money borrowed or lent and the money paid in return for the use of that money. Usually expressed as a percentage per year.
Investment
An asset used to produce income and/or increase wealth over time.
Investment choice
Making a conscious decision on how your money will be invested. Most super enable fund members to choose between a mix of different investment portfolios, such as cash, conservative, balanced, growth or high growth investment options. If you don't make an investment choice, then your super money is invested via the default investment option, typically a balanced option. Also see asset allocation.
Investment manager
Individual or organisation responsible for investing and managing the assets of others. See also fund manager.
Investment platform
An administrative system for your investments, typically utilised by financial advisers. Platforms offer a range of investments and services, all in the one place. Reporting for all investments is usually in the one report.
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J
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L
Life cover
An insurance policy that pays a set amount of money to an insured person's beneficiaries when the insured person dies. Also known as term life insurance or death cover and available within superannuation, usually with automatic minimum cover except when a member elects to opt-out of insurance arrangements.
Liquidity
How easily an investment or financial product can be converted to cash. Shares in large publicly listed companies that are regularly traded on the ASX (Australian Securities Exchange) are considered liquid assets, while direct property investments are less liquid, due to difficulties and time delays that may be experienced when buying and selling. Liquid markets have enough trading activity to allow both buyers and sellers to easily transact as they wish.
Lost member
Where a fund can't contact a member, or a contribution has not been received on behalf of the member for the last five years, or a member transferred from another super fund as a lost member, that person is referred to as a 'lost member' (subject to certain other conditions).
Lump sum
A super benefit taken as one cash payment rather than taken as a series of income payments.
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M
Managed fund
An investment fund where your money and that of other investors is pooled and put into assets such as cash, shares, bonds and listed property trusts. The fund is managed by a fund manager.
Marginal tax rate
The highest rate of tax a taxpayer will pay on their income.
Master trust
Allows individual investors to pool their funds so that they can get wholesale prices on their investments. Typically used by financial planners for convenience. Also known as an investment platform or wrap account.
Member contributions
Contributions to a super fund made by anyone but your employer. They may be personal member contributions (made by you) or non-personal member contributions (made by someone other than you or your employer). Also see non-concessional contributions and personal contributions.
Modern award
Modern awards are industry or occupation-based enforceable minimum employment standards covering all employers and employees who perform work in those industries or occupations covered by a particular modern award. Certain exclusions apply , including individuals who earn higher incomes and can be replaced by an Enterprise Agreement, the provisions of which will apply to a specific workplace. Modern Awards will usually nominate default fund or funds to be used by an employer when an employee fails to choose their own super fund. Also see Enterprise Agreement.
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N
Non-binding nomination
Guides your super fund trustee on who will get your super if you die. The trustee is not bound to follow these instructions. Also see binding nomination.
Non-commutable income stream
An income stream that cannot be converted into a lump sum payment. Also see commutation.
Non-concessional contribution
See after-tax contribution.
Non-concessional contributions cap
The maximum level of non-concessional contributions that you can contribute yearly to superannuation, without paying excess contributions tax on those contributions. Also see after-tax contribution.
Nominated beneficiary
A person whom a fund member nominates to receive their super benefits if the member dies. Anyone nominated as a beneficiary must be a dependant or a person's legal representative.
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O
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P
Pension
A regular income stream paid to you in retirement, either by the government (via the Age Pension) or from your super fund.
Pension age
The pension age is 65 for men and 63 years and six months for women, gradually rising to 65 for women by 2014.
Personal super contribution
Undeducted contribution and non-concessional contribution. See after-tax contribution.
Power of attorney (PoA)
A document that appoints someone to act on behalf of another in a legal or business matter. A Power of Attorney may be general or specific and may be unlimited or limited to a specific act. It is different to an enduring power of attorney.
Premium
In relation to an insurance contract, it is the price charged by an insurance company for providing the insurance cover.
Preservation age
The age when you can access your super benefits. You must also meet a condition of release. Preservation age will rise from 55 to 60 between 2015 and 2024. This will mean that for someone born before 1 July 1960, their preservation age is 55 years, while for someone born after 30 June 1964, their preservation age will be 60.
Preserved benefit
A super benefit that remains in a super fund until the member reaches preservation age and, in most instances, retires from the workforce.
Product disclosure statement (PDS)
A document that financial service providers must provide to you when they recommend or offer a financial product. It must include information about the product's key features, fees, commissions, benefits, risks and the complaints handling procedure.
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Q
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R
Regulatory risk
The risk that changes in government policy or regulation may affect your benefits e.g. changes in superannuation policy. Changes typically happen after elections or around the time of the Federal Budget. Also see taxation risk.
Retail super fund
Also known as a retail master trusts or for-profit funds, they are super funds run by financial institutions for individuals with profits being returned to shareholders of the financial institution.
Retirement savings account
An account offered by financial institutions that is used to save money for retirement. These are simple, low cost, low return accounts.
Return
The amount of money your investment earns.
Reversionary income stream
An income stream which, on your death, continues to be paid to your nominated beneficiary. Also see annuity.
Risk
The possibility that your investment may fall in value or earn less than expected.
Risk tolerance
The extent to which you are prepared to experience a negative investment return while trying to achieve higher positive investment returns. Also see asset allocation.
Rollover
The transfer of the balance, or part of the balance, in a super fund to another super fund or to a pension. Also see Consolidation.
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S
Salary sacrifice
An amount of pre-tax wages or salary that an employee and employer agree to contribute to super instead of taking as cash and spending it now. The sacrificed amount is taxed at 15 per cent rather than the appropriate marginal tax rate. This can be a tax-effective strategy and usually suits middle to higher income earners.
Self-managed super fund (SMSF)
A private super fund managed by an individual or individuals. SMSFs are regulated by the Australian Taxation Office and can have one to four members. All members must be trustees to ensure they are fully involved in the decision-making of the fund.
Spouse
Includes a person to whom you are married or with whom you are in a de facto relationship (whether of the same sex or different sex) or in a relationship that is registered under law of a state or territory.
Spouse contributions
A contribution made to your spouse or partner's super fund by you.
Statement of advice (SOA)
A document that sets out the advice given to a consumer by their licensed financial planner or adviser.
Superannuation (super)
Money that you and your employers put into a regulated superannuation fund during your working life to provide you with money to live on when you retire.
Superannuation complaints tribunal
The Tribunal is an independent dispute resolution body which deals with a diverse range of superannuation-related complaints and offers a free, 'user-friendly' alternative to the court system. The Tribunal deals with complaints relating to decisions and conduct of trustees, insurers, and other decision-makers in relation to regulated superannuation funds, approved deposit funds, annuities, life policy funds and Retirement Savings Accounts.
Superannuation Guarantee (SG)
The minimum amount that your employer must pay into your superannuation fund. It is currently 9% of your ordinary time earnings. In most cases an employee must earn $450 a month to be eligible for SG payments to be made on their behalf.
Super choice
The ability of an employee to choose the super fund that their super is paid into. This may be limited by an Enterprise Agreement or where a defined benefit fund is operating. Also see defined benefit fund and Enterprise Agreement.
Super income stream (SIS)
A regular series of payments from a super fund that meets the requirements of the SIS regulations.
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T
Taxation risk
The risk that changes to the tax system could affect the outcome of your investments. With regard to your superannuation, it is the risk that changes to the way superannuation is taxed could affect the amount of super earnings. Also see regulatory risk.
Tax file number (TFN)
A unique number assigned to taxpayers by the Australian Taxation Office for tax administration. The number should be quoted to employers, benefit and allowance providers, banks and other investment bodies.
Tax-free threshold
The level of annual income, as set by the Australian Taxation Office (ATO), on which you do not have to pay income tax.
Term
The length of time a loan or an investment will run for.
Total and permanent disablement (TPD) insurance
In respect of superannuation, insurance within superannuation that provides for either a lump sum or income stream payment when a member applies for and meets the definition of being totally and permanently disabled. Also see condition of release.
Transition to retirement (TTR)
A scheme that allows super fund members to reduce work hours in the lead-up to retirement without reducing take-home pay, or to continue working full-time and make significant tax savings by salary sacrificing heavily into super and supplementing take-home pay with a super pension. This income stream can be no more than 10% of their super account balance per year.
Trustee (super fund)
A person or company appointed to manage a super fund on behalf of the beneficiaries.
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U
Unclaimed super
Where a superannuation payment is due to a member or a nominated beneficiary and remains unclaimed. Depending on the type of fund, funds must report and pay unclaimed super to the ATO or the relevant state or territory authority.
Undeducted contribution
Where a contributor to a superannuation fund cannot claim the contribution as a tax deduction. Also see after-tax contribution, non-concessional contribution and personal super contribution.
Underinsurance
When there is not enough insurance to cover the value of the insured property.
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V
Volatility
The rate at which the price of a security moves up and down.
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W
Will
An important legal document that sets out how you want your assets and other belongings to be distributed when you die. Also see Estate.
Wrap account
Allows managed investments to be combined or 'wrapped' into a single account. Generally used by financial planners for convenience. See also investment platform and master trust.
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X
Y
Yield
The rate of return on an investment.
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