Many Australians find the stodgy language of superannuation confusing. The terminology associated with superannuation is a barrier to self-education and may deter some Australians from taking early steps to plan for retirement. Millions of Australians care about their super account even though they may find the language surrounding super a bit bamboozling.
An important objective of SuperGuide is to educate and empower consumers to be able to make informed decisions about their superannuation entitlements. As an information site, we also struggle with balancing the delivery of accurate and timely information on super with the aim to communicate the super rules in plain, easy-to-understand language.
One of SuperGuide’s more popular initiatives has been the development of a Super for Beginners section that answers some of the many questions that we receive from those readers who are new to superannuation and new to super’s terminology, or to explain new terms introduced as a result of new super rules.
This article that you’re currently reading is also part of the Super for Beginners series. For the benefit of both our new and more experienced readers, we have compiled a list of 25 of the most important and/or popular words, or terms, in super (see below), with related SuperGuide articles that you can click through to for more information, if you wish.
- Superannuation fund
- Superannuation Guarantee (SG)
- Superannuation contributions
- Concessional contributions
- Salary sacrifice
- Non-concessional contributions
- Bring-forward rule
- Total Superannuation Balance
- Contributions tax
- Excess contributions tax
- Preservation age
- Investment choice
- Fund choice
- Nominated beneficiary
- Retirement phase
- Superannuation pension (or superannuation income stream)
- Account-based pension
- Transfer balance cap
- Transfer balance account
- Transition-to-retirement pension (TRIP)
- Taxable component
- Tax-free component
- Taxed source
25 must-know super words and terms
Superannuation is the term we use in Australia to explain the process of saving for retirement via special structures called superannuation funds. Apart from compulsory employer super contributions for employees (Superannuation Guarantee), you don’t have to save for retirement via superannuation. For most Australians however, super offers more generous tax benefits than other savings options. For more information, see SuperGuide articles Super for beginners: A starting guide and Super for beginners: Top 10 must-know super facts.
A superannuation fund is a legal structure, known as a trust run by a trustee or trustee board. A trustee board is a group of individuals appointed as trustees to oversee the administration, investment, compliance of the fund, and benefit payments. The key difference between a managed fund and a super fund is that with a super fund, you can’t access your money until you reach a certain age, and you get generous tax concessions. For more information, see SuperGuide articles Super for beginners: A starting guide and Super for beginners: 8 steps to super success.
Superannuation Guarantee is the official term for compulsory super contributions made by employers on behalf of their employees. An employer must contribute the equivalent of 9.5% of an employee’s ordinary time earnings (typically, normal wages or salary). From July 2021, the SG percentage increases to 10%, and will progressively increase until it reaches 12% from July 2025. For more info on SG, see SuperGuide article Superannuation and employees: 10 facts about your super entitlements and Superannuation Guarantee: Step-by-step guide for employers.
Superannuation contributions are typically, cash payments to superannuation funds that satisfy certain rules. Super contributions can be made by an employer or by an individual. Super contributions are subject to annual contributions caps. For example, an individual cannot make unlimited contributions to a super fund, unless they are willing to cop penalty tax. For more information on super contributions, see SuperGuide article The short story on super contributions rules (2018/2019 year).
Concessional contributions are before-tax super contributions that can include employer contributions (Superannuation Guarantee), contributions made under a salary sacrifice arrangement, and tax-deductible contributions by an individual. For more information on concessional (before-tax) super contribution see SuperGuide article Super concessional (before-tax) contributions: 2018/2019 survival guide.
Salary sacrifice of super contributions is an arrangement where an individual is including before-tax (concessional) super contributions as part of a salary package, which then reduces a person’s taxable income and the amount of income tax payable. For more information on salary sacrifice arrangements, see SuperGuide article Salary sacrifice and super: A guide for employees and employers.
Non-concessional contributions are super contributions made from after-tax income, including spouse contributions and contributions made under the co-contribution scheme. Note that the co-contribution paid by the federal government on a non-concessional contribution to a super account, is not counted towards the non-concessional contributions cap. For more information on non-concessional (after-tax) contributions see SuperGuide article Your 2018/2019 guide to non-concessional (after-tax) contributions and for more information on co-contributions see SuperGuide article Cashing in on the co-contribution rules (2018/2019 year).
The bring-forward rule allows an Australian under the age of 65 to make up to 3 years’ worth of non-concessional (after-tax) contributions in one financial year, representing his or her annual non-concessional contributions cap over a 3-year period. The bring-forward rule also allows you to contribute more than the annual non-concessional contributions cap over more than year, subject to not exceeding the 3-year cumulative limit. For more information on the bring-forward rule, see SuperGuide articles Bring-forward rule: A definitive super guide and Super contributions: Bring-forward rule and your Total Superannuation Balance.
As a means of restricting (in particular) the application of the super contributions rules, the federal government has introduced a new superannuation concept, called Total Superannuation Balance. A person’s Total Superannuation Balance is used to track and limit the amount of superannuation that Australians can contribute to super. If you run an SMSF, a person’s Total Superannuation Balance also has a bearing on some SMSFs in retirement phase. In layperson’s terms, your Total Superannuation Balance is your super savings held in accumulation phase, plus your super savings held in retirement phase. For a more detailed explanation of your Total Superannuation Balance, see SuperGuide article Total Superannuation Balance: 7 reasons why your TSB matters.
A contributions tax is a tax of 15% on concessional (before-tax) contributions. If your adjusted taxable income is less than $37,000 a year, then you receive a refund of contributions tax (of up to $500 a year). If your adjusted taxable income is over $250,000, then you pay an additional ‘contributions’ tax of 15%, taking the total tax on concessional contributions to 30%. Since 1 July 2017, the additional ‘contributions’ tax of 15% (plus 15%) has applied to Australians with an adjusted taxable income of $250,000. (Before July 2017, if your adjusted taxable income was more than $300,000, then your concessional contributions were hit with an additional tax of 15%, taking the total tax to 30%). For more information on how your super is taxed see SuperGuide articles Super for beginners, part 17: Four must-knows about super’s tax rules and LISTO: Super tax refund for lower-income earners and Double contributions tax for more high-income earners.
Excess contributions tax is a penalty tax potentially applicable when an individual exceeds the concessional contributions cap or the non-concessional contributions cap. In most cases, an individual will choose to withdraw the excess contributions, rather than pay the penalty tax. If an individual decides to retain the excess contributions in the super account, the penalty tax is imposed on the individual rather than the super fund, although the tax can be deducted from the individual’s super account. For more information on excess contributions see SuperGuide article Excess contributions rules: A quick summary.
Preservation is a payment restriction that prevents a member from accessing superannuation benefits until retirement and reaching a certain age (preservation age), or until satisfying another condition of release. The most common way of accessing super benefits means reaching your preservation age AND retiring. Note that you do not have to access your super benefits when you reach your preservation age, and if you want to access your benefits, then you must have also retired. In special circumstances, you can access super benefits without retiring, or without reaching age, but those circumstances are very specific, for example, severe financial hardship, permanent incapacity and severe mortgage stress. For more information on preservation, see SuperGuide articles Accessing super early: 14 legal ways to withdraw your super benefits and Accessing super: Turning 55 (or 56 or 57 or 58 or 59) is not enough and Unrestricted access to super, sometimes.
Preservation age is the minimum retirement age for accessing your super benefits. Preservation age is at least 55 years of age and can be up to 60 years of age. A preservation age of 55 years applies only to those born before 1 July 1960, and a preservation age of at least 56 years applies to those born on or after 1 July 1960, and a preservation age of at least 57 years applies to those born on or after 1 July 1961, and a preservation age of at least 58 years applies to those born on or after 1 July 1962. If you were born after June 1964, your preservation age is 60 years. For more information on preservation age, see SuperGuide article Accessing super: What is my preservation age?
Investment choice is also known as member investment choice. A feature of most super funds which enables a fund member 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. For more information on investment choice, see SuperGuide articles Super for beginners, part 20: Comparing your super fund’s performance and Super control: How to switch your super account’s investment option and Super pensions: Choosing an investment option in retirement.
Fund choice is when a person has a say over what type of superannuation fund he or she can join. Fund choice is different from investment choice. Investment choice means a person has a say over where a fund invests his super money (see previous paragraph – word 14). For more information on fund choice, see SuperGuide articles How to compare super funds in 7 easy steps and Fund choice: How do I complete a Standard Choice Form? and Super for beginners, part 13: Why pick one industry super fund over another?
A nominated beneficiary is 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. If your nominated beneficiary is a financially independent adult child, then be mindful that some tax may be payable on the member death benefit. For more information see SuperGuide articles Superannuation death benefits: Beware the dastardly death tax, and retirement cap and Death benefits: Is a binding DBN different from a reversionary pension?.
Retirement phase is the period during which a super fund pays a superannuation income stream or pension, and the earnings (including capital gains) on those pension assets are exempt from tax. The alternative to a retirement phase is the accumulation phase (and earnings are subject to 15% earnings tax in accumulation phase). Tax-exempt earnings during retirement phase are known as exempt current pension income, and super funds report this exempt income when super funds lodge income tax returns. For a super account to be considered in retirement phase, and to secure an exemption on earnings, the super account must satisfy annual minimum pension payment requirements. For more information, see SuperGuide articles Retirement: 3 ways of taking super benefits before the age of 60 and Tax-free super for over-60s, except for some and Retirement phase: A super guide to the $1.6 million transfer balance cap.
Note: The earnings on assets supporting transition-to-retirement pensions (TRIPs) are no longer exempt from tax. Instead earnings on TRIP assets are subject to 15% earnings tax (see SuperGuide article TRIPs: 10 important facts about transition-to-retirement pensions).
A pension (also known as an income stream) is a series of regular payments over a period of time paid from a super account in retirement phase, just like being paid wages or a salary. An income stream is also known as a pension, but don’t confuse a superannuation pension with the government-funded Age Pension. Most people have a choice of taking their super as an income stream or as a lump sum. For more information, see SuperGuide article Super for beginners, part 8: What happens to my super benefits when I retire? and Retirement: What types of superannuation pensions are available? and The tax treatment of super benefits and the proportioning rule.
An account-based pension is a flexible retirement income stream sourced from a superannuation fund that gives you unlimited access to your capital but no guarantees on how long the money will last. You must withdraw a minimum amount each year. You can purchase a pension from your existing superannuation fund or a related financial organisation, or from another super fund or organisation, or start a pension within a self-managed super fund (SMSF).For more information on account-based pensions, see SuperGuide articles Retirement and tax: What are the minimum pension payment rules? and SMSF pension: How do I start one?
On 1 July 2017, the federal government introduced a $1.6 million limit on the amount of superannuation savings that can be transferred to a superannuation account in retirement phase. This limit is known as the transfer balance cap. The cap will be indexed periodically, but for the 2017/2018 and 2018/2019 years, the transfer balance cap is $1.6 million. For more information, see SuperGuide articles Retirement phase: A super guide to the $1.6 million transfer balance cap and Superannuation death benefits and the $1.6 million transfer balance cap.
Each individual in Australia also will be given a transfer balance account when they first start a super pension in retirement phase. The transfer balance account will help the individual monitor his or her super transfers into retirement phase, against his or her transfer balance cap (see term 20). For general information on the transfer balance account, see SuperGuide articles Retirement phase: A super guide to the $1.6 million transfer balance cap and Superannuation death benefits and the $1.6 million transfer balance cap.
Note: If you exceed your transfer balance cap, that is, your transfer balance account moves into a negative balance, you will be forced to move money out of the retirement phase (unless you have a defined benefit pension, and then special rules may apply – see SuperGuide article Defined benefit pensions and the $1.6 million transfer balance cap). For SMSFs, the new cap means additional reporting requirements (see SuperGuide article SMSFs: Transfer Balance Account Report requirements).
A transition-to-retirement pension (TRIP) (also known as TRIS) is a special type of pension/income stream that’s available before retirement. You must have reached preservation age (see Term 13 earlier) and you can withdraw no more than 10% of the pension account balance each year. Note that earnings on TRIP assets are not exempt from tax, unlike super pensions in retirement phase. For more information on TRIPs see SuperGuide article Less tax, more super? A transition-to-retirement pension is no longer the answer.
The taxable portion of a superannuation benefit, is that part of a super benefit that is likely to be subject to tax. An individual pays tax on this taxable component if he or she receives a benefit under the age of 60 (and the benefit is above a certain amount), or an individual receives an untaxed benefit. Typically, an untaxed benefit is a benefit paid from an older public sector fund. For more information on what the taxable component means see SuperGuide articles The tax treatment of super benefits and the proportioning rule and Retiring before the age of 60: the tax deal and Tax-free super for over-60s, except for some.
The tax-free component is the portion of a super benefit that’s tax-free regardless of the fund member’s age. Ordinarily this component includes non-concessional contributions and certain pre-July 2007 benefits. For more information see SuperGuide articles The tax treatment of super benefits and the proportioning rule and Retiring before the age of 60: the tax deal and Tax-free super for over-60s, except for some.
A taxed source relates to what happened to the super benefit when it was held in a superannuation fund. The benefit is paid from a source (super fund) where tax has been paid on the concessional contributions and earnings of the fund. Most super fund members (90%) belong to ‘taxed’ super funds. Benefits from a taxed source are tax-free after the age of 60. Some super benefits are from an ‘untaxed source’ (where tax has not been paid on the concessional contributions and earnings), and benefits from an untaxed source may be subject to higher tax. For more information, see SuperGuide article Super for beginners, part 15: Super tax – as easy as 1-2-3.