- 20 must-know super terms
- 1. Superannuation
- 2. Superannuation fund
- 3. Superannuation Guarantee (SG)
- 4. Superannuation contributions
- 5. Concessional contributions
- 6. Non-concessional contributions
- 7. Contributions tax
- 8. Excess contributions tax
- 9. Salary sacrifice
- 10. Preservation
- 11. Preservation age
- 12. Investment choice
- 13. Fund choice
- 14. Nominated beneficiary
- 15. Superannuation pension (or superannuation income stream)
- 16. Account-based pension
- 17. Transition-to-retirement pension (TRIP)
- 18. Taxable component
- 19. Tax-free component
- 20. Taxed source
- Related articles
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.
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 20 of the most important and/or popular terms in super (see below), with related SuperGuide articles that you can click through to for more information, if you wish.
We have also created a comprehensive glossary (in alphabetical order) of more than 300 terms used in relation to superannuation. You can access the more comprehensive superannuation glossary by clicking on this link click here to access the glossary.
20 must-know super 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 article Super for beginners: Top 10 must-know super facts.
2. Superannuation fund
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 article Super for beginners: 8 steps to super success
3. Superannuation Guarantee (SG)
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 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.
4. Superannuation contributions
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 limits (2016/2017 year).
5. Concessional contributions
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: 2016/2017 survival guide.
6. Non-concessional contributions
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 2016/2017 guide to non-concessional (after-tax) contributions and for more information on co-contributions see SuperGuide article Cashing in on the co-contribution rules (2016/2017 year)
7. Contributions tax
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). Until 30 June 2017, if your adjusted taxable income is more than $300,000, then your concessional contributions are hit with an additional tax of 15%, taking the total tax to 30%. From 1 July 2017, the additional tax of 15% (plus 15%) applies to Australians with an adjusted taxable income of $250,000. For more information on how your super is taxed see SuperGuide article Super for beginners, part 17: Four must-knows about super’s tax rules
8. Excess contributions tax
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.
9. Salary sacrifice
Salary sacrifice of super contributions is an arrangement where you are 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 sacrificing and super: 10 facts you should know
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. For more information on preservation, see SuperGuide article Accessing super early: 14 legal ways to withdraw your super benefits
11. Preservation age
Preservation age is the minimum retirement age for accessing your super benefits. Your 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. 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?
12. Investment choice
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 https://www.superguide.com.au/comparing-super-funds/switch-super-accounts-investment-option.
13. Fund choice
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 12). For more information on fund choice, see SuperGuide articles Fund choice: Comparing super funds in 8 steps and Super for beginners, part 13: Why pick one industry super fund over another?
14. Nominated beneficiary
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 article Superannuation after-life: Beware the dastardly death tax.
15. Superannuation pension (or superannuation income stream)
A pension (also known as an income stream) is a series of regular payments over a period of time, 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?
16. Account-based pension
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?
17. Transition-to-retirement pension (TRIP)
A transition-to-retirement pension (TRIP) is a special type of pension/income stream that’s available before retirement. You must have reached preservation age (see No 11 earlier) and you can withdraw no more than 10% of the pension account balance each year. For more information on TRIPs see SuperGuide article Less tax, more super? A transition-to-retirement pension is no longer the answer.
18. Taxable component
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 Retiring before the age of 60: the tax deal from 1 July 2017 and Tax-free super for over-60s, except for some (from 1 July 2017).
19. Tax-free component
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 Retiring before the age of 60: the tax deal from 1 July 2017 and Tax-free super for over-60s, except for some (from 1 July 2017).
20. Taxed source
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.