15% pension offset: A 15% pension tax offset is available against your assessable pension income if you use your super money to purchase a pension income stream. This tax offset will reduce your tax liability.
Account-based pension: A regular retirement income stream that you can purchase with money in your super fund after you have reached the preservation age.
Accumulation phase: The accumulation phase is the first stage of everyone’s superannuation life – when you are contributing to your superannuation account, or when your super balance is accumulating. All the contributions you make during the accumulation phase are ‘locked away’ (preserved) until your retirement. See articles about the accumulation phase.
Age Pension: A payment from the Australian Government for eligible people who have reached the Age Pension age, meet the residency requirements, and pass the assets and income means tests. See articles about the Age Pension.
Age Pension age: The age at which you become eligible to receive the age pension. This varies depending on your date of birth. It is currently 65 years and 6 months and will progressively increase to 67 for all Australians by 1 July 2023. See articles about the Age Pension age.
Age Pension assets test: Part of the means test (along with the income test) applied by the Australian Government to determine eligibility for payment of the Age Pension. There are asset thresholds that you must fall within to be eligible to receive a full or a part pension. See articles about the Age Pension assets test.
Age Pension income test: Part of the means test (along with the assets test) applied by the Australian Government to determine eligibility for payment of the Age Pension. There are income thresholds that you must fall within to be eligible to receive a full or a part pension. See articles about the Age Pension income test.
Annuity: A retirement income product that guarantees regular payments over a pre-defined period (or for life). The payment conditions are determined when you purchase the annuity. Payment amounts depend on the amount you contribute plus actuarial calculations. Annuity payments protects your rate of return against movements in financial markets. See articles about annuities.
Asset allocation: This refers to the assets you choose to invest in. Asset allocation allows you to customise your mix of assets across your super balance.
Asset class: A category of assets that a super fund can invest in (such as cash, fixed interest, shares, property or unlisted infrastructure).
Australian Financial Services Licence (AFSL): An AFSL licence is required to conduct a financial services business in Australia. The licence is issued by the Australian Securities and Investments Commission (ASIC). Any organisation (including super funds) or individual cannot provide financial advice unless they hold an AFSL. See articles about AFSLs.
Bring-forward rule: The bring-forward rules allow you to decide to advance your contributions caps from a three-year period and use them over a shorter period – either all at once or as several large contributions. See articles about the bring-forward rule.
Carry-forward contributions: This rule applies if you have a total superannuation balance of less than $500,000. The carry-forward rule lets you accumulate any unused portion of your contribution cap for up to five years in order to make additional super contributions above the yearly concessional (taxable) contribution cap (currently $25,000). See articles about carry-forward contributions.
Capital gains tax (CGT): This is the income tax payable on any capital gain made from the sale of a capital asset, such as real estate or shares. The capital gain is the difference between the cost base of the asset and the sales proceeds. SMSFs may hold capital assets in either the accumulation or retirement phases. Assets that are in the accumulation phase are subject to CGT when they are sold. Assets in the retirement phase are exempt from CGT when they are sold. See articles about capital gains tax and super.
Centrelink: Centrelink is a part of the federal government’s Department of Human Services. Centrelink provides a range of social, welfare and health payments to seniors, job seekers, students, trainees, families, carers, parents, the disabled, and Indigenous Australians. See articles about Centrelink.
Collectibles (collectables) and personal use assets: Collectible (collectable) and personal use assets are a potential self-managed super fund (SMSF) asset category that have associated superannuation legislation compliance obligations. Examples of these assets include artwork (such as paintings and sculptures), jewellery and antiques. When owned by an SMSF, these types of assets must not provide a present-day benefit to fund members. See articles about collectibles.
Commonwealth Seniors Health Card (CSHC): The Commonwealth Seniors Health Card is a concession card that allows people who meet eligibility requirements to access cheaper health care in Australia, including cheaper prescription medicines under the Pharmaceutical Benefits Scheme (PBS). See articles about the Commonwealth Seniors Health Card.
Commutation: The process of converting your super income stream into a super lump sum payment. See articles about commutation.
Concessional contributions: Also known as ‘before-tax’ contributions. These are contributions made into your super fund by an employer (such as the 9.5% superannuation guarantee), salary sacrifice payments, or personal contributions. These contributions are taxed at 15% as they enter the fund. See articles about concessional contributions.
Concessional contributions cap: The cap limits the amount of before-tax contributions you can make to your super in a financial year. Any contributions above this cap will incur additional tax. See articles about the concessional contributions cap.
Condition of release: A condition you must meet to access your superannuation. The most common conditions of release are retirement after your preservation age has been reached, starting a transition-to retirement-pension after your preservation age has been reached, or reaching 65 years of age. See articles about conditions of release.
Consumer Price Index (CPI): The CPI is a statistical measure of the price movement for a basket of goods and services across Australian States and Territories. It is calculated quarterly by the Australian Bureau of Statistics. The CPI influences a range of government benefits, such as the age pension fortnightly income limits and cut-off points. See articles about the Consumer Price Index.
Contributions tax: This is tax paid on your super contributions. Current tax rates on different types of contributions are as follows:
- Concessional (before-tax) contributions: 15% (but taxed at 31.5% if you exceed your concessional contributions cap).
- Non-concessional (after-tax) contributions: Nil (but taxed at 47% if you exceed your non-concessional contributions cap).
- Division 293 taxes: 15% on contributions above the Division 293 threshold.
Corporate funds: A superannuation fund sponsored by either a single employer or a group of related employers for the benefit of company employees.
Death benefit: Upon the death of a member, a superannuation fund trustee can pay a death benefit (or the member’s entire super balance) to the member’s dependants or estate. This will usually be a lump sum payment but can be in the form of a pension in certain circumstances. See articles about superannuation death benefits.
Deemed income: Deeming is a key concept in the Age Pension income test. Deeming rules are used by the Department of Social Services (via Centrelink) for income test calculation purposes. This means that you are assumed to be earning a certain annual rate of return on your investment assets, regardless of the rate of return you are actually earning. Deemed income can be from investments like savings accounts, term deposits, managed investments, listed shares and securities, superannuation pensions, annuities, loans and debentures. See articles about deemed income.
Deeming rates: Deeming rates are used to calculate your deemed (assumed) income from your financial assets as part of the Age Pension income test, rather than what you really earn from your assets. See articles about deeming rates.
Default fund: A superannuation fund that an employer’s superannuation guarantee contributions are paid into if an employee does not choose an alternative fund.
Deferred annuity: An annuity where payments commence after a nominated period.
Defined benefit funds: A superannuation fund where contributions are pooled rather than being allocated to particular members. Retirement benefits are determined by a formula based on factors such as an employee’s salary and the duration of their employment. See articles about defined benefit funds.
Defined contribution funds: Also known as an accumulation fund. This is a super fund where the value of the final retirement benefit payable is based on contributions made plus investment returns, less any fees and taxes.
Division 293 tax: This is an additional tax of 15% paid by people whose combined income and concessional super contributions exceed $250,000. The tax payable is levied on the excess over this $250,000 threshold, or on the super contributions, whichever is less. See articles about the Division 293 tax.
Earnings tax: A 15% tax that is payable on the earnings generated by your super investment during the accumulation phase.
Event-based reporting: Self-managed super funds (SMSFs) are required to report events that impact their members’ transfer balances. Reportable events may include:
- pre-existing income streams,
- new retirement phase and death benefit income streams,
- limited recourse borrowing arrangement payments,
- personal injury contributions,
- commutations of retirement phase income streams.
If no such event occurs, no reporting is needed. There are also some exemptions to the reporting requirement. Pension payments, funds earnings or losses, the death of a member and any details that a member individually reports to the ATO directly are included in these exemptions. See articles about event-based reporting.
Excess contributions tax: Tax payable on superannuation contributions that are in excess of the concessional or non-concessional contributions caps. See articles about excess contributions.
Financial Information Service: The Financial Information Service is a free service provided by the Department of Human Services to help people make more informed financial decisions. See articles about the Financial Information Service.
Financial Planning Association (FPA): The Financial Planning Association of Australia is a professional body for financial planners. They offer a range of services for members, including professional development and education. They also advocate and represent the interests of the financial planning industry as a whole. See articles about the Financial Planning Association.
Financial Services Guide (FSG): A document containing information and advice about a product or service being provided by a financial organisation. The guide should include information such as product or service fees and charges and the organisation’s complaints resolution process.
Franked dividends: These are shareholder dividends on which company tax has been paid. See articles about franked dividends.
Franking credits: Also known as imputation credits. This is a tax credit that shareholders are entitled to equal to the tax paid by a company on the franked dividends they receive. See articles about franking credits.
Global financial crisis (GFC): The global financial crisis is the term given to a period where the global financial system experienced a severe shock between mid-2007 and early 2009. It was triggered by sub-prime lending in the US housing market. The collapse of many large financial institutions around the world was prevented by government bailouts, and the value of stock markets plummeted. It is regarded as the most significant financial crisis since the Great Depression of the 1930s. See articles about the GFC.
Indexation: Indexation is a term used to describe adjusting payments, thresholds or limits by an index (such as the consumer price index (CPI). For example, the age pension asset limits and cut-off points are adjusted three times per year (in March, July and September) based on the consumer price index (CPI). See articles about indexation.
Industry funds: Not-for-profit or ‘profit to members’ super funds originally formed to provide access to superannuation for employees working within a particular industry.
In specie contribution: In specie is a Latin term meaning ‘in its present form’. An in specie contribution is a non-cash contribution to a super fund. It might come in the form of property or shares transferred to the super fund. See articles about in specie contributions.
Lifecycle funds: A super fund product available in the accumulation phase of superannuation that increases the relative weight of defensive assets (such as cash) versus growth assets (such as equities) as the member ages.
Lifetime annuity: An annuity payable over a recipient’s remaining lifetime.
Longevity risk: The risk that a person outlives their savings.
Low and Middle Income Tax Offset (LMITO): LMITO (sometimes referred to as LAMITO) is an acronym for the Low and Middle Income Tax Offset that the federal government introduced as part of the 2018 Budget. It’s a temporary measure for the four financial years between 1 July 2018 and 30 June 2022. The LAMITO is intended to provide tax relief for eligible low and middle-income earners. See articles about the Low and Middle Income Tax Offset.
Low Income Superannuation Tax Offset (LISTO): A tax offset designed by the Australian Government to ensure that low-income earners generally won’t pay more tax on their super contributions than they do on their take-home pay. Eligible low-income earners receive a LISTO contribution to their super fund of 15% of their total concessional super contributions, capped at $500. See articles about LISTO.
Low-rate cap: If you reach your preservation age and withdraw super before turning 60, the low-rate cap is a limit on the taxable component/s of your payment/s that can be taxed at the concessional super tax rate of 15%. See articles about the low-rate cap.
Maximum superannuation contribution base: This is a limit applied by the Australian Government that restricts the superannuation guarantee payable by an employer on behalf of an individual employee. An employer does not have to pay superannuation on employee earnings above this base limit.
MySuper: MySuper funds are designed to be simple, low-cost and easy to compare. They also act as a default account for people who don’t choose their own super fund when they start a new job. See articles about MySuper.
Non-binding nomination: This allows the trustee of your superannuation fund to decide how your death benefits are distributed according to the law (e.g. pay the benefits directly to your estate).
Non-concessional contributions: Contributions made from your after-tax income into your or your spouse’s superannuation fund. See articles about non-concessional contributions.
Non-concessional contributions cap: The total amount you can contribute to your superannuation from your after-tax income. The current cap is $100,000 per financial year. See articles about the non-concessional contributions cap.
Non-preserved benefits: There are two types of non-preserved benefits: restricted and unrestricted. Restricted non-preserved benefits include any employment-related contributions you may have made before 1 July 1999, excluding employer contributions. You can’t access these benefits until the employment arrangement they relate to has been terminated. Unrestricted non-preserved benefits include any benefits that may be paid on demand by your super fund because you have already satisfied a condition of release. See articles about non-preserved benefits.
Pharmaceutical Benefits Scheme: The Pharmaceutical Benefits Scheme is a government-subsidised program to provide cheaper prescription medicines for Australians. Most of the medicines in the PBS are dispensed by pharmacists, except those that are dangerous (and which require medical supervision to administer). See articles about the Pharmaceutical Benefits Scheme.
Preservation: A term used to describe the retirement benefit locked away for a super fund member. See articles about Preservation.
Preservation age: The minimum age that you can withdraw your super benefits under Australian legislation, once you have also met a condition of release. See articles about Preservation age.
Preserved benefits: Preserved benefits refers to super money that must be “preserved” (not be made available) until a condition of release is met and subject to any restrictions imposed as part of the condition of release. See articles about preserved benefits.
Proportioning rule: A rule that determines the tax-free and taxable portions applied to an amount of money withdrawn from a super fund. See articles about the proportioning rule.
Reportable super contributions: Any personal deductible contributions you make to super, salary sacrifice arrangements, or employer super contributions made on your behalf that exceed the superannuation guarantee. See articles about reportable super contributions.
Restricted benefits: Assets and money within a superannuation fund that you cannot access until you have met a condition of release.
Retail fund: A superannuation fund run by financial institution on a commercial ‘for profit’ basis.
Retirement phase (previously known as pension phase): The period when you can receive a tax-free super income stream, pension or lump sum. See articles about the retirement phase.
Reversionary income stream: An income stream that continues to be paid to your beneficiaries following your death.
Salary sacrifice: An agreement made between you and your employer that allows you to pay for goods and services from your pre-tax salary. Super contributions can be salary sacrificed. Salary sacrificing reduces your taxable income and can be a tax-effective way of saving for your retirement. See articles about salary sacrificing.
Self-managed superannuation fund (SMSF): A private superannuation fund managed by members who must either be trustees or directors of the corporate trustee of the fund. See articles about SMSFs.
Seniors and Pensioners Tax Offset (SAPTO): A tax offset available to you if you’re eligible to receive the Age Pension. The tax offset percentage varies depending on your rebate income and marital status. In some circumstances, the SAPTO may reduce your tax liability to zero. See articles about SAPTO.
Sequencing risk: The risk of experiencing poor investment returns just prior to drawing on your retirement funds.
SIS Act: The abbreviation for the Superannuation Industry (Supervision) Act. The SIS Act makes provisions for the management of Australia’s superannuation system.
Sole purpose test: A legal requirement that requires super funds to be maintained for the sole purpose of providing retirement benefits to their members (or to their dependants if any of their fund members die before retiring). See articles about the sole purpose test.
Super co-contributions: An initiative where the Australian Government matches the (after-tax) superannuation contributions of low to middle-income earners. The Government’s co-contribution is currently capped at $500 per financial year. The co-contribution amount is dependent on your personal super contributions and income thresholds. See articles about superannuation co-contributions.
Superannuation contributions: Cash or in specie contributions made to your superannuation fund. This includes both personal contributions and contributions made by your employer. See articles about making superannuation contributions.
Superannuation Guarantee (SG): This is the official term for compulsory super contributions made by employers on behalf of their employees. The superannuation guarantee amount is currently 9.5% of an employee’s ordinary time wages or salary. This is scheduled to increase to 10% from July 2021 and progressively increase to 12% by July 2026. See articles about the superannuation guarantee.
SuperStream: The system that employers must use to make their compulsory superannuation guarantee payments for their employees. The system enables superannuation funds and data to be transferred electronically between employers, super funds, the Australian Taxation Office (ATO) and other service providers. See articles about SuperStream.
Taxable component: The component of your superannuation benefit that would be subject to tax if you accessed it before turning 60, or that includes an untaxed benefit from a public sector super fund, or certain superannuation death benefits.
Tax-deductible super contributions: Employers can claim a tax deduction for superannuation contributions made on behalf of employees. You can claim a tax deduction for your personal super contributions as an employee or a self-employed person, up to the annual concessional contributions cap. See articles about tax-deductible super contributions.
Tax file number (TFN): Individual tax file numbers are issued to Australians by the Australian Taxation Office. This number is each individual’s personal reference number in the tax and superannuation systems and remains the same throughout their life. If you don’t have a tax file number (or fail to provide one when requested), you can be liable to pay more tax and you’ll be ineligible to apply for government benefits. See articles about the Tax file number.
Tax-free component: The tax-free part of your super benefit is made up of a contributions segment (comprised of non-concessional contributions made after 1 July 2007), and a crystallised segment (a fixed dollar figure comprised of certain pre-July 2007 benefits).
Tax offset: A tax offset can be used to reduce or eliminate your tax liability. Examples of tax offsets are the Seniors and Pensioners’ Tax Offset (SAPTO) and the Low and Middle Income Tax Offset (LMITO). It’s important to understand that tax offsets can’t generate you a tax refund. So you can potentially have a tax offset that’s higher than your tax obligation. In that situation, the excess offset can’t be used. See articles about tax offsets.
Total superannuation balance: Your total superannuation balance is the combined balance of your accumulation and retirement phase funds. See articles about the total superannuation balance.
Transfer balance cap: The transfer balance cap is the maximum amount that can be transferred into the retirement phase of your super fund from your accumulation phase. The current transfer balance cap is $1.6 million. See articles about the transfer balance cap.
Transition-to-retirement (TTR) pension: An account-based pension that can be started when you reach your preservation age. It allows you to access your super without having to retire from work. See articles about transition-to-retirement pensions.
Trust deed: A legal document that sets out the terms of operation for a self-managed super fund (SMSF). It includes key information such as the sole purpose objective of the trust, the names of members/trustees, and rules that outline how the trustees will implement the fund’s investment strategy and manage the fund. See articles about trust deeds.
Trustee (or trustee board or trustee directors): A superannuation trustee is a person responsible for administering a super fund and ensuring its legal compliance.
Unrestricted benefit: Money within your superannuation fund that can be accessed at any time because you have already met a condition of release.
Work test: If you’re aged between 65 and 74, you must satisfy the work test to be eligible to make contributions to your super fund. This means you must be working for a minimum of 40 hours in any 30 consecutive day period. See articles about the work test.