Superannuation glossary of terms

Transcription

1 Superannuation glossary of terms Employer Super The A-Z guide of superannuation terms with plain English explanations. Welcome to a quick reference guide to superannuation terminology. This guide has been produced to help explain some of the more commonly used terms within the superannuation industry. It should not be your only source of reference, but it will get you started. The definitions in this document should only be used as a guide. Whilst every effort has been made to ensure that the information is accurate and reliable, please note that this is not guaranteed in any way.

2 A Additional employer contributions Your employer must contribute 9% of your pre-tax earnings to your super fund as part of the superannuation guarantee legislation. Additional employer contributions are those made by your employer above this mandated amount. Additional personal investment You can choose to make investments over and above the ones your employer makes on your behalf. Account based pension A product that provides you with a regular income in retirement, or as you move towards retirement. Pension payments are flexible. They allow you to vary the payment you receive, so long as they are above the minimum limits prescribed by superannuation law (a maximum applies until age 65 if you are not yet retired). This pension operates like a bank account payments are deducted and earnings on the underlying assets are added/deducted depending on market conditions. The pensioner wears the investment risk. Annual income All your income each year. This includes your annual salary, bonuses, commissions, interest, dividends and rent money. APRA APRA stands for Australian Prudential Regulation Authority. APRA is the prudential regulator of the Australian financial services industry and institutions such as banks, credit unions, building societies, general insurance and reinsurance companies, life insurance companies, friendly societies and most members of the superannuation industry. For more information go to ASFA ASFA stands for Association of Superannuation Funds of Australia. ASFA is a national, not for profit, non party political organisation that represents the interests of Australia s superannuation funds, their trustees and their members. For more information go to ASIC ASIC stands for Australian Securities and Investments Commission. ASIC is Australia s corporate, markets and financial services regulator. ASIC regulates Australian companies, financial markets, financial services organisations and professionals who deal and advise in investments, superannuation, insurance, deposit taking and credit. Their role is to ensure that Australia s financial markets are fair and transparent, supported by confident and informed investors and consumers. For more information go to Asset An asset is anything you can own that can be exchanged for a dollar value. Asset class A way of grouping assets into classes based mostly on their level of risk and potential return. The main classes are shares, property, cash and fixed interest. Asset allocation The mix of assets in an investment among various asset classes or sectors. ATO ATO stands for Australian Taxation Office. The ATO s role is to manage and collect tax. The ATO is also the regulator of Self Managed Super Funds. For more information go to Australian Securities Exchange (ASX) The Australian Securities Exchange is the marketplace for trading shares, bonds and other securities in Australia. ASX also sets the exchange, regulates the brokers and provides fair rules for trading. It monitors irregularities in trading prices and volumes and has the power to suspend the shares of companies from being traded. Page 2

3 Automatic acceptance If you re eligible for insurance you can be automatically covered for a specified basis of insurance cover, up to a certain limit, without having to submit evidence of health. B Basis point A way of measuring performance return or a fee. For example, fifteen basis points equals 0.15%. Beneficiary A beneficiary is a person who is entitled to a payment possibly from a super fund or life insurance company. Beneficiaries of a superannuation fund are the members and in the event of death, their dependants. Benefits Accumulated member entitlements in a superannuation fund. C Complying super fund A regulated super fund qualifying for concessional tax rates by meeting statutory requirements. Concessional contribution Contributions are generally taxed at 15% up to a certain level. This tax is often referred to as contributions tax. They generally cover employer contributions to an employee s super made out of their pre-tax salary such as superannuation guarantee and additional employer contributions. For eligible persons such as the self-employed or those that are not working, they cover contributions for which a personal tax deduction is claimed. Conservative fund Sometimes known as a defensive fund, a conservative fund typically invests in cash and fixed interest assets. Consumer price index (CPI) The Australian Bureau of Statistics uses this index to measure the change in the price of a fixed basket of goods bought by households. The CPI is designed as a general measure of inflation. Contribution A contribution is money paid into your super account. Contribution cap This is the limit (cap) on the amount of contributions that can be made for an individual. Contributions in excess of the cap will be subject to excess contributions tax. Concessional and non-concessional contributions have different cap amounts. Continuation option The ability to retain insurance cover levels after leaving a fund without the need to supply additional medical information. D Death benefits Benefits paid by a superannuation fund to a dependant or estate, following the death of a member of a superannuation fund. Defensive asset Generally, defensive assets (also known as conservative assets ) have lower returns, but the returns are more stable due to lower risk. Defensive assets include cash and fixed interest. Dependant For the purposes of a superannuation death benefit, this includes your spouse (same-sex spouse or former spouse or de facto), any of your children regardless of age (including an adopted, step or ex-nuptial child), any person with whom you have an interdependent relationship or any person who is financially dependent on you. For tax purposes, a child must be aged under 18, otherwise they must be financially dependant on you. Page 3

4 Diversification Diversification means spreading your investments among different types of investments and asset classes, which may reduce your overall investment risk and/or volatility of performance. Diversified fund A fund made up of a mix of asset classes. Dollar-cost averaging A strategy where you buy a set dollar value of an investment at regular intervals (eg. with a monthly direct debit). This is a strategy designed to smooth overall performance, rather than attempting to second guess the market, and results in the purchase of more shares and units when prices are down and less shares and units when prices are up. E Employer sponsored fund A regulated superannuation fund that is established by an employer for the benefit of employees. Eligible Rollover Fund (ERF) A super fund to which other super funds transfer a balance when a member can t be located, has a very low account balance, or has been inactive with their super for a long time. Equity How much of an asset you own. F Financial adviser Financial advisers are people who are licensed to give you advice on financial matters. Financial year The period from 1 July to 30 June each year. Fund manager The person responsible for investing an investment product s assets, implementing its investment strategy and managing the day-to-day portfolio trading. G Gross salary The amount of money earned before tax is deducted. Growth fund A managed fund that aims to produce returns by the increase in market value of the underlying assets it holds, over the medium to long term (with a higher than average degree of volatility). The fund has a high proportion of growth assets such as shares and property. H Hedging Where one investment is used to protect against potential loss in another investment. I Income Protection cover If you can t work because of certain defined events, this type of insurance will pay you a percentage of your lost income for a certain period of time. Index An index measures the performance or change in value of a group of assets such as shares. There are indexes for many major groups of assets. For example the S&P/ASX 100 is an index of the top 100 companies in Australia. Inflation Inflation is a measure of increases in the cost of living usually measured by the Consumer Price Index (CPI). Page 4

5 Insurance Buying financial protection against a possible future event. If the specific event happens, the company from which the policy is purchased will pay the insured benefit. You can generally hold life insurance outside or within the superannuation environment. You should seek advice to determine the best option for your personal circumstances. Interest Interest is the price paid by a borrower for the use of a lender s money. So, when you put your money into cash or a fixed interest the borrower (person/company) who has your money has to pay you for the privilege of borrowing your money. Investment An asset you buy with the expectation it s going to give you an income or increase in value (or both) over time. Investment option Your superannuation fund may offer you a choice of investment options to determine where you would like your superannuation invested. J K L Life insurance Life insurance includes insurance against unexpected death, total and permanent disability, temporary disability resulting in loss of income, or trauma incidents. Lump sum The benefit received from a superannuation fund in the form of a one-off payment of money instead of a pension, which is a periodic payment. M Managed fund A professionally managed investment where your money is pooled with other people s money and professionally managed. You receive units for your money and a share of the returns, whether they are positive or negative. Unit prices take into account market prices of the assets the fund purchases (also know as Managed Investment Schemes). Marginal tax rate The marginal tax rate is the rate of tax applicable to the last dollar of your taxable income. To find out what yours is, go to Your average tax rate on your entire taxable income will generally be lower than your marginal tax rate. Member A person who is a member of a superannuation fund. Member protection If at any time the amount of a member s super account balance is less than $1,000, and they include employer financed benefits, member protection limits the amount of administration charges which can be deducted from the benefits. This does not limit insurance charges. N Non-concessional contribution Non-concessional contributions include: after-tax contributions you make to your super and you do not claim a tax deduction after-tax contributions you make on behalf of your spouse other money contributed to superannuation such as an inheritance Page 5

6 O Ordinary time earnings (OTE) The earnings before tax on an employee s ordinary hours of work. As a general rule it is used as the basis for measuring the level of compulsory employer superannuation contributions under the Superannuation Guarantee (Administration) Act P Personal contribution Contributions made by an individual rather than by the employer, which count toward the concessional or non-concessional contributions cap. Any personal contributions claimed as a tax deduction by the individual will count towards the individual s concessional contribution cap. Any personal contributions not claimed as a tax deduction by the individual will count towards the individual s non-concessional contributions cap. Pension Payments made periodically and regularly as an income stream provided for by a superannuation fund and which you purchased with your accumulated superannuation benefits. Product Disclosure Statement (PDS) An important document from the issuer of a financial product which provides you with information about the issuer, benefits, risks and costs of the product. Premium The money paid for your insurance policy. If the insurance policy is held within your superannuation fund, the premium is paid by the fund out of your accumulated superannuation benefits and/or any contributions you make. Preservation The regulatory requirement that superannuation benefits cannot be accessed until a condition of release has been satisfied. Preservation age The age at which a member can gain access to preserved benefits provided that they have permanently retired from the workforce or otherwise as a non-commutable income stream. Date of birth Preservation age Before 1 July July June July June July June July June From 1 July Q Qualifying Recognised Overseas Pension Scheme (QROPS) An Australian superannuation fund recognised under the legislation of the United Kingdom of Great Britain to receive transfer values from UK pension plans. R Restricted non-preserved benefits Benefits from voluntary employer contributions made after 1 July 1994 and before 1 July These may be released when you leave employment as long as that employer contributed to the superannuation fund. Risk and return Investment risk is the potential for your investment to decrease in value. Investment returns can fluctuate in value from year to year. All investments carry some risk, but some carry more than others. If you want higher returns, you need to be comfortable with accepting a higher level of risk. The return on your investment simply means the amount of money your investment earns or loses. Page 6

7 S Salary sacrifice contributions If your employer offers salary sacrifice, it means you can ask your employer to contribute an additional amount of your pre-tax salary into your super. Separately managed account (SMA) A separately managed account (SMA) is a professionally constructed and managed portfolio of Australian shares and cash. An SMA offers many benefits. These include professional asset management, the transparency to view the shares held in the SMA, an attractive price and tax effectiveness. Spouse contributions Individuals can make contributions on behalf of a spouse. Spouse contributions count towards the non concessional contributions cap of the spouse who received the contribution. Super Choice form A form you give to your employer telling them which super fund you have chosen for your future mandated contributions. Your employer then directs their mandated super contributions for you to that fund. Super co-contribution If you earn less than $61,920 in the 2010/11 financial year and make personal contributions to your super, and are otherwise eligible, then the Government will help boost your account with a super co-contribution of up to $1,000 per financial year. The amount of co contribution will depend on your total income level and the amount of personal contributions you make. Super Guarantee (SG) contributions By law, your employer must generally make certain contributions on your behalf into a complying super fund unless you earned less than $450 in a month and are otherwise eligible. Superannuation A system where money is invested in a complying fund with concessional tax treatment to provide for a person s retirement. T Tax File Number (TFN) A unique number issued by the Tax Office to individuals and organisations to increase the efficiency in administering tax and other Commonwealth Government systems. Tax-free threshold This is the lowest tax bracket (currently $6,000) at which level an Australian resident pays no tax. Non residents cannot claim the tax-free threshold. Time horizon The length of time you plan to hold particular investments in order to reach your investment goals. It s very important for working out your investment goals and what you need to invest in to meet those goals. Trust Deed A legal document that sets out the rules relating to the establishment, administration, and management of superannuation funds and managed funds. Trustee The entity that has the responsibility of ensuring that the trust/fund is operated in accordance with the Trust Deed. Trustees must also comply with the relevant legislation and regulations. U Unit When you invest in a managed fund, you are buying units in that fund. Page 7

8 Unit price This is the price for each unit in a managed fund. It is calculated by dividing the value of the assets of the managed fund by the number of units on issue to investors. Unit trust Where a group of investors pool their money together into a managed fund that is unitised. They all have units and share the asset value and returns of the fund, whether they are positive or negative. Unrestricted non-preserved benefits These are superannuation benefits for which a condition of release has previously been met and may be accessed at any time. V W X Y Z MLC_AV1880B_1010 Disclaimer: The information in this document reflects NULIS Nominees (Australia) Limited ( NULIS ) ABN AFSL understanding of existing legislation, proposed legislation, and rulings as at the date of publication. While every attempt has been made to ensure the accuracy and reliability of the information, it is not guaranteed in any way. The above information is general in nature and does not take into account your personal situation or needs. Before making an investment decision, you need to consider, with or without the assistance of a financial adviser, whether the product is appropriate for your particular needs, objectives and financial circumstances. Applications to invest in a financial product issued by NULIS must be made by completing the application form attached to a current Product Disclosure Statement ( PDS ) which can be obtained from NULIS. Investors should consider the PDS before deciding to acquire or dispose of the product. October 2010