Glossary

account-based pension The most popular type of superannuation pension. A series of regular payments from a superannuation fund account. The rules require that a minimum pension amount is paid each year.

accumulation phase The period of time when a super account is growing in anticipation of the fund member’s retirement at some later date. In short, a superannuation account that is not in the pension phase.

after-tax return The investment return after any tax payable on that return has been deducted.

Age Pension A guaranteed taxpayer-funded pension for eligible Australians, paid fortnightly by the government.

Age Pension age The age at which you can apply for the Age Pension, determined by your date of birth.

aggressive investment option A higher risk investment option that has a higher allocation to growth assets such as shares and property.

APRA The Australian Prudential Regulation Authority, which is the main superannuation regulator.

ASFA The Association of Superannuation Funds of Australia, which is the major superannuation industry association.

ASFA Retirement Standard (Retirement Standard) Measures the cost of a modest or comfortable lifestyle in retirement, based on the lives of actual retirees.

ASIC The Australian Securities and Investments Commission, which is a corporate, investment markets and financial services regulator.

asset allocation How your super fund divvies up your super money into different asset classes for investment.

asset(s) and asset classes The different categories of investments, such as cash, shares and property.

assets test for Age Pension The value of your assets must be below a certain threshold for you to be eligible for a full or part Age Pension.

Australian Taxation Office The ATO monitors employers to ensure they meet SG obligations, provides information on superannuation on its website for consumers, monitors breaches of contribution caps, and regulates self managed super funds.

balanced investment option Most super fund members have their money in this type of option. Super money is invested in a mix of higher risk assets, such as shares and property, and lower risk assets, such as cash and fixed ;interest.

capital guaranteed investment option A lower risk option that promises to preserve your initial super savings, generally at the cost of lower returns.

carbon tax In July 2011 the federal government announced the introduction of a carbon tax on Australia’s biggest polluting companies, to take effect from July 2012 (subject to the legislation being passed). As a means of offsetting the possible cost increases for consumers, the government is introducing substantial tax cuts from July 2012 and also introducing a clean energy supplement for Age Pensioners and other retirees.

Centrelink Government agency that administers the Age Pension and other retirement-related allowances, and also runs the Financial Information Service.

clean energy supplement From July 2012 a person’s Age Pension entitlement will include a clean energy supplement (subject to the legislation being passed), to help offset the cost increases associated with the introduction of a carbon tax. This means that the annual Age Pension amounts will increase by up to $338 in today’s dollars for a single person, and around $510 in today’s dollars for a couple, in addition to the regular six-monthly adjustments to the Age Pension rates.

co-contribution scheme When you make a non-concessional (after-tax) contribution to a super fund, and your annual income is below a certain threshold, the federal government will deposit tax-free money into your super account after you lodge your tax return.

comfortable lifestyle Based on the ASFA Retirement Standard, a comfortable lifestyle can be achieved in retirement when you have an annual after-tax income of about $54 000 for a couple, and $39 000 for a single person.

Commonwealth Seniors Health Card (CSHC) The holder of a CSHC pays a concessional price for prescriptions under the Pharmaceutical Benefits Scheme and receives the clean energy supplement (subject to the legislation being passed). The card is available to Australians of Age Pension age who don’t receive the Age Pension and earn less than the income threshold for the card.

company (or corporate) super fund A super fund run by a company for its employees; such a super fund is not available to the general public.

compound earnings or compound interest The earnings that you earn on top of your initial investment earnings or bank interest or other type of investment return. By reinvesting earnings or interest, you can accumulate wealth faster because your investment base continues to grow.

concessional (before-tax) contributions Any superannuation contribution where an individual or company receives a tax deduction for making the super payment.

condition of release Preserved super benefits cannot be withdrawn unless you satisfy a condition of release, such as retiring, turning 65, starting a transition-to-retirement pension, suffering severe financial hardship, to name a few.

conservative investment option A lower risk investment option with a higher allocation to cash and fixed interest and a lower allocation to shares and property and other higher risk assets.

contributions caps The super contributions that you can make are subject to caps. If you exceed those caps, the contributions above your cap are hit with excess contributions tax.

death benefits Superannuation benefits paid on the death of a super fund member. Benefits are generally paid to a spouse, or other dependants or non-dependants.

default fund The super fund where your employer’s SG contributions are deposited if you do not choose your own fund.

default investment option The investment option where your money is placed for investment if you do not make an investment choice.

defined benefit A superannuation benefit that is not dependent on investment returns but is determined by a formula based on years of service and salary.

dependant A person eligible to receive death benefits when a fund member dies. If an individual is also a dependant under the tax laws, such as a spouse or financially dependent relative, then they can receive the death benefits free of tax.

diversification Spreading the risk over several asset classes and across different investments.

doing nothing For the purposes of this book, the term doing nothing relates to turning up for work and receiving SG contributions, but not making your own voluntary super contributions.

Financial Information Service A free information service on retirement options and retirement planning administered by Centrelink.

future dollars What you receive in the future without adjusting the amount for inflation.

growth assets Higher risk investments, such as shares and property.

high growth investment option An investment option available in the large super funds, with a higher allocation to growth assets such as shares and property.

income protection insurance Insurance available in some super funds, and outside super funds, that pays you an income for a period of time, typically for up to two years, if you have an accident or are too sick to work.

income stream see pension.

income tax-free threshold The level of income that you can earn before you have to pay income tax.

income test for Age Pension The income you receive must be below a certain threshold for you to be eligible for a full or part Age Pension.

industry super fund A super fund that typically caters for workers from a particular industry, although many of them are now available to anyone.

inflation Rising prices over time, usually measured by the Consumer Price Index (CPI).

interdependent relationship A close personal relationship between two people who live together, and where one or both provide for the financial and domestic support and care of the other.

investment choice The opportunity to place your super money in a variety of investment options offered by your super fund.

investment options The different types of pre-mixed investment portfolios offered by super funds.

investment portfolio A collection of investments a person or super fund may hold.

investment return The profit or interest or earnings from an investment.

life expectancy or longevity or average life expectancy How long you can expect to live on average based on statistical data from the office of the Australian Government Actuary.

life insurance Insurance available in and outside super funds that pays a lump sum or pension (in some cases) when a fund member dies. In a super fund, life insurance is often combined with permanent disability insurance. Large super funds can often offer these types of insurance at cheaper rates than you could negotiate as an individual outside super.

low income tax offset (LITO) An offset against tax payable for taxpayers who have taxable income below a certain threshold. The maximum LITO is $1500 (for 2011–12 year).

lump sum A one-off payment from a superannuation fund.

marginal tax rate The highest rate of income tax that you pay on your income, ranging from 0 per cent to 45 per cent, plus up to 1.5 per cent Medicare levy.

master trust An investment vehicle that gives you access to a lot of managed funds, rather than a single investment.

mature aged worker tax offset (MAWTO) An offset available for Australians age 55 or over who are still in the workforce.

maximum contributions base If you earn big bucks, then your SG entitlement is subject to a cap. For the 2011–12 year, an employer is required to make SG contributions on 9 per cent of salary up to an annual salary limit of $175 280 ($43 820 each quarter).

modest lifestyle Based on the ASFA Retirement Standard, a modest lifestyle can be achieved in retirement when you have an annual after-tax income of about $31 000 for a couple, and $21 000 for a single person.

negative return An odd term to describe when your super account suffers an investment loss (drop in value) rather than an investment gain (increase in value).

nominated beneficiary Eligible person or persons you identify to be paid your super benefits if you die.

non-concessional (after-tax) contributions Super contributions where you haven’t claimed a tax deduction, or received any other type of tax concession before making these contributions.

non-dependant There are two kinds of non-dependants. A dependant for superannuation purposes, but a non-dependant for tax purposes, may be eligible to receive death benefits from a super fund account when a fund member dies, but with benefits tax deducted. A non-dependant for both superannuation and tax purposes can only receive super benefits when paid to the deceased fund member’s estate, and benefits tax will also be payable.

non-preserved benefits If you have had a particular superannuation account since before 1999 you may also have some benefits known as non-preserved benefits. If you have non-preserved benefits, then the benefits will either be restricted non-preserved (which you can access when you terminate your employment), or unrestricted non-preserved benefits (which you can access at any time).

offsets Also known as rebates, offsets can reduce the amount of income tax that you pay on your income by a deduction against your tax bill, rather than reducing your taxable income.

ordinary time earnings In terms of the SG, this means ordinary hours of work, including over-award payments, shift or casual loading, performance bonuses or commissions, but not overtime.

pension Regular payments from a superannuation account in the pension phase.

pension offset A tax offset that is available on the taxable component of pension payments from superannuation accounts if you retire before the age of 60, or you receive a pension from an untaxed fund.

pension phase The period of time when a super account is paying a fund member regular amounts for the member’s retirement.

permanent disability Insurance available in and outside super funds that pays you a lump sum, and sometimes regular payments over a number of years, if you suffer permanent disability that prevents you from working. In a super fund, permanent disability insurance is often combined with life insurance. Large super funds can often offer these types of insurance at cheaper rates than you could negotiate as an individual outside super.

platform see wrap administration.

preservation Superannuation rule that restricts access to your super benefits unless you satisfy a condition of release.

preservation age The minimum age that you can access your super benefits when you retire. Retirement generally involves signing a retirement declaration that you have ceased full-time employment and that you never intend to be gainfully employed for more than 10 hours per week. You must send the declaration to your super fund.

product disclosure statement (PDS) A legal document that explains the main features of a super fund, or other type of financial product.

real return Earnings from an investment after adjusting the investment return for the effects of inflation.

rent assistance If you rent a home in retirement and you are eligible for the Age Pension, you may receive an additional payment to help you cover your rent.

restricted non-preserved benefits Money in your super account that you cannot withdraw until you leave your job. Your super benefits may include this type of benefit if you were a super fund member before 1 July 1999.

retirement planning The process of creating a long-term strategy to build investments sufficient to maintain your chosen lifestyle for your retirement, taking into account your individual needs.

risk The chance that you take when you invest that you may lose part or all of your investment, or not generate as high a return as you hoped, or miss out on other investment opportunities because you put your money into this investment.

risk tolerance Your ability to cope with investment losses or volatile investment markets.

salary sacrifice Deduction of concessional (before-tax) super contributions from your salary as part of a salary package, which reduces your taxable salary and the amount of income tax payable.

same sex couples and rights In super and social security a same-sex couple is treated the same way as a heterosexual couple when applying for Age Pension entitlements, or when taking advantage of superannuation strategies related to couples.

self managed superannuation fund (DIY super fund) A small super fund of no more than four members that is run by the members as trustees and is regulated by the ATO.

senior Australians tax offset (SATO) If you are Age Pension age or older, you may be able to access this more generous tax-free threshold, which then reduces the tax payable on your income.

Six-Step Wealth Check Trish’s six steps are an easy-to-use process that can help you improve your life in retirement, helping you identify the lifestyle you want, how much money you will need to finance this lifestyle, and how you can reach this wealth target by the time you retire.

superannuation guarantee (SG) Official description for your employer’s compulsory superannuation contributions. The law currently requires your employer to pay the equivalent of 9 per cent of your wages or salary from your ordinary hours of work as super contributions when you earn more than $450 a month.

superannuation trustee An individual or individuals or company that runs a super fund.

taxable component The part of a superannuation benefit on which you will have to pay tax. You are likely to pay tax on this component if you receive a super benefit under the age of 60 or receive a benefit from an untaxed fund.

tax-deductible super contributions Making concessional (before-tax) super contributions and claiming a tax deduction for those contributions in your individual income tax return, which reduces your taxable income and the amount of income tax payable.

tax-free component A portion of a super benefit that is tax-free. Generally this component includes your non-concessional contributions, and certain pre–July 2007 benefits.

today’s dollars Today’s dollars are what your future money would be worth if you spent it today.

transition-to-retirement pension (TRIP) A superannuation pension that is available before you retire from the workforce. You can take out only up to 10 ;per cent of your account balance each year, and you must have reached your preservation age before starting a TRIP.

unrestricted non-preserved benefits Money in your super account that is no longer subject to the preservation rules and can be withdrawn at any time.

untaxed fund A super fund for which the government has not yet paid in the cash for the employer contributions (excluding SG contributions) that it has agreed to pay on behalf of public sector employees. That means that contributions tax has not yet been deducted from those unpaid super contributions and so the tax must be paid on withdrawal.

untaxed plan cap A recipient of a benefit paid from an untaxed fund can receive concessional tax treatment of superannuation lump sum benefits up to this cap.

voluntary contributions All super contributions other than compulsory employer (SG) contributions.

work bonus Available for individuals receiving the Age Pension who remain in the workforce.

work test for over-65s Once you turn 65, you must satisfy a work test to make super contributions: you must work for 40 hours in at least one 30-day period at some time during a financial year (1 July to following 30 June).

wrap administration An administration product that operates as an information collection service. It gives investors access to a lot of managed funds, rather than a single investment product. A wrap service does all of the administration tasks that an investor has to do, such as records all transactions, including prices, brokerage, any GST payable, dividends paid and tax payable.