A super jargon buster

Want to make sense of your super?

Here’s a list of some of the most commonly used super terms to make understanding your super easier.If you have any questions about your super please let us know.

Allocated annuity/pension

A retirement income stream tool that provides you with a regular income stream (subject to prescribed limits). An allocated annuity/pension also provides you with access to your remaining capital at any time.

Asset class

A broadly defined category of financial assets. The most common asset classes are cash, fixed interest, shares, property, bonds and life insurance policies.

Concessional contributions

These are “before-tax” payments into your super fund, and include an employer’s Superannuation Guarantee (SG) payments and Salary Sacrifice contributions, as well as any personal contributions you make and claim a tax deduction for (if you’re eligible).

Contributions limit - before tax

This is the annual limit for your concessional contributions before penalty taxes become payable. For the 2009/10 financial year, this limit is $25,000 if you are under age 50. However, if you turn 50 before the end of the financial year, you will be able to make/receive up to $50,000.

Once you exceed this limit, you will pay an excess contributions tax of 31.5% on the excess amount (in addition to the 15% contributions tax already paid). It is worth remembering that any excess concessional contributions will also be included in your personal after-tax (non-concessional) annual contributions limit (outlined below).

Contributions limit - after tax

This is the annual limit for your non-concessional, or personal after-tax, super contributions (e.g. lump sum payments from the sale of other assets, inheritances). This limit is $150,000 (indexed). However, you can contribute up to $450,000 (indexed) averaged over 3 years if you’re under age 65. Exceed this contributions limit and you will pay an excess contributions tax of 46.5% on the excess amount.

Consolidation

Super accounts unite! This is a smart strategy, which involves combining your super accounts  to reduce the amount of paperwork and fees associated with multiple super funds. Having your super in one fund will also make it easier to keep track of your money.

Death benefits

These are payments made by a super fund upon the death of another person. Death benefits are taxed differently depending on whether the beneficiary is a tax dependant (such as a spouse, de facto or child under 18) or a non-dependant (adult child). The tax also varies depending on whether the benefit is paid as an income stream (only available to certain dependants) or a lump sum (available to all beneficiaries).

Inflation

A rise in the general level of prices over time that results in an increase in the cost of living.

Life insurance

Life insurance provides a lump sum payment on the death or terminal illness of the insured person. If it has an investment component, a lump sum may also be paid on surrender or maturity of the policy.

Non-concessional contributions

These are “after-tax” payments made into your super fund. Sometimes referred to as personal after-tax contributions, these include super contributions that you make into your fund for which you don’t claim a tax deduction, as well as contributions made into your super fund by your spouse.

Preserved amount

The portion of your super benefits that cannot usually be accessed until you reach preservation age and/or meet a superannuation condition of release.

Preservation age

This is the age at which a person can start to access their preserved super money as a non-commutable income stream. Once a person retires, after reaching their preservation age, they can generally access their money without any restriction. A person’s preservation age is dependent on the individual’s date of birth.

Superannuation

Superannuation (or super) is a tax-advantaged environment for you to save for retirement. Super is concessionally taxed and, while there’s some fine print, investment earnings inside superannuation are taxed at a maximum rate of 15%. After age 60, benefits paid to you from super are tax-free (though different rules apply to certain “untaxed” funds).

Superannuation benefit payment

A superannuation benefit payment is a payment from a superannuation fund. If you are over age 60, your superannuation benefit payment will be completely tax-free. If you are under age 60, your superannuation benefit payment will comprise two different components; a tax-free component and a taxable component.

Temporary Salary Continuance cover

Insurance that pays you up to 75% of your income if you are unable to work for an extended period of time due to accident or illness. Sometimes referred to as “income protection insurance”.

Total & Permanent Disablement cover

Provides a lump sum payment of money if the insured person becomes permanently disabled (e.g. paraplegic) and totally unable to work.

If you have any questions or would like more information, contact us.

What you need to know
This article contains general information only. It does not take into account your objectives, financial situation or needs. Please consider the appropriateness of the information in light of your personal circumstances. Although the information in this article was obtained from sources considered to be reliable, the information is not guaranteed to be accurate or complete. The information in this article is current as at June 2009 and may change over time.