Superannuation Glossary: A Comprehensive Guide to Retirement Terms

Superannuation Glossary: A Comprehensive Guide to Retirement Terms

Superannuation can be complex, especially with the technical jargon and specific terms involved. This glossary is designed to simplify key superannuation terms, making it easier for you to understand your retirement savings and make informed decisions.

A-Z List of Superannuation Terms

A

Account -Based Pension
A regular income stream from your superannuation savings once you’ve retired or reached preservation age. An Account-Based Pension gives flexibility over how much you withdraw, but there are minimum withdrawal amounts based on your age.

Accumulation Phase
The phase where your superannuation grows through contributions and investment returns. This continues until you transition into the pension phase or retire. People often confuse the accumulation phase with the pension phase, not realising that your super continues to be invested and grow during this time.

Age Pension
A government-provided income for retirees who meet the age, residency, and means test criteria. It is meant to supplement your superannuation and other savings in retirement. Find out your eligibility here.

B

Beneficiary
The individual(s) you nominate to receive your superannuation benefits in the event of your death. Nominees can include your spouse, children, or dependents. Learn about nominating beneficiaries.

Binding Death Benefit Nomination
A legal instruction that directs your super fund to pay your superannuation benefits to specific beneficiaries upon your death. This ensures your funds are distributed as per your wishes. Many confuse this with a non-binding nomination, which offers less certainty. Learn about nominating beneficiaries.

Buy-Sell Spread
A fee applied when buying or selling units within your super fund’s investment options. This spread covers transaction costs for the fund and can impact the overall returns on your investment. Learn more about our fees.

C

Co-Contribution
A government scheme that boosts your super if you're a low- or middle-income earner and make personal, after-tax contributions. Many don't know they are eligible or how the scheme works. Learn how Super Co-Contribution works.

Concessional Contributions
Also known as Salary Sacrifice, these are contributions to your super that are made before tax, such as employer contributions and salary sacrifice. They are taxed at a concessional rate (currently 15%) within the fund. Many misunderstand the tax advantages or are unaware of the annual cap, which, if exceeded, can result in additional tax penalties.

Contribution Cap
A limit on the amount of concessional and non-concessional contributions you can make to your super each year. Exceeding this cap can lead to additional tax liabilities, which many people are unaware of. Understand Contribution Limits here.

D

Division 293 Tax
An additional tax levied on high-income earners to reduce the tax concession on their super contributions. Many are unclear on how it works, as it only impacts those earning above a certain threshold (currently above $250,000). Learn more about salary sacrifice here.

Downsizer Contribution
A scheme allowing individuals aged 55 and over to contribute up to $300,000 to their super from the proceeds of selling their home. There’s usually confusion about eligibility, how this impacts contribution caps, and the tax benefits involved. Find out How Downsizer Contributions can help your retirement.

E

Employer Contributions
Mandatory contributions made by your employer to your super fund under the Superannuation Guarantee (SG). These contributions help build your super balance over time. Find out more about the Superannuation Guarantee.

Excess Contributions Tax
A tax imposed if you exceed your concessional or non-concessional contribution caps. Many people inadvertently trigger this tax by not keeping track of their contributions. Find out more if you want to avoid the Excess Contributions Tax.

F

Financial Hardship
Allows you to access your superannuation early if you're facing severe financial difficulty, provided you meet certain criteria. Learn about early access to super.

Fund Performance
A measure of how well your super fund’s investments have performed over a specific period. Regularly reviewing this can help you make better decisions about your investment strategy. Find out about legalsuper’s performance.

G

Growth Investment Option
A super investment strategy that focuses on higher-risk assets like shares, which can provide higher returns over time. People often misunderstand the risks associated with this option and may not consider their time horizon. Learn about legalsuper’s growth investment option.

Group Insurance

Insurance cover provided to members of a superannuation fund, such as life insurance, total and permanent disability (TPD) insurance, and income protection insurance. The insurance is "group" because it covers a large group of people under one policy, which often reduces individual premiums. Find out more about legalsuper’s insurance offering.

H

Hedging

A strategy used by superannuation funds to minimise the risk of loss from currency fluctuations or other investment risks. Currency hedging, for example, is used when funds invest in international assets, reducing the impact of foreign exchange rate movements on returns.

High Growth Investment Option
An aggressive investment strategy with a larger allocation to shares and other growth assets. It has higher potential returns but greater short-term volatility. Find out about legalsuper’s high growth investment option.

I

Income Protection Insurance
Also known as Salary Continuance Insurance, This insurance provides regular payments if you cannot work due to illness or injury, often offered through your superannuation fund. Premiums are typically deducted from your super balance.

Income Stream

A regular payment drawn from your superannuation balance once you retire or reach preservation age. Income streams can be set up as TTRs, allocated pensions, account-based pensions, or annuities, providing a source of retirement income.

Industry Super Fund

A type of superannuation fund originally created for employees within a specific industry or sector. Industry super funds are known for being low-cost and are often not-for-profit, meaning profits are returned to members rather than shareholders. legalsuper is an industry super fund dedicated to the legal community. Discover more about our tailored services and benefits here.

Investment Strategy
The approach your super fund takes to investing your money, typically tailored to your risk tolerance and life stage. There are options like growth, balanced, and conservative strategies. Read about choosing the right Investment Strategy.

L

Low Income Superannuation Tax Offset

Also known as the government co-contribution, this initiative that refunds up to $500 of the tax paid on concessional contributions for low-income earners. Many low-income workers are unaware of this benefit and miss out on claiming it.

Lump Sum

A one-off payment withdrawn from your superannuation when you retire or meet a condition of release. This is an alternative to receiving regular income streams (like pensions) and allows you to access all or part of your super savings in a single payment.

M

Member Voluntary Contributions
Extra contributions you can make to your super fund from after-tax income. These can help you grow your balance faster in a tax efficient manner as you can generally claim them as a tax deduction. Learn more about after-tax contributions.

Minimum Pension Payment

The minimum amount you must withdraw from an income stream (such as an allocated pension or account-based pension) once you’ve transitioned your superannuation into the retirement phase. The government sets these minimum withdrawal rates, which increase with age. Find out more here.

MySuper
A default super option introduced by the government for people who do not actively choose a fund. These products are designed to be simple and low-cost. Find out about legalsuper’s MySuper option.

P

Pension Phase
Once you retire, your super can transition into the pension phase, where you can draw a regular income. Many misunderstand the tax implications in this phase, where earnings on your balance are tax-free, unlike during the accumulation phase. Learn about legalsuper’s flexible Pension Account.

Post-Tax (Non-Concessional) Contributions

Contributions made to your super fund from your after-tax income. These are not taxed when they enter the fund because they are made with money that has already been taxed at your marginal rate. Non-concessional contributions have a higher annual cap than concessional contributions. Find out more about after-tax contributions.

Pre-Tax (Concessional) Contributions

Also known as Salary Sacrifice, these contributions are made from your pre-tax income, including employer contributions, and personal contributions claimed as a tax deduction. These contributions are generally taxed at 15% within the super fund and are subject to annual contribution caps.

Preservation Age
The minimum age at which you can access your superannuation savings, provided you meet a condition of release (like retirement). Many confuse the preservation age with the Age Pension eligibility age. Planning for retirement? Check your Preservation Age.

Return on Investment (ROI)
The profit or loss from an investment relative to its cost. It’s an important metric to consider when evaluating the performance of your super fund’s investment strategy.

Retirement Income Stream

A regular income paid from your superannuation savings once you retire, typically through an account-based pension, TTR or annuity. These payments provide retirees with a steady source of income and are an alternative to taking a lump sum from their super fund. There are generally tax benefits of utilising this option. Find out about legalsuper’s income solutions.

Risk Profile

A measure of an individual's tolerance for investment risk, based on factors like age, income, and financial goals. legalsuper offers a range of investment options with varying levels of risk, from conservative to aggressive, to match members' risk profiles.

Rollover

The process of transferring your superannuation balance from one fund to another without withdrawing the funds. This is common when changing jobs or consolidating multiple super accounts to avoid paying multiple fees. Rollovers are not taxed, as long as they stay within the super system.

S

Salary Sacrifice
An arrangement where you agree to forego part of your pre-tax salary in exchange for additional contributions to your superannuation. People often misunderstand the tax benefits and how it affects their take-home pay. Understand Salary Sacrifice arrangements.

Self-Managed Super Fund (SMSF)

A private superannuation fund that you manage yourself, giving you greater control over your investment choices. While SMSFs offer flexibility, they also involve additional fees and legal responsibilities. Alternatively, we offer a Direct Investment Option (DIO), allowing you to choose, buy, and sell investments, and track performance with less administration compared to an SMSF.

Spouse Contributions

Contributions you make to your spouse's superannuation account, which may qualify you for a tax offset. This strategy is particularly beneficial if your spouse is a low-income earner or not working, as it helps grow their retirement savings. Find out how spouse contributions can benefit your family’s retirement savings.

Superannuation Guarantee (SG)
The mandatory contributions employers must make to your super, set at a percentage of your salary. As of 2024, the SG rate is 11.5%. Many don’t check whether they’re receiving the correct contributions from their employer. Find out more about the Superannuation Guarantee.

T

Total and Permanent Disability (TPD) Insurance

A type of insurance offered through super funds that provides a lump sum payment if you become totally and permanently disabled and are unable to work again. TPD insurance can be an important part of your superannuation to ensure financial protection in the event of a serious injury or illness.

Transition to Retirement (TTR) Pension
A pension that allows you to access some of your superannuation while still working, typically after reaching preservation age. People are often unsure how it works and the tax benefits it provides during the transition to full retirement. How the Transition to Retirement works.

U

Unit Price

The value of a single unit in a superannuation fund's investment option. Your super balance increases or decreases based on the unit price, which fluctuates with the value of the underlying investments.

V

Voluntary Contributions

Extra contributions made to your superannuation on top of compulsory employer contributions. These can be either concessional (pre-tax) or non-concessional (after-tax) and are a great way to boost retirement savings. You can claim a tax deduction on your after-tax voluntary contributions.

W

Withdrawal Benefit
The amount you can withdraw from your super fund when you retire or meet a condition of release. Many people are unsure about how and when they can access this money.

Work Test

The Work Test requires individuals to meet certain employment criteria before making personal super contributions that can be claimed as tax deductions. It is not required for non-concessional or salary sacrificed contributions. Learn about super contribution limits and the work test here.

Conclusion

Understanding these superannuation terms can help you make smarter retirement decisions and better manage your super. For more details on any of these terms or superannuation strategies, visit our related pages or contact us for more personalised information.