Taxpayers Australia Inc

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1 Taxpayers Australia Inc Superannuation Australia (A wholly owned subsidiary of Taxpayers Australia Inc) Glossary of superannuation terms These terms are commonly used in the superannuation sector. Account-based income stream/account-based pension: A pension paid (generally on retirement) from superannuation standing to the credit of your account. For most people aged 60 and over, these pension payments have been tax-free since July Previously, they were known as allocated pensions. Accumulation super fund: A super fund where your retirement benefit depends on the money put in by you and your employer, and the investment return generated by the fund (less fees, taxes and other costs). No pension is being paid by the fund. Age pension: A regular, fortnightly payment from the federal government, administered by Centrelink, that can be available when you reach age pension age if you meet certain criteria. Annuity: An investment, purchased with a lump sum, that guarantees to pay a set income for either an agreed number of years, or for life. Generally, your money is locked away for a fixed period or for life, though some annuities allow early withdrawals or for a residual capital value. The income payments may be indexed each year, often in line with inflation. Some annuities allow for reversionary beneficiaries (see definition below). Beneficiary: Someone who will receive a benefit or asset in the event of the owner s death. Binding death benefit nomination: Where the super trustee, in the event of your death, must pay your super benefit to your nominated beneficiary, unless it would be unlawful to do so. Co-contribution: A government initiative to help eligible individuals save for retirement. Subject to qualifying rules and income levels, the government makes contributions of up to $1 for every $1 of non-concessional contributions paid to a superannuation fund by eligible people. Thresholds and cut-off limits apply, and it has been announced that the rate of contribution will be reduced from the year. Commutation: This is the process of converting a pension or annuity into a lump sum payment. This payment can be paid to the beneficiary or rolled over to another product within the same superannuation fund, or to another superannuation fund. Complying superannuation fund: A superannuation fund that is regulated under the Superannuation Industry (Supervision) Act Conditions of release: These are conditions that must be satisfied before preserved benefits can be paid. The following conditions of release have nil cashing restrictions: retirement reaching age 65 reaching preservation age and permanently retired death or permanent incapacity termination of employment and the benefit is less than $200. Benefits can only be paid if the rules of the superannuation fund allow it. Office: 1405 Burke Road, Kew East, Victoria 3102 Postal address: PO Box 292, Kew East, Victoria 3102 Telephone: (03) Fax: (03) info@taxpayer.com.au Web:

2 Concessional contributions: Also referred to as before-tax super contributions, these include employer superannuation guarantee (SG) contributions, contributions that are made under a salary sacrifice arrangement, and deductible personal contributions. Concessional contributions are included in the assessable income of a complying super fund and taxed concessionally at 15%. See also non-concessional contributions below. Concessional contributions cap: The limit on the amount of concessional contributions you can make to your super fund each year before you have to pay extra tax. For those 50 years old or over, transitional arrangements are in place to give them a higher concessional contributions cap for the financial years up to and including See the Tax Office s information on transitional concessional contributions cap. For the current concessional contributions cap, refer to its key superannuation rates and thresholds. Contributions splitting application: An application by a splitting applicant to their fund s trustee/ RSA provider, to roll over, transfer or allot an amount for the benefit of their spouse. The application may include an eligibility statement by the receiving spouse. Contributions tax: This is the tax payable by your super fund on the concessional contributions received. The current rate of tax on the assessable income of a complying super fund is 15%. Death benefit: A payment made on the death of an employee or superannuation fund member. A death benefit may be paid to a beneficiary as a lump sum or, in some cases, as an income stream (pension or annuity). Death benefit employment termination payment: A lump sum payment made to a beneficiary or estate because of the death of an employee. The tax liability is determined by whether the payment is made to a dependant or non-dependant. Defined benefit super fund: A super fund where your retirement benefits are calculated by a predetermined formula. Retirement benefits are usually calculated using your average salary over the last few years before you retire and the number of years you worked in the company or public service. Market fluctuations have no effect on the value of your benefit. Dependant: The superannuation law defines a dependant of a person as being: their spouse a child of a person a person in an interdependant relationship, and a financial dependant. Equity release: A way to access the equity in your home to provide you with additional funds in retirement. Excess concessional contributions: The amount of your concessional contributions to super in a financial year which exceed your concessional contributions cap. Excess concessional contributions tax: A tax of 31.5% on your super contributions over the concessional contributions cap. Excess non-concessional contributions tax: A tax of 46.5% on your non-concessional contributions to super in a financial year which exceed your non-concessional contributions cap. Excess concessional contributions (see above) are also counted towards this limit. Executor: A person specified in your will, or appointed, to administer the will. 2

3 Financial adviser: A person or authorised representative of an organisation licensed by the Australian Securities and Investments Commission (ASIC) to provide advice on some or all of these areas; investing, superannuation, retirement planning, estate planning, risk management, insurance and taxation. Growth phase: A superannuation interest is said to be in the growth phase if the member has not satisfied a relevant condition of release (see definition above) or the member has met a relevant condition of release but no benefit has been paid in respect of the superannuation interest. A superannuation interest will still be in growth phase where a member receives a benefit (other than a pension or annuity) as a result of satisfying a relevant condition of release, but is still entitled to receive further benefits from the fund. Home reversion scheme: Involves selling all or part of your home while you still live there. You receive a reduced or discounted lump sum payment in exchange for relinquishing a fixed proportion of the value of your home when you sell it in the future. Intestate: Dying without leaving a will. Your assets will be distributed according to intestacy laws in the relevant state or territory. Investment risk: The possibility that your investment may fall in value or earn less than expected. Lost member: A lost member is a member of a super fund who: is an inactive member they are inactive if they joined more than two years ago before and there have been no contributions or rollover amounts in the last five years transferred from another super provider as a lost member and the fund hasn t found or been advised of a new address, or cannot be contacted the fund may not have been advised of the member s address or mail sent to the member s last known address has been returned to the fund unclaimed. Lost members register (LMR): The LMR is a central register of lost superannuation fund members and RSA holders administered by the Tax Office. Lump sum: A capital amount payable as a single lump sum amount or by instalments, for example, an ETP. This can be contrasted with a pension or annuity which is a series of payments and are in the nature of income rather than capital. Non-binding nomination: Guides your super fund trustee on who will get your super if you die. The trustee is not bound to follow instructions, unlike with a binding death benefit nomination. Non-commutable: In relation to a pension or annuity, this means it cannot be converted into a lump sum payment. There are some circumstances when a commutation is allowed, they include: commutation within six months of commencement - this applies to the original pension or annuity only, or in certain circumstances, to a reversionary beneficiary, or to purchase another pension or annuity that meets the pension and annuity standards, or to pay a superannuation contribution surcharge, and to allow for a payment in regard to payment split due to marriage breakdown. Non-concessional contributions: Also known as after-tax contributions. Non-concessional contributions also include concessional contributions in excess of your concessional contribution cap. They include non-deductible personal contributions and eligible spouse contributions. Limits apply to the amount of non-concessional contributions you can make. These contributions are not included in the assessable income of a complying super fund, so the fund does not have to pay tax on these contributions. 3

4 Pension: An income stream that makes regular income payments. Examples include the government age pension, an account-based income stream or term allocated pension from your super fund. Power of attorney: A document that appoints someone to act on your behalf in a legal or business matter. A power of attorney may be general or specific and may be unlimited or limited to a specific act. Preservation age: The age at which you can withdraw your super. You must also meet a condition of release. Preserved benefit: A super benefit that remains in a super fund until the member reaches preservation age and, in most instances, retires from the workforce. Product disclosure statement (PDS): A document that financial service providers must provide to you when they recommend or offer a financial product. It must include information about the product s key features, fees, commissions, benefits, risks and the complaints handling procedure. Restricted non-preserved benefits: These are superannuation benefits which can be paid on termination of an office of employment. They can also be paid under the same conditions that preserved benefits are paid. Retirement savings accounts (RSAs): An RSA is an account that provides low cost and low risk savings. It is offered by banks, building societies, credit unions, life insurance companies and prescribed financial institutions (RSA providers). It is used for retirement savings. Reverse mortgage: A type of home loan used in retirement as a way for people to access the equity in their home. The loan amount depends on your age, the value of the home and how it is taken (lump sum, regular payments or draw down as needed). Interest is added to the loan and does not have to be repaid until the house is sold, usually as part of your estate. See also home reversion scheme. Reversionary beneficiary: Somebody to whom a pension is redirected when you die. Salary sacrificing: When you and your employer agree to pay a portion of your pre-tax salary as an additional contribution to your superannuation. This can be a tax-effective strategy and usually suits middle to higher income earners. Spouse contributions: Individuals can make contributions on behalf of a spouse. The contributing spouse may be entitled to a tax offset. Eligible spouse contributions are treated as after-tax or non-concessional contributions and count towards the receiving spouse s non-concessional cap. Superannuation (super): Money that you and your employers put into a special fund during your working life to provide you with money to live on when you retire. Superannuation guarantee (SG): A prescribed minimum level (currently 9%) of superannuation required under the Superannuation Guarantee (Administration) Act 1992 that an employer must contribute for employees and persons deemed to be employees under teh relevant law. Superannuation guarantee charge (SGC): A charge imposed under the Superannuation Guarantee Charge Act 1992 on employers who do not meet the minimum superannuation guarantee requirements on behalf of employees. 4

5 Transition to retirement pension/income stream: This allows a working super fund member who has reached their relevant preservation age but are still younger than 65 years to withdraw some of their super money each financial year (up to 10% of their account balance) in the form of a pension to supplement their other income from working. Trustees (of a super fund): People or a company appointed to manage a super fund on your behalf. With SMSFs, every member (a maximum of four) is required to also be a trustee. Unclaimed super: There are five types of unclaimed super, and can be for: a member aged 65 years or older a non-member spouse a deceased member a former temporary resident a member with a small or insoluble lost member account. Depending on the type of fund, unclaimed super must be reported and paid to the Tax Office or to the relevant state or territory authority. Unclaimed super should not remain in the fund. Unrestricted non-preserved benefits: These are generally benefits where the member has previously met a condition of release and was entitled to be paid, but has voluntarily decided to keep the funds within the superannuation system. There are no restrictions for paying these superannuation benefits out to a member at any time on demand, irrespective of age, employment situation or financial position, providing the superannuation fund rules allow the payment. Will: An important legal document that sets out how you want your assets and other belongings to be distributed when you die. 5