ARTICLE

Understanding superannuation jargon

07 June 2022 dot 5 mins read

There’s a lot of jargon and financial terminology used to talk about your superannuation and the rules around it. So we’ve got a cheat sheet to help you understand what it all means.

Co-contribution, concessional contribution, preservation age… what do these terms mean? Understanding superannuation can be confusing. Here’s an alphabetical guide to what the most common terms mean.

The person(s) you nominate to receive your superannuation and/or insurance benefits when you die. The beneficiary must be related, financially dependent on you, or a legal representative of the person insured.

When you start a new job you can choose your own superannuation fund which means you don’t have to open a new superannuation account every time you change jobs. If you don’t choose a superannuation fund using the ATO’s Choice of Fund form, your employer will make your super guarantee contributions to their default superannuation fund.

This is a payment that can be made to you from the government if you’re a low or middle-income earner and you’re making after-tax contributions to your superannuation. If you earn less than a certain amount, the government will subsidise fifty cents for every dollar that you contribute to your superannuation every year, up to a maximum of $500. For more information on whether you qualify visit the ATO website here.

Also known as before-tax contributions, these are contributions into your superannuation fund from your salary before tax is paid, like a salary sacrifice contribution.

This cap limits how much you can pay into your superannuation every financial year from your pre-tax salary. If you go over the contribution cap, you may be taxed at a higher rate or have the contributions returned to you.
 
It’s important to get this right, so if you have questions or you’re confused, ask your superannuation fund. From 1 July 2021, you can contribute up to $27,500 per annum (including your superannuation guarantee payment). Check the ATO website for more information.

For most people, the money you save for your retirement in your superannuation fund is preserved. This means that unless you meet a condition of release you can’t access this money until retirement.
 
Under some circumstances, you may be able to access your superannuation early – many people took advantage of this opportunity in 2020 with the introduction of government COVID-19 legislation. The other most common conditions of release are: 

  • you’ve reached your preservation age and aren’t working anymore
  • you’ve reached your preservation age and are being transitioned to a retirement income stream
  • you stop working on or after your 60th birthday, or
  • you’re 65 (even if you haven’t retired). 

Consolidation generally means bringing all your superannuation funds together into one fund. Consolidating your super may potentially save you paying multiple sets of fees to different funds and make it easier to keep track of your superannuation. It is also known as a rollover.

This generally refers to contributions you make to your superannuation that you would split and transfer, or rollover a proportion of, to your spouse’s superannuation account.

One of the many benefits of superannuation in Australia is that the contributions paid into your super fund are generally only taxed at 15 per cent.

Employers must nominate a default superannuation fund into which they pay superannuation contributions (also known as the superannuation guarantee – see below) for their employees. When you start a new job, if you don’t nominate your own superannuation fund, your employer will pay contributions into their default fund.

If you are considered a lost superannuation fund member due to being inactive, having a low account balance, or can’t be located then your superannuation can be rolled over into an Eligible Rollover Fund.

When you join a superannuation fund, you’ll be asked to choose your investment option(s). If you don’t choose an option, your money will go into the default option, usually a Balanced Fund. You can switch option(s) at any time by completing a switch request.

Your superannuation is considered lost if no contributions have been made in five consecutive years or your fund can’t contact you. The superannuation fund is required to inform the ATO and your name and superannuation is added to the Lost Superannuation register.

A non-binding death benefit nomination advises the trustee of your superannuation fund to distribute your superannuation as per your instructions. Even though you have instructed how you’d like your superannuation paid, with this nomination type, the trustee has the ultimate discretion on how your benefits are distributed.

There’s a limit to how much you can contribute to your superannuation from your after-tax salary, known as a non-concessional contribution cap. From 1 July 2021, the cap is $110,000 per financial year, unless you use the bring-forward rule. Find out more at the ATO.

This is a nomination that you provide to your superannuation fund. There’s no expiry date and the trustee of the superannuation fund must follow your request to pay your superannuation, as per your nomination. Think of it as a Will for your superannuation money.

Pension age is the earliest age you can access a Government Pension if you meet the income and asset tests.

Preservation age is the earliest age you can access your superannuation if you meet a condition of release. The date is calculated from your date of birth, and is referred to as your preservation age because, until then, your superannuation benefits are ‘preserved’ (or not accessible) until you reach a certain age.

An amount transferred from one of your superannuation funds to another superannuation fund. It is also known as consolidation.

This is where you ask your employer to make contributions to your superannuation fund from your before-tax salary. This may decrease the amount of tax you pay while increasing your superannuation contributions, depending on how much you contribute. Chat to your employer to see whether they offer this arrangement.

The superannuation guarantee charge is a percentage of your salary that your employer pays on your behalf into your superannuation fund. This is currently 10 per cent (as of 1 July 2021) of your salary and must be paid into a complying superannuation fund or retirement savings account if you earn more than $450 a week. Note, legislation has recently been changed so that the $450 eligibility threshold will be removed from 1 July 2022. This means from 1 July 2022, you won’t have to earn more than $450 a week in order to be eligible for your employer to pay you the superannuation guarantee.

Corporate funds are generally linked directly to a particular company, making it easier for the employer to manage super fund accounts and process contributions for their employees.
 
Industry funds are associated with particular industries and are, in most cases, open to the public to join. 

Retail funds offer several different investment options so you can choose to invest your money exactly where you want it e.g., managed funds, property or shares on the ASX. You can also use the pre-determined “set and forget” option, where the fund chooses the investment strategy.

Self-Managed Superannuation Funds (SMSF) are funds with fewer than six members. The difference between a SMSF and other types of funds is that the members of a SMSF are usually also the trustees. This means the members of the SMSF run it for their benefit and are responsible for complying with superannuation and tax laws.

Unrestricted non-preserved benefits
Superannuation funds that you don’t need to meet any conditions to access, usually only available if you have retired. 

Here to help

Talking to a financial planner can help you unpack the jargon, understand your situation and make confident financial decisions (big or small) so you can get the most out of life.
Disclaimer:
Copyright © 2022 AIA Financial Services Pty Limited (ABN 68 008 540 252, AFSL 231109), trading as AIA Financial Wellbeing. All rights reserved. This information is current at the date of this publication and is subject to change. This provides general information only, without taking into account factors like the objectives, financial situation, needs or personal circumstances of any individual and is not intended to be financial, legal, tax, health, medical, nutritional or other advice. Before acting on the information in this publication, individuals should consider its appropriateness having regard to such factors.

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