The jargon thrown around by the superannuation industry can be daunting for beginners. Here are 10 of the most common jargon terms used in super.
1. Industry fund – these were established primarily to provide benefits for employees engaged in a particular industry (such as building). These funds are designed for individuals who frequently change jobs within an industry, or have more than one employer within the same industry. It enables those individuals to maintain all of their superannuation benefits within the one superannuation fund.
2. Retail fund – these are typically super funds, which are “open” for membership to the general public. They are mostly provided by larger financial institutions such as banks and life insurance companies. What these financial institutions offer can vary significantly from low cost/low choice options to more complex structures which are sometimes referred to as wrap platforms.
3. SMSF – “Self Managed” Superannuation Fund means just that – you do the work, for this reason also known as DIY superannuation funds. SMSFs allow you to invest your own super through this type of fund, but there are certain rules you have to comply with. Unlike Industry or retail funds, where you are able to set and forget, it is crucial that the trustees have the time to manage the superannuation. A SMSF has less than five members; All of whom are usually business or family related. Each member of the fund remains legally responsible and must ensure the fund is correctly structured, keeps meticulous records and meets all reporting requirements. trustees can appoint advisers, accountants and administrators to help. If you wish to set up a SMSF or require advice for your SMSF, contact our office today!
4. MySuper – this is the name given to a new range of simple super accounts that are low-cost and provide limited investment options. There are rules which super funds need to meet to be classified as a MySuper account. Any industry, retail or corporate super fund can provide MySuper accounts.
5. Super Guarantee (SG) - refers to the set minimum level of superannuation contributions to be made by employers on behalf of their employees, as required under the Superannuation Guarantee (Administration) Act 1992. These contributions are currently at a set level of 9.25 per cent of salary or wages. Most employees have the option of directing these contributions to a retail fund, industry fund or SMSF.
6. Salary sacrifice – this is a type of super contribution which allows an employee to request the employer, voluntarily, to deposit part of salary or bonuses into super rather than receiving as cash. This may provide some tax benefits to the employee, as the salary sacrifice, just like the superannuation guarantee is taxed at the lower tax rate (concessional rate) of 15%. It also allows individuals to boost their super fund balances.
7. Preservation – the government has imposed provisions, generally referred to as the “preservation rules”, which restrict access to amounts held within the superannuation system. This is to guarantee that superannuation benefits are used for the main purpose of the provision of benefits in retirement, therefore your age is key in determining when you are able to access your super benefits.
8. Superannuation pension – When an individual retires or reaches retirement age, he/she becomes eligible to receive pension from his/her superannuation fund. Individuals may also become eligible to receive pension under other conditions (please go to the ATO website for further information). There are various types of superannuation pensions available and can be drawn either as monthly or annual payments.
9. Rollover – if you are entitled to a superannuation benefit you can transfer all or part of the payment to another super fund, regardless of age. This can occur simply to merge multiple super accounts into one fund or it can occur upon retirement to consolidate savings.
10. Default option – generally relates to the investment option you are given when you have your super money paid into an industry fund or retail fund and you decide not to make a specific investment choice.