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Assets, annuities, concessional contributions… Understanding superannuation and retirement terms can be confusing. We’ve simplified some of the jargon to make things easier for you.

Superannuation plays a vital role in preparing for retirement, but with so many different terms, conditions, pensions and funds, it’s easy to get confused. We’ve broken down some of the most common terms so you can understand your super and be prepared for retirement.

Account-based pension

An account-based pension provides an income when you retire, starting with your superannuation money (when you have met a condition of release).  When you retire, you can transfer some – or all – of the super you’ve saved throughout your work life, and you’ll receive a regular income for as long as the pension lasts.

There are minimum and maximum drawdowns you can make from your pension each year (the ATO has more info on this). You can choose the payment frequency and how your money is invested by selecting from the available investment options within the product.

Income payments are tax free if you’re over 60. 

Annuity

An annuity is a product offered by a life company that provides a secure guaranteed income, for your lifetime or for a fixed term of your choice. When purchasing an annuity, you make a lump-sum payment and in return, receive income payments immediately (an immediate annuity) or at some point in the future (a deferred annuity).

You can invest in an annuity with money from your super or personal savings with an option to select fixed or indexed payments and the frequency with which you receive them.

Asset class

An asset class is a group of investments with similar characteristics which can provide an overview of how an investment might perform; primary assets classes include cash, fixed interest, property and shares.

Generally, the higher the risk of the asset, the higher the potential long-term growth. The lower the risk, the lower the potential for long-term growth. Keep in mind, though, that with increased growth potential comes increased risk and the higher the potential for negative returns. 

It’s important to consider your investment mix and make sure it’s right for you, based on your age and your future needs. Chat to a financial planner if you need a hand getting started, or refer to the Money Smart website.

Assets Test

You undertake an assets test to determine whether you’re eligible to receive the age pension from the government. Services Australia will calculate the value of any assets you (and your partner, if applicable) have. There‘s a maximum level of assets you can hold, depending on whether or not you’re a homeowner, and once you reach the maximum levels, the amount you could potentially receive from the age pension is reduced.

Read more about assets tests here.

Binding death benefit nomination

When you pass away, a binding death benefit nomination lets your super or pension provider know who you’d like as your beneficiary. This means your super provider can pay out your account balance and any insurance cover you have, as you’ve requested. 

For a binding nomination to be valid, it must be renewed every three years. The proceeds of your investment are paid to a legal representative, or to a legal dependant. If you’re interested in nominating someone as your preferred benefactor, check with your superannuation provider to see if they offer this option.

Co-contribution

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 super every year, up to a maximum of $500. For more information of whether you qualify click here.

Concessional contribution

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

Concessional contributions cap

This cap limits how much you can pay into your super 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 super fund. From 1 July 2021, you can contribute up to $27,500 per annum (including your superannuation guarantee payment). Check the ATO site link for more information. 

Condition of release

For most people, the money you save for your retirement in your super 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 super 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
  • You’re 65 (even if you haven’t retired).

Consolidation

Consolidation generally means bringing all your superannuation accounts together into one account. Consolidating your super accounts may potentially save you paying multiple sets of fees to different super funds, and make it easier to keep track of your super.  

Contribution splitting

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 super account. This can be confusing, so chat to your adviser or super fund if you’ve got questions.

Diversification

Diversification means you invest in a broad range of different investments within a portfolio to reduce risk. A diversified portfolio usually contains a mix of distinct asset types and investment options to limit your exposure to any single asset or risk

Estate

An estate refers to the assets a person owns when they pass away, and includes all personal property and real estate, personal effects, investments (outside of your super) and other assets. If you have any outstanding debt when you die, your estate is distributed to pay for those debts, before being paid out as per your will.

Your super and insurance benefits aren’t included as part of your estate, so it’s important to choose a beneficiary to receive your benefits in the event of your death, to ensure this money goes to the people you want to receive it.

Income test (for pensions)

This is an assessment Services Australia completes of you and your partner’s income from all sources, including financial assets like superannuation. Pensions have income and asset limits, so you may receive a lower pension if you’re over the limit. This includes financial assets such as superannuation. To work out how much income your financial assets produce, find out more at Services Australia. Pensions have income and asset limits. If you’re over these limits, your pension will be reduced. 

Non-binding death benefit nomination

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

Non-lapsing death benefit nomination

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.

Preservation age

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

When you reach your preservation age and meet a condition of release, you’ll be able to access your superannuation. You can find your preservation age at the ATO.

Preservation ages currently set by the Government are: 

Date of birth Preservation age
Before 1 July 1960 55
1 July 1960 – 30 June 1961 56
1 July 1961 – 30 June 1962 57<
1 July 1962 – 30 June 1963 58
1 July 1963 – 30 June 1964 59
From 1 July 1964 60

Salary sacrifice

This is where you ask your employer to make contributions to your super 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.

Superannuation Guarantee

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 super fund or retirement savings account. 

Transition to retirement strategy

This is an income stream where your super fund pays you a portion of your super money (a little bit like a pension). In order for this to be an option, you can speak to your financial adviser or visit the Money Smart website.

Important information

This information was prepared by Resolution Life Australasia Limited ABN 84 079 300 379, AFSL No. 233671 (Resolution Life). A copy of the Product Disclosure Statement can be obtained by contacting Resolution Life. This general advice has been prepared without taking into account your particular financial needs, circumstances or objectives. You should consider the appropriateness of this information in light of your circumstances. This advice is based on our understanding of current law as at August 2021, and is based on its continuance unless stated otherwise. While every effort has been made to ensure the accuracy of the information, it is not guaranteed. Resolution Life do not actively monitor breach of superannuation contribution caps. You should keep track of the contributions made to your account in respect of the caps applicable to you. You should obtain professional advice before acting on the information contained in this communication. Taxation considerations are general and based on present taxation laws and may be subject to change. You should seek independent, professional tax advice before making any decision based on this information. Resolution Life is also not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and you should seek tax advice from a registered tax agent or a registered tax (financial) adviser if you intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law.

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