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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 in an account-based pension, 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. 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.
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
A super co-contribution payment can be made directly to your super account if you’re eligible. To be eligible, you must be a low-middle income earner, and be 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.
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, but you may lose insurance benefits when bringing all your accounts together. Be sure to investigate thoroughly whether this is the right option for you or not, before proceeding.
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.
Death benefit nomination
You can nominate who you would like to receive your superannuation in the event of your death – this is called a super death benefit and generally includes the balance of the superannuation fund plus any insurance benefits associated with the account. If the rules of your fund allow it, you can nominate who you would like to receive your death benefit in the event of your passing.
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 income test from Services Australia is completed on 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 thresholds set by Services Australia.
Non-binding death benefit nomination
A non-binding death benefit nomination indicates to the trustee of your super fund how you’d like to distribute your superannuation in the event of your passing. 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. Check if your super fund offers this type of death benefit nomination.
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.
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 contributions – non-concessional and concessional
- Non-Concessional contribution: Also known as after-tax contributions, these are contributions into your superannuation account from your salary after tax is paid. You can currently contribution up to $120,000 per annum with after-tax money.
- 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 2024, you can contribute up to $30,000 per annum (including your superannuation guarantee payment).
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 11.5% (as of 1 July 2024 and will rise to 12% from 1 July 2025) 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 Moneysmart website.
What you need to know
Any advice on this website is provided by Resolution Life Australasia Limited ABN 84 079 300 379, AFSL No. 233671 (Resolution Life), and is general advice and does not take into account your objectives, financial situation or needs. Before acting on this advice, you should consider the appropriateness of the advice having regard to your objectives, financial situation and needs, as well as the relevant product disclosure statement and/or policy document, available from Resolution Life at resolutionlife.com.au or by calling 133 731, before making a decision on whether to acquire, or continue to hold, the product.
The Target Market Determinations (TMDs) for our financial products (where applicable) can be found at Target Market Determinations (TMDs). The TMDs describe the key features and attributes of an applicable product that affect whether it is likely to be consistent with the objectives, financial situation and needs of consumers in the target market.
Resolution Life is part of the Resolution Life Group and can be contacted via contact us or by calling the phone number mentioned above.
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.