Superannuation is one of our most important investments – but it is also famously difficult to understand.
Many of us struggle to understand the key concepts and this can have long-term implications for just how much money we will have when the time comes to collect our gold watch and retire.
This is something noted by Frank Ceravolo, national manager, member advice, at Australian Super.
“For most people super is, or will be, one of their biggest assets next to their family home and will probably have a major impact on their retirement lifestyle,” he says.
“Understanding some of the basics will help you look after and grow your super, so you have more money when you finally finish work.”
Jason Bragger, the director and senior financial planner of Dolfinwise in Brisbane, agrees.
“It is important that people do get familiar with the key terms that appear on their superannuation statements,” he says.
“This is so they can make informed decisions about what will eventually be, in most cases, their biggest asset.”
With this in mind, The New Daily has contacted some of the leading super agencies and collected a list of terms that have proven bamboozling for the average punter.
Here’s our list:
1. Superannuation Guarantee (SG): This is the percentage of your salary that your employer must put into your super. From July 1, 2013, the SG rate your employer is required to add to your super is 9.25 per cent of your salary – in other words, $9.25 for every $100 you earn. This rate is to gradually increase to 12 per cent by July 1, 2019.
2. Contribution: A contribution is anything that is added to your super – if you were talking about banking, a contribution is a deposit. You can add to your super from your before-tax or after-tax salary. Before-tax contributions are also known concessional contributions and include SG contributions and salary sacrifice contributions. After-tax contributions are also known as non-concessional contributions.
3. Benefit: A benefit is simply a payment from your super fund. A retirement benefit is the super payment you get when you permanently retire from the workforce. You may also get a Totally & Permanent Disability (TPD) Benefit payment from your super fund if you are unable to work because of injury or illness. A Death Benefit may be paid to your beneficiary. If you have insurance through your super, it may be added to a Death or TPD benefit.
4. Insurance: It is really common for basic insurance to be part of your super arrangement. MySuper products are required to have a level of basic insurance. Your annual statement will show you the amount of insurance cover you have with your super fund. Insurance offered by super funds is usually one or all of life, total and permanent disablement and income protection.
5. Fund: The fund is simply the organisation that looks after your super. You have a super account with a super fund and a bank account with a bank.
6. Consolidation: Consolidating your super just means to combine any super accounts you have into one. Having all your super in one place will save you time, reduce paperwork and make it a lot easier to keep track of your super. Before you close your other accounts, you should check if there are any exit fees and if you have any insurance in these accounts.
7. Beneficiary: Beneficiaries are the people who you would like to receive your super if you die. You can “nominate” who you want to receive your super, and your super fund will take your wishes into account when it comes time to pay your super. If you complete what is called a “binding nomination”, your super fund will follow your direction. Super can only be paid to dependants or your estate – not friends or charities. It’s a good idea to review who you have nominated to receive your super whenever your circumstances change – for example, if you get married or divorced.
8. Lost fund: Your fund is considered lost if it hasn’t received any contributions or rollovers during the last five years, or if your fund cannot contact you. If you are ‘lost’ and you have less than $2000 in your account, your super will be transferred to the ATO. The ATO will then try to get it back into an up-to-date account.
9. Asset classes: This means the types of assets in which your money is invested. Assets are divided into classes such as cash, fixed income, property and shares.
10. Custodian: According to GrowSuper, the custodian holds and has title to the fund assets and is usually a company. According to the Australian Prudential Regulation Authority, they may provide additional services such as collecting income on securities, settling transactions, investing cash and providing accounting reports.
11. Defensive assets: Defensive assets are generally a lower risk, with an expectation of lower returns over the longer term. Many of their returns come from income or cash flows. Examples include cash and some fixed income investments. Defensive assets are typically popular in difficult economic times.
12. Diversification: This means spreading your assets to minimise risk. So if one asset struggles, it won’t affect your entire portfolio. It’s the same principle as ‘don’t put all your eggs in one basket’. According to trading guide The Bull, a diverse portfolio might include Australian and international shares, property as well as bonds, managed funds and investments in commodities such as gold.
Sources: Australian Super, Hostplus