SMSF
SMSF Mate
Updated Feb 14, 2022
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This information has been reviewed by our SMSF Mates before it was published as part of our review process.
SMSF and superannuation terminology can be a little confusing if you are new to the space so the team at SMSF Mate has created a glossary of common terms and phrases to help you navigate your way through your superannuation journey. The list below contains most of the common words in the super fund space which we receive the most questions about so we hope this glossary helps you cut through the confusion of superannuation and SMSFs.
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The accumulation phase refers to the time when a person starts saving money for retirement and finishes when they begin receiving distributions from the super fund. For most people, the accumulation phase begins at the start of your working life and ends when you retire.
An active investment manager will pick and choose what assets to hold in a portfolio to try and beat the market. In contrast to a passive investment manager who will buy an index of shares like the ASX200, an active manager will seek to buy the best companies in the ASX200. Active investment managers tend to outperform in high market volatility or market downturns.
An administration fee is charged by super funds and investment managers to cover administration costs such as the day to day operation of the fund.
Also referred to as a voluntary contribution, an after-tax contribution is made from your net pay which is after-tax. There are limits on the amount of after-tax contributions you can make in a year, so be sure not to exceed these otherwise penalties apply.
The age pension plays a crucial role in providing retirement income for many Australians. It forms part of the three pillars of retirement savings, alongside superannuation and private savings.
An allocated pension is an income stream paid to you in retirement by your super fund. Very similar to receiving a regular wage again, only it’s not paid your employer any more.
APRA stands for the Australian Prudential Regulation Authority, and they oversee banks, building societies, credit unions, insurance providers, friendly societies and most superannuation industry members.
APRA look after the licensing and regulatory oversight of financial service providers in Australia, and they are intended to protect relevant parties.
ASFA stands for the Association of Superannuation Funds of Australia and is a not-for-profit organisation that represents and protects the interests of Superannuation Funds in Australia.
ASIC stands for the Australian Securities and Investments Commission, which is Australia’s corporate regulator and independent body. ASIC’s primary role is to regulate financial services company laws to protect consumers, investors and creditors in Australia.
An asset class is a selection of financial securities which have similar features and behave in a correlated way. The main asset classes SMSF investors often refer to are cash, fixed interest, property and shares.
Anything of value which can be converted into cash if required which can be owned by individuals, businesses or governments. Assets can often generate revenue and create a benefit for the owner of the asset.
A method of balancing a portfolio of investments by percentage terms to improve risk, return and diversification. Assets in a portfolio will be analysed by sector or category and weighted according to the investor’s goals, investment time horizon and risk tolerance.
The ATO or Australian Tax Office is a statutory agency and revenue collection agency for the Australian Government who are primarily responsible for administering the federal tax system in Australia.
The AFCA or Australian Financial Complaints Authority is a dispute resolution service for Australian consumers who are not able to resolve complaints with financial services organisations who are members of the AFCA.
The ASX or Australian Securities Exchange in full is the primary securities exchange in Australia. Investors can trade shares, options, futures and interest rate securities on the ASX, and it’s said to have an average daily turnover of around $5 billion Australian dollars.
A balanced investment option is an investment category in standard super funds which contains a mix of diversified investments aimed at reducing the risk of the portfolio.
A basis point is one-hundredth of a percent or equivalently one percent of one percent, put another way – 0.10% would be ten basis points.
A bear market is a general fall in the stock market over some time. A typical measure of a bear market is a decline in the price of 20% or more from the high to low over a two-month timeframe.
Contributions to your superannuation which are deducted from your gross income, similar to salary sacrifice deductions.
A benchmark is a measurement used as a performance comparison to determine the relative performance of one fund to the next. In Australia, the standard benchmark for investment funds in the ASX200 index as active investment managers will try to outperform the benchmark.
A beneficiary is an individual which you nominate to receive your superannuation death benefit if you pass away. They would typically be a dependant which includes your partner, your children or anyone who is financially dependent on you at the time of your passing. Each super fund will have a different definition of a beneficiary, so it’s best to confirm with them to gain a clear understanding of the requirements.
A legally binding document that nominates who will receive your superannuation benefit in the event of your passing. You can typically nominate one or a number of your dependants.
The term blue-chip refers to the shares in a market-leading company which is considered a strong performer historically. The company’s products or services usually perform well in their respective sales markets.
A fixed-income security which is essentially a loan made by the investor to the borrower. Usually offered by companies or governments to finance projects or operations.
Bottom-up investing refers to an investment approach that focuses attention on the specific fundamentals of a particular company instead of placing emphasis on the macroeconomic cycle.
A bull market refers to a financial market in which prices are continually rising over an extended period of time.
Bullish refers to a personal belief that the market or the price of a particular security will rise in the future.
A cash investment includes things like a deposit at a bank, term deposits, and bank bills which are traded on the money market.
A cohort refers to a group of investors whose funds are managed as a collective over time. The composition of investments within the cohort will evolve as the investor’s age changes over time to account for differences in their risk profiles and income requirements. Typically investors of the same age are grouped together for this reason.
A co-contribution to your super is aimed at helping eligible people give their retirement savings a boost. Low or middle-income earners can make after-tax contributions to your super fund, and the government might also make a contribution up to a maximum amount of $500.
A concessional contribution is any funds paid into the super account which you receive a lower tax rate on. They are contributions made into your super account from your gross income which is before the tax has been taken out.
A conservative investment fund or strategy in your super fund is a low-risk option which invests mainly in cash, fixed income and bonds. This investment option has a lower risk profile than a growth investment option due to the makeup of investments within the portfolio.
The Consumer Price Index (CPI) in Australia is a number used to measure the general price of inflation for Aussie households. CPI measures the changes in the price of a basket or selection of everyday household costs to assist in measuring the cost of living.
Contribution splitting refers to your ability to split your before-tax (concessional) contributions from your super fund with your spouse. To ensure eligibility, the fund must be in the accumulation phase, and your souse must not be 65 or older.
The contribution cap is a limit of the amount which can be contributed to a super fund every financial year. If you exceed the contributions cap in a given year, you may have to pay additional tax on the excess contributions.
The contributions surcharge tax is an additional tax for high-income earners on all employer and salary sacrifice contributions to the super fund. The tax does not apply to any contributions made after the 30th of June 2005 as the surcharge was abolished.
The contributions tax is applied to all concessional super contributions made to your super fund. Some examples of concessional contributions include compulsory employer contributions and salary sacrifice contributions.
A defensive asset is one which is considered less-risky and will perform well in times of market volatility and risk-aversion (when the market sells off). Some examples include bonds and cash investments.
Diversification is a type of risk management for your portfolio that categorises each asset and attempts to balance the exposure or risk to each accordingly.
Dollar-cost averaging is a strategy where an investor will periodically invest in an asset over a period of time, rather than investing the entire position at once. The investor is likely to receive different prices each time they invest which averages out.
An eligible rollover fund is a super fund which can automatically receive benefits from other super funds. Typically they would be transferred to or from when a member’s balance is low, and they want to consolidate the funds.
The price an investor pays when entering or buying a new investment like shares in their super fund or SMSF.
The price an investor pays when exiting or selling an investment in their super fund or SMSF.
Fees are usually charged by an investment manager or advisor for the management or advice of an investment. Fees can also include administration costs and investor relations.
A financial advisor will provide financial advice to clients in return for remuneration. Some examples of services which a financial advisor or financial adviser would offer include tax planning, estate planning, investment management and retirement planning.
A fixed-income investment or security is an asset which pays a fixed rate of interest for a given period of time. Some examples include annuities, bonds, bank bills and term deposits.
A financial services guide is a legal document which outlines the details of a financial service being provided. It is intended to help clients understand their rights and entitlements before partnering with a financial service provider.
Gearing is a financial ratio which examines some form of the owner’s capital versus the debt or funds borrowed. Gearing is a measurement of the individual, company or asset’s leverage which can help determine the financial health and overall riskiness.
The government super co-contribution is intended to help low-income earners give their retirement savings a boost. Any after-tax contributions made to your super fund up to a maximum of $500, the government will match provided you meet eligibility criteria.
A growth asset is one which intends to produce capital growth as opposed to income and would typically be considered riskier than other investments. Growth assets include shares and property.
GDP is a measurement economic activity over a given period of time. It is the aggregate of goods and services produced and is a common measure of a countries growth and economic prosperity. GDP figures in Australia are released by the Australian Bureau of Statistics on a monthly and quarterly basis.
Income protection cover is an insurance policy which pays benefits to policyholders in the event or incapacitation due to an accident or illness.
An index is a measurement of the value of a group of financial securities and is measure the statistical change in value. In the case of the equity market, a well-known index is the ASX200 which is the top 200 listed companies in Australia by market capitalisation.
Index investment management is a style of passive investment management where the manager will buy a portfolio of securities which mirror those of a particular index.
Industry funds are a type of superannuation fund that was originally set up to provide retirement benefits for the employees of a specific industry in Australia. Industry super funds are for-members and do not have shareholders. They are also not-for-profit super funds.
An IPO is when a private company decides to list on the stock market and becomes a public company. When the shares of the company are first offered to investors is called the IPO.
Life insurance is a contract where the insurer will pay a beneficiary a predetermined amount in return for a premium when the insured person passes away. The vast majority of life insurance policyholders in Australia, hold the insurance in their super fund.
A managed fund is a selection of investments run by a professional fund manager to generate a positive return for investors. Typically SMSF investors will receive units in a managed fund if they choose to invest, and the unit price reflects the underlying value of the investments.
A marginal tax rate is a progressive method of taxation which aims to tax individuals based on how much they earn. Low-income earners are usually taxed at a lower rate than high-income earners.
A member is an individual who contributes to a super fund and receives benefits for the fund in retirement, either in a lump sum or regular payments.
MySuper was an initiative by the Australian Government that was announced in 2011 aimed at providing simple and low-cost default super funds to Australian employees. The main objective was to remove unnecessary features and fees from super funds to offer better value to members.
Non-concessional contributions are funds contributed to your super fund from after-tax income, and they are not taxed as they enter the fund. There are limits on the amount of non-concessional contributions you can make each financial year which at the time of writing is $110,000 from July 1st 2021. According to the ATO website, if you contribute more than that, you may have to pay extra tax.
The pension is a scheme designed to provide income support to retired Australian’s who require assistance. The receive the Age Pension in Australia, you must meet age, residency and means test requirements.
Performance is the measure of an investment rate of return over time and is usually quoted in percentage terms.
A performance benchmark is a standard of which another investment can be compared against and measured to understand relative performance.
A common performance benchmark used in Australia is the ASX200 index.
Permanent incapacity refers to when a member of a super fund is unable to engage in employment for which they are qualified due to mental or physical illness.
Preservation age is the age of which you can access your superannuation if you are retired. If you were born before the 1st of July 1960, you have reached the preservation age of 55 years. You are able to access your super if you met a condition of release.
A product disclosure statement is a document which financial service providers must provide to you if they are offering a financial product. It must include things like information about the product, features, benefits, risks and how to lodge a complaint.
A retail fund is an investment fund that is usually run by a financial institution or insurance company and open to investment to ordinary investors.
Risk in investments refers to the measurement of the potential outcome of an investment’s gains or losses over time. Generally speaking, the higher the risk of an investment, the higher to potential returns.
A rollover is when a super fund member transfers some of their funds from one super fund to another.
Salary sacrifice contributions are when you arrange with your employer to forego part of your pre-tax income to make contributions to your super fund. The combined total limit of employer and salary sacrificed contributions must not exceed $25,000 per financial year.
A self-managed super fund or SMSF for short is a structure used to save for your retirement. The members of the SMSF are also the trustees which mean they are tasked with running the fund for their own benefit. They are responsible for ensuring the fund complies with superannuation and tax laws.
The sole purpose test is a test which SMSFs must pass to receive tax concessions normally available to super funds. The super fund must be maintained for the sole purpose of providing retirement benefits to members of their dependants if a member dies before retirement. Serious penalties apply for contravening the sole purpose test, which includes civil and criminal penalties.
Spouse contributions is an initiative which allows people to make a contribution to your non-working or low-income earning spouse’s super fund if you both meet eligibility criteria. Partners can generally contribute to their spouse’s super fund and claim an 18% tax offset on an amount up to $3,000 when you lodge your tax return.
Superannuation in Australia is a scheme put in place by the government to encourage people to save for their retirement. The funds saved are intended to provide them with a regular income stream or lump sum payment when they retire from the workforce.
Superannuation Guarantee requires employers in Australia to contribute a minimum of 9.5% of each eligible employees ordinary time earnings to their super fund.
SuperStream is the way companies are required to pay employees superannuation guarantee contributions to their super funds. SuperStream money and data are sent electronically in a standard format and must be used by employers.
A trustee is a person or a company that has been appointed to ensure that the fund is operated in accordance with the trust deed and in the interest of beneficiaries.
A voluntary contribution is an after-tax super contribution to your super fund, also called a personal contribution or non-concessional contribution. It is the money that you pay into your super fund from your after-tax income.
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