Accumulation
(sometimes called defined contribution) is a fund where the benefit
a member receives is the total of defined contributions to the fund
plus earnings on those contributions, minus tax, fees and other
charges. Most new superannuation funds are accumulation funds. Members
carry the investment risk.
AFSL
an Australian Financial Services Licence is issued by the Australian
Securities and Investments Commission (ASIC) under section 913B
of the Corporations Act, which authorises a person who carries out
a financial services business to provide financial services, including
issuing of a financial product or giving of financial product advice.
Asset
can be a physical asset, such as property, or a financial asset,
such as a bank balance, a security or a certificate. There are four
‘asset classes’ for investment products – cash, shares, fixed interest
and property.
Australian Securities and Investments Commission (ASIC)
is the independent Australian government body, which enforces and
regulates company and financial services laws in Australia to protect
consumers, investors and creditors. ASIC reports to the Commonwealth
Parliament, the Treasurer and the Parliamentary Secretary to the
Treasurer.
Automatic acceptance
is insurance cover that provides a basic level of cover within
your super fund. This means that members don’t need to provide medical
details to obtain this cover.
Benefit
is the amount of money in a superannuation fund or RSA which the
member is entitled upon reaching preservation age and meeting certain
conditions of release.
Contribution
is the monies put into a superannuation fund or RSA by an employer
or an individual.
Compound interest
is calculated not only on the initial principal amount, but also
on the accumulated interest. Compound interest is different to simple
interest which is only calculated as a percentage of the principal
amount. Compounding is where the value of an investment increases
exponentially over time.
Defined benefit
is a fund where the benefit is calculated based on a formula which
takes into account the person's years of employment and salary at
retirement. The employer or the sponsor of the fund carries the
investment risk, not the member.
Diversification
is an investment technique that spreads investments over different
assets, asset classes or investment managers, in order to reduce
the total risk of your investment portfolio. The rationale is that
a portfolio of different investments will, on average, provide a
higher return and lower risk than any individual investment within
your portfolio.
Financial adviser
(also called a financial planner) provides individuals with advice
on suitable forms of investments, including superannuation. A licensed
financial adviser is obliged under the law to act in the interests
of their client when making recommendations to their client.
FSG (Financial Services Guide)
is a document required by the law that is given to a retail client
when they are provided a financial service by a holder of an AFSL.
The document describes the financial service being given and provides
details of who is giving the service.
Inflation
is the increase in the prices of goods and services in the economy.
Investment
is using your money to make it grow, for example, by buying property
or shares.
Investment choice
refers to the ability for a member of a super fund to select investment
options from within the fund.
Investment manager
can be an individual or a firm responsible for making decisions
related to any portfolio of investments in accordance with the stated
investment objectives of the fund.
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Investment strategy
(sometimes called an investment style) is a method of managing
allocation of assets within an investment portfolio reflecting the
‘risk profile’ of the investor. For example, a “balanced” investment
technique aims to balance the risk and return of the investment
and is suitable for investors with a longer time horizon.
Personal contribution
is the amount that you voluntarily contribute to your superannuation
fund from your take home pay. This is in addition to the compulsory
contributions your employer makes on your behalf. It is sometimes
called private superannuation.
Preservation age
is the age at which a member is able to access preserved benefits,
so long as they meet certain conditions of release.
PDS (Product Disclosure Statement)
is a document required by the law that is given to a retail client
to describe the main features of a financial product being issued
or sold.
RSA (Retirement Savings Account)
is an alternative superannuation product which is offered by banks,
building societies, credit unions, life insurance companies and
prescribed financial institutions (RSA providers). RSAs are capital
guaranteed.
Return
is the amount of money your investment earns.
Risk
is the possibility that your investment may fall in value or earn
less than expected.
Risk profile
is your tolerance to investment risk. Potential return rises with
an increase in risk. Investments with low risk (lower levels of
volatility or uncertainty) are usually associated with lower returns,
whereas investments with higher risk are associated with potentially
higher returns.
Salary sacrifice
is an arrangement between an employer and their employee where
the employee sacrifices pre-tax salary or wages into their superannuation
fund. Sacrificed contributions are subject to 15% tax in the fund.
SOA (Statement of Advice)
is a document required by the law that is given to a retail client
when they are given personal financial advice by a holder of an
AFSL or their representative.
Superannuation
is an investment which operates by putting aside money during your
working life so you have a payment or income stream upon retirement.
Superannuation funds that meet prescribed Government standards are
eligible for tax concessions.
Superannuation Complaints Tribunal (SCT)
is an independent tribunal set up by the Commonwealth Government
to deal with complaints about superannuation funds, annuities and
deferred annuities and RSAs. For more information, visit www.sct.gov.au.
Superannuation Guarantee (SG)
is the minimum amount that an employer is required to contribute
to superannuation on behalf of its employees. Generally, employees
have 9% of their salary or wages contributed to a super fund by
their employer.
Trustee
is a person/company appointed under the terms of the trust deed
to make sure that the plan is operated in accordance with the trust
deed and in the interest of the beneficiaries, for example, superannuation
trustee. Superannuation trustees owe their beneficiaries a fiduciary
duty.
Volatility
is the relative rate at which the price of an investment moves
up or down. If the price of an investment moves up and down rapidly,
it is said to have high volatility. Conversely, if the price of
the investment never or rarely changes, it is said to have low volatility.
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