Explaining finanical and investment terms
What does it mean?
We have put together a list of the most commonly used technical terms with an explanation to help demystify them.
Age Pension - Income provided by the Government to seniors of a certain age who meet assets and income test.
Annuity - A product bought from a life insurance company to provide an income stream.
Condition of release - Conditions that must be satisfied in order for a person to access their superannuation such as reaching 65 or their preservation age.
Co-contribution - A superannuation contribution the Government may make to your super fund if you have made an after tax contribution, depending on your income
Diversification -Investing in a range of asset types.
Dividend - A payment made to shareholders out of company profits.
Gearing - Borrowing money to buy investments.
Liquidity - The ability to convert an asset into cash, without any price discount.
Managed Fund - A type of investment that pools the assets of many investors into a single fund which is managed by a professional investment manager.
Personal contribution - The amount that you voluntarily contribute to your super fund from after-tax pay (also known as non-concessional contribution)
Pre-retirement pensions - A type of superannuation investment that you set up before your retirement, and which is designed to pay you an income stream at regular intervals as chosen by you.
Preservation Age - This is the minimum age at which you can generally access preserved super monies, and is dependent on your date of birth. See the table below.
| When were you born? | Your preservation age |
| 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 |
| After 30 June 1964 | 60 |
Preserved Benefits - Super monies or retirement savings account you cannot access until you have satisfied a condition of release, such as permanent retirement from the workforce after reaching Preservation Age.
Return - The amount an investment earns.
Risk - The possibility that your investment may fall in value: the higher the potential return on an asset, generally the more risk that is involved.
Salary Sacrifice - This means ‘giving-up’ some of your pre-tax salary as a way of funding other benefits, such as superannuation contributions. Because the money is deducted from your salary before tax is deducted, your taxable salary is lowered, and there can therefore be tax advantages in this approach.
The following table shows the tax savings you will achieve, depending on your marginal tax rate, for every $10,000 you contribute to superannuation via a salary sacrifice arrangement.
| Your marginal tax rate | Tax savings for every $10,000 salary sacrificed into super* |
| 15% | $150 |
| 30% | $1,650 |
| 40% | $2,650 |
| 45% | $3,150 |
*Takes the Medicare Levy into consideration
For example, say you have a marginal tax rate of 40%. If you were to salary sacrifice $10,000 into super, instead of that income being taxed at 41.5% (inc Medicare Levy), as a pre-tax contribution to super it would only be taxed at 15%, saving you 26.5% of $10,000 – or $2,650 – in tax.
Superannuation Pension- A product bought from a super fund to provide an income stream.
Superannuation - A tax effective means of putting aside money during your working life for use in retirement.
Transition to Retirement pension (TTR) - A regular income stream you can access if you are 55 or over from your super savings without having to retire permanently.
