Is one of your resolutions to get serious about your savings? If not, it should be! To help you understand superannuation, Crystal Wealth Partners director John McIlroy explains the top 10 super terms to help your retirement and investment choices.
1. Default option
Refers generally to the investment option you are given when you have your super money paid into an industry fund or retail fund and you decide not to make a specific investment choice.
2. Industry fund
These were established primarily to provide benefits for employees engaged in a particular industry (e.g. building industry). These funds are designed to enable individuals who frequently change jobs within an industry, or have more than one employer within the same industry, to maintain all of their superannuation benefits within the one superannuation fund. Many of these funds have become like retail funds, which means that anyone can be a member, rather than just employees working in a particular industry. Historically, industry funds have provided a low-cost super option with limited investment choices but many are now offering a wider range of investment options.
This is the name given to a new range of simple super accounts that are low-cost and provide limited investment options. There are MySuper rules which any super fund needs to meet to be classified as a MySuper account. Any fund, industry, retail or corporate super fund can provide MySuper accounts.
To ensure that superannuation benefits are used for the primary purpose of the provision of benefits in retirement, the government has imposed provisions that restrict access to amounts held within the superannuation system. These provisions are generally referred to as the ‘preservation rules’. Your age determines when you are able to access your super benefits and most younger people are able to access super benefits from age 60. Older people can access their super from age 55.
5. Retail fund
These are generally superannuation funds, which are ‘open’ for membership to the general public. They are mainly provided by larger financial institutions such as banks and life insurance companies and what they offer can vary considerably from low cost/low choice options to more complex structures which are sometimes referred to as wrap platforms.
If you are entitled to a superannuation benefit you can, regardless of age, transfer all or part of the payment to another superannuation fund. This can occur simply to amalgamate multiple super accounts into one fund while working or can it occur upon retirement to consolidate savings.
7. Salary sacrifice
This is another type of super contribution but rather than being compulsory, an employee voluntarily elects to direct salary or bonuses into super rather than receiving cash. This may provide some tax benefits to the employee over receiving cash remuneration.
Self managed superannuation funds are one of the choices you have for managing your super, along with industry funds and retail funds. SMSFs are often also referred to as DIY superannuation funds. They are super funds with fewer than less than members that satisfy specific control and membership conditions. As the name suggests you can invest your own super through this type of fund, but you have to comply with certain rules. You can also appoint advisers to help you.
9. Super Guarantee
Super guarantee or SG refers to the prescribed minimum level of superannuation contributions required under the Superannuation Guarantee (Administration) Act 1992 to be made by employers on behalf of their employees. Also referred to as compulsory super, these contributions are currently at a prescribed level of 9.25 per cent of salary or wages. Most employees have the choice of having these contributions directed to a retail fund, industry fund or SMSF.
10. Superannuation pension
A pension payable from a superannuation fund which is usually provided by way of monthly payments. There are various types of superannuation pensions available and they are an alternative to taking super benefits as a lump sum at retirement.
Crystal Wealth Partners is a privately owned boutique financial advisory and investment management firm specialising in delivery of services to high net worth individuals and family offices.
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