Ahh Spring is in the air and it won’t be long now before your annual superannuation statement hits your inbox or mailbox.
Superannuation can be full of confusing terms, and it is an environment that seems to change on a consistent basis through government intervention. Deciphering the jargon can be a challenge.
The easiest way to build your knowledge is to begin by familiarising yourself with some of the key concepts and terminology regularly used by super funds and in your superannuation statements. If you really want to immerse yourself in a good education on superannuation, you can always read our superannuation module.
We’ve listed below some commonly used terms to help you this year!
Contributions – This is the money that goes into your super fund. If you’re employed that means the 9.5% minimum compulsory superannuation guarantee contributions (SGC). It also includes additional contributions your employer makes on your behalf, and contributions you may have made directly to your fund out of your after tax income.
Contributions tax – This is the tax that is deducted from your contributions when they’re paid into the super fund. Your fund pays this tax to the Australian Taxation Office (ATO). Contributions tax applies at a rate of 15% on concessional contributions (superannuation guarantee, tax-deductible contributions and salary sacrifice contributions). It does not apply to non-concessional contributions, or after-tax contributions.
Rollover – this refers to the transfer of any money from one super fund into another super fund.
Administration /Member fees – these fees cover the operation and running of the super fund.
Investment Management fees – these are fees paid to investment managers for managing the investments in the fund and will vary depending on what investment option or options you have chosen.
Indirect Cost Ratio (ICR) – this shows what it costs to manage your investment option.
Contribution fees – are fees your fund may charge to cover the cost of receiving and investing your contribution.
Withdrawal or termination fees – are fees your fund may charge if you take money out of your super or transfer it to another fund.
Investment switching fees – these fees may apply if you switch or change your investment options in the account.
Insurance – this is the level of personal insurance cover that you have within your superannuation account. Cover may include: Death, Total & Permanent Disability, Income Protection or Salary Continuance and Terminal Illness insurances.
Insurance premium – if you have insurance, this is the cost of the cover that you hold. Many super funds have a set default insurance option. You can usually choose to lower or increase your level of cover based on your needs.
Beneficiary – a person you have nominated to receive your superannuation balance as a benefit in the event of your death. You can either have a discretionary nomination, or a binding nomination in place, find out more about these types of nominations here.
Asset allocation or asset mix – is the term used to show how the funds in your portfolio are invested within each of the different asset classes. This may include a mix of cash, fixed interest, share, property and alternative assets. Your investment mix should be tailored to your personal circumstances and risk profile.
Performance – common terminology you may see in relation to performance is likely to be Internal Rate of Return (IRR). The internal rate of return is effectively the compound rate of return over the life of the investment and combines any capital growth with any income earned. It is expressed as a percentage (%). You may see Gross IRR which is the rate of return excluding the management expenses and fees, or the Net IRR which is the internal rate of return including fees. If you are comparing the returns between super funds make sure you’re comparing “apples with apples”.
Another performance term you may see is “real rate of return” which is the rate of return on your investments in excess of inflation. For example, if the rate of return for one of the investments is 10% but the inflation rate is 3%, then the real return is 7%pa.
Remember, we are here to help, don’t hesitate to pick up the phone or drop us an email.