A
Account-based pension
Also referred to as an ‘allocated pension’. An account-based pension is an account where you invest your superannuation, and which pays a regular income. With an account-based pension you can generally choose from a range of investments and select the income you draw subject to minimum payment requirements. When the account is exhausted, the income will cease.
Age Pension
An income support payment from the Federal Government, available when you reach Age Pension age. It is subject to an Income and Assets Test.
Annuity
Annuities provide regular income payments for either a fixed period or for the rest of your life depending on the type of annuity you choose. Annuities help you to cover your living costs and maintain your standard of living while in retirement.
An annuity can be purchased with either superannuation or non-superannuation money.
Asset allocation
The percentage of assets that are divided between the different types of assets in an investment portfolio.
Asset class
The general type of assets. The main asset classes are cash, fixed income, shares and property.
Assets Test
A test applied by Centrelink to determine your entitlement to social security benefits. The value of your assets is tested against a threshold which depends on your marital status and whether you own your home. Your entitlement is also subject to an Income Test.
Australian Prudential Regulation Authority (APRA)
The Government authority that oversees banks, insurance companies, superannuation funds and credit unions. APRA regulates the issuance of annuities.
C
Consumer price index (CPI)
A measure of inflation that is determined by measuring the change in the cost of a fixed basket of products and services.
Cash flow
The net amount of money that you receive over a period. Cash flow can be positive, negative or neutral.
D
Deeming
A set of social security rules used to assess income derived from financial assets. The rules are used for Centrelink purposes for the pension income test and allowance income test.
Defensive assets
Assets such as fixed interest investments and cash. They can deliver lower returns than other types of assets over the long term, however they generally have a more stable capital value.
Earning rate
The earning rate (or rate) refers to the earnings paid by an annuity. The earning rate provided at the time of the investment applies for the term of the annuity (unless you have chosen to have earnings indexed by inflation).F
Financial Services Guide (FSG)
An FSG explains any financial service that an investor is being offered, including fees charged and how complaints are handled. It is a legal requirement that an investor receives a FSG before receiving any financial service.
G
Growth assets
Assets such as shares and property that have the potential to increase or decrease in value, in line with movements in investment markets. Also see Volatility.
Growth fund
A fund that focuses on growing capital. It may offer little or no dividends. Most of the potential return will come through capital appreciation.
I
Income fund
An investment fund that seeks returns from regular income (from dividends, for example) rather than from capital appreciation.
Income payments
Income payments from an annuity are made monthly. The amount of income paid can be fixed at the outset, or indexed by a set percentage or to inflation or linked to investment markets. Indexing to inflation protects against increases in the cost of living, which may be particularly relevant for long-term annuities.
Income Test
A test applied by Centrelink to determine your entitlement to social security benefits. Your assessable income is tested against an income test threshold to determine your entitlement. The relevant threshold depends on factors such as your marital status. Your entitlement is also subject to an Assets Test.
Inflation
The rise in the general level of prices of goods and services over a period of time.
Inflation risk
The risk that over time inflation will increase the cost of living. This means the income received from your investments must also increase in line with inflation to maintain your spending power.
Investment term
The term of an annuity policy. The investment term can be for a select number of whole years or, for your lifetime or the lifetime of yourself and another person.
L
Life expectancy
The expected number of years of life remaining at a given age based on statistics. Life expectancies used in calculating deductible amounts are determined using the relevant Australian Life Table at the investment date.
Life insurance company
A company that is registered under the Life Insurance Act and is regulated by APRA.
Lifetime annuity
An annuity providing regular income for life in return for a portion of the investor’s savings.
Liquidity
How easily an investment can be converted into cash.
Longevity risk
The risk of living longer than expected, resulting in retirement funds being insufficient to finance an individual's income needs for their whole life.
M
Market risk
The impact of volatility of investment returns on the value of your investment.
P
Platform
An administration system for your investments. Platforms offer a broad range of investments, enabling you to consolidate your portfolio in one location.
Preservation age
The age at which, if retired, you are entitled to access your superannuation.
R
Residual capital value (RCV)
Any capital left at the end of an annuity term is known as the 'residual capital value'. The residual capital value is usually set by the investor at the start of the annuity.
S
Salary sacrificing
Also referred to as salary packaging or total remuneration packaging. It is an arrangement between you and your employer where a portion of your pre-tax salary is used to provide benefits of similar value. This may include things like cars, computers and superannuation contributions.
Self-managed superannuation fund (SMSF)
A super fund that is managed by one person or a small group of people for themselves. They are regulated by the Australian Taxation Office and are subject to a number of regulations.
Sequencing risk
Sequencing risk is the timing of investment drawdowns to fund cash flow in retirement, coupled with market volatility which can make a difference in how long your retirement savings will last.
Superannuation Guarantee (SG)
Also known as compulsory superannuation, this is a Government scheme whereby employers must contribute a percentage of an employee's income into a nominated superannuation fund.
T
Term annuity
Also known as fixed term annuities, these are generally available for fixed-terms of between one and 50 years. The investor selects the length of time most appropriate to them and how much of their capital they would like paid back during the selected term or at the end of the investment.
Term deposit
A fixed term, fixed interest savings product issued by a bank or credit union. Terms generally range from one month to five years.
Transition to retirement strategies (TTR)
A TTR pension is available to individuals who have reached preservation age. It allows you to supplement your salary and maintain your lifestyle while reducing your work hours or salary sacrificing into superannuation.
V
Volatility
The amount that the value of investments, such as shares, go up and down over time.