Glossary Of Terms

Account based pension

A concessionally taxed income stream purchased with superannuation monies which are unrestricted non-preserved. Income must be taken every year which the Government stipulates a minimum amount (% of account balance) must be withdrawn. Generally, you can access the capital in the pension at any time – this is known as ‘commuting’.

Automatic reversionary

This can be selected at commencement of pension plan.

Beneficiaries

Factors to consider when selecting your beneficiaries include their; taxation status, ability to manage finances, disabilities, potential family law problems.

Your Will should remain flexible to cater for changes in the beneficiary’s circumstances and unforeseeable contingencies for example, if the beneficiary selected predeceases you.

It is important to be as specific as possible. Statements such as “I leave the contents of my house” may cause disputes over whether the intention was to include the car adjacent to the house or say, the share certificates in the desk drawer.

Binding nomination

In your super fund, you indicate to the trustees your preferred beneficiaries in the event of your death together with the amount and type of payment you desire the recipient to receive. In this instance the Trustee has no choice but to follow your instructions – effectively a Binding Nomination removes the trustee’s discretion. Binding nominations must be reviewed at least every three (3) years.

Concessional Contributions

Contributions to superannuation which are generally made from before-tax money, such as employer contributions including salary sacrifice, and personal contributions for which a personal tax deduction is claimed.

Diversity

A portfolio should be built on diversity of good quality opportunities. Rapid change in economic and market conditions can mean that some of todays apparently good ideas will prove wrong or will be overtaken by events. A diversity of good quality opportunities is a critical defence against change and confusion. Today’s globalised world, and its economies, offer an extraordinary richness of diverse opportunities for the astute investor.

Enduring guardian

(where permitted under State/Territory law): An enduring guardian can make medical decisions as well as personal or lifestyle decisions on your behalf when you are not capable of doing this yourself. You choose the decision-making areas you give to your enduring guardian. These decision-making areas are called functions.

Enduring power of attorney

This authority continues beyond the donor’s own capacity. This allows your attorney to continue acting notwithstanding that you have lost your mental capacity. An enduring power of attorney is an essential document for all adults and particularly older people. It allows you to plan for the unexpected events such as accidents and/or illness.

Enduring power of attorney – medical treatment

(where permitted under State/Territory Law) This allows you to authorise an agent to make decisions regarding medical treatment e.g. operations, medicines, drugs etc. This Power of Attorney is typically prepared where the donor wants to express a preference in relation to the administration of medical treatment. It helps you to plan for the future.

Estate

The net value of all your assets and liabilities.

Estate planning

Estate planning is a process to ensure that when you die, the right funds and assets are passed on to the right people at the right time- via your Will or due to the way you have set up ownership of your assets. It also helps ensure that you have made sufficient provisions to pay for your debts and support your loved ones. Estate planning requires the involvement of skilled legal and financial specialists.

Exclusions

Events not covered by an insurance policy. For example, an income protection policy may not cover self-inflicted injuries.

Executor

The executor is entrusted with the responsibility of ensuring that the wishes of the Willmaker as contained in the Will are carried out. It is an important role and care needs to be exercised when selecting an executor.
The executor chosen should be competent, trustworthy and prepared to accept the task. The role is onerous and the executor may need to seek legal assistance (costs are met by the estate).
More than one executor may be appointed and provision for a substitute executor should be made. Executors may be independent and/or an interested party.
Your executor and at least one beneficiary should know where your original Will is stored.

General power of attorney

This authority ceases immediately upon the donor becoming mentally unable to manage his/her own affairs. It is usually prepared in circumstances where the attorney is to perform a specific function for a limited period. For example, to manage your financial affairs whilst you’re overseas.
Your executor and at least one beneficiary should know where your original Will is stored.

Inflation

An increase in the price of goods and services in the economy. It is typically measured by examining a basket of goods and services considered to be representative of the average consumer’s expenditure, and thus representative of the rise in the cost of living.

Inflation risk

The real purchasing power of your money may not keep pace with inflation.

Insurance

Financial protection against financial loss – an arrangement where an insurance company agrees to pay an amount of money to the insurance policy holder if a defined event occurs (e.g. death), in exchange for an insurance premium being paid.

Interest rate risk

For investors relying on fixed rate investments, you may have to reinvest maturing money at significantly lower rates.

Intestacy

The rules for intestacy vary from State to State. If you die without a valid Will your assets will be distributed in accordance with a government formula set out in an Act of Parliament known as the intestacy rules. This may result in your wishes not being met and disputes arising. For this reason it is essential to ensure that your Will is current and up-to-date.

Legislative risk

Your investment strategies could be affected by changes in the current laws and regulations. GST and changing superannuation rules are some examples. As legislation alters this may impact upon the set strategies affecting the desired outcome.

Liquidity risk

You may not be able to access your money quickly or without cost when you need to.

Loadings

Your insurance premium depends on a number of factors including age, sex, level of cover and smoking status. In some cases, you health, pastimes and occupation may result in the insurer “loading” or increasing the premium to reflect any additional risk factors.

Market Risk

Relates to the risk or potential loss on an investment attributable to market specific factors. For instance, a loss on an Australian share portfolio may not be a function of a fund manager’s lack of skill, rather attributable to losses in the All Ordinaries Index.

Market timing risk

Anticipating market rises and falls can be extremely difficult because no two economic cycles are the same.

Mismatch risk

The investment you choose may not be suitable for your needs and circumstances.

Non-binding nomination

Non-Concessional Contributions

contributions to superannuation which are generally made from after-tax money, such as personal contributions for which a tax deduction has not been claimed, and spouse contributions.

Non-lapsing nomination

In your super fund, you will indicate your preferred beneficiaries in the event of your death and the amount and type of payment you desire the recipient to receive. In this instance the nomination is valid the entire term you are a member, unless another valid nomination is lodged with the Trustee – effectively a Non-Lapsing Nomination removes the trustee’s discretion, unless the Trustee knows that you married, entered into a de facto relationship (or similar relationship) with another person, separated on a permanent basis from your spouse/partner or have had a child with a person other than your spouse/partner since making your nomination – in this case, the Trustee will treat your nomination as a Non-Binding Nomination.

Pension – Auto Reversionary

This Pension will automatically continue to be paid to your nominated beneficiary (i.e. at time of your death is your spouse, de facto, child under 18 or between 18 – 25 and financially dependent or with whom you have an interdependency relationship.

Preservation Age

a requirement to retain superannuation benefits within the superannuation environment until a specified condition has been met. Under current laws most benefits are compulsorily preserved until a person satisfies a condition of release such as retirement (between 55 and 60 years depending on a member’s date of birth as shown in the table below) or reaching age 65.

Date of Birth Preservation Age
Before 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
From 1 July 1964 60

Realised capital gain

when an investment is sold and a capital gain is realised.

Risk management

The various ways or strategies used to manage potential personal or financial loss (e.g. insurance).

Salary sacrifice

Contributions made to a complying super fund, taken out of your salary package before tax.

Superannuation guarantee (SG)

Is a Commonwealth Government program that requires all employers to make a minimum contribution to a complying superannuation fund for their employee. The employer must contribute a minimum of 11% pa (FY2024) based on the employee’s annual salary.

Testamentary trust

This is a trust established by the Will that comes into effect upon the death of the Will maker. The primary purpose of a testamentary trust is to manage estate assets in order to produce income for beneficiaries. The trust is managed by a trustee who has the discretion to control the distribution of capital and income to the beneficiaries, taking into account their other income sources and the prevailing taxation legislation. Testamentary trusts have many benefits including taxation efficiency and asset protection.

Time and patience (Investment Fundamentals)

These factors are far more reliable in the long term than trying to judge entry into and exit out of investment markets. At a time of confusion few people can resist the temptation to stay out of the market until calm is restored. Should the markets continue their slump, they could congratulate themselves. However, chances are they would still be waiting for the right time, long after markets have rebounded.

Total & permanent disability insurance

Insurance which provides a lump sum benefit if you are totally and permanently disabled. Generally, this means that you have suffered a disabling injury or illness that prevents you from ever carrying out work for which you are reasonably suited by education, training or experience (or, in some cases, your own occupation) and you are under the regular care and attention of a doctor; or you have suffered permanent loss of certain limbs or eyes or a combination of them.

Trauma insurance

Insurance which provides a lump sum benefit if you suffers certain specified life threatening or debilitating health conditions such as stroke, heart attack or serious illness.

Unrealised capital gain

occurs when an investment increases in value but is not sold or realised.

Wrap (investment Fundamental)

an investment vehicle which combines or ‘wraps’ investments into a single account. It is a single account that can manage an entire investment portfolio, buy shares, and managed funds at wholesale prices.

Yield

the dividend, or interest rate, on an investment expressed as a percentage of the price.