Have you ever tried reading a piece of legislation?
Obfuscate -Verb [with object]
- Make obscure, unclear, or unintelligible
- Bewilder (someone)
Have you ever tried reading a piece of legislation? Like a statute, an act, effectively the law as written by Parliament. If you haven’t, I don’t blame you, it’s generally long and boring and in a lot of instances it is not clear from the first 10 readings what any of it actually means. However, considering this is the law and we are all bound by it, you’d think that if we wanted to read it, to understand it, we should be able to. Then again, if we could all read and interpret the law, then there would be no need for lawyers and that in itself would be a terrible thing…
To their credit legislators are getting better and in the legal profession they’ve been steadily moving away from latin and confusing terminology to more plain English. The legal profession are not alone in their use of often unclear and unintelligible language that makes it really hard to understand what is going on. It happens in banking, finance, medicine, engineering, architecture…the list goes on. These are all professions where people’s livelihoods depend on being able to understand and do things that the average person can’t. Don’t get me wrong, I think there are places for these people in our society — until the robots take all our jobs :) — however, it is clear that in a lot of cases the odds have been stacked in the favour of those professionals, through the benefit of spending 5 years at Law school, or having access to LexisNexis. Specialisation isn’t a bad thing, and there is still space for those who have the best understanding or set of skills to deal with certain problems. However, we live in the internet era. There should be far more clarity and information sharing in industries and things such as legislation should not be drafted just for the benefit of an SJD from Melbourne Uni, but for everyone. So, I could pick up the Superannuation Industry (Supervision) Act 1993 and be able to clearly understand what is going on.
What I’m advocating for is less obfuscation and more clarity. How can we make informed decisions if we find it difficult to understand what things mean? Unfortunately, obfuscation, or lack of clarity is abundant in my beloved superannuation. I am not a superannuation native and it has taken me 6 months to begin to understand a lot of what is going on and what is meant by certain words. So, here at Spaceship we want to shed some light on what these words mean and hopefully by proxy you will begin to understand what is going and become more engaged with your super.
So let’s start with a few of the basics and see how we go…
Defined benefit fund
- The traditional form of a super fund where generally the employer contributed each pay period to a super fund. The contributions were invested on retirement and the employee was paid a regular percentage of the fund which was generally a nominated percentage of final salary. In this type of fund the investment risk was generally carried by the employer.
- The employer and possibly employee contribute money to the fund (like Spaceship) and the contributions are invested by the fund. The investment risk is carried by the employee. There are a high level of benefits if the fund has been successful investing the funds. However, the benefit levels will be lower if the investing has been less successful. The payment to the employee on retirement depend on their contributions, the cost of running the fund and the profitability of the investments of the fund.
Public offer retail funds
- Superannuation entities that offer superannuation to the public and are usually run by financial institutions (think AMP, Westpac, Commbank).
Public sector funds
- Superannuation entities where the sponsoring employer is a government agency of government business enterprise that is majority owned (think the military/police). Historically, these funds have been defined benefit schemes.
- Members of the funds are drawn from a specific industry, or group of related industries (think REST, Hostplus, CBUS). Traditionally these were established under industrial awards.
Self-managed Superannuation Funds (SMSFs)
- SMSFs are open to a maximum of four individual members, all of whom must be trustees. Or the SMSF can have a corporate (company) as trustee. They can invest directly in assets like shares and real property. Members can manage the tax position of their superannuation assets.
- Trustees are the person or companies with whom the assets have been placed for the benefit of another party (the beneficiaries e.g. members of the super fund).
- To rollover your superannuation means to move it from one account to another.
- Consolidate means bringing all your superannuation money together under the one super fund. So if you have multiple superannuation accounts, you’ll roll them over into one account. This is the preferable arrangement for those who are wanting to minimise the amount they pay on fees and accumulate compound interest on your total amount.
- Diversification is a risk management technique employed by investment managers that mixes a variety of investments within a portfolio. This is why we don’t just invest in one company, or one asset class but spread this across different classes.
- This is the official term for compulsory superannuation contributions that employers make on behalf of their employers. In Australia an employer must contribute 9.5% of an employee’s ordinary time earnings.
- Salary sacrifice is an arrangement you can make with your employer in order to forgo part of your salary or wages in return for them contributing the same amount into your superannuation.
- Concessional contributions are pre-tax contributions. The traditional concessional contribution is your super guarantee contributions, or salary sacrifice contributions.
- Non-concessional contributions are after tax contributions. This is when you contribute money that you’ve already received e.g. your personal savings into your super account.
Here’s a start to your superannuation vocabulary. As we continue to delve into the superannuation industry we’ll provide you with more terms so that you’re provided with all the information you need, in plain English to make informed decisions about your super.