Allocated Pension

Annuity

Bear Market

Beneficiary

Bequest

Bonds

Brokerage

Bull Market

Capital Gains Tax (CGT)

Capital Guaranteed Fund

Capital Stable Fund

Cash Management Trusts

Commission

Commutation

Diversification

Equities

Compound Interest

Consumer Price Index (CPI)

Defined Benefits Fund

Discretionary Trust

Dividend

Dividend Imputation

Eligible Termination Payment (ETP)

Estate Planning

Executor (Male) or Executrix (Female)

is the person who is nominated in a legal will to execute the instructions of the will for the benefit of its beneficiaries.

Family Trusts

are often used to minimise tax by diverting income from high income taxpayers to those who are in lower tax brackets. Most Family Trusts are discretionary trusts – i.e. they provide the trustees with the discretion (flexibility) to pay income where it will be most tax effective.

Financial Planner

is a professional person approved by the Australian Securities and Investments Commission (ASIC) as qualified to provide advice on all aspects of financial planning. This planning advice in the form of a Statement of Advice is important at all stages of adult life regardless of the level of financial resources.

Franking Credits

dividends of Australian companies that pay full company tax are known as fully franked dividends. Shareholders in such companies receive franking credits. In other words, a tax or franking credit is available to you as a shareholder so that tax is not paid twice on the company’s profit. It should be noted that surplus franking credits from 1 July 2000 will be refundable and that some Australian companies pay franking credits at less than 100% because they derive income from overseas.

Funeral Bonds

are investments that provide for payment of funeral costs. For pensioners, funeral bonds earn income that is tax exempt and savings grow in a tax-free environment. They also provide a relatively secure investment, the value of which does not count for the pension Assets Test.

Gearing

borrowing money to invest, usually in property, shares or other income-producing investments.

Gifting

is the process of giving money away in order to enhance the quality of life of the recipient. It may also reduce one’s assets under the Assets Test for the Age Pension.

Income Stream

is the term normally applied to the money earned from your investments. “Income Stream” products include life expectancy annuities (LEAs), allocated pension plans and lifetime annuities and are usually covered by Commonwealth Government legislation for tax and pension treatment.

Income Splitting

is the action of apportioning income between family members instead of all of it going to one person. The effect for couples is to reduce total tax liability by allowing one or other or both of the partners to move to a lower tax bracket. Family trusts are often used for income splitting by diverting income to children and non-working spouses.

Income Test

 is one of the two major tests (the other is the Assets Test) used to determine eligibility for an Age Pension. The Income Test is used to determine the amount of income your assets should generate (e.g. “deeming”) or actually earn (e.g. rent). This amount of income is then compared with thresholds set by Centrelink in order to calculate pension entitlement.

Preservation

is maintaining superannuation benefits until the minimum age at which they can be taken.

Rebate

an amount that is to be subtracted from the amount of tax payable.

Intestate

is the term applied to dying without making a legal will which is wholly or partly invalid. If a person is intestate, the estate is dealt with by government under the laws of intestacy, i.e. Public Trustee in each State. If the will validly disposes of only part of the estate, then the balance of the estate is administered under intestacy provisions.

Life expectancy

is the period of time that a person can expect to live, on average, given their present age. On the basis of statistics, life expectancy tables are drawn up which are used as a basis for retirement investment products such as fixed term annuities.

Listed Property Trusts

are trusts that invest in property and are listed on the Stock Exchange. Their value is determined by the stock market and can rise or fall.

Lump Sum

is the term used to describe the amount of money provided on retirement by the superannuation fund as an alternative to the payment of a pension. Some superannuation funds provide only a lump sum benefit, others a pension with a lump sum alternative.

Managed Investment Funds

are the pooled investments of many people under the control of a skilled fund manager. Since the amount of funds in the pool is large, the investments can be spread by the fund manager over a range of investment types. The fund manager makes the investment decisions (for which a fee is charged) and if the fund earns a good income the investors receive the benefit.

Master Trusts (or Funds)

allow you to spread your investments over a range of trusts (each of which has its own spread of investments such as fixed interest securities, property and shares both Australian and international) by using one trust, a Master Trust. All of your investment flows through the chosen Master Trust, minimizing your paper work and allowing you to change your investment strategy with minimal cost. Master Trusts continue to grow in popularity.

Medicare Levy

is the amount of money paid regularly by taxpayers which is used by government to assist in providing public health services. The level is deducted from wages and salaries as a fixed percentage of income or paid annually by non salary earners.

Option

an option is an agreement which gives the option holder the right to buy or sell a specific security at a stipulated price and within a set period of time. If the option is not exercised during that time, the money paid for it is forfeited.

Portfolio Planning

is the task of arranging investments in a way that suits the particular investment profile of the individual investor. It is best done with assistance from a qualified personal financial planner who will take account of the investor’s personal wishes in the matter of risk-taking in order to achieve peace of mind for the investor.

Power of Attorney

is a document usually drawn up by a solicitor by which a person appoints another person (the attorney) and sets out what the attorney is authorized to do. It is used to cover emergency situations in which, because of absence, accident or illness, a person is unable to take essential actions of their own behalf (such as withdrawing money from a bank account and signing documents). One needs to consider very carefully who is the appropriate person to be given your power of attorney, particularly if that person is not your spouse. Enduring Power of Attorney provides for a nominated person (e.g. spouse) to hold power of attorney for you where a medically qualified person certifies that you cannot sign documents. You should consult your solicitor for detailed advice.

Probate

is a certificate granted by the court that certifies that a will is valid, thereby giving authority to the executor to administer the terms of the will.

Prospectus

is a document issued under the control of the Australian Securities and Investment Commission (ASIC) that provides detailed information to enable the public to make an informed decision about investing money in the product. A prospectus must be issued by anyone seeking money from the public for investment in securities.

Redundancy

occurs where an organisation carries out structural change in order to cut costs and, in the process, lays off staff (i.e. makes staff redundant). It involves payment to the redundant employee of a lump sum which is intended to provide financial support while they search for another job. Most redundancy payments are tax free up to certain limits.

Retirement Income Stream

is the term applied to the income derived in retirement from a pension or from investments or a combination of both. The government’s retirement policy incorporates certain types of investments that are approved income streams with special advantages. These include allocated pensions and life expectancy annuities.

Retirement Savings Accounts (RSAs)

are established, managed and controlled by banks or insurance companies. They provide a safe place for retirement savings but, because of their low investment returns, they may not suit the longer term needs of retirees.

Reversionary Option

for a pension or annuity allows you to nominate a second person (in most cases it must be a dependant e.g. spouse/partner) who will continue to receive all or part of the annuity or pension if you die.

Risk Management

 is the control exercised by the investor over the risks involved in the different categories of investment. Some investments are virtually risk-free (e.g. bank fixed deposits) while others are high risk (e.g. shares in a small prospecting company).

Superannuation and Superannuation Guarantee Contribution

has become an increasingly important part of arrangements for retirement in Australia. Organisations arrange and contribute to superannuation funds that provide, upon an employee’s retirement, a lump sum payment, or a regular pension or a combination of both. Employers are required to pay into a superannuation fund the Superannuation Guarantee Contribution (SGC) on behalf of their employees.

Tax Deduction

is an amount that reduces a person’s taxable income and so reduces the tax to be paid. It favours high income earners because they pay a higher rate of tax on their earnings than low income earners.

Tax Rebate (also sometimes called a Tax Credit)

is an amount that reduces the tax to be paid by the full amount of the rebate. Tax rebates treat all taxpayers equally by giving the same amount of rebate regardless of income level.

Undeducted Contributions

are part of the superannuation environment and are contributions of money placed into a superannuation account for which no tax deductions have been claimed (they are therefore “undeducted”). They are returned to the retiree largely tax-free as part of his/her retirement strategies.

Wealth Creation

involves the building of assets by means of careful investment into asset based investments, usually over a long period of time so as to achieve an income stream that will ensure a continuation of a high quality lifestyle in the years beyond retirement.

Will

 a will is a legal document often prepared with the assistance of a solicitor and properly witnessed. It is designed to give effect to a person’s wishes for the disposal of their possessions after their death. A will requires regular updating during a person’s lifetime and includes the appointment of an executor to attend to the administration of the will.