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Terms and definitions

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Allocated pension or Allocated annuity
Involves the simple process of drawing down an income stream from a lump sum investment held in the investor's own account. This allows the investor control over the amount of income drawn (within limits set by the Government), the way the capital is invested and the way any remaining balance is distributed on their death. Importantly, the investor has the option of making a full or partial withdrawal at any time. Among other tax advantages, investment earnings are not taxed within an allocated pension or annuity.

Annuity
An investment which provides a regular income stream over an agreed period of time, usually purchased with a lump sum and is often used to provide retirement income.

Assessable Income
Income for income tax purposes, including capital gains (ie. your total income before deducting allowable deductions).

Asset allocation
The process by which you select how the amount of your investment is spread over each of the asset classes. The main asset classes are shares, property, bonds and cash in a managed investment, this task can be the responsibility of the fund manager

Complying income stream
So called because it has to comply with certain requirements of the Superannuation Industry (Supervision) Act (SIS) and in some cases the Social Security Act (SSA).. It arises from the investment of a capital sum which generates a regular income or private pension, usually paid annually and at a level fixed for the life of the person who made the investment (or a beneficiary). A complying pension or annuity attracts a concessional level of taxation and some asset test exemption for Social Security purposes. Please note however, that asset test exempt complying income streams can only be purchased before 20th September 2007.

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Compound interest
A method of interest calculation where, in each period, interest is calculated on both the principal and the interest previously accrued.

Deeming
A notional rate of earnings used by the government to calculate the investment returns of eligible age pensioners. The actual investment return may vary but is not taken into account as part of the Incomes Test calculation.

Diversification
This is a way of minimising the risks associated with investment by spreading investment money over a wide variety of different types of assets sectors, such as property, shares, fixed interest bonds, cash, international shares. Diversification can also be achieved within a single asset class, by buying shares in different investment sectors (eg industrial and mining) so that the investor's exposure is not limited to one industry.

Dividends
These are returns paid to shareholders of a company out of its profits. The way that the investor's return is taxed depends on whether the company has already paid tax on its earnings (see Franked Dividends).

Dollar cost averaging
Investing on a regular basis in order to manage risk. This process results in the investor buying the same dollar amount regardless of the changing price level. This results in a higher or lower average cost compared with investing in one lump sum.

ETP (Eligible Termination Payment)
Generally lump sum payments made when terminating employment that can be rolled over into an approved deposit fund, deferred annuity, superannuation fund or Retirement Saving Account. Usually lump sum payments made when switching employment or retiring that can be rolled over into an approved deposit fund, deferred annuity, an alternative superannuation fund or Retirement Savings Account. These payments may include superannuation, accrued sick leave or early retirement benefits. Long service leave payments and recreational leave payments are not ETPs.

An ETP consists of several different components, which reflect the different source of the payments received.

Franked dividends
These are dividends paid to shareholders in a company after the company has paid company tax on its earnings. The tax paid by the company on the portion of profit relating to the dividend is called the "imputation credit". If the shareholders, who are Australian residents, are on a marginal tax rate lower than the company tax rate, they may become entitled to a refund of the amount overpaid.

Gearing
Also known as borrowing funds to invest, or leverage. An investor gearing to invest increases their exposure to the geared investment, and thereby will have their gains and losses magnified by the extent of the gearing. See Negative Gearing.

Income protection
Pays a monthly income if you suffer an illness or injury that prevents you from being able to work.

Income stream
It arises from the investment of a capital sum which generates a regular income or private pension. This may be commenced from a superannuation environment or outside of it.

Listed trust
A unit trust or managed investment which invests in assets of a particular type (eg. equities, property) and is listed on the Australian Securities Exchange. To purchase units, an investor must use a stockbroker as if buying shares. They cannot purchase units by using a Prospectus (as they can with an unlisted trust).

Living insurance
Term Life insurance pays when the life insured dies. Living Insurance pays a lump sum if the life insured suffers a serious illness such as a heart attack, cancer or a stroke.

Managed fund
These types of investments pool investors' money together so that they can invest in a diversified range of assets, or one type of asset not normally accessible to individuals.

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MER (Management Expense Ratio)
The expenses of a fund (eg investment, management, trusteeship) as a proportion of the fund's net asset value.

Negative gearing
When the interest rate on the borrowed funds used to purchase an asset or make an investment is higher than the expected income yield on the investment, the practice is called negative gearing. The investor may be able to offset the loss against other taxable income.

Portfolio
The composition of a fund manager or investor's holdings among different asset classes, or if in a single asset class, among different sectors and stocks.

Product Disclosure Statement (PDS)
Document which is legally required to be issued by a financial services provider when they recommend or offer to sell managed funds, superannuation products, insurance products, and deposit products. PDS sets out; features, fees, benefits and risks and other material information of the product.

Property trust
A unit trust which invests directly or indirectly in property assets. Property trusts can be listed trusts on the stock exchange with the unit price determined by the market. They can be also be unlisted, in which case the unit price is periodically readjusted after valuation of the trust's assets by property valuers.

Prospectus
Document which is legally required to be issued to the public by a company when raising capital by offering shares or other securities. The prospectus contains important information about the company and its securities from which investors can make an informed decision.

Real rate of return
The return from an investment after taking account of inflation. For example, if your investment pays 5% and inflation is 4%, your real rate of return is 1%.

Return
The profit or payback an investor makes from their investment

Rollovers
Transfer of an eligible termination payment (ETP) to a rollover fund, another superannuation fund or Retirement Saver Account.

Shares
A security issued by a company which gives the purchaser (the shareholder) certain rights, including the right to participate in appointment of directors and to receive a proportion of the company's profits in the form of dividend payments. Also called equity or stock.

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Superannuation
A pension or payment to a person retiring from full-time work on reaching a legislated age. The term also refers to the accumulating contributions by employers and employees to a superannuation fund.

Undeducted Contributions
Undeducted Contributions (to be known as non concessional contributions as of 1 July 2007) - are contributions to a super fund for which a tax deduction has not been claimed. These contributions are made from your after tax income.

Deducted Contributions
Deducted Contributions (to be known as concessional contributions as of 1 July 2007).
These are contributions to a super fund for which a tax deduction has been claimed. Your Superannuation Guarantee Charge, other employer contributions and salary sacrifice contributions are all considered deducted contributions.

Spouse Contributions
Taxpayers can claim an 18% tax rebate on superannuation contributions of up to $3000 made on behalf of their low income or non-working spouse. The maximum rebate allowed is $540.

Co-contributions
On 7 September 2003, new co-contribution arrangements were announced whereby the Commonwealth government will match all personal contributions made to a superannuation fund by an individual earning up to $27,500 p.a., to a maximum of $1,000. Currently, for those earning between $28,000 and $58,000, the $1,500 maximum is reduced by 5 cents for every dollar earned over $28,000 until it cuts out at $58,000.
Only personal contributions qualify for the above benefit. - Compulsory superannuation or salary sacrifice contributions are not eligible

Sustainability
For a company, sustainability is all about maintaining long-term growth without causing environmental or social damage. Westpac's Sustainability Funds can help you reconcile social and environmental concerns with your financial goals.

Switching fee
The fee charged to cover administration costs when a unitholder chooses to switch/move his/her investment from one portfolio/product to another.

Tax deduction
An amount that is deducted from your assessable income before tax is calculated. You can claim deductions in your annual tax return or, if your total deduction is significant, you can apply to the Tax Office for a variation of PAYG tax (section 221D) of the Income Tax Assessment Act.

Term life
A simple and inexpensive type of life insurance cover. It provides a lump sum payment if the life insured dies or suffers a terminal illness.

Total and Permanent Disability (TPD) insurance
Pays a lump sum benefit if you become completely and permanently disabled.

Unit prices
The price per unit of a unit trust where the unit value is set either by the market (if the trust is listed) or, if it is unlisted, according to valuations of the trust's assets.

Unit trusts
A type of managed investment which is a form of pooled investment, where a number of smaller investors buy units in a trust which is promoted and managed by professional investment managers. A unit trust is governed by a trust deed and includes property trusts, equity trusts and cash management trusts.

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