A
Account Balance
The members accrued benefit in the Fund. This generally represents accumulated employer and member contributions, transfers and interest, administration fees and insurance premiums.
Active Management
Active investment managers try to outperform the market by researching, monitoring and selecting investments they believe will improve in value or provide strong income returns.
Administration Fee
The fee charged by a fund against a member's account, contributions or balance to cover administration costs.
Annuity/Pension
A series of payments made at regular intervals, generally purchased from an insurance company or super fund with a lump sum (super or otherwise). There are many types of annuities and pensions.
Asset Class
A group of similar assets. Some main asset classes are shares, fixed interest, property and cash. Each asset class has a different level of expected risk and return.
Assets
For investment purposes, an asset is something that can be sold or held for future benefit.
B
Benchmark
Used to assess the risk and performance of investment portfolios and usually represents the broad market for an asset class and the minimum performance standard expected from managers in an asset class.
Benefit
The dollar amount of a member's entitlement in the Fund, including, in the event of death or disability, any insured amount or entitlement payable. A benefit payment can generally only be made when the member leaves the Fund.
C
Cash
Cash is an investment in term deposits or bank bills for short periods of time (less than 12 months). This investment class is one of the most stable, because the returns are among the most predictable, but over the long term it can be expected to earn a lower rate of return.
Compound Interest
Compound Interest is interest paid on both the principal and the interest previously earned.
Contributions
An amount of money placed into a fund. In relation to superannuation funds, contributions may be made by either employers or employees, or both.
D
Death Benefit
The amount payable to a member's estate, dependants or other beneficiaries in the event of the member's death.
Dependant
The spouse (including de facto spouse), child, or any other person who is financially dependent (either partially or totally) on the member.
Diversification
In simple terms - not having all your eggs in one basket. Diversifying investments across asset classes can help to reduce risk and balance returns. This is because asset classes perform differently at different times, so if one class is performing poorly it can be balanced by another that is performing well.
E
Earnings rate
The rate of return to a super fund (or any other investor) on money it invests. This is usually expressed as a percentage per annum.
Employer Contribution
Superannuation contributions made to a member's super account by their employer.
Equity
a) A synonym for a share (as distinct from fixed interest) investment.
b) The interest or value which an owner has in an asset over and above the debt against it. For example, a home-owner has equity in that part of the value of his or her house above the amount borrowed from a lender.
F
Fixed Interest
The common forms of fixed interest investments are loans to government bodies and companies. These typically provide the owner of the bond with interest payments over the life of the bond, as well as a lump sum at the end of the bond's life. The value of the bond fluctuates over its lifetime due to a variety of factors, including changes in market interest rates. This form of investment generally has a moderate level of risk and is expected to produce a moderate rate of return.
G
Gross
The total, before deductions have been taken away.
Growth Assets
A general term for assets such as shares and property, which provide investment returns (comprising both capital growth and income), which outperform inflation. Growth assets are expected to provide higher returns compared to "defensive assets" such as fixed interest or cash investments.
H
Hedging
The practice of undertaking one investment activity in order to protect against loss in another, for example, selling short to nullify a previous purchase, or buying long to offset a previous short sale. While hedges reduce potential losses, they also tend to reduce potential profits. Typical hedges include currency forwards and share and bond futures.
I
Inactive member
A fund member who is not currently receiving any contributions or rollovers to their account.
Insurance Premiums
The sum of money paid to purchase insurance cover against death.
Interest Rate
The return on money invested, usually expressed as a percentage per annum.
Investment Choice
An arrangement whereby members of a fund are offered a choice of investment options.
Investment Management Fee
The fee charged by an investment manager for its services. The fee is normally charged as a percentage of the funds invested, and may be performance-based. The fees are normally deducted from the fund's earnings before determination of the fund's earning rate.
Investment Manager
A company appointed by a fund to manage the investment of all or part of the Fund's assets. It is common for funds to appoint a range of investment managers, who may have specialist expertise in particular areas of investment.
L
Lump Sum
A benefit payable as a single cash payment rather than as a pension or annuity.
M
Master Fund Or Trust
A fund which allows a large number of unconnected companies individuals to operate through the same trust deed. They are generally operated by banks, life insurance companies and specialist superannuation administrators.
Member Contributions
Contributions made by a member to his/her account.
P
Pension/Annuity
A series of payments made at regular intervals, generally purchased from an insurance company or super fund with a lump sum (super or otherwise). There are many types of annuities and pensions.
Portability
A feature that allows a member to stay with the same super fund when they change employers and doesn't require the member to complete application forms again.
Portfolio
A range of investments across a group of asset classes, managed together as a 'portfolio' to achieve a single performance objective.
Property
Property investments include office buildings, factories and shopping centres. Property not only generates rental income but can also increase (or decrease) in value over time. It normally generates better returns than cash or fixed interest, however property can be a more volatile investment and is normally considered a moderate to high risk investment.
R
Reserves
Part of a fund's assets used to minimise year-to-year variation in the return to members' accounts. For example, in a year of good returns, a fund might put some of the fund's earnings into reserves and declare a lower crediting rate that the fund earned, while in a year of poor returns, the reserves might be drawn upon to increase the crediting rate to members.
Risk and Return
When an investment is described as low risk it means returns are expected to vary within a fairly small range. High-risk investments are harder to predict - the returns may rise and fall significantly. As a general rule the higher the expected return (the amount of money received back from that investment), the higher the risk (the chance that the investment may not perform as expected).
S
Salary Sacrifice
An arrangement between an employer and an employee whereby the employee's gross salary is reduced by a certain amount, and the employer's contributions to the superannuation fund for that employee are increased by the same amount. Salary sacrifice arrangements are recognised by the Tax Office as employer contributions.
Shares
Shares give you ownership of part of a company. They provide returns as dividends, along with the potential for profit (or loss) through changes in their price on the share market. Over the long-term, shares are expected to provide higher returns than cash, fixed interest or property, but with an associated higher risk, which may result in negative returns from time to time. Investment in shares can be diversified across industries and markets.
Nz Shares Constitute Less Than 1% Of The World Share Market and as such there is a fairly high risk that they may not reflect the global economy. International Shares can either come from very established markets or from those in emerging markets. This refers to developing economies, where there may be an opportunity for higher returns than developed markets and an associated greater risk.
Superannuation
A means of setting aside funds during working life for use in retirement.
T
Total And Permanent Disablement Tpd
The definition will vary between Funds and it is important members read the information provided by their Fund.
Trust Deed
The legal document which sets out the rules governing the operation of a super fund.
Trustee(S)
The persons or corporate body which has legal responsibility for the running of the fund in accordance with the requirement of the trust deed and other applicable legislation.
V
Vesting
When a member becomes legally entitled to a benefit.