Talking about superannuation terminology

You shouldn’t need a financial dictionary, a flowchart and a strong coffee just to decode a few basic terms when talking about retirement plans and superannuation. If the terminology has you stumped, that’s understandable. The language we use for it can be far more intimidating than the actual mechanics. The good news? Once you break down the jargon, it all starts to make a lot more sense.

At First Financial, we specialise in personalised superannuation advice that goes beyond throwing around technical terms. We help you understand how the rules apply to your own situation, so you can make informed choices without second-guessing the meaning behind them.

Concessional contributions are made from your income before tax. They include employer super guarantee payments and any salary sacrifice arrangements you set up through work. These amounts are taxed at a lower rate once they enter your fund, which is part of what makes them a common strategy for growing super efficiently.

Non-concessional contributions are different. These come from personal funds such as savings or inheritance, and the tax has already been paid before they enter your super fund. As a result, they aren’t taxed again on the way in.

The distinction between these two types of contributions matters because it determines which cap they count towards and what strategies may be available to you. Knowing how each type is treated helps avoid unintended tax consequences and gives you more control over how you grow your super over time.

What does this mean?

The carry-forward rule gives you the option to use unused concessional contribution space from earlier years. If your super balance is under the legislated threshold at the end of the previous financial year, you can top up beyond the annual cap by using leftover limits from up to five years ago. This can be helpful if you’ve had inconsistent income or only recently had the capacity to contribute more.

The bring-forward rule applies to non-concessional contributions. Rather than sticking to the annual cap, it allows you to contribute multiple years’ worth in a single year. This is commonly used when someone receives a lump sum, like an inheritance or proceeds from a property sale, and wants to move a larger amount into super in one go.

Both rules are designed to accommodate the fact that individual and family financial positions shift. They recognise that you may not be in the same situation year after year and provide a way to make the most of superannuation when the timing suits you.

What else is there to know?

Beyond the basics, there are a few lesser-known terms that become more relevant as your super balance grows, your income increases or retirement approaches. These rules can affect how much tax you pay, when you can contribute, and what limits may apply as your circumstances change.

Division 293 tax is an additional tax that applies to concessional contributions if your income plus super contributions exceeds a set threshold. Basically, higher earners may pay 30% tax on those contributions instead of the usual 15%.

The transfer balance cap refers to the maximum amount you can move into a retirement income stream, such as an account-based pension. Once your super balance hits this cap, you’ll be restricted from making non-concessional contributions. This cap is indexed periodically, so it should be monitored over time.

Balance thresholds are just as important. If your total superannuation balance reaches the general transfer balance cap, you may no longer be eligible to make some types of contributions. This cap can also affect how much you can transfer into retirement phase and whether certain contribution strategies are still available.

These thresholds don’t prevent you from contributing altogether, but they can narrow your options or change what makes the most sense at the time.

It’s possible to change your mind about how a personal super contribution is treated. For example, you might make a non-concessional contribution and later decide to claim it as a tax deduction.

To do that, you need to lodge a Notice of Intent to Claim form with your super fund. This changes the classification of that contribution from non-concessional to concessional, and it will be taxed at the concessional rate inside your fund. It’s one of the few ways you can shift a contribution between categories after the fact.

Keep in mind, the timing of that form lodgement is critical. You need to do it before accessing your super, whether that means starting a pension, withdrawing funds or rolling over your balance. If you don’t submit it in time, you won’t be able to claim the deduction. The option gives you flexibility, but the timing has to be right.

It might sound like a lot, but it becomes far clearer once you understand what each term is actually referring to. Many of these guidelines exist to give you more flexibility, not limit it. Whether you want to boost your balance, manage tax or simply make informed decisions, knowing the language makes it easier to navigate superannuation with confidence.

To make the most of your super opportunities, it’s worth speaking with an experienced financial adviser. At First Financial, our specialists are here to help you do exactly that.

Contact a friendly member of our team today.