Annuity or immediate annuity
A pre-determined income stream purchased for a lump sum amount usually from a life insurance company. See also life annuity and term annuity.

Assets and income test
Two tests used to assess entitlement to the Age Pension and other social security benefits.

Commutation
The process of converting some or all, of a future income stream into a lump sum payment. For an allocated pension this simply involves withdrawing some or all of the remaining account balance.

Death or disability pension
This is a pension paid in the event of the permanent incapacity of the pensioner or the death of another person.

Dependant
A dependant for tax purposes is generally a spouse, or a de facto spouse or ex-spouse, or a child under the age of 18, or other person financially dependent. However, the word is often used in superannuation to refer to a spouse, children of any age and financial dependants.

Deductible amount
The tax-free portion of a pension or annuity. Also known as the tax-free amount. The term deductible amount is also used for the non-assessable portion of the pension for the social security income test.

Life Annuity
A product which provides a set regular income stream guaranteed for life.

Lump Sum tax
The tax applicable to ETPs (Eligible Termination Payments) taken as a lump sum. Lump sum tax depends on factors such as:

• age when the lump sum is taken;
• the date the person commenced service or started paying into superannuation or, in some cases, the date service commenced with an employer; and
• whether the benefit is above the individual's reasonable benefit limit.

The lump sum is divided into different components which are taxed at different rates.

Pension payment
The amount of pension income received in a year from the allocated pension.

Residual Capital Value (RCV)
The amount of the original purchase price of an annuity that is returned to the purchaser, either at the end of the term in the case of a term pension or annuity or on death in the case of a life annuity. For example, a term annuity with 100% of the purchase price at the end of the agreed term is called a 100% RCV annuity.

Reversionary pension
A pension payable to a spouse or other nominated person on the death of the original recipient of the pension. To arrange a reversionary pension, the original pensioner must nominate this when the original pension commences.

Rollover
The process of transferring an eligible termination payment (ETP) to a superannuation fund or rollover fund. Generally lump sum tax is not paid until an amount is subsequently withdrawn.

Rollover fund
A type of fund set up for the investment of ETPs, including superannuation payouts. If a superannuation payout is invested in a rollover fund, generally no lump sum tax is paid until the amount is withdrawn. Rollover funds include superannuation funds, approved deposit funds and rollover annuities (also called deferred annuities).

Superannuation fund
A special type of investment plan set up to take advantage of tax concessions for people who are saving for their own retirement or for employers to contribute for their employees' retirement.

Term annuity
A product which provides a set regular income for a fixed term, for example, five years after which any residual capital value (RCV) is paid.

Trustee
All superannuation funds have a set of rules called a trust deed. All money is held in a trust by a trustee, who is usually independent of the members. It is the trustee's responsibility to invest the members' contributions in line with the rules contained in the trust deed and current superannuation law.

Undeducted contributions
Broadly, personal and spouse contributions made to a superannuation fund since 1 July 1983, for which no tax deductions were claimed.

Undeducted purchase price
For pensions and annuities commenced after 1/7/94, the undeducted purchase price is generally the sum of any tax free monies used in an account based pension.