Correct. More than likely, the path is giving the version in /usr/bin, and your new installation is something like /usr/pgsql-9.2/bin. You might want remove the package that came with your linux installation, that will save you a lot of grief later.
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Jay
Sent from my iPad
the psql binary you are using to connect is default binary that is 8.4. This message just means that the psql client is of an older version than the database.
To correct this you can modify the default path to point to psql binary of your newly installed postgres version.