Factors Affecting Investment Plans for Tertiary Sector Employees
Discuss about the Differential Mortality and Retirement Benefits.
With the passage in time, investment value of the people is getting depreciated because there are some negative factors in the economy. Employees belong to the tertiary sector in this economy use to provide some services like health, business operations and educations. Tertiary sector employees refer to the employees who provide services in the multinational operation in all over the world. There are some very beneficial business plans as well as superannuation contribution that leads in value addition to the invested capital belong to the employees. Superannuation gives so many extra benefits to the investors and it has been declared by doing an analysis. In tertiary sector, it is a very attractive option for the employees to increase their earnings by contributing in superannuation contribution. Such kind of superannuation funds plan adds on the value of investment for investors in order to create an additional value on the investment. It also focuses on setting up a very potential and strong nexus between the development of the employees and the growth of the organization.
We have discussed that there is a high destruction in the value of the capital value belong to the tertiary employees because of change in the time value of money (Johnstone, 2015). There is some pre-defined benefit plans fund that has been created by the employers for employees in which there is an involvement of promise by the employer to pay a sum of money to the investors. These benefits are very essential for the employees for their future benefit and to make their future secure for a long time period (Fabozzi and Ake, 2013). There are different formulas that can be used to compute some benefit plans for the benefit of tertiary sector employees (Weinstein and Jessup, 2011). In these formulas, certain things are used like employee’s salaries, periodic investments and retirement time period. So these factors can be used for the identification of defined benefit amount for the employees. So, there are some situations where employees do not able to find out some good investment plans and then they opt for the defined plan (Eckles, Halek and Zhang, 2013).
In superannuation funds, there are different options available to the employees like Mutual fund investment plan, Defined benefits plan and systematic investment plan. Although there is an option available for tertiary sector employees to evaluate all the investment plan and then take decisions accordingly. They have full liberty to find out whether the investment plan will give good benefits with low risk. This report is related to the employees of tertiary sectors that are involved in providing services related to the activities related to health, educations and other operations.
Defined Benefit Plans vs. Investment Choice Plans
After doing the analysis of the investment plan for the employees belong to tertiary factors, it has been concluded that the investment is accompanied with the selected investment plans in which a part of the employee’s salary will get invested for a particular time period. Then, the employees will get the total amount that has been invested with the interest as well. The choice of investment is also known as the accumulation plan that provides assistance to investors to cumulate all their earnings in order to get a very good investment option. Benefit of such plans is totally dependent upon the king of the portfolio that assists investors to get the funding done. Employees belong to tertiary sectors use this funding to add values to the investments by again investing the return earned by previous investment plan (Retirement benefits examiner, 2012).
The decision of making investments under superannuation plans by the tertiary sector employees depends upon many factors. So, the important factors that creates an impact on the investment decision of Tertiary factors employees is related to the risk and the returns on investment activities. It is observed that there is so much of uncertainty involved in the plans included in superannuation benefits plan (Schulmerich, 2005). Tertiary sector employees think that it is difficult to block a certain amount of money for a long period. It is very difficult for employees to take decisions regarding investment as there are different factors need to be considered like beta, risk, return, time value of money and the return offered. Such employees are also considered about the tax exemption involved by these benefit plans (Pratt and Grabowski, 2014).
Employees do the investment analysis by considering the personal as well as economic factors. There are some factors concerned with the investment plans like return, lock in period and risk. Every employee needs to take decision by thinking about the affect from the inflation rate. It should be profitable in a long run as well (Bosworth and Burke, 2014).
Major factors of defined benefit plans are the various investment options, age, return and market risk. All these factors affect the investment decision in a direct or indirect way for Tertiary sector employees. The defined benefit plan consists of less risk and a good return that can secure the future of the employees and create a very strong retirement benefit plan (Goma, 2014).
Defined investment plan is not meant for the employees who keep on switching jobs and they prefer to invest in investment choice plan. There is a disadvantage in the defined benefit plan as it results in low returns with increased number of jobs. So, Investment choice plan is the most beneficial plan for Tertiary sector employees.
Evaluation of Investment Plans
It is not necessary for employees to know each and every thing about the defined benefit plan as they are only concerned with the risk and return of that plan. In case of investment choice plan, employees need to do a proper analysis for knowing the return that is offered by the investors. Time value of money is also considered by the employees as it creates a high impact on the returns. In investment choice plan, the overall return is depending upon the portfolio and all the securities included and in defined benefit plan, there is an involvement of less risk and average returns. When there are chances of market factors getting negative then employees prefer to invest in defined benefit plan (Kilgour, 2016).
Money is a very important concern at the time of making decision regarding an investment plan. Investment option to be chose by considering the time value of money (JUREK and STAFFORD, 2015). Investors observed that the rate of return offered by a particular investment plan by 4% and inflation rate of the state or country is 4.5% then in such cases; employees can face a loss of 5% after a particular time period. Tertiary sector employees should wisely select the investment option and invest in a plan where there is a higher return in comparison to inflation rate of cost of capital. It helps higher salaried employee in Tertiary sector by saving tax applicable on their salaries. There is a very small and a limited tax deduction in case of defined business plans but there are some other options too that leads in a higher tax exemption. This is the reason behind the flexibility in investment by Tertiary sector (Wiedemann and Finke, 2015).
It is very important to do a proper evaluation of investment plan before investing the amount by Tertiary sector employees. They also need to evaluate the risk. If the factors of market are positive, then there can be high chances of good returns and employees can invest in a particular option without the fear of risk. After considering all the factors, it is important to judge that the investment plan of their choice can give higher returns or not. The decision should be made by considering all the factors like risk, returns, cost of capital, and time value of money and inflation rate. They should also consider the tax exemption benefits they can get from the investment plan. The main recommendation for the Tertiary sector employees are related to the investment choice plan. If they have higher tax payment due to their higher salary then they need to invest their capital in the investment choice plan which will give them higher tax benefits. In addition to this, the investment choice plan giving less return on capital employed rate a compared to the inflation rate should not be accepted by them. Tertiary sector employees having core financial knowledge should invest their capital in the different investment choice plan if they want to create value on their investment. In addition to this, Tertiary sector employees having high tax implication or payment should invest their capital in the bonds or other securities which offer good amount of tax exemption on their saving.
Recommendations
Conclusion
Tertiary sector employees are basically involved in creating business services for the society and the economy. The investment plan that an employee select is totally depend upon his choices or in which he is most comfortable. The decision of investing an amount in superannuation consists of different factors like the situation of the market. If market situation is positive then an employee can take risk. Employees of tertiary sector prefer to invest in a plan that can give those higher returns and low risk. If they don’t want to take risk then they try to invest their money in the defined business plan. There are some advantages as well as some disadvantages of each investment plan and it needs to be analyzed by Tertiary sector employees to invest in a particular project. Now in the end, after consideration of all these factors, it has been analyzed that the employees of the territory sector who wants to invest their money in defined benefit plans should consider the lock in period, returns on investment and associated in context with the inflation rate. The return available on the investment should be more than the inflation rate if Tertiary sector employees want to create value on their investment.
References
Bosworth, B., and Burke, K. 2014. Differential Mortality and Retirement Benefits in the Health and Retirement Study. SSRN Electronic Journal. doi: 10.2139/ssrn.2440826
Eckles, D., Halek, M., and Zhang, R. 2013. Information Risk and the Cost of Capital. Journal Of Risk And Insurance, 81(4), 861-882. doi: 10.1111/j.1539-6975.2013.01526.x
Fabozzi, F., and Ake, P. 2013. Foundations and applications of the time value of money. Hoboken, N.J.: Wiley.
Goma, O. (2014). Asia’s Economic Integration in the Global Economy and the Importance of Investments in Female Education. Journal Of Economics And Development Studies, 2(3). doi: 10.15640/jeds.v2n3a2
Johnstone, D. 2015. Information and the Cost of Capital in a Mean-Variance Efficient Market. Journal Of Business Finance and Accounting, 42(1-2), 79-100. doi: 10.1111/jbfa.12094
JUREK, J., and STAFFORD, E. (2015). The Cost of Capital for Alternative Investments. The Journal Of Finance, 70(5), 2185-2226. doi: 10.1111/jofi.12269
Kilgour, J. 2016. Social Security Retirement Income Replacement Rates. Compensation and Benefits Review, 48(3-4), 81-89. doi: 10.1177/0886368717736666
National Learning Corp. (2012). Retirement benefits examiner. Syosset, N.Y.
Pratt, S., and Grabowski, R. 2014. Cost of capital. Hoboken, NJ: Wiley.
Schulmerich, M. 2005. Real options valuation. New York, NY: Springer.
Weinstein, A., and Jessup, L. 2011. Earn it, learn it. Naperville, Ill.: Sourcebooks.
Wiedemann, V., and Finke, K. 2015. Taxing Investments in the Asia-Pacific Region: The Importance of Cross-Border Taxation and Tax Incentives. SSRN Electronic Journal. doi: 10.2139/ssrn.2580750
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