Superannuation Contributions
What do you think are the important factors that should be considered by tertiary sector employees when they are deciding whether to place their superannuation contributions in the Defined Benefit Plan or the Investment Choice Plan? What issues relating to the concept of the time value of money, taxes etc., might be important in this decision-making process? Explain.
The collection of the superannuation contribution has been a very powerful strategy that has made workers to indulge in Savings and does use do savings to invest them into some kind of funds or schemes that will help them to an interest and multiply their savings. Also, it is very hard to determine that which the best plan is for the employee the investment choice plan or defined benefit plan. Hence there is a need for making a clear analysis regarding the superannuation funds that are present in the tertiary sector employment. This type of cases is very sensitive to time and then it is very hard for the firm to make decisions because of the regulating time (Needles & Powers, 2013). If a clear analysis about the organization is made by the customer then he will be able to realize the actual value of the Assets and liabilities that are owned by the company and hence he can relate to the information and then make his investment strategies. Also, the role of the fund managers has been clearly depicted because of the analysis required in the process of deciding portfolios.
(Power, 2017)
The main objective of this type of contributions is to inculcate the habit of savings in the mind of employees and thus also allowing them to multiply their savings with the use of different plans so that they can have a peaceful and healthy retirement and future. Collection of the superannuation fund is made necessary for some countries (Power, 2017). The collection is made necessary for the employer to collect money from the employees as a superannuation fund and then invest them on their behalf also making this process mandatory in nature. Because the system has been made mandatory for the organisation to collect superannuation friends, there have been observed tremendous increase that has been seen in the superannuation fund that have been collected by the employees which have also lead to improve the role of Financial Institutions in order to invest the money in best deals or schemes so that the individuals and their the employees can be provided with the best returns on their savings investment (Power, 2017).
Defined Benefit Plan vs. Investment Choice Plan
The three main economic sectors upon which the superannuation contributions are dependent are Primary, secondary and tertiary sectors. The main objective of the function that is to be completed by the superannuation funds is to help the tertiary sector employees to get the best advice relating to the investments they make and also help implementation of new and improved methods of wisdom that will help to increase the productivity of different sectors. It was previously noticed that the percentage of a superannuation fund that was collected from employees was 3% but by the year 2005 it has been increased to 9%. The employees need to indulge in this kind of activities and then make payments regarding the superannuation funds as a percentage of their salary which is paid to the employer and does is used by them to invest in opportunities that will provide benefits for both the firm and employee. These types of systems help to create social security among employees by the collection of money for their Peaceful retirement and thus promoting the habit of savings among them. After the analysis of market one of the most renowned organizations that were able to take good care and invest the superannuation fund in a profitable manner was considered to be ABC Limited (Ross et. al, 2014). With the increase in time, the employees are also coming to know about this kind of Investment plans in which they are able to save there are two salaries and also at the same time are able to earn interest on them by investing them in a particular manner. The employees are given two different kinds of investment plans in which the superannuation fund which was the part of the salary are being invested. The choices are defined benefit plan and investment choice plan.
The name of defined benefit plan makes it clear that all the factors are prepared on the basis of the percentage of the superannuation fund which has been provided by the employee in order to invest. The factors through the amount of the superannuation fund are decided are age, average salary, etc. Also, the amount that the employee will receive after the completion of the defined benefit plan is clearly mentioned and there are no changes in the amount of interest with the employee is going to get. This also states that the employee has nothing to do with the loss or profit of unissued Limited thus making it profitable for them as they will be getting a safe and secure method of investment with high returns.
Factors to Consider
On the other hand, the investment choice plan consists of the benefits that the company has received after deducting the administrative expenses and management expenses from the Investments. This type of plans allows the customers or the employees to decide in which plan they are going to invest and thus the employees are being given the options of the secure fund, share fund, trustees selection fund, stable fund, etc. to choose from and invest. The employee should analyze them all considering all the conditions of the market on the basis of the risks and returns and then invest money in the best concerns (Vaitilingam, 2014).
When the employee decides in which plan he has to invest, he needs to make certain decisions according to the market conditions and thus make specific regards on the basis of proper analysis of all factors of risk that are present in the environment. For the investors or employees who seek no risk and at the same time they want high returns, the define choice plan is most suitable (Marsh, 2009). Similarly the employees you are not afraid in order to invest their savings in the different type of investments, they should pursue the investment choice plan because the amount of the returns at are received are much higher if correct analysis and proper decision making have been taken into consideration.
There are many factors which help the employees in order to determine the plan in which they are going to invest. The first step towards choosing of the plan is to ascertain the specific portfolio in which the employee seeks to invest his money by the use of his knowledge and experience and thus allowing him to gain greater Returns or even maybe partial losses (Petty et. al, 2012). If there is any mistake made by the employee in choosing the portfolio then this inability will cause him to suffer loss which will make it difficult for him to safeguard his future. The best way in order to get vitamins and also be saving from the responsibility of investment is to ask the employer to invest the part of the superannuation fund so that the employee will be safe from any kind of losses or hazard in the upcoming future (Melville, 2013). Also, it is usual that employers would want to invest in investment choice plan as it is more beneficial to the Employees and also the employee is already having a specified source of income so they can use the extra funds in order to invest them and thus use their knowledge to earn high interest on their savings. The defined benefit plan help the employee to invest their savings in a source that will be providing them Returns at all costs and there is no risk that prevails on this type of plans (Porter & Norton, 2014). Therefore a clear analysis of the present environment should be taken into factor while preparing or making any decisions regarding the investment choice the employee need to invest his savings in.
The Concept of the Time Value of Money
It is a Universal fact that time is money and this is said because financial decisions that are taken by the companies lay more importance on the expenses and the future opportunities for their businesses. The existing business policies are affected a lot by this type of concepts. It will be profitable for the firm if they invest their money and do not keep it in a liquid form because it is said that the value of the money degraded time and thus investment in a proper plan will help to secure it. It is very important for the form to make investments at present so that so that the returns that will be gained in future can be used by them in order to meet the demands which are required (Parrino et. al, 2012). The investors are more derived with the current returns that they will receive from the market if they trade. The present market conditions and the current value of money also help in deciding which type of investment plan we should use in order to invest our superannuation contribution in order to get maximum output.
It has also been observed that the working step of the companies I said to invest a specified amount of their salary in the superannuation fund till they get paid for their services. It has been observed that the employees use of superannuation funds to indulge in Savings and then use the savings in order to make the investment so that they can earn higher interest on them. Also, this method is very long and thus evaluation should be made beforehand so that the assumptions made if are incorrect then proper measures can be taken. It has been observed that long-term investments are more profitable than the short ones. Hands a strategic plan should formulate in order to get the maximum benefits out of the investment that the employee has made. The employee should understand that the investments are not always profitable and there may be a negative time in which a downfall is experienced. Thus level of patients required is very high in the form of investment because of the long-term plan and also all the decisions made by the employee should be taken in relation to the time value of money.
There is always confusion because of the low stock prices and also the peak prices that change over time. Thus a professional advice may help the employees in order to evaluate the decisions upon the market and then make investment plans according to it. In the cases of pension plans, it is the duty of the manager to deliver the investment mode in which the best output is offered. The management should check all the present Ranges and areas in which the employees can make the choice of their Investments. If all the measures that are required in the state of security and concerns related to the portfolio are considered then the risks can be eliminated successfully (Merchant, 2012). Also, the increased tax rate and the selection should be taken as a fact by the fund manager does helping him to find the right path so that he can maximize his client’s profit.
Conclusion
The value of the savings is achieved when employees invest their earnings in the superannuation fund in a thoughtful manner. Also, the decisions regarding to the type of investment plan the employee needs to take into factor should be made correctly. The time value of money and the mode of the investment are very crucial decisions that need to be taken into fact at the time of investing and taking decisions towards catering the Expectations of employees. Also, it has been advised to the managers to leave the whole process by pinning risks that me either lead to loss or may lead to profit for the customers
References
Marsh, C. (2009) Mastering financial management. Harlow: Financial Times Prentice Hall.
Melville, A. (2013) International Financial Reporting – A Practical Guide. 4th edition. Pearson, Education Limited, UK
Merchant, K. A. (2012) Making Management Accounting Research More Useful. Pacific Accounting Review. [online]. 24(3), 1-34. Available from
Needles, B.E & Powers, M. (2013) Principles of Financial Accounting. Financial Accounting Series: Cengage Learning.
Needles, B.E. and Powers, M. (2013) Principles of Financial Accounting. Financial Accounting Series: Cengage Learning.
Parrino, R, Kidwell, D. & Bates, T. (2012) Fundamentals of corporate finance. Hoboken,
Petty, J. W, Titman, S., Keown, A. J., Martin, J. D., Burrow, M. and Nguyen, H. (2012) Financial Management: Principles and Applications, 6th ed. Australia: Pearson Education Australia.
Porter, G. and Norton, C. (2014) Financial Accounting: The Impact on Decision Maker. Texas: Cengage Learning
Power, T. (2017) Fund choice: Comparing super funds in 8 steps [online]. Available at: https://www.superguide.com.au/boost-your-superannuation/comparing-super-funds-in-8-steps [Accessed 18 May 2018]
Ross, S., Christensen, M., Drew, M., Bianchi, R., Westerfield, R. And Jordan, B.(2014)
Fundamentals of Corporate Finance, 7th ed. North Ryde: McGraw-Hill Australia Pty Ltd.
Vaitilingam, R. (2014) The Financial Times Guide to Using the Financial Pages. London: FT Prentice Hall.
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