The Tertiary Sector Cycle
Diagram – the diagram shows the cycle of the tertiary sector.
The diagram shows the cycle of the tertiary sector. The raw materials are extracted from the resources. These raw materials are extracted by the employees giving service to the companies to help them in the extraction of the raw material. The second phase of forwarding it to the manufacturer for further process. The products are sending to the market of the utilization. All these processes are carried by the service sector to provide services to the different industries. These tertiary sectors are very important for the moving of the services. If at any point they are a lack of the services than the chain breaks and the further process is hindered.
The employees working in the tertiary sector have all the rights to choose and to invest their superannuation as per there wish. The employees cannot invest the superannuation as per his wish. The superannuation or the retirement fund or the pension fund is the last remuneration received by the employees from their company as full and final. Employees have two options to select the plan to invest their superannuation for retirement. The defined benefit plan and the investment choice plan. The detail benefits and the drawback of the process to invest is explained an asunder.
Retirement planning is to plan and determine the income and what lifestyle one wants to live and to put into action the planning done to achieve the goals. As early the employees start saving for their future and make an investment in the mutual funds, stocks, and employer-sponsored plans or any other way of investment for long period the more the money will grow. The investment choice plan is the market-based plan. In which the employees invest their money in the shares, mutual funds, and other market-related plans. The returns are very good and no fixed amount to can define at the initial stage. An estimate of profits can be made and with the past performance of the fund.
Which fund to choose is a very important decision as it will hold all the income of the employees and the future plans? The employees have options such as balanced fund, growth funds, and conservative funds. In this study, we have discussed in detail the steps to be followed to determine before finalizing any fund.
Defined Benefit Plan vs. Investment Choice Plan
To invest in any fund the employees should first understand the fund. The performance of the fund in the past years should be studied. In what market position the funds are in profit and when the market sinks. These studies give a data of time to invest in a particular fund.
The employees should compare the funds and do a deep study of the plans should be done. In how much time the funds will give returns? What is the rate of growth? All these facts should be compared to get the best fund as per employee’s requirement.
The most common and easy word introduction of a defined benefit plan is final salary. This scheme provides the employees with a particular leave of benefit related to years they have worked and how much salary they drew in their service years in one company. To calculate the defined benefit plan is linked to the employee’s income/ and the no of years he has given his services. The employer also contributes to the ratio of employee’s services time and income. The managers who regulate the define benefit plan make it confirm that both the parties the employees and the employer have made their contributions. The defined benefit plan is safe as it is not a market linked plan. The need for the employees at the time of retirement is the base that the employees decide at the initial time of the plan. This desires amount is then calculated as per the current income and the no of the year left in retirement. The amount which will be received at the time of retirement is pre-decided. The premium or contribution is done according to that.
The defined benefit plan also includes a pension for the employees. The number of years the employees will get the pension is also fixed. Another variable is that it represents the amount which is received at the time of retirement. When the scheme will end that time also the employees will get some amount other than the fixed amount this part is Accrual rate.
Number of years employees worked in a company * salary of the employee at the time of retirement * accrual rate
The formula to calculate the defined benefit plan is fix. This includes the number of years worked by the employees in the tertiary sector, his salary and the accrual rate of interest. Some other benefits are also received by the employees by defined benefit plan like the get various tax benefits, a big amount is received at the maturity.
Retirement Planning and the Importance of Time
Define benefit plan has two options funded and unfunded benefit plans. The unfunded benefit plan does not include the investment done in the assets. The funded benefit plans are funds which consider the investment in the assets. The funded benefit plans are safe as they have a support of the assets based companies whereas the unfunded plans lack this backing. One lacking is observed in funded benefit plan is that it sine is not paid to the employees at the retirement or maturity of the plans as this amount is considered as Uncalculated at the beginning of the calculation of the maturity amount.
The market situation called inflation is very harmful as it increases the living cost and the allowance also. Investments made for short period incurred great losses. The graphics description shows a dip at a great volume. Such market situation is not affected in the long term. The investment in defined benefit plan is done for the long term, as a rest of which the effect of inflation is not seen in these plans. The defined benefit plan is not market linked; whatever be the market conditions these plans are safe. The investment of these plans is done in secure funds, which have great support. Define benefit plans are therefore safe to invest. The fluctuation in the market does not affect the amount invested and amount of maturity.
The amount to be received on maturity or retirement is decided by the employees as per there future requirements. If a higher amount is desired by an employee in future then they need to save more in current time in terms of the benefit plan.
Time is the most important factor to decide the fund. The growth of the money depends on the time for how much funds are invested. These funds have a life cycle to perform. Some are for short-term and some are for long term. The short-term funds give benefits in short terms while the long term funds need time much more time to perform.
Taxes are another important factor that should be considered by the territory sector employee while selecting best superannuation or retirement plan. Taxes are compulsory to be paid over the income generated by the employee on any investment. In case of investment choice plan, tax expense for the employee will be higher ass compared to the defined benefit plan. On the other hand, if the defined benefit plan is matured before the set period of time i.e. lock-in period then there will be tax expense on the same. Therefore tertiary sector employee needs to consider tax expense issue while selecting superannuation plan.
|
Heads |
Define benefit plan |
Investment choice plan |
|
Aim |
To provide employees with the benefit of pension for a lifetime. |
To give assistance to the employees to gather funds for their retirement funds in the current. |
|
Contributions |
Employees give contributions to invest in the pension fund which will pay him a lifetime pension. |
The money is contributed both by the employees and the employer in the set ratio. |
|
Income at retirement |
As the employees retire and the pension starts it will continue lifelong. |
The time as for how long the pension will be paid depends on facts like the total amount of investment returns and the rate of interests. Lifelong payments are not guaranteed. |
|
Other benefits |
Additional benefits are received as a Tax benefit. Inflation benefit, early retirement benefits, survivor benefits, disabled benefits |
The extra amount is received if the market is in a positive position all the time of investment. This benefit is also confirmed if the market performance is negative |
The Efficient Market and the Role of Pension Fund Managers
Hypothesis
Efficient Market
The efficient market is the market which processes the information efficiently. A quick and correct adjustment of new information is done in the effective market. The information related to prices of any fund is correctly evaluation of all the information available in present time. That’s the reasons in the efficient market provided information is full a reflection of the available data.
A market in which the market price of the securities is unbiased estimates of the intrinsic value of the securities- Wilfred O’Brien.
In the Efficient Market, the pension fund manager does not play an important role. As all the decision is made on the current situations of the company, as a result, the decision can be made by the individuals themselves. In this situation, there is no need for the pension fund manager. The role of the pension fund manager is hampered in the efficient market. The employees do not need the old data and records they do not compare or study the past performance of the fund in the market. Which time of the market is good for investment or which sector benefit only studied? The data with the pension fund manager are not used as the current prices are used for the investment. In such market, the individuals are in a situation to invest and take a decision regarding the funds. No file of old records are required and no study is to be made for the investment by the pension fund manager, he need not update himself and take pains to collect the current information for various funds. The fund’s manager just has to perform the duties to fill the form and put the amount as per the wish of the customer.
In reality, no such market prevails, no funds are invested just on the current prices. A complete study is done and the comparison is done between various funds of for different time and tenure. Every individual needs the help of the pension fund manager to manager and gives relevant information to the customers. This hypothesis of an efficient market is not practical and does not prevail in the real market. No funds are invested in only there price bases.
There are three types of sectors prevailing in the economy the primary sector – raw materials, secondary sector- manufacturing, and the third sector – tertiary sectors. With the time the proportion of employees to work in tertiary sector is increasing. In this assignment, the discussion is related to retirement schemes or retirement plans has been made. This discussion has been made for the benefit of an employee looking for better retirement plans i.e. after comparing various retirement plans. In this report, some important factors have been discussed for the tertiary sector employees for the selection of better plan superannuation plan. Comparison of a defined benefit plan and investment choice plan has been considered. There are some issues or some considerations related to the decision-making process that should be considered while selecting the best plan.
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