Factors Considered by Employees When Choosing Superannuation Plan

A STUDY ON
THE FACTORS CONSIDERED BY EMPLOYEES WHEN CHOOSING WHETHER TO
PLACE SUPERANNUATION CONTRIBUTION IN THE DEFINED BENEFIT PLAN
OR INVESTMENT OF CHOICE
Submitted by
NAMAES OF THE CANDIDATES
Registration No.
Subject: Corporate Financial Management
Submission date
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Introduction
The three-quarter of the world working population retire poor or will be working in defiant of
retirement to earn a living. More than half of the employees don't know how much to save for
retirement. Possibly that is why others completely fail to plan or save too little for their future.
The above are some of the reasons why most organizations offer a pension plan or what they call
superannuation for their employees. Superannuation usually referred to as defined -contribution
or defined- benefit plan is therefore described as a pension program by the company for the
benefit of their workers (Agnew, Bateman and Thorp, 2012).
Superannuation requires the potential employer to pay or deposit a certain amount of money into
super account under employees’ name which is then managed by a super fund. Also, the
employee can decide to add top up the contribution into the scheme. For the self-employed,
chooses how much to put into the superannuation (Anderson et al. 2016).
In addition, superannuation does not rely on market performance but depend on the number of
years person employed, salary rate and exact prescribed age of retirement. Upon meeting the
prescribed conditions underprovided by the superannuation fund, the beneficiary is entitled a
fixed amount on a monthly basis.
Compared to other retirement schemes, superannuation offers an exceptional tax benefit to both
contributors and beneficiary. Contribution to approved superannuation is treated as a business
tax-deductible expense. For the beneficiary, either employed or self-employed any contribution
and withdrawal to and from approved superannuation is a tax-free as it is prescribed by the tax
department.
Access to the superannuation benefit is restricted to the early benefit even under the severe
conditions unless otherwise prescribed (Byles, et al. 2013).
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Superannuation benefits fall into three categories in Australia;
 Preserved benefit
 Restricted non preserved benefits and
 Un-restricted non preserved benefits
Preserved benefit- As the name suggests, this benefit can only be accessed if you meet the
conditions of release, for instance, retirement age.
Restricted non preserved benefit- under this benefit, benefits can’t be accessed until the agreed
period lapses. For the employees, it is accessed when the employment contract is terminated.
Un-restricted non preserved benefit – This includes any benefit which may be paid on request or
demand after satisfied super fund conditions such as age and retirement from the employment
contract. Here you can apply for the benefit in a lump sum or a pension. If the application is
made before meeting release conditions, then the payment is subjected to taxation and vice versa.
In India, it is categorized into two
 Defined benefit plan
 Defined contribution plan
Defined benefit plan- under this plan, the benefit derived regardless of contribution is fixed and
it's determined by the employee number of years of service to the company, age, and salary.
Upon meeting the prescribed conditions, the employee receives a fixed amount based on an
existing formula.
Defined contribution plan- under this, the contribution is fixed but the benefit is pre-determined
by the market forces and therefore the beneficiary is not sure of how to receive on retirement.
This mean, the beneficiary or the employee bears all the risk.
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