Factors to Consider When Choosing Superannuation Plan

This study discusses the important factors that tertiary employees should consider when choosing whether to place superannuation contribution in the defined benefit plan or investment of choice. It covers cost and fees, performance of the superannuation provider, extra benefits, risk associated, investment options available, services offered, insurance, type of fund offered, taxation, and time value of money. The study recommends thorough research before making a decision.

A STUDY ON
THE IMPORTANT FACTORS THAT SHOULD TERTIARY EMPLOYEES CONSIDER
WHEN CHOOSING WHETHER TO PLACE SUPERANNUATION CONTRIBUTION
IN THE DEFINED BENEFIT PLAN OR INVESTMENT OF CHOICE
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Introduction
As the people continue planning for life after retirement, it has been a difficult scenario since
saving has not been easy since approximately half of the employees don't know how much to
save for future and later on, end up saving very little or nothing (Nielson and Harris, 2010). This
has led to some leaving a life of struggle after retirement because of failure to save for the future
while working.
Some of the organization offers pension plans in order to save the future of their employees and
protect them against struggle. It is mandatory in some organization for each employee to have a
saving scheme whereby the employer saves some amount with the name of the employee or an
employee directly contributes to the scheme. The pension plan offered by an organization is
referred to as superannuation for employees. This is a defined contribution as the contribution or
pension program or defined benefits offered by the company for the benefit of their workers. The
employer is required to deposit a certain amount of money into super account under employee
name whereby this amount is controlled by super account. In some of the schemes, willing
employees are voluntarily allowed to top up their savings. For the self-employed, they are the
one who decides on how much to contribute to the superannuation (Gallery, Newton & Palm,
2011).
Superannuation scheme compared to other retirement schemes offers tax exceptional benefits in
such a way the contribution made by employers to approved superannuation is treated as an
allowable expense, which is a benefit to the employers. Also, the contribution or withdrawal of
cash from an approved superannuation account by beneficiary either employed or self-employed
is tax-free to the extent prescribed by the tax department.

Australia government categorizes superannuation benefits into three, namely;
Preserved benefits-these benefits are preserved and only accessed after attainment of the
conditions of release, for instance after retirement age.
Restricted non preserved benefits- Here, the benefits are accessed after the fulfillment of a
certain condition, for instance, termination of an employment contract. Under this benefit, one
can access the benefits even before retirement age.
Unrestricted non preserved benefits-This is a kind of benefit whereby it can be accessed on
demand upon the attainment of super fund conditions either after attaining retirement condition
or age as per the employment contract. One may request for the payment to be done on a lump
sum or a pension. However if the request is done before the attainment of the release conditions,
the payment is subjected to tax and the opposite is true.
Other categories include;
Defined benefit plan-under category, the employee derives a fixed amount of benefits regardless
of the contribution. Benefits depend on the amount of salary paid to the employee, the number of
years of service to the company and the age of the employee. Upon attaining the release
requirements, the employee is entailed to a fixed amount of benefit based on the set formula.
Thus employees are certain of what they expect to receive as benefits upon attaining benefit
release conditions.
Defined contributions plan-under this plan, however, the pension contribution is fixed, and
benefit payments are determined by the market forces. This means the contributor or the

employee bears all risks since he or she is not certain of what he or she shall receive as a benefit
after attaining release conditions.
Factors to consider when choosing the superannuation plan.
Different superannuation providers differ in their conditions and terms of offering benefits to
their clients. Therefore, both employer and employees need to be very careful when making a
life decision. Below are some of the factors needed to be considered when choosing a super
fund;
Cost and fees- This is the amount charged by the super fund for the management of accounts.
Therefore, the contributor should be extra vigilance to ensure no hidden fee on top of the normal
charges because it eats up the saving reducing retirement benefits (Gruen & Soding, 2011).
Therefore an employee should consider fees charged by different superannuation providers and
make resourceful decision to avoid future losses. He should cross compare both normal fee and
hidden fee bearing in mind that hidden fee may even be more than the normal fee. Some of the
fee charged by the service providers and which should be put into consideration is administration
fee, consultancy fee, an investment fee, and insurance fee. The employee should consider how
much each superannuation provider charges and considerably choose the one with lower fee
since the high the fee the more savings are eaten up.
Performance of the superannuation provider- contributors should research on super fund
performance of their choice in terms of payout and corporate governance. Like any other entity,
the contributor should analyze the annual financial report to study the provider's assets and how
they are financed (Marshall, Anderson, and Ramsay, 2009). It is important to note that the
contributor should engage with stable superannuation provider in order to protect savings.

The employee should also consider social-economical reporting of the firm, to understand the
relationship between the firm and the public. Positive comments imply better performance and
thus contributor is advised to choose the provider with good comments and avoid that with
negative comments.
Performance can also be determined by the number of members joined and joining the provider.
The high number of membership implies good performance and proper spread of risk is done
among many members.
Extra benefits- Another factor to be considered by contributors when choosing the super fund is
the extra benefits offered by the firm. Extra benefits relate to subsidized insurance services,
subsidized consultancy fee and whether the employees are allowed to top up the premium since
the more premium paid the higher the retirement benefit likely to be accrued. Superannuation
providers that offer extra benefits attract many investors and other those employees with the
mind of investment should choose firms.
Also, the employee should choose a provider that offers long term benefit over that offers short
term benefits since they are suitable for investment (Yates and Bradbury, 2010).
The Risk associated: Investments are associated with many risks such as market risks, financial
risks, liquidity risks, currency risks, redemption risks legislative risks, etc. Some of these risks
are extreme and upon occurrence, they may bring investment to an end without attaining its set
goals. However other risks can be managed or mitigated to an insignificant effect for instance
currency risks through edging, liquidity risk, and timing risks. Therefore intensive research
should be done so that the risks that can make an organization to collapse be avoided, and

Investment options available: Superannuation providers should provide a variety of investment
option from which the investors can choose the best option according to their different interests
and preferences. Superannuation providers that have a lot of investment options tend to attack
many investors since each can choose wisely from the variety. Therefore it is good to compare
different fund providers who offer the same investment and choose the suitable one based on
cost and the associated benefits.
An investor should consider the following in an investment before opting to choose it.
 He/she should consider whether the investment has the possibility for growth that is; it
has the possibility of giving out higher returns in the future.
 The investment to be chosen should have risk option in that the associated risks can be
spread and mitigated easily and give forth high return.
 The investment should have an element of stable cash payout to facilitate proper
budgeting for future expenditure and reinvestments (Sathye, 2011).
Therefore an investor should choose wisely the kind of investment option to take because
determines the number of benefits to be received in the future.
The services offered- Contributor should consider whether the services offered by the
superannuation provider are in alignment with their long term goals and objectives and whether
such services are in alignment with the firm goals and mission. Also, they should consider the
terms under which the services are offered for instance whether they charge fee or not and the
requirement for such services (Australia and Swan, 2010).

Some of the services offered by fund providers are post-retirement advisory services, investment
services, and financial advisory services. The superannuation provider that provides such kind of
service tends to attract many because they influences ones live after work.
Insurance: Contributor should consider a super fund with insurance service in order to be sure
of their financial security. It should be noted that insurances require little premium payment
rarely do they offer such services and thus through the cost factor need to be considered, that
should not compromise the factor that the business needs to be secure thus leading putting
venture into a jeopardy ( Bateman, et al. 2012).
Therefore thorough research has to be done to know whether the fund provider provides such
services and which kind of policy they offer and to which extent before committing to undertake
business with.
Type of fund offered by the superannuation provider: Different kinds of the fund are offered
by fund providers. For instance in Australia, there are several types of fund which both have
advantages and disadvantages for instance;
retail fund-It has a low cost but have high profit retaining in that the profit made a big part of it is
retained for reinvestment while little is shared to investors,
Industry fund is also the same as a retail fund in that it has low cost and little profit share,
The corporate fund which is arranged by employers to their employees (Feng, Gerrans and Clark,
2014).
Therefore investors should choose the superannuation provider that provides a fund of their
choice putting into consideration cost, return and also their long term goals.

Other factors- Taxation and time value of money
Taxation: Investor should consider the investment that attracts little tax as that will determine
the amount of return to be received and the retained earnings for investment. Tax levied depend
on a number of factors such as the level of income, the type of superannuation provider engaged
with and the prescribed conditions provided by the fund provider in order to start enjoying the
benefits. Also kind of saving and investment affects the tax levied (Stebbing and Spies-Butcher,
2016).Therefore an investor should consider the investment option will not expose the business
into adverse taxation hence affecting their profitability.
Opportunity cost: Opportunity refers to the benefit foregone after taking an investment option
over the other alternative. Therefore investors should make thorough research in order to make
the best decision from alternatives available to avoid shifting from one investment to another
with the time that will affect the expected benefits.
Time value of Money: The dollar today is worthier than a dollar tomorrow since money is
influenced by factors like inflation and risks that lowers or increases its value with time. Thus
investors should choose an investment whose first cash inflows are higher than last periods' cash-
flows, since the more the time elapses, the more money depreciates.
Recommendations
It is important to consider various factors discussed above before choosing the superannuation
provider to deal with since they affect the expected benefits in the future. Therefore one has to
make thorough research in order to understand various fund providers, what they offer and the
terms of engagement. Also one has to make research on market conditions and its trends before
making a decision of investment.

One has to compare several factors because each affects an investment in different in order not to
over-concentrate on one and overlook the others.
Conclusion
The proper decision has to be done on choosing the saving scheme. Therefore there must
thorough consideration of the factors discussed above to retrieve maximum benefits from the
savings and investments made.
Secondly, thorough research has to be done in order to make proper choice on superannuation
provider and investment option to venture in.
Thirdly, the investment option chosen should align with one's goals.
Lastly but not least, one should understand the terms and conditions of the contract before
engagement.

References
Australia and Swan, W., 2010. Australia to 2050: future challenges. Canberra: Commonwealth
of Australia.
Bateman, H., Eckert, C., Geweke, J., Louviere, J., Thorp, S. and Satchell, S., 2012. Financial
competence and expectations formation: Evidence from Australia. Economic Record, 88(280),
pp.39-63.
Feng, J., Gerrans, P. and Clark, G., 2014. Understanding superannuation contribution decisions:
Theory and evidence. Working Paper, CSIRO-Monash Superannuation Research Cluster,
Melbourne.
Gallery, N., Newton, C., & Palm, C. (2011). Framework for assessing financial literacy and
superannuation investment choice decisions. Australasian Accounting, Business and Finance
Journal, 5(2), 3-22.
Gruen, D., & Soding, L. (2011). Compulsory superannuation and national saving. Economic
Round-up, (3), 45.
Marshall, S., Anderson, K. and Ramsay, I., 2009. Are Superannuation Funds and other
Institutional Investors in Australia Acting Like ‘Universal Investors’?. Journal of Industrial
Relations, 51(4), pp.439-458.
Nielson, L. and Harris, B., 2010. Chronology of superannuation and retirement income in
Australia. Department of Parliamentary Services.
Sathye, M., 2011. The impact of the financial crisis on the efficiency of superannuation funds:
Evidence from Australia. Journal of Law and Financial Management, 10(2), pp.16-27.
Stebbing, A. and Spies-Butcher, B., 2016. The decline of a home-owning society? Asset-based
welfare, retirement and intergenerational equity in Australia. Housing Studies, 31(2), pp.190-
207.

Yates, J. and Bradbury, B., 2010. Homeownership as a (crumbling) fourth pillar of social
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