Factors to Consider When Choosing Superannuation Plan

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.