Superannuation Fund Selection and Retirement Planning

This assignment delves into the world of superannuation funds, exploring the options available to employees, including defined pension benefit plans and investment choices. It highlights the importance of considering factors such as fees, tax implications, and employment tenure when making a selection. The report also touches on the risks associated with currency fluctuations and the need for hedging strategies in international investments. With a focus on tertiary sector personnel working in Australia, this assignment provides valuable information for those planning their retirement.

Acc 200 Accounts

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
Stating the important factors that tertiary sector employees should consider while deciding
whether to place superannuation contributions in the Defined Benefit Plan or the Investment
Choice Plan..................................................................................................................................3
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Superannuation may be served as an organized pension program which is created by the
firm for the welfare or benefits of personnel. Such pension plan or scheme provides employees
with financial support at the time of retirement. Further, fund deposited by the personnel in
superannuation grows with the high pace until retirement and withdrawal. In this, report will
provide deeper insight about the factors which personnel need to consider while moving
superannuation contributions in the defined benefit plan. Besides this, it will shed light on the
extent to which time value of money concept, taxes etc impact decision making aspect.
Stating the important factors that tertiary sector employees should consider while deciding
whether to place superannuation contributions in the Defined Benefit Plan or the Investment
Choice Plan
In the recent times, employers offer several retirement benefits to their personnel either
voluntarily or for complying with statutory requirements. From assessment, it has identified that
retirement benefits contain provident fund, gratuity, national pension scheme etc (Niblock,
Sinnewe and Heng, 2017). Hence, superannuation implies for retirement benefits which are
offered to the employees by the employer. Thus, every year employer contributes some money
on the behalf of employees in superannuation policy held. Tertiary sector personnel mainly
include teachers, IT sector employees, and bankers etc which offer services to the customers.
Defined benefit plan is the retirement framework that sponsored by employer. In this
plan, benefits of the personnel are assessed on the basis of several factors such as length of
employment, salary details etc. In other words, defined benefit pension plan is the one where
employer makes promises pertaining to specific pension payment, lump-sum on retirement
considering earning history of personnel, tenure of employment, age etc (What Is the Difference
between a Defined Benefit Plan and a Defined Contribution Plan, 2018). Under defined pension
benefit plan, formula regarding the computation of employer’s and employee contribution is
clearly defined. However, in this, benefits to be paid are not clearly defined in advance.
Along with the defined benefits plan, there are several investment choices which can be
undertaken for getting high returns from funds. Usually, individuals are highly concerned
towards their life after retirement in terms of financial security. Moreover, for carry out daily

activities more effectually after retirement individuals require enough funds. Thus, by investing
money of superannuation in other investment choices individual can build up the source of fixed
income generation (Chaudhry, Au Yong and Veld, 2017). Under an investment choice plan or
option employees have opportunity to nominate specific type of assets. In the context of
investment choice plan strategies pertaining to the same includes secure, stable, trustee’s section
and shares funds. Hence, investment choice options include tax free bonds, mutual funds,
immediate annuities, bank fixed deposit scheme etc. Government authorities introduce several
tax free bonds which in turn provide investors with fixed income. In other words, bonds offer
fixed returns on investment on the basis of predetermined rate. In addition to this, individuals
also have an option in relation to making investment in mutual funds. In long-run, mutual funds
offer more benefits to the investors. Mutual funds include wide range of securities and thereby
diversify risk level associated with the securities to a great extent. Further, by investing money in
fixed deposits investor would become able to generate enough income.
In Australia, at the time of retirement, UniSuper Ltd provides wide range of investment
products for both defined benefit and investment choice plan users. This in turn helps in
managing and distributing retirement’s funds prominently. Investment choice plan includes
pension and other options which are enumerated below:
 Indexed pensions: This choice plan offers regular income to the individuals that is the
subject of indexed to inflation. It is payable to the concerned individuals as long as they
live and thereafter transferred to spouse on death.
 Single life indexed pensions: It provides individual with more income as compared to the
indexed option. However, in this, amount is not transferred to the dependent party upon
the death of main individual.
 Allocated pensions: In this, as per the choice, fixed or regular income is generated by the
individuals. On death, balance of pension fund is transferred to the dependants.
 Roll-over pensions: Such plan provides investor with an option to transfer or roll over
retirement fund balance in either approved personal or industry superannuation.
 Part-cash distribution: This enables investors to use specific percentage of retirement
fund as cash lump-sum which can be used for investment / personal consumption
purposes.

However, at the time of placing superannuation contributions in the defined benefit and
investment choice plan tertiary sector employees should consider several factors such as:
 Retirement benefit formula: Through assessment, it has identified that benefit formula
may change over time which in turn creates issue. Hence, any type of changes which take
place in benefits place material effect on the estimated pension benefit obligations of
personnel.
 Estimation pertaining to employee salary growth rate: It is not possible for both
employer and employee to make accurately projection about future compensation growth
rate. Hence, high salary growth rate places direct impact on pension benefits obligations.
 Projection about working career: By doing evaluation, it has found that employees
should consider the time frame for which they will work for the corporation. However, in
this regard, tertiary sector employees face difficulty in assessing time period for which
they will be able to work as an employee. Working tenure or length has significant
impact on pension benefits obligations. Hence, PBO is greater when employee accrues
more year of service.
 Use of service years in making PBO calculation: Guidelines revealed by Australian
authority presents that pension benefit obligations consider estimation in relation to
future salary growth. Nevertheless, it ignores aspects regarding potential future service
(Chaudhry, Yong and Veld, 2017). Hence, as per actuarial guidelines in relation to the
inclusion of potential future service estimated PBO increases dramatically.
 Vesting uncertainties: At the time of placing superannuation contribution in defined
benefit plan personnel should consider the time period for which they are able to work for
the employer. However, employees face issue in ascertaining time period for which they
work for vesting the retirement benefits. Vesting provision increases uncertainty in
relation to the estimation of PBO.
 Time length pertaining to receiving monthly retirement benefit/: Tertiary sector
personnel should consider length of time while taking decision in relation to transferring
superannuation in defined pension benefit plan. However, personnel face issue in
assessing how long they will live after retirement. High level of influence takes place on
PBO when retirees live for longer time period.

 Assumption regarding retirement payout: In addition to this, employees working in
tertiary sector should also keep in mind payout option. Nevertheless, in this, difficulties
regarding the type of payout option which employee will select exist. Moreover, status of
beneficiary changes over the time frame. Under this, pension benefit obligations increase
when time horizon benefits are expected to be paid.
 Provision regarding cost of living adjustment (COLA): From evaluation, it has assessed
that at the time of moving superannuation funds into defined benefit pension plan tertiary
sector employees should consider adjustments regarding cost of living. It is highly
difficult for personnel to identify cost of living will be available in the near future
(Inkmann, Blake and Shi, 2017). Besides this, issues regarding the determination of
COLA benefit rate take place. Type of COLA benefits increases estimation regarding
PBO.
 Application of discounting rate or time value of money concept: Employees should
consider time value of money concept at the time of determining pension liabilities. In
this, difficulty is facing in relation to assessing discount rate which needs to be applied.
Hence, it creates issue in identifying the present value of retirement benefits will be
received at the time of retirement.
 Applicability of discounting rate on annuity value of retirement: Time value of money
concept also creates problem in relation to assessing present value of today’s retirement
benefit. PBO is lower when assumed discounting rate tends to be higher (Bateman and
et.al., 2017). Hence, individuals working in tertiary sector should consider all the above
aspects while determining pension benefit obligations and transferring or placing amount
from superannuation to defined scheme.
At the time of placing superannuation funds in investment choice plan then several factors
need to be considered by the individuals or employees such as:
 Fees: Employees require considering fees charged by super provider while making
selection of investment options.
 Investment options: Employees should choose investment option which helps in getting
suitable returns at minimal risk level (7 Factors to Consider in Choosing a New Super

Fund, 2018). Focus should be placed on investing money in low-cost industry funds or
shares related to an Australian and international firms.
 Extra benefits: Aspect pertaining to flexibility should also be considered by an investors
while selecting certain or specific funds.
 Performance: On the basis of this, before making selection of investment option
personnel should evaluate five years trends or performance in relation to such asset. In
addition to this, fees and tax aspects also need to be considered while choosing an
investment option.
Along with this, at the time of decision making regarding super fund tertiary sector
employees of Australia should consider several issues associated with it. Likewise financial
products, super funds or schemes include certain risk. Such risks include pertaining to the
fluctuations or changes take place in interest rate, market, underlying investment, legislative,
liquidity, currency aspects etc. On the basis of all such aspect, changes take place in interest rate
has both positive and negative impact on return generation through super (Butt and et.al., 2018).
Apart from this, changes take place in market environment also has greater impact on the value
of superannuation funds. By doing evaluation, it has also assessed that variations take place in
the company’s management and policies also have an impact on investment value or figure.
Tax rules and regulations regarding superannuation funds also have significant impact on
the level of benefits which employee will receive over the time frame. Moreover, due to tax
charged on superannuation funds overall investment benefits figure could go up or down.
Further, changing laws and regulatory aspects related to lump-sum or pension also creates
problem. In the context of an investment or assets which can be liquidated quickly also imposes
risk. Hence, assets which can be sold at discounted price level negatively impact the overall
performance of a superannuation fund. Duration or time period of an investment also have higher
influence on the figure of withdrawal benefits (Wang and Wanberg, 2017). Moreover,
performance of market at any point of time has direct impact on the employee’s withdrawal
benefit figure.
Currency risk exists when investment choice plan or option includes overseas assets.
Thus, fluctuations take place in overseas currency level expose risk in front of the individual or
employee regarding benefit amount. In accordance with such aspect, changes take place in the

value of Australian dollar have significant and greater impact on the value of related asset. Thus,
for mitigating risk in relation to currency fluctuations and volatility hedging strategy need to be
employed by tertiary sector personnel who invest money internationally.
CONCLUSION
From the above report, it has been concluded that superannuation is highly prominent
which in turn offers financial benefits or support to personnel after retirement. It can be seen in
the report that individuals have option pertaining to placing superannuation in defined pension
benefit plan or investment choices. Further, it has been articulated that aspects in relation to the
time value of money concept, employment tenure etc should be undertaken by the personnel
while making selection of or placing superannuation fund in DPB. It can be summarized from
the report that at the time of planning tertiary sector personnel, working in Australia should keep
in mind fees, tax implications and other aspects.

REFERENCES
Journals
Bateman, H. and et.al.,2017. Default and naive diversification heuristics in annuity
choice. Australian Journal of Management. 42(1). pp.32-57.
Butt, A. and et.al., 2018. One size fits all? Tailoring retirement plan defaults. Journal of
Economic Behavior & Organization. 145. pp.546-566.
Chaudhry, N., Au Yong, H. H. and Veld, C., 2017. How does the funding status of defined
benefit pension plans affect investment decisions of firms in the United States?. Journal of
Business Finance & Accounting. 44(1-2). pp.196-235.
Chaudhry, N., Yong, H. H. A. and Veld, C., 2017. Tax avoidance in response to a decline in the
funding status of defined benefit pension plans. Journal of International Financial Markets,
Institutions and Money. 48. pp.99-116.
Inkmann, J., Blake, D. and Shi, Z., 2017. Managing financially distressed pension plans in the
interest of beneficiaries. Journal of Risk and Insurance. 84(2). pp.539-565.
Niblock, S., Sinnewe, E. and Heng, P., 2017. A review of superannuation fund performance
studies: Empirical evidence from Australia–2000 to 2014. Accounting Research
Journal. 30(2). pp.224-240.
Wang, M. and Wanberg, C. R., 2017. 100 years of applied psychology research on individual
careers: From career management to retirement. Journal of Applied Psychology. 102(3).
p.546.
Online
7 Factors to Consider in Choosing a New Super Fund. 2018. [Online]. Available through:
<https://www.srgfinance.com.au/blog/7-factors-to-consider-in-choosing-a-new-super-fund/>.
What Is the Difference between a Defined Benefit Plan and a Defined Contribution Plan. 2018.
[Online]. Available through: <http://time.com/money/collection-post/2791222/difference-
between-defined-benefit-plan-and-defined-contribution-plan/>.