Tertiary Sector Investment Decisions

The assignment examines the factors personnel in the tertiary sector must consider when making investment decisions, particularly regarding superannuation. It emphasizes the importance of understanding risk, return, and the time value of money. The analysis delves into the implications of choosing defined benefit plans versus other options, highlighting potential drawbacks like limited opportunity for high returns. The report suggests utilizing NPV and IRR tools to evaluate project attractiveness and profitability effectively.

Corporate Finance Case Study

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................3
QUESTIONS...................................................................................................................................3
1. Assessing the factors that tertiary sector employees need to consider while making decision
about superannuation fund...........................................................................................................3
2. Explaining the ways in which time value of money concept affects potential investment
return and retirement savings.......................................................................................................5
3. Identifying retirement investment products that can be offered to the members by UniSuper
Ltd................................................................................................................................................6
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

EXECUTIVE SUMMARY
In the present time, business organizations places high level emphasis on the
superannuation fund. This in turn enables personnel to save and invest money for their near
future and thereby ensures them to secure their life to the large extent. In this regard, both
employer and employee contributes specific amount of money in the fund with the aim to get
high level of financial benefits at the time of retirement. Specifically there are mainly two types
of fund which can be chosen or undertaken by the employees are defined benefit and investment
choice plan. The present report is based on the case situation of tertiary sector employees who
offers transport, health, insurance, teaching services etc. In this, it can be summarized from the
report that employees must consider the time value of money concept at the time of making
selection of investment or pension options. By this, personnel of tertiary sector can assess the
extent to which specific option will offer high level of monetary benefits to them in the
upcoming time period.
QUESTIONS
1. Assessing the factors that tertiary sector employees need to consider while making decision
about superannuation fund
Superannuation may be defined as an initiative which is undertaken by the government
with the motive to secure life of individuals after their retirement. Government has also
introduced laws and legislation in relation to the amount which employer needs to contribute in
the superannuation fund on the behalf of employees (Butler, 2015). In this, amount of
contribution is highly influenced from the basic pay or salary of the personnel. For this purpose,
UniSuper offers various kinds of investment options to the employees of university.
The cited case situation presents that employer is obliged to contribute in the superannuation
fund on the behalf of employees minimum 3%. Such minimum can be increased by 9% which is
highly dependent on the concerned organization. Thus, in accordance with the decision and
announcement of Australian government both employer and employees are obliged to contribute
some amount of fund in the superannuation (O'Connor, 2015). In this regard, employees have

option to choose one plan from defined benefit and investment choice plan. Hence, there are
several factors which tertiary sector employees need to consider while making selection of
superannuation fund are enumerated below:
 Fees: For maintaining the superannuation fund concerned authority charges some
specific amount in terms of fees. Hence, tertiary sector employees need to consider such
aspect while making selection of investment option. The reason behind this, such fees has
high level of impact on the amount which individual will receive after retirement.
 Investment options: Risk and return are other major factors which individual needs to
keep in mind while making decision about investment (Rowley and Purves, 2015). Thus,
tertiary employees need to consider the aspect that they will attain acceptable return for
the risk taken by them.
 Performance level: At the time of making comparison of various super funds related
authority needs to consider the performance level. In this, employer and employee require
to evaluate the last five year performance of the portfolio.
 Insurance: Employees also needs to make assessment of the insurance options which
are related with the investment options. In this, employees should select the plan which
offers good value of money.
 Extra benefits: In the recent times, with the objective to retain the talented personnel for
longer duration employer makes focus on investing above the limit of 9.5%. Thus,
employees require considering such extra benefits while taking decision about option
which is available to them (Superannuation is a form of saving for retirement, 2017).
Moreover, when investors have more funds they are in condition to choose highly
attractive options.
 Customer service: Tertiary sector employees also make evaluation of the services which
are offered by UniSuper. Moreover, in the world of technological advancement
employees prefer to see all the information on their websites. Besides this, they also
prefer to get quick information about all the alternative options that are available to them
for investment purpose.
Hence, by taking into consideration all the above mentioned parameters tertiary sector
employees can make effectual comparison of the investment options. This in turn helps

employees of tertiary sector to select the suitable option from defined benefit and investment
choice plan. By this, personnel would become able to enjoy high level of financial benefits on
their retirement. Time value of money concept helps in determining the value of future amount
in relation to present. Moreover, by employing the time value of money concept employees can
determine the return which will generate by them after the specified time frame. In this, by
calculating the net present value of an investment plan business unit can determine the extent to
which specific investment option is financially viable and profitable (Awad, 2013). However,
the main issue which is facing by the employees in relation to the identification of suitable
discounting factor. Moreover, if employees fail to undertake appropriate PV factor then it may
result into ineffectual framework for decision making. Thus, tertiary sector personnel need to
make focus on the selection of suitable factor that directly aid in the decision making aspect.
2. Explaining the ways in which time value of money concept affects potential investment return
and retirement savings
Time value of money concept has high level of impact on the potential returns and
investment savings. Moreover, risk and return which is associated with the specific investment
plan highly influenced from the market trend and condition. In defined benefit employer
contribute amount to the specific time period. Hence, such fund is provided by the business unit
to the concerned employee at the time of his retirement (Griffith, 2015). Thus, by taking into
account such aspect it can be said that there is low level of return is associated with the
investment option or plan. Moreover, in this business entity only enjoys the fixed gain in terms
of principle and interest amount.
On the other side, now there are several types of fund are available to the employee’s
tertiary sector such as stable, secure, trustee’s selection and share etc. In this, by making
selection of suitable investment options employers can enhance the productivity and profitability
level to the large extent. The rationale behind this, there is several companies are available in
both domestic and overseas market whose shares are growing with the very high pace. In this,
there is opportunity for the employees to choose investment choice options and thereby enjoy
high level of return (Summers, 2013). This aspect clearly shows that participants who chose
defined benefit plans forgo potential gains and investment earnings to the large extent.

Time value of money concept entails that there is some value addition takes place in
money after the specific time frame. In this regard, investment choice plan offers opportunity to
the employees in relation to gaining high level of financial benefits. However, risk associated
with other investment options such as shares, infrastructure etc. are very high. Besides this, there
is no guarantee that investor will earn high or minimum return. In the investment choice plan,
return is highly influenced from market trend, competitor’s strategies, and company financial and
non-financial performance. Hence, when company is performing activities in a better way then it
may result into higher return.
However, no guarantee is associated with such kind of options in terms of return. In
contrast to this, under defined benefit plan there is no fear among the participants in relation to
loosing the return (Cummings, 2015). In comparison to investment choice plan, defined benefit
scheme offers opportunity to the personnel to gain fixed return. Thus, by keeping all such aspects
in mind it can be said that participants or employees who chose defined benefit plan or scheme
forgo the potential gain or return to the large extent.
3. Identifying retirement investment products that can be offered to the members by UniSuper
Ltd.
Retirement investment products implies for the defined benefit and investment choice
plan. Under the defined benefit plan all the monetary gains are enjoyed by employees at the time
of retirement. In this, employee’s benefits are calculated through the means of following
formula:
Retirement benefits = salary benefits * length of membership * lump sum factor * average
service fraction
On the other side, investment choice plan offers several pension options to the personnel
such as indexed, single life indexed, allocated, roll-over and part-cash distribution. In this, by
applying the time value of money concept on such options employees can determine the return
which will be generated by the firm after the predetermined time period. Moreover, earning high
return is one of the main objectives of employees which in turn helps them in maintaining the
life standard to the large extent (De Zwaan, Brimble and Stewart, 2015). There are several

investment options which are offered by UniSuper Ltd are accumulation 1, 2, defined benefit
division, spouse accounts, pension etc (Choosing a superannuation fund, 2017). In this, by
applying NPV technique employees can assess the return which will generated by them after the
specified time frame.
Net present value is highly effectual investment appraisal tool which in turn helps in
evaluating the viability and attractiveness of proposal. This method will provide human
resources of tertiary sector with the highly realistic framework for decision making. The
rationale behind this, such method considers time value of money concept and thereby helps in
decision making (Chant, Mohankumar and Warren, 2014). According to such method,
employees need to select the investment fund which has higher NPV. Earning higher return is
one of the main objectives of employees behind making investment.
In this, by evaluating the return of each proposal on the basis of discounting factor
investors can assess the return which will be generated by them after the specified time period.
In this way, by evaluating monetary returns in accordance with such method employees can
compare the viability of different proposals (Butler, 2016). Besides this, time value of money
concept or method also offers opportunity to the personnel to reject the proposal at initial level.
In this way, it enables employees who work in tertiary sector reject the proposal with negative
value.
Along with this, by comparing the net present value amount of various proposals investor
can select the best option. Moreover, risk and return are highly varied from one project to
another. In this regard, net present value is the most effectual aspect of time value of money
concept which in turn facilitates effective decision making (Ali and et.al., 2015). Besides this,
IRR is another most effectual tool of time value of money method which in turn helps in
evaluating the attractiveness of several options. Hence, by identifying the potential returns in the
form of % effectual comparison can be done.
In this, participants evaluate returns by taking into consideration the two discounting
factors. Thus, by considering the outcome of such method participants can take highly profitable
decision. However, if investors fail to undertake suitable discounting factor then it may result
into unrealistic framework for decision making. On the basis of all the above mentioned aspects

it can be said that time value of money concept aid in effective decision making and helps in
generating higher returns.
CONCLUSION
From the above report, it has been concluded that by making contribution in the
superannuation fund employees can make their future highly secure. Further, it can be revealed
from the report that employees of tertiary sector needs to keep in mind risk, return etc. factors
personnel need to make investment decision. Moreover, super funds are highly associated with
the future aspect of personnel so they need to take decision by going through the time value of
money concept. Besides this, it can be inferred that participants bear opportunity cost when they
select defined benefit plan. Moreover, in the case of defined benefit plan investors have no
chance to gain high potential return and other benefits. It can be seen in the report that by
following NPV and IRR tool of time value of money concept personnel of tertiary sector can
assess the attractiveness as well as profitability of project to the significant level.

REFERENCES
Books and Journals
Ali, P. and et.al., 2015. No thought for tomorrow: young Australian adults’ knowledge, behaviour
and attitudes about superannuation. Law and Financial Markets Review. 9(2). pp. 90-105.
Awad, A., 2013. Superfunds awards finalists announced. Investment Magazine. (94). pp. 32.
Butler, D., 2015. Superannuation: Managing tax losses in an SMSF. Taxation in Australia.
49(11). pp. 699.
Butler, D., 2016. Superannuation: Transferring foreign super fund amounts to an Australian
resident. Taxation in Australia. 50(8). pp. 481.
Chant, W., Mohankumar, M. and Warren, G., 2014. MySuper: a new landscape for default
superannuation funds. CIFR Paper. (020).
Cummings, J. R., 2015. Effect of fund size on the performance of Australian superannuation
funds. Australian Prudential Regulation Authority Working Paper.
Davis, S., Lukomnik, J. and Pitt-Watson, D., 2013. The new capitalists: how citizen investors are
reshaping the corporate agenda. Harvard Business Press.
De Zwaan, L., Brimble, M. and Stewart, J., 2015. Member perceptions of ESG investing through
superannuation. Sustainability Accounting, Management and Policy Journal. 6(1). pp. 79-
102.
Griffith, S. J., 2015. Correcting Corporate Benefit: How to Fix Shareholder Litigation by
Shifting the Doctrine on Fees. Boston College Law Review. 56(1).
O'Connor, B., 2015. NGS Super wins best fund 2015 (insurance). Newsmonth. 35(4). pp.23.
Rowley, D. and Purves, D., 2015. Super fund salary survey: How do they line up?. Investment
Magazine. (113). pp.10.
Summers, P., 2013. UniSuper stakeholder forum. Advocate: Newsletter of the National Tertiary
Education Union. 20(1). pp. 9.
Online

Choosing a superannuation fund. 2017. Online. Available through: <
https://www.westpac.com.au/personal-banking/superannuation/planning-for-retirement/
super-101/choosing-a-superannuation-fund/>. [Accessed on 12th January 2017].
Superannuation is a form of saving for retirement. 2017. Online. Available through: <
https://www.finder.com.au/super-funds>. [Accessed on 12th January 2017].