Superannuation Contribution and Time Value of Money in Corporate Financial Management

This report discusses the importance of superannuation contribution and time value of money in corporate financial management. It covers relevant factors that need to be taken into account, the concept of time value of money, and recommendations for investment plans.

CORPORATE FINANCIAL MANAGEMENT

Contents
Executive summary....................................................................................................................3
Introduction................................................................................................................................4
Superannuation contribution......................................................................................................5
Relevant factors that need to be taken into account...................................................................7
The concept of the time value of money....................................................................................8
Recommendations......................................................................................................................9
Bibliography.............................................................................................................................11

Executive summary
There has been an implementation of various types of strategies which have helped the
employees to multiply their savings but one of the major strategies which have been very
helpful for them is the funding through superannuation. It has proved to be a very sagacious
approach for the employees in order to gain benefits of their savings in near future. It is very
important for a person to invest in a strategy which is well just so that he may get positive
returns. So, in this report, the major factors have been taken into account about the tertiary
sector employees who are judging whether or not to contribute their savings in the
superannuation approach. Also, the types of plan in which the employees need to invest their
savings have also been mentioned with the help of analysis of time value of money and the
taxes.

Introduction
The application of the superannuation strategy in the organizations has helped to inculcate the
knowledge of savings and investment in the minds of employees. The collection of the
superannuation fund and using those funds in order to invest in activities which will provide
much more returns to the Employees will provide a great help to them. Before making the
investment, the tertiary sector employees should try to determine several different factors
upon which they need to make the choice of the type of plan in which they are going to invest
their savings (Siciliano, 2015). The employees can either choose the investment choice plan
or defined benefit plan. Time is a very important factor in making investments and hence the
investors will be required to analyze the market conditions and the stocks and assets relating
to the plan in which they are going to invest. This will thus help them to ensure that they will
get sufficient returns on their saving (Taillard, 2013)s.

Superannuation contribution
The main objectives of the application of superannuation contributions in the organization are
to try and inculcate the value of savings in the minds of its employees so that they can make
proper savings for their retirement and the life peacefully thereafter, without any further
disagreements (Atkinson, 2012). It has been seen that there are many countries which have
already made the collection of the superannuation funds mandatory so that the employees can
know the value of savings. Thus because of the inescapability of this type of strategy, the job
of the financial institutions have increased. The Financial Institutions are now having the
huge task of investing the money collected from the savings of employees and investing them
in a factual scheme so that proper returns can be earned and returned to the individuals.
(Piper, 2015)
The economic sectors have been divided into basically three parts which include primary,
secondary and tertiary sector on the basis of which the relevancy of superannuation
contribution can be analyzed (Berry, 2009). The main job of the tertiary sector employees is
to provide proper advice in relation to the investments they are going to make and also they
have a major role in the implementation of knowledgeable skills for improving the
productivity of other sectors. In the early years it was noticed that only 3% of the employee’s
salary was to be contributed to the funds but after 2005 it has been increased to 9%. Also, a
small rate of interest is collected which is used for promotion of this kind of strategies thus
improving the social security systems which will further help the employees to collect money
for their peaceful retirement (Lerner, 2009). There are many renowned companies who take
good care of the superannuation fund by investing them in eligible plans. This also makes it
easier for the employees to gain knowledge and flexibility towards these kinds of strategies.
The two main kinds of investment plans - defined benefit plan and investment choice plan in
relation to the superannuation fund and the employees are asked to choose any one of them in
order to invest their savings (Fridson & Alvarez, 2012).
The defined benefit plan can be understood as a type of investment opportunity in which
there is a fixed amount that is ascertained upon the savings of an employee which is
determined on the basis of all the present factors. The main factors that are taken into account
while ascertaining the return our age, average salary, working tenure, etc. The return which is

to be provided to the employees on their savings has been decided at the very initial stage so
that there may be no problems arising in near future (Girard, 2014).
The investment choice plan is a type of benefit plan in which the power to choose the
operations in which investment is to be made is being provided. The amount which is given
to the Employees is investment and returns after the deduction of Management and
administrative expenses. These plans allow the employees to choose which type of
investment they want to make so that they can get high returns on their savings. There are
many schemes for the employees to invest like the secure funds, shares fund, stable fund and
trustee’s selection fund which can be differentiated on the basis of the risk and returns factor
by the employees.

Relevant factors that need to be taken into account
In order to assess the investment option plan in which the employees should invest his part of
the superannuation fund, he should be ascertained only after proper analysis of the
environment and the risks that will prevail in that plan (Kuti, 2014). The best plan for the
employees who seek no risk and also want my investment returns is the defined choice plan
because it has no risks present for the value of returns that are given to the employees and
also the rate of interest is ascertained at one of the very initial stages. Also, the employees
who do not have any kind of fear in investing their superannuation fund can invest their funds
in the investment choice plan because it will be providing the users with much higher returns
if and only if a proper analysis of markets environment have been made before making the
investment (Noreen, 2015). There are many factors using which a proper analysis should be
made by an employee in order to choose the plan in which he will invest his savings (Guthrie,
2012). The major job that is to be done by the employee is to find the plan in which they are
going to invest and then use their knowledge, experience, and ability so as to manage the
portfolios in a way that will allow them to have maximum return and minimum losses (Kuti,
2014). If the employee is unable to manage the portfolios in a fruitful manner then he will be
suffering a loss on the returns of the investment thus making him unable to achieve the profits
and a secure future. The best way to invest in a superannuation fund is to give it to the
employers so that the responsibility of investment of the funds is transferred to them, thus
making the employee free from any kind of risk. The use of investment choice plan in order
to invest in the superannuation funds have also been mentioned as beneficial because the
employees are already having a source of income which will provide them to fulfil their
expenses and therefore they should use the extra amount or their savings in order to invest in
the plant which may provide them with much higher rate of returns and also giving them
benefits for the increment of their income (Holtzman, 2013). The defined investment plan
also provides the Employees with returns but the amount of the returns that are received by
them are observed to be much smaller. Therefore all the decision should be made after
analyzing the present environmental conditions that a prevailing inside the organization as
there are many factors which may affect the return on the investment made by the employee.

The concept of the time value of money
It is a global fact that time is money. And according to this statement, the organizations try to
fulfil the needs of the future cash flows so that there are no problems in the assessment of the
financial decisions that are to be taken up by the companies in regard to the expenses and the
opportunities that may prevail for the business in future (Horngren, 2012). This concept is
very important for the application of the existing business policies of the organization. It is
also said that the value of money gets degraded with time if we don't invest it in any type of
asset. Thus it is very important for a person to invest his or her savings in a fruitful policy
which will help them to earn huge returns of interest in the long-term scale. The present time
investment that is being made by the investors can be very useful for them when the need for
money arises in future (Ittelson, 2009). Also, the present value of money in the market
environment will play a key role in deciding the type of investment plan in which the
employee should contribute his superannuation funds so that he can attain a maximum rate of
returns on his investment.
The working staff of the companies is said to invest very small amounts for their
superannuation fund until the time they give services or provide services to the organization.
The money collected by the organization is used by them to invest in many schemes and
maximize it so that the amount can be increased. Thus the time, by which the money reaches
the employees, it has gone through many of the schemes and then is provided to the
employees as to interest on their savings. So it should be made necessary for the employees
to try and make assumptions about the money of their superannuation funds that they are
going to receive in future. It would be better if the employees are investing in long-term plans
because it will help them to attain the value of money from getting degraded and also
providing them returns on their investment. It should be kept in mind that investments are or
not always profitable as there are times when the environment doesn't support it and a
negative downfall can be observed. Employees are also needed to have patience in them so
that the investment can be attained for a long term which will help them to obtain maximum
output. Therefore it is clear that all the decisions are related to the time value of money
(Ihlen, 2009).

Recommendations
There always exists confusion regarding the buying and selling of stocks because their prices
are always dynamic in nature. The professional advice may be helpful sometimes but
overpowering of the market is not very easy. One can see that he has attained profits from
shares that are vulnerable in nature but also many blue-chip companies have failed to provide
those returns. In the case of the superannuation funds, it is the responsibility of the finance
managers to develop strategies which will provide the employees with maximum output. The
manager should take into account all the types of areas and ranges in the type of investment
choices and then make decisions so that the risks can be eliminated and also investment can
be made in a specific portfolio. The increasing taxes should also be kept in mind by the
finance managers during the ascertainment of the choice of plans.

Conclusion
The efficiency of the money saved by the employees of superannuation funds will only be
profitable if it is invested in some kind of portfolio which will provide high outputs and
Returns. Also, the choice between the types of the plan which the employee decides to invest
is superannuation fund is also very necessary because it will be deciding the rate of return he
will be getting at the time of completion of the period. Time value money of theory should
also be taken into fact and hence investment should be made in the areas where the money
value will not be degraded with the passing time. Also according to the efficient market
hypothesis, it is very important for the fund managers to choose the right portfolio according
to the risks that may prevail in that scheme, as this will be deciding that the portfolio will
provide the employees with losses or gains in return.

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