Superannuation Contributions and Investment Plans for Tertiary Sector Employees

This report discusses the significance of superannuation contributions and investment plans for tertiary sector employees in Australia. It explains the two types of plans available and the factors to consider while choosing a plan. The report also highlights the importance of the time value aspect of money and provides recommendations for making smart investment decisions.

Corporate Financial Analysis
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Executive summary
It is very important for the organizations to try and inculcate the habit of savings among the
employees so that they can live their future in a peaceful and tension free manner. Therefore
the use of the superannuation contributions will allow the employees to save some amount of
their salary thus proving to be a very intelligent way for the firm to inculcate the habit of
savings among its employees. Also, we know that the value of money gets degraded if it is
kept stagnant and not invested in any type of portfolio. Hence, making it compulsory for the
tertiary sector employees to make a habit of saving money and utilize it to invest in different
type of portfolios so that they can get returns on it after their retirement. Therefore, in this
report all the factors that help us determine the type of plan in which the superannuation
contribution should be made, is being mentioned after proper analysis of all taxes that are to
be given and also the time value of money is being assessed.
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Introduction
The government has mandated it to make superannuation contribution for the employees
because it has been clearly sensed that these kinds of opportunities help the employees to get
involved in savings. The contributions made by the employees are further used by the finance
managers of the organization or other finance industries to invest in portfolios (Berry, 2009).
This investment will help the tertiary sector employees to earn returns on their savings. It
should be noted by the employees at a proper analysis of all the environmental factors should
be done before making any type of Investments. There are basically two types of plan in
which the Australian tertiary sector employees can invest their money in, which are defined
benefit plan and investment choice plan. (Boyd, 2013) Also, the type of plan which the
employees are going to take-up should be assessed, after analysis of time value aspect of
money and the risks that may prevail in these types of plans. These plans will help the
employees to ensure that they are provided with sufficient returns on the savings which are
being made in the form of superannuation contributions.
Superannuation contributions
Superannuation contributions are a type of savings that have been made by the accumulation
of small parts of the employee’s salary for years. In Australia, the government has made it
mandatory for the employees to get encouraged in the superannuation contribution so that
they can indulge in the habit of savings and also have a peaceful future after their retirement.
In the year 2005, the contribution that was to be made as superannuation funds world
amounted to be 3% of the total salary which was later increased to 9.5% of the salary in the
year 2014 and is also said to become 12% by the year 2025. (Datar M. S., 2015)
Superannuation contributions are also called salary sacrifice arrangements because of the
voluntary contributions that are needed to be contributed to the superannuation contributions
by them, which are a part of their salary.
The contributions that are made by the employees are used in the investment of different type
of portfolios so that the time value of money can be achieved. (Datar S. , 2016)The main
objective of the superannuation contribution is to make the employees indulged in the habit
of savings so that they can make their future secure and live there life after retirement
peacefully. There are many countries that have already made it mandatory for the
organizations to collect superannuation contribution from its employees and then invest it
into portfolios so that returns can be earned on them.
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The process of investing the superannuation funds has increased the job of The Financial
Institutions. (Holtzman, 2013) Therefore the financial institutions have been assigned with a
very important task of investing the money that has been saved by the employees in a very
well known portfolio so that high returns can be provided to them at the time of their
retirement.
There is basically three type of economic sectors in which an industry is divided- Primary
secondary and tertiary sector. The main function of the tertiary sector employees is to use
their skills and knowledge in order to make proper decisions and then help the firm to attain
huge profits (Horngren, 2012). Hence it is very important for them to contribute towards the
superannuation fund so that they can enjoy their savings after their retirement. A small rate of
interest is collected as social security fund which is used for the betterment of society and
making innovations in the superannuation process. (Knubley, 2010) Also, there have been
many companies who perform the job of investment of superannuation funds in the eligible
portfolios.
The defined benefit plan is the portfolio in which an employee can invest his collected fund if
he wants a fixed amount of returns on the contributions, irrelevant of all the factors that may
affect the investment (Kusano, 2018). The rate of return which the employee will be provided
is stated at the very beginning of the period and thereafter no changes can be made to the
return rate. The factors on which the rate of return is decided are mainly age of the employee,
working tenure, average salary, faithfulness, etc. Hence this is a risk-free portfolio in which
the employees can invest their superannuation funds if they want small returns. (Kuti, 2014)
The investment choice plan is a type of plan in which the power is being given to the
employees so that he can choose the type of portfolio he wants to invest his savings in. The
amount that is invested by the employee is returned to him with the returns after the
deduction of the management and administrative expenses. The employees were having an
appetite forest can invest in search schemes so that they can get higher Returns. (Lerner,
2009) A proper analysis and assessment of risk and return factors should be made before
conducting any type of investment activity.
Relevant factors that should be considered
There are many factors that are needed to be assessed in order to make the decision on the
type of plan in which the employee will invest his funds. There are a lot of differences
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between the investment choice plan and defined benefit plan that will help the employees to
ascertain the time of portfolio in which he may want to invest his funds. The investment
choice plan provides the consumers with a much higher rate of return as compared to the
defined benefit plan. This is because of the versatility of the plan as it helps the employee to
choose any type of portfolio in which he may want to invest his money (Lyon, 2010).
Whereas, in the defined benefit plan a specified rate of return is ascertained at the time of
making an investment which is very small as compared to the other plan. Therefore making it
much more suitable for the employees to invest in the investments oil and if they are having
proper skills and knowledge to study all the factors before making their investment.
The investment choice plan comes up with a lot of risks and misstatements that may end up
with the losses of employees. (McLaney & Adril, 2016) It has been mentioned above that the
customer who invests in the investment choice plan should have appetite forest and also he
needs to have proper knowledge of the environment show that ascertainment of the portfolio
can be done. In the case of defined benefit plan, the customers are not having any risks
prevailing on them as the rate of return has been specified at the very time of making the
investment. Therefore it will be considered that the customers who seek to uphold risks while
making investments should invest their funds in the investment choice plan and the others
should make their investment in defined benefit plans. (Noreen, 2015)
A lot of knowledge and analysis is required to make Investments in the investment choice
plan as the employees are asked to choose the type of portfolios in which they want to invest
their funds. No such analysis is required in the defined benefit plan as all the pain is suffered
by the financial organization which is going to take the money for investment in return for a
small rate of interest. (Piper, 2015) It can be also said that people can invest in the investment
choice plan because they are already being provided with the salary that can be used to pay
the expenses. Thus, the fund which is collected should be invested in a portfolio that will
provide them with higher rate of returns and may improve their standard of living after
retirement.
Time value aspect of money
It is very important for the employees to understand the value of time in relation to money. It
is known to each and every person that the value of money degrades with the passing time.
So, it should be very important for the employees to invest their funds in activities which will
help them to earn high rate of returns until the time of their retirement. The value of money is
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set to go down in the market if it is not invested in any kind of asset. The present market
environment states the current value of money which may change in near future with the
change in environment. Hence it is very important for the employees to take into
consideration the fact that the value of money changes with the increase in time. Thus, the
funds that have been collected by them as savings should be invested in some form of a
portfolio.
The organization plays a very important role in making the value of investment high. They
constantly make investments in the different type of portfolios using the superannuation fund
of the employees and then return that funds to the employees at the time of their retirement.
Therefore in order to increase the value of their savings, the employees should invest their
funds in some kind of portfolio or allow the organizations to invest them so that they cannot
be degraded with time.
Recommendations
There is a lot of confusion existing in the management of portfolios because of the dynamic
nature of the environment. Hence the employees should try to take advice from the
professional people so that the market may not overpower them and risk their savings. There
have been many cases in which the employees have invested their money in perfectly stable
portfolios but have incurred losses. There is being also cases in which unstable portfolios
have provided high returns to the Employees. Therefore a proper analysis should be made
before investing the superannuation fund in any kind of portfolio. It will be also a very
intelligent opportunity to give the fund managers the task of investment of the superannuation
funds because they have a lot of knowledge and analysis that can be used by them to choose
the portfolio which will provide the highest return. The managers should keep the factors like
the increment in taxes and other expenses in mind before making the choice of portfolios.
Conclusion
The money that has been collected by the employees of superannuation fund will only
provide high rate of returns after investment if, proper analysis has been made to choose the
type of portfolio in which investment is going to be made. Therefore, the priorities of the
employees should be kept in mind while choosing the type of portfolio in which he will be
investing the money. The time value concept of money should also be kept in mind because
the value of money degrades with increasing time, thus leading to decrease the value of
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savings that are made by the employees. Also, the efficient market hypothesis has stated that
the fund managers should choose the portfolio in which the investment is going to be made,
only after deciding the number of losses and gains that may be returned to the employees on
their value of an investment at the time of their retirement.
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