Factors Influencing Investment Decisions of Tertiary Sector Employees

This report provides an analysis of investment strategies employed by tertiary sector employees, focusing on their financial planning and decision-making processes. It examines the shift from primary and secondary sectors to the tertiary sector, highlighting the growth and importance of the service sector in the economy. The report delves into the factors influencing employees' choices between Defined Benefit Plans and Investment Choice Plans, considering aspects like time period, risk tolerance, investment knowledge, and financial status. It also discusses the challenges related to the time value of money and taxes in the context of investment decisions. The report includes an overview of superannuation plans, investment options, and the importance of retirement savings. Finally, it concludes with recommendations for trustees of superannuation entities, emphasizing the need for licensing, competence, resources, and risk management.

l
Tertiary Sector
Employees
2018

1
By student name
Professor
Date: 18 May, 2018.
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Executive Assessment
In this assignment we shall discuss about the tertiary sector employees, i.e. the service sector
employees,and how they plan their investment. As we know that in the last century , there have been
considerable shift from the primary sector and secondary sector to the tertiary sector industry. The shift
is named as tertiarisation. The tertiary sector is the biggest sector in the economy in the west world. It is
a rapid-growing sector. The factors determining and their decision to invest their superannuation in the
Defined benefits plan and Investment choice plan. We shall also discuss about the challenges to the
concept of time value of money and taxes, etc. that plays an important role in the decision making
process of these sector employees.
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Contents
Introduction...........…………………………………………………………………..........…..4
Analysis.......................……………….......................................................................................4
Conclusion.......................………………...................................................................................7
Recommendations.......................………………........................................................................9
References.......................………………....................................................................................10
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Introduction:
There are 3 sectors in an economy. These are the primary sector (i.e. the sectors engaged in extracting
of resources e.g. raw material), secondary sector (i.e. the sector that is responsible for producing the
final product) and lastly the tertiary sector (i.e. the sector that provides services. The third sector i.e. the
sector that provides services are responsible for providing services. There are different forms of services,
for example providing guidance, awareness, observation, knowledge, and labor. This sector engages in
delivering services to other business and other end users as well. Since we know that in the last 100
years, there have been considerable shift from the primary sector and secondary sector to the tertiary
sector industry. The shift is named as tertiarisation. The tertiary sector is the biggest sector in the
economy in the west world. It is a rapid-growing sector. The economies are driven to follow a
developing progress that takes them away from the heavy dependencies on the primary sector, towards
developing the manufacturing (e.g. building of ship, textile, steel, etc) and atlast towards the third sector
i.e. the serive based sector (Abdullah & Said, 2017).
Discussed below are the factors that determine the contributions of service sector employees to the
Defined Benefit Plan or the Investment Choice Plan. Also we have analysed the time value of money and
, taxes, etc in this decision making process.
Factors to determine the contributions:
Time Period:
This is the most important factor for investment plan. It reflects how longer the investment shall remain
be invested. The short term maturity investments are done where there is a less chance of going down
with respect to their value inorder to ensure that the money is readily available incase of need. We
know that short term investments are benefitted for risk reverse investors and long term investements
are benefitted for risk averse investors.
Tolerance level of uncertainity:
It refers to the level of risk taken by an investor incase the value of the investment made by him/her
decreases drastically. In many cases, we observe that higher risks bearing earns higher returns, whereas
low risk tolerance earns lower returns (Boghossian, 2017). It is in the hands of the investor, that he is in
a position to bear hiher risk and is ready to take the possibility of losing money for earning higher return
on investment made.
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Knowledge of Investment:
The knowledge and experience of the investor are the esstential parameters for the choice of
investment. The investors who are may opt to believe on the advice on their own mates, collegues,
family , or with the advice of investment adviser in order to choose which investment to be made. The
individuals who have enough experience opt to select their own investment (Bouret, 2017). To have a
better understanding of the possible return to be earned, and have a clear picture of the risks that might
involve, helps the investors to choose incase those bonds, stocks and other investments matches with
their portfolio.
Revenue and Net Worth:
The earnings of the individual and the net worth are essential parameters to make the investment
preferences. For example, in order to purchase some equity shares (equity based investment), such as
stocks, it generally involves spending of huge dollars capital, whereas when we put our investment in
mutual funds, it shall need only few hundred dollars. Those investors that have a huge amount stored as
capital have access to a wide range of investements choices, whereas new and small investors that have
comparatively less capital net worth, shall have access to often very limited choices for investment
preferences.
The largest among other individual, the superannuation fund is Unisuper Ltd which manages the
superannuation for the personnel in the tertiary sector in Australia.With the growing choice in
investment , Unisuper ltd provides its members 2 types of superannuation plans:
 Investment Choice Plan.
 Defined Benefit Plans
Defined Benefit Plans:
With regards to the Defined Benefit Plans, is the one where the benefit provided to personnel at the
time of retirement is determined by applying a formula, which takes into account the various attributes
like, final average salary, age of the employees and number of years since when they have been
employed. The risks in investment is borne by Unisuper ltd itself. It means that the personnels do not
earn from the income achieved by their asset portfolio. It shall be the task of the trustees of Unisuper ltd
to provide fund to these defined benefits (Cayon, et al., 2017)
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Investment Choice Plan:
The personnel who opt for Investment choice plan keep and individual investment account consisting of
the sponsorship of employer and that of the individual superannuation contributions and a yearly
distributing of income earned by their invested contributions, minus any administrating and
management charges. Under this plan, the personnels can choose the class of assets that their
contribution to superannuation is invested in, by selecting among four strategies of investment:
Secure Fund: The securities paying interest at a fixed rate and cash.
Stable Fund: It is at core fixed interest and bonds , that has a small presentation to domestic and abroad
shares and property.
Selection fund of Trustees: The remaining funds of native and abroad shares, assets of property, and
private equity investements.
Shares Fund: The only investement in inland and abroad shares (Delone & Mclean, 2004).
At the time of retiring, Unisuper ltd provides a wide variety of investment plans for both Investment
choice plan and Direct Benefit Plan members to manage and give away the benefits of retirement. This
is inclusive of the underlisted pension and rest investement options:
Indexed Pension: It gives a systematic income that is indexed to inflation, and pays till the life of investor
and then is transferrable to the spouse or the dependent person at the time of death.
Single Life Indexed Pension: It gives away a comparatively more income with respect to standardised
indexed pension as mentioned above, but the only drawback is that it cannot be transferred in the name
of spouse or any dependent at the time of death.
Allocated Pensions: It gives away standardised revenue, access to the capital, if necessary and other four
kept strategic investment, in accordance with which the capital can be invested. Incase of death, the
balance held in pension is given away among the dependants.
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Roll-over Options : It gives a choice to transfer the balance fund in retirement, to a personally approved
or industry superannuation, investment fund, the deposit fund which is approved or a retirement
savings account.
Part cash Distributions: It gives a choice to withdraw certain % of the retirement fund, as a lump sum
cash, so that it can be used for investing or individual personal consuming purposes. The investors can
select a blend of all the above alternatives, with a cautious sight to meet their earnings and standard of
living at the time of retirement (Anon., 2017).
The major issues realting to time value of money and taxes in decision making process, to consider for
the Defined benefit plans:
 The formula of retirement benefit can change over the period of time.
 The growth rates of future repayment are not possible to predict.
 It is not possible to judge in advance that how long will a personnel work for a company.
 The rules and regulations of actuaries, makes it necessary that the pension benefit obligation
takes into consideration the growth estimates in salary, but however it fails to take into account
any would be future service (Coate & Mitschow, 2017).
 It is not possible to judge how long the personnels will work for the employer long enough to
enjoy and achive their benefits of retirement.
 It is also not possible to know beforehand, that how long will a personnel live after retiring.
 It is problematic to know that sort of payout choice the personnels will choose, as their
beneficiary might change over the time period.
 It is not possible to the rate of discount used to discount, in order to determine the present
value of the benefits of retiring, at the time of retirement.
 Also it is not possible to assume the discount rate, which should be applied to know the present
value of the retirement benefit today (Wang, et al., 2018).
Conclusion:
We noted that the primary focus on superannuation and urging the employees to save and store for
their bright future by investing and specifically for their years of retirement. The governing body of
Australia has been very active with this respect, and had taken the initiative by mandating minimal
contribution that should be made to comply superannuation or the funds of retirement by the
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employers on behalf of the enmployees. At first the miniumum level of contribution by the employers
was 3% of the salary earned by employees, gradually it increased to 9% by 2005. Also the employees are
mandated to make percentage of their income to the superannuation investement by this time/date.
The objective behind introducing the poliy of superannuation initiative is to abolish the burden from the
society, the system of security for the provison of pension amounts to provide support to the persons at
the time of their retirement. Due to introduction of these superannuation benefits and investment,
there has been a considerably increased realisation by employees and they have realized the
imporatance of savings to be made for their future. It is this reason, that billions of dollars are being
invested and kept as superannuation fund, just for the sake of the needy people in their retirement
years. The ultimate role of these investments of to properly invest these funds into profitable and safe
areas in order to generate income to distribute among the non-working class of individuals lives. Many
countries have maintained funds for theirs citizens and residents to give away earining at their
retirement (in many cases to disble individuals as well). Examples are Natioanl Insurance in UK, Social
Security in United States of America.
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Recommendation:
It is the recommendation of SWG that the trustrees of superannuation entities should obtain licence
from APRA. In order to ontain such licence, a trustee should be:
 It has to meet the minimal criteria of competence.
 It should have sufficient resources in place.
 It should have sufficient risk managing measures in place,inclusive of plan of risk management,
and proper arrangements for complying with the plan.
 It shall meet all the rules and regulations as mentioned by APRA.
 It has sufficient way to outsource and arrangements in place.
 The licencees shall have to abide by the licence obtaining rules, on an on-going basis.
So all these points must be considered in case of deciding which plans to opt for so that in future the
return is maximum for the employees.
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References
Abdullah, W. & Said, R., 2017. Religious, Educational Background and Corporate Crime Tolerance by
Accounting Professionals. State-of-the-Art Theories and Empirical Evidence, pp. 129-149.
Anon., 2017. Explaining auditors’ propensity to issue going-concern opinions in Australia after the global
financial crisis. Accunting and Finance, pp. Carson,E;Fargher,N;Zhang,Y;.
Boghossian, P., 2017. The Socratic method, defeasibility, and doxastic responsibility. Educational
Philosophy and Theory, 50(3), pp. 244-253.
Bouret, I., 2017. Benefits of higher education in mid-life: A life course agency perspective. Journal of
Adult and Continuing Education, 23(1), pp. 15-31.
Cayon, E., Thorp, S. & Wu, E., 2017. Immunity and infection: Emerging and developed market sovereign
spreads over the Global Financial Crisis. Emerging Markets Review.
Coate, C. & Mitschow, M., 2017. Luca Pacioli and the Role of Accounting and Business: Early Lessons in
Social Responsibility. s.l.:s.n.
Delone, W. & Mclean, E., 2004. Measuring e-Commerce Success: Applying the DeLone & McLean
Information Systems Success Model. International Journal of Electronic Commerce, 9(1).
Wang, Z., Chiu, Y., li, Y. & Hsiao, L., 2018. Performance appraisal for the operation and management of
listed and OTC Taiwanese companies with DEA benchmarking models.
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