Corporate Finance: Superannuation Plan Analysis Report

This report provides a comprehensive analysis of superannuation plans, specifically focusing on the factors that tertiary sector employees should consider when choosing between a Defined Benefit Plan and an Investment Choice Plan. The report explores the benefits and drawbacks of each plan type, including the level of risk involved and the potential for returns. It delves into the importance of understanding the time value of money, the impact of taxes, and the concept of opportunity cost in making informed investment decisions. The report also discusses the two main superannuation strategies: investment choice plan and defined benefit plan. Relevant factors for decision-making are also discussed. The report emphasizes the need for employees to carefully analyze their individual circumstances and financial goals before making any investment choices, and the importance of seeking professional advice. The report concludes with recommendations on how to approach superannuation planning to secure a financially stable future.

CORPORATE FINANCE
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Executive summary
There are various strategies that can be implemented by an organization in order to help their
employees to develop the habit of savings but one of the most useful strategies is to implement
funding with the help of superannuation. The superannuation strategy has proved to be very
beneficial for the organizations to help the employees to gain benefit on their savings. It is not
possible for an employee or an individual to save because of which they are restricted from
earning returns by investing it. Hence, this report consists of several factors which are required to
be taken into account by the tertiary sector employees so that they can judge whether they should
invest their savings in the superannuation approach or not. The different type of plans for the
employees and a clear discussion on time value of money have been discussed in the report
below which will help in proper analysis.
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Contents
Contents.......................................................................................................................................................3
Introduction.................................................................................................................................................4
Superannuation contributions......................................................................................................................5
Relevant factors for decision making..........................................................................................................7
Time value of money...................................................................................................................................8
Conclusion and Recommendations..............................................................................................................9
Bibliography..............................................................................................................................................10
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Introduction
By implementing the concept of superannuation strategies in the organizations, the management
tries to develop the habit of investment and savings in their employees (Berry, 2009). The
collection of the funds from the employees as a part of their salary and investing them in the
activities which can help them to earn more return on their investment will be of great value to
the employees. However, it is necessary for the employees of the tertiary sector to make a clear
analysis of all the factors so that they can determine the choice of the plan they are going to
invest their savings in. Basically, two types of superannuation strategies are present in which the
employees can invest their savings which are: investment choice plan and defined benefit plan
(Boyd, 2013). Also, it is very important for the employees to consider time as an important factor
while making investments because of the volatility present in the market conditions and the
stocks they plan on investing in. A clear analysis of all these factors will help them to ensure
sufficient returns on their investments that have been made using their savings.
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Superannuation contributions
The application of the concept of superannuation contributions in the organizations helps to
fulfill various objectives that can improvise the standard of living of an employee or an
individual by inculcating the habit of savings and investment among them (Datar, 2015). This
habit will not only help them to earn interest on their investment but also will help them to make
their future much more secure and peaceful. It has been observed internationally that many
countries are already making the process of collection of funds for superannuation necessary
which will help the employees start saving money for the future. The compulsion of this strategy
has made it necessary for the institutions to collect the money and invest them in factual schemes
so that the employees can earn maximum return on them (Datar, 2016).
The economic sector is basically divided into three sectors which are primary sector, secondary
sector and tertiary sector. The organizations can choose the relevance of the superannuation
contribution after analyzing the economic sector that is being understated by it. The tertiary
sector employees are having the function of providing proper advice to third parties for making
investments in the most skillful manner so that the productivity of other sectors can be improved
by proper implementation of knowledgeable skills (Holtzman, 2013). Earlier, it was noticed that
3% of the employee’s salary was only contributed as the superannuation fund but now this has
increased to 9%. A minimal interest rate is also collected from the funds which contribute to
improvement of the social and security systems of the organization by making the environment
of the organization suitable for their employees. Various startups have been seen to be taking
good care of the superannuation fund by investing these funds in eligible plans which are helping
the employees to get proper returns (Horngren, 2012). The startups also help the employees to
gain knowledge about the strategies in which they can invest. Basically, two types of investment
plans are present in which an employee can invest his savings.
The defined benefit plan is a plan in which no risk is present on the savings of employee and he
is offered a fixed amount of interest that will be returned to him at the time of maturity (Knubley,
2010). There are various factors that are considered like age, salary, working tenure, etc while
ascertaining the rate of return. The return that will be provided to the employees is mentioned at
the beginning so that no problems arise in the coming time (Kusano, 2018).
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The investment choice plan is a kind of benefit plan under superannuation contribution which
provides the employees with an option to choose the operations in which he wants to invest his
savings. These plans not only allow the employees to select the type of investment they want to
make but also help them to get higher returns on their savings. The amount returned to the
employees is reduced because of the payments of management and administrative expenses.
There are various types of schemes under which the employees can choose to invest their savings
on the basis of the risk and return tractors like share funds, debentures, secure funds, stable
funds, and prestige selection funds (Lerner, 2009).
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Relevant factors for decision making
For choosing a proper investment choice plan it is very important for an employee to invest his
funds of the superannuation fund in the plan which provides him with a maximum return after
analyzing all the risks that he can bear (Lyon, 2010). The employees who do not want to face any
kind of risk and still invest in investment plan should go for the defined benefit plan because it
will provide them with small returns at initial stages without any kind of risk present in the
maturity amount. Whereas, the employees who are able to bear risk, should try to invest their
superannuation funds under the investment plan because it will help them to earn a higher rate of
interest and return by proper reading of the market environment that has been made by them
before making an investment (McLaney & Adril, 2016). There are various other factors that
should be analyzed by the employee in order to choose the investment plan in which he will
invest his savings. one of the most important tasks of the employees to choose the plan in which
he will be investing savings which can only be assured by having proper knowledge, ability and
experience to manage the portfolios that can help to earn a maximum return by experiencing
least risk. If the employee is not able to manage is a portfolio in unfruitfulness then he will suffer
loss because of which is investment will be prone to risks and therefore he will have an
unsecured future. The employee should not take the risk of investing the money of
superannuation funds and given to the organization so that they can give them proper returns by
making an investment which is profitable nature. This will also make the employees risk free. By
using other investment choice plans, the employees can earn extra money because they are
already having a source of income that is providing them with the amount which can fulfill their
expenses. Hence, by investing this money properly in proper investment plans they can earn
extra benefits that allow them to increase their income. The defined investment plan also helps
the employees to earn returns but the quantum of return received by them is much minimal in
nature. Therefore, all the decision should be taken only after proper analysis of the
environmental condition so that the savings of the employees can be kept safe and proper return
can be provided to them on the basis of the plants that have been chosen by them.
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Time value of money
It is of common knowledge that the value of time is also very precious. Time is money and as per
this statement, it is necessary for the companies to fulfill the requirements of the future cash flow
operations so that the assessment of the final decision that is being opted by the organizations are
made only after the proper determination of expenses and occasions that may arise for the firm in
future (Noreen, 2015). This concept is very important for the application of business policies of
the organization and also the value of money decreases with time if it is not invested in proper
profitable portfolio or assets. Therefore, it should be of general practice that the individuals
invest their savings in fruitful policies and portfolios that can help them to earn interest on the
money that has been saved by them. The current value of the money in the market environment
is very important to decide the type of investment plan that is to be used by the employee for
investing in superannuation funds so that maximum return can be generated on the investment
made by him (Piper, 2015).
Employees of the organizations are asked to set aside very small amounts in the superannuation
funds until they provide services to the organization. These small amounts collected by the
organization for the employees is being invested in a different type of schemes in order to earn
interest and maximize the amount that will be returned to them. Therefore by the time the money
is the employees, it has gone to many portfolios and schemes in order to let them enjoy interest
and higher returns on their savings. Therefore, it should be made important for the employees to
use the savings for investment in the superannuation funds so that they can receive maximized
amount in the future. It will be good for the employees to invest in long term plans because they
will not degrade the value of the money and also provide higher returns on the investments. The
individuals and employee should also consider the fact that the investments are not always
profitable in nature and sometimes, the organization may have to face loss or a negative downfall
because of which the return will not be satisfactory. Patience is the key to success for making
investments and attains long term benefits by earning maximum output. Hence, it can be stated
that all the decisions that are being taken by the employee should be analyzed on the basis of
time.
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Conclusion and Recommendations
Existence of confusion is common while trading in equity stocks because of their dynamic and
volatile nature. Hence, it can be helpful to opt for a professional advisor before making any kind
of investment in the market. It is not easy to overpower the market and hence the individuals and
organizations should try to earn benefits by investing in blue-chip companies which are not
vulnerable in nature and will provide returns for sure. The finance managers are given the
responsibility to develop strategies that can help the employees to earn maximum interest in their
superannuation funds. It is the duty of the manager to assess all type of investments and choices
while taking decisions and eliminating the risks that are present in the portfolio. The increase in
tax rates should also be considered by the finance managers while asserting the plans for the
employees.
The monies invested by employees in superannuation fund will only be considered profitable if
they are efficiently invested so as to get proper returns and output after maturity. It is important
for the employees to make the choices of the plan on the basis of the interest rates that will be
provided to them on completion of the maturity period. The theory on time value of money
should also be considered so that time does not degrade the savings of the employees. The report
also states that the finance managers of the organization are also needed to conduct the task of
choosing portfolios accordingly so that the employees are not made vulnerable to the risks and
also the investments should help them to fetch maximum returns.
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Bibliography
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Datar, S. (2016). Horngren's Cost Accounting: A Managerial Emphasis. Hoboken: Wiley.
Holtzman, M. (2013). Managerial Accounting For Dummies. Hoboken, NJ: Wiley.
Horngren, C. (2012). Cost accounting. Upper Saddle River, N.J.: Pearson/Prentice Hall.
Knubley, R. (2010). Proposed Chnages to Lease Accounting. Journal of Property Investment &
Finance .
Kusano, M. (2018). Effect of capitalizing operating leases on credit ratings. Journal of
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Kingdom: Pearson.
Noreen, E. (2015). The theory of constraints and its implications for management accounting.
Great Barrington, MA: North River Press.
Piper, M. (2015). Accounting made simple. United States: CreateSpace Pub.
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