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The financial health of the superannuation fund is determined by comparing (1) the value of the fund’s assets with (2) the amount of benefits the superannuation fund is obligated to pay. The following should be noted in respect of the financial health of the fund.

  1. The value of the assets is easy to compute because shares, bonds, and other financial instruments usually have market values for quick reference.
  2. The amount of benefits the fund is required to pay takes into consideration the following.
  • Typically, a 30-year horizon is assumed;
  • The number of covered superannuants is estimated for each year along with the estimated payout for the superannuant each year;
  • The present value of each year’s estimated obligation is computed;
  • The total of each of the 30 years present values is the estimated total obligation, stated in today’s dollars;

Most expected scenario

Before getting into the particular count for the superannuation store of West Australian state for instructors it is just normal to investigate the suspicions to be considered for base case situation. Here are the rundown of presumptions under base case situation:

Most expected scenario

Pension purpose salary

  96,975.00

Total teachers in West Australian State Superannuation fund

47433

Teachers' contribution in the fund

9.5% of their salaries

Contribution by West Australian State

2.5 times of teachers' contributions

Annual inflation adjustment

3%

Return on investment of superannuation fund

7.50%

On the off chance that the above conditions appear the parity in the superannuation store would be affected in the accompanying way:

Particulars 

 Amount ($)

 Amount ($)

 Each teacher's accumulated fund over the entire employment period  

             2,406,765.10

 Number of teachers in total 

 

                  47,433.00

 Available funds in the superannuation to meet the future obligations of pension 

  114,160,088,791.74

     

 Obligation for total costs ( Working Note 1) 

    74,636,704,488.62

 

 Annual retirement obligation's present value

    13,219,336,618.77

 
   

    87,856,041,107.39

 Net present value 

 

    26,304,047,684.35

Working Note 1:

Note 2

 

 Particulars 

 Amount ($)

 Present value of liability to meet the pension obligation of a teacher 

                611,946.20

 Number of teachers in total (B)

                  47,433.00

 Total obligation of payment of pension to the teachers (A x B)

    29,026,443,951.45

 Present value of administrative costs

    45,610,260,537.17

 Obligation for total costs 

    74,636,704,488.62

The net present esteem has been featured in to show the quality of the store to meet its future commitments as the NPV of the reserve is in positive demonstrating the over the top measure of reserve in state benefits plan than the measure of commitment later on (Watson, Delaney, Dempsey & Wickramanayake, 2016).

The NPV of the reserve under base case situation is $26,304,047,684.35.

Negative scenario I:

Negative or worst case scenarios have been further classified into two category. In the first situation the rate of return on investment has been assumed to be 6.5% per annum instead of normal rate of return of 7.5% on the superannuation funds invested in different assets.   In the second category the rate of return on investment has been reduced further to 5.5% per annum. The impact of such changes in rate of return is calculated below. 

In most noticeably awful case situation, the most fear of state superannuation finance is the rate of return on the superannuation stores contributed in numerous resources. The West Australian state anticipates to win 7.5% yearly rate of return on the stores contributed. Be that as it may, in case of decrease in such return the anticipated Net display esteem of the state annuity support is to be calculated here. The list of presumptions beneath most exceedingly bad case situation is as taking after (Bird, Foster, Gray, Raftery, Thorp & Yeung, 2016).

Negative scenario with 6.5% return on investment

Pension purpose salary

  96,975.00

Total teachers in West Australian State Superannuation fund

47433

Teachers' contribution in the fund

9.5% of their salaries

Contribution by West Australian State

2.5 times of teachers' contributions

Annual inflation adjustment

3%

Return on investment of superannuation fund

6.50%

The impact on the superannuation fund for teachers due to the decrease in rate of return form 7.5% per annum to 6.5% per annum is documented below:

Particulars 

 Amount ($)

 Amount ($)

 Each teacher's accumulated fund over the entire employment period  

             2,060,338.79

 Number of teachers in total 

 

                  47,433.00

 Available funds in the superannuation to meet the future obligations of pension 

    97,728,049,950.52

     

 Obligation for total costs ( Working Note 1) 

    74,636,704,488.62

 

 Annual retirement obligation's present value

    13,219,336,618.77

 
   

    87,856,041,107.39

 Net present value 

 

      9,872,008,843.14

Working note 1:

 Particulars 

 Amount ($)

 Present value of liability to meet the pension obligation of a teacher 

                611,946.20

 Number of teachers in total (B)

                  47,433.00

 Total obligation of payment of pension to the teachers (A x B)

    29,026,443,951.45

 Present value of administrative costs

    45,610,260,537.17

 Obligation for total costs 

    74,636,704,488.62

Indeed, even under most dire outcome imaginable if the superannuation subsidize acquires just 6.5% of yearly profit for the measure of superannuation finance contributed then likewise the superannuation reserve will be said to be all around supported to make instalments later on (Earl, Gerrans, Asher & Woodside, 2015). As can be seen that even with 6.5% return on superannuation finance the NPV is featured in green demonstrating positive esteem (Cummings, 2016).

Negative or worst case scenario II:

Most dire outcome imaginable with even lower profit of 5.5% for the measure of speculation mind the rundown beneath giving every one of the insights about the presumptions for the count (Galagedera & Watson, 2015).

Scenarios

 

Negative scenario with 5.5% return on investment

Pension purpose salary

  96,975.00

Total teachers in West Australian State Superannuation fund

47433

Teachers' contribution in the fund

9.5% of their salaries

Contribution by West Australian State

2.5 times of teachers' contributions

Annual inflation adjustment

3%

Return on investment of superannuation fund

5.50%

Expected net present estimation of the state benefits subsidize under the above conditions is recorded beneath.

Particulars 

 Amount ($)

 Amount ($)

 Each teacher's accumulated fund over the entire employment period  

             1,769,208.46

 Number of teachers in total 

 

                  47,433.00

 Available funds in the superannuation to meet the future obligations of pension 

    83,918,864,882.27

     

 Obligation for total costs ( Working Note 1) 

    74,636,704,488.62

 

 Annual retirement obligation's present value

    13,219,336,618.77

 
   

    87,856,041,107.39

 Net present value 

 

    (3,937,176,225.12)

Working Note 1:

Particulars 

 Amount ($)

 Present value of liability to meet the pension obligation of a teacher 

                611,946.20

 Number of teachers in total (B)

                  47,433.00

 Total obligation of payment of pension to the teachers (A x B)

    29,026,443,951.45

 Present value of administrative costs

    45,610,260,537.17

 Obligation for total costs 

    74,636,704,488.62

In the event that the rate of return decreases to 5.5% from 7.5% yearly then the NPV of the store would be negative, shown in red. In this manner, plainly the dread of West Australian State Government that decrease consequently on speculation would fundamentally hamper the annuity instalment to the instructors later on is quite obvious from the above computation (Rozanov, 2015).

Particulars

Positive scenario:

In forceful situation, it has been expected that the greater part of the paradigms will be agreeable to the administration of West Australian State Superannuation finance. All the conceivable rules have been incorporated into the rundown beneath to ascertain the effect of the store's parity later on (HA Davis & Lleo, 2015).

Positive scenario

 

Pension purpose salary (96975 - 2000)

  94,975.00

Total teachers in West Australian State Superannuation fund

47433

Teachers' contribution in the fund

9.5% of their salaries

Contribution by West Australian State

2.5 times of teachers' contributions

Annual inflation adjustment

0%

Return on investment of superannuation fund

7.50%

Expecting that the over conditions would be show within the future the anticipated NPV of the finance is calculated underneath:

Particulars 

 Amount ($)

 Amount ($)

 Each teacher's accumulated fund over the entire employment period  

             2,604,045.77

 Number of teachers in total 

 

                  47,433.00

 Available funds in the superannuation to meet the future obligations of pension 

  123,517,703,158.70

     

 Obligation for total costs ( Working Note 1) 

    67,383,177,158.94

 

 Annual retirement obligation's present value

      8,720,974,351.53

 
   

    76,104,151,510.47

 Net present value 

 

    47,413,551,648.22

Working Note 1:       

Particulars 

 Amount ($)

 Present value of liability to meet the pension obligation of a teacher 

                459,024.66

 Number of teachers in total (B)

                  47,433.00

 Total obligation of payment of pension to the teachers (A x B)

    21,772,916,621.77

 Present value of administrative costs

    45,610,260,537.17

 Obligation for total costs 

    67,383,177,158.94

The state superannuation finance will have colossal overflow adjust in the event that all the suspicions of forceful case situation are materialized within the future. The net display esteem of the finance would be $67,383,177,158.94 in the event that he above conditions are fulfilled within the future (Karadag, 2015).

Rescue scenario:

The list of suspicions in protect case situation have been given within the taking after table:

Rescue scenario 

 

Pension purpose salary

                                      96,975.00

Total teachers in West Australian State Superannuation fund

47433

Teachers' contribution in the fund

9.5% of their salaries

Contribution by West Australian State

2.5 times of teachers' contributions

Annual inflation adjustment

3%

Return on investment of superannuation fund

5.00%

In this way, in case the over presumptions are found to be in presence within the future at that point the NPV of the state benefits finance would be:

Details 

 Amount ($)

 Amount ($)

 Accumulated fund of a single teacher in superannuation fund during his or her working life 

             1,641,469.16

 Total number of teachers 

 

                  47,433.00

 Total available fund to meet the superannuation obligations  

 

    77,859,806,748.26

     

 Obligation for total costs ( Note 2) 

    74,636,704,488.62

 

 Present value of annual retirement obligation ( Note 3)

    13,219,336,618.77

 
   

    87,856,041,107.39

 Net present value 

 

    (9,996,234,359.12)

Working Note 1:

Particulars 

 Amount ($)

 Present value of obligation towards meeting the superannuation requirement of a teacher  (A)

                611,946.20

 Total number of teachers (B)

                  47,433.00

 Expected total obligation (A x B)

    29,026,443,951.45

 Administrative costs present value

    45,610,260,537.17

 Obligation for total costs 

    74,636,704,488.62

It is evident that the superannuation fund will struggle to discharge the obligation of retired employees in the long run as the net present value of the fund turns into negative under rescue scenario (Morden, 2016).

Conclusion:

It would be secure to say that but when the return on venture diminished to 5.5% every year that the anticipated net display esteem of the finance is in ruddy, i.e. in negative. Something else the finance in all other conditions is anticipated to release its commitments legitimately without any money related trouble. In this way, it is secure to claim that the superannuation support is well financed and not underfunded (Dzhandzhugazova, Zaitseva, Larionova, Petrovskaya & Chaplyuk, 2015).

References:

Arnold, B., Bateman, H., Ferguson, A., & Raftery, A. (2014). Understanding assurance in the Australian self-managed superannuation fund industry.

Bird, R., Foster, F. D., Gray, J., Raftery, A. M., Thorp, S., & Yeung, D. (2016). Who starts a self-managed superannuation fund and why?. Australian Journal of Management, 0312896217747331.

Cummings, J. R. (2016). Effect of fund size on the performance of Australian superannuation funds. Accounting & Finance, 56(3), 695-725.

Dzhandzhugazova, E. A., Zaitseva, N. A., Larionova, A. A., Petrovskaya, M. V., & Chaplyuk, V. Z. (2015). Methodological aspects of strategic management of financial risks during construction of hotel business objects. Asian Social Science, 11(20), 229.

Earl, J. K., Gerrans, P., Asher, A., & Woodside, J. (2015). Financial literacy, financial judgement, and retirement self-efficacy of older trustees of self-managed superannuation funds. Australian Journal of Management, 40(3), 435-458.

Galagedera, D. U., & Watson, J. (2015). Benchmarking superannuation funds based on relative performance. Applied Economics, 47(28), 2959-2973.

HA Davis, M., & Lleo, S. (2015). Risk-Sensitive Investment Management.

Karadag, H. (2015). Financial management challenges in small and medium-sized enterprises: A strategic management approach. EMAJ: Emerging Markets Journal, 5(1), 26-40.

Morden, T. (2016). Principles of strategic management. Routledge.

Rozanov, A. (2015). Public pension fund management: Best practice and international experience. Asian Economic Policy Review, 10(2), 275-295.

Tan, M. G., & Cam, M. A. (2015). Does governance structure influence pension fund fees and costs? An examination of Australian not-for-profit superannuation funds. Australian Journal of Management, 40(1), 114-134.

Watson, J., Delaney, J., Dempsey, M., & Wickramanayake, J. (2016). Australian superannuation (pension) fund product ratings and performance: A guide for fund managers. Australian Journal of Management, 41(2), 189-211.

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