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Superannuation

Discuss about the Choice of Investment on Superannuation Plan.

Focusing on the tertiary sector employees, these are people who are employed in the tertiary sector economy or have their business in the sector. Tertiary sector economy is among the three economies sector, first being the primary sector that deals with the creation of raw materials for instance agriculture. The second economies sector being the secondary sector which is involved in the manufacturing of the raw materials to produce finished goods, and finally the tertiary sector dealing with selling and marketing of products. Tertiary sector deals with intangible goods such as entertainment, tourism, retail and banking, and finance (Brown, Kling, Mullainathan and Wrobel 2008). 

The growth of tertiary economy employee has been of a high rate than ever; there are some of the reasons that have led to significant increase in the field. One being globalization, people have interacted all over in the world and have created the need for more services such as learning new cultures and laws governing particular countries (Chan and Stevens 2008). Improved labor productivity is another factor, through the use of enhanced technology companies can produce surplus quality products to the market, and there will be the need for others to market and sell the goods or services. The use of technology has also pushed away labor force working in other two sectors leading to people moving to the service sector.

Income elasticity of demand has also led to more luxury due to increase in income; the more income workers have, the more they get leisure due to a stress-free life. The more income people get, the more they need services. More leisure time that is brought by the increase in real wages leading to average working time. Average working time has created leisure time for workers to enjoy their leisure activities such as tourism and entertainment (Hung, Parker and Yoong 2009). Increased real wages have also developed increased income leading to the rising standard of ling. Workers improvement in their lifestyle makes them need more services; they tend to go to the hotels for dinner and to order goods for the door to door delivery services (Nofsinger 2016). Increased online education is another reason for the need for an educational website, online tutors and the need to share academics information in the whole world. The movement of business infrastructure online has also increased the use of site and online platforms such as mobile applications and the cloud computing technology. The emergent of companies using online stores and marketing online has enabled the use of free delivery services. Advancement in telecommunication services that has brought the use of teleconferencing and video call in the whole world, business has grown through this use, and people can interact and work together without meeting each other or need to travel from one domicile to another (Gallery, Newton and Palm 2011).

Defined benefit plan

Superannuation is an association retirement pension platform formed by a company to value its employs (De Groot, Alkemade, Braat, Hein and Willemen 2010). The funds that are in the superannuation plan account will earn interest which is for the members and has no tax at all until withdrawal or sequestration. The super annual plan is of two types that are either defined benefit plan or investment choice plan and will be discussed in the essay below (Gallery, Gallery, Brown, Furneaux and Palm 2011). Superannuation defers from other pension investment plans in a way that the benefits are calculated by a set program while the other use performance of the venture.

Superannuation contribution was developed in Australia to make employees save and invest for the future. The advancement of the super annual beneficiary is to enable part of the salary to be deducted to cater future growth. When it started only three percent of the salary was being taken monthly for future planning but the rate has grown to nine percent and is expected to rise even higher. It has improved the life of aged people, and it has led to the growth of the business since some people invest while at their old age by the use of their pension as capital (Doherty 2009). 

Reasons that led to the development of super annual contribution were to eliminate the problem from the social security system for the establishment of retirement pension disbursement. The super yearly grant has enabled workers to know the advantages of employees saving for future and also its minor role is to use the profits gained by providing funds to cater for the non -working members in the society. It gives a definite worker venture choices immediately the employee has qualified in the pension. Super annual is not affected by the employee investment choices (Capuano and Ramsay 2011).  One of the leading companies is a unisuper limited company that deals with management and services of super annual funds for tertiary education institution in Australia. Unisuper limited company also offers services to deal with the investment plan, and they have provided two types of the investment plan that is the defined benefit plan and the investment choice plan.

Is one of the types of program offered by the unisuper limited company to the employees, through this plan benefits are determined through the use of a defined formula. The factors that are used as determinants while calculating the benefits are the employee’s salary earned each month, some years the employee was employed and the actual age the employee started to invest in the plan. In this plan, the clients are not benefiting from the gains or interest obtained from the invested assets portfolios (Booth and Wood 2008). The asset to be financed on is determined by the unisuper limited trustee. Under this plan the type of asset to spend is not done on the choice of the individual, the employees only benefit in the project through getting their benefits either annually or through a lump sum. Individuals don’t have risks on the investment ways as it is a choice of the company trustee to give the opportunity of the investment asset. Defined benefit plan is also not responsible for the market performance (Booth and Wood 2008).       

Factors to consider in choosing defined benefit plan

 It allows more substantial contribution to allow since it consists of the amount from the day of approval to retirement, individual start investing in the plan every month since the day they enrolled to the program and the amount contributed is tremendous as made it hard to be administered. Defined benefit plan also gives its individuals a way of getting the static amount in every month according to the way calculated. The individual is not afraid of the amount that has remained in the account and is since he has at very low risk of getting out of cash before his death.

Superannuation benefit = beneficiary salary * lump sum factor * average service fraction * length of membership.

 Beneficiary salary is the income of the employee that he gets every month and the length of membership in the period the individual has been in the plan from the day the day he was accepted by the investment company or the day he/she started investing to the period of retirement. Average service fraction is the overall rag regular time earnings referred to as ASF. Lump sum factor is a feature that delivers a one -time disbursement for the cost of an ability that is as an example is the endowment (Barr 2012). 

On the defined benefit plan, pension investment companies usually allow its individuals to choose on either one of the lump sum payment or the monthly payment. The monthly fee is where the individual selects on a payment plan in that he will be getting a certain amount of income every month in his life. The lump sum payment is where the individual decides on getting much amount of money at once to start a business or has an investment plan.

Some factors should be considered while selecting this investment plan. One of this factor to find the amount of tax he has to pay, this tax plan is mostly viewed on how the individual will be taxed on his retirement compensation or how it will change in his payout (Armstrong?Stassen 2008). The amount of debt also has an enormous impact on the type of retirement payment, the liability of payment plan for the loans; whether the individual has debts to pay for each month, there is need to take the monthly salary of the pension plan. For instance, if the payment plan for the loan of an individual is done yearly, there is needed to take the lump sum payment. 

The beneficiary is also concerned with his health; his health determines the type of payment he will need to take into consideration. Matters included are the health bills and medical bills, for example, if the beneficiary has health issues there is need to make a type of payment that will favor his problems as the future savings was to cater for his needs (Ambachtsheer 2011). The investment knowledge is also another factor, as long as the beneficiary has excellent investment knowledge, there will be the need for him to take a lump sum way of getting the payment to invest in his way. Investment is the best way of earning more profits, and the great idea developed plus the investment knowledge leads to ideal creation profits.

The final form of project is the financed choice plan. Under this plan, employers have their account and are liable for making choices on which plan to venture in. They can maintain their separate venture account that comprises their boss supported individual super annual contribution. Here employers can decide and make choices of their own in the investment area, the interest gain from the asset invested on is an added value to the income. From the decisions made hence the name invested choice plan. The annual contribution is not in relation to the management and administration charges (Ambachtsheer 2011).Having a huge selection to choose from the investment strategy, employers have to get full knowledge of the strategies in the market so as to get the best profits and minimize losses. The employer has to evaluate his choices and select the less risky strategy conferring to his strategic asset allocation and performance. The unisuper limited company also selects some of the assets for their customers to invest in and they have the least speculated risk.

The invested choice plan has some investment strategy for the employers to invest their income, this investment choice plan venture strategies are as follows, a secure benefaction that focuses on the Australian static interest reserves and money.  The next being justification, that deals with speculation completely in local and remote stocks. The next venture strategy is the director’s assembly funds parity speculation and finally is the steady benefaction dealing in primarily stable interest and bond reserves (Lusardi and Mitchell 2008).

As more employers are observed selling their plans to the existing members of the company and others to the new members of the organization, it is observed that more employers are not getting any value in it. The value of money has a huge effect as time changes, the value of money now is not equal to the amount of value the money will have in the next ten to twenty years (Bierman and Smidt 2012).  The future value of money is determined by the interest gained by the invested money and inflation experienced in the future years. The value of money is really encouraged in the development of the decisions. Decisions made in are needed in investment and without the value of money in considerations the projections will not reflect directly (Palm 2014). 

Conclusion

The best form of an investment plan for the individuals in the retirement benefit plan is determined either by their choice investment plan or the defined benefit plan. The defined benefit plan is mostly governed by the pension company where the pension company trustee has the choices on where to invest on the income. The defined investment plan individuals have no effect on the losses incurred from the assets invested. The investment choice plan enables individuals to participate in the investment strategy, they have to choose the strategy on where to invest in and losses incurred affect their income.in conclusion, the value of money is also among the major factors that should be considered before selecting on the plan to invest in.

Reference

Ambachtsheer, K.P., 2011. Pension revolution: a solution to the pension’s crisis (Vol. 388). John Wiley & Sons.

Armstrong?Stassen, M., 2008. Organisational practices and the post?retirement employment experience of older workers. Human Resource Management Journal, 18(1), pp.36-53.

Barr, N., 2012. Economics of the welfare state. Oxford University Press.

Bierman Jr, H. and Smidt, S., 2012. The capital budgeting decision: economic analysis of investment projects. Routledge.

Booth, A.L. and Wood, M., 2008. Back?to?Front Down Under? Part?Time/Full?Time Wage Differentials in Australia. Industrial Relations: A Journal of economy and society, 47(1), pp.114-135.

Brown, J.R., Kling, J.R., Mullainathan, S. and Wrobel, M.V., 2008. Why don’t people insure late-life consumption? A framing explanation of the under-annuitization puzzle. American Economic Review, 98(2), pp.304-09.

Capuano, A. and Ramsay, I., 2011. What causes suboptimal financial behaviour? An exploration of financial literacy, social influences and behavioural economics.

Chan, S. and Stevens, A.H., 2008. What you don't know can't help you: Pension knowledge and retirement decision-making. The Review of Economics and Statistics, 90(2), pp.253-266.

De Groot, R.S., Alkemade, R., Braat, L., Hein, L. and Willemen, L., 2010. Challenges in integrating the concept of ecosystem services and values in landscape planning, management and decision making. Ecological complexity, 7(3), pp.260-272.

Doherty, C., 2009. The appeal of the International Baccalaureate in Australia's educational market: A curriculum of choice for mobile futures. Discourse: Studies in the cultural politics of education, 30(1), pp.73-89.

Gallery, N., Gallery, G., Brown, K., Furneaux, C. and Palm, C., 2011. Financial literacy and pension investment decisions. Financial Accountability & Management, 27(3), pp.286-307.

Gallery, N., Newton, C. and Palm, C., 2011. Framework for assessing financial literacy and superannuation investment choice decisions. Australasian Accounting Business & Finance Journal, 5(2), p.3.

Hung, A., Parker, A.M. and Yoong, J., 2009. Defining and measuring financial literacy.

Lusardi, A. and Mitchell, O.S., 2008. Planning and financial literacy: How do women fare?. American Economic Review, 98(2), pp.413-17.

Nofsinger, J.R., 2016. The psychology of investing. Routledge.

Palm, C.T., 2014. Financial Literacy and Superannuation Investment Decision-making in a choice environment: An exploratory study (Doctoral dissertation, Queensland University of Technology).

Wagland, S.P. and Taylor, S., 2009. When it comes to financial literacy, is gender really an issue?. Australasian Accounting, Business and Finance Journal, 3(1), p.3.

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