The Use Of Superannuation Contributions For Investment And Retirement Planning

Superannuation Contributions

Discuss about the Use Of The Contribution For The Superannuation.

The use of the contribution made for the superannuation has been a very keen strategy which has indulged the workers to make saving and then use those funds in the future to invest those funds in some kind of scheme which will allow them to multiply their savings. There should be an analysis made before investing money of the superannuation funds because in the tertiary sector employment there are several different types of factors which are affecting the plan whether to invest in the investment choice or defined benefit plans. Also, time plays a very important role in these types of cases which is thus affecting the decision making process. If the investors will make a detailed analysis of the market, then they will be able to determine the prices of the assets or stocks which can be helpful while making decisions relating to the investment strategies (Power, 2014). These types of analysis mention the roles of the fund managers in the process of deciding portfolios.

The main purpose of contributions of the superannuation funds is to indulge the employees in the habit of saving and thus making them invest the saved amounts in the future so that they can have a peaceful and healthy retirement. Many of the countries have made the process of collection of the superannuation funds necessary for the employers in which they collect the funds on behalf of employees thus making the process mandatory in nature (Laux, 2014). Because of the mandated rules of collecting the superannuation funds, there has been a huge increase in the funds collected from the process thus making the role of the financial institutions to invest the money in a proper factual manner so that it can provide the individuals with proper returns on their saving investment (Kollmorgen , 2015).

There is three economic sectors primary, secondary and tertiary sector which have been the relevant part of the economic sections of the superannuation contributions. The main function of the tertiary employees is to give the employees proper advice for the investments they need to make and also they play a major role in the implementation of the wisdom in the productivity of different sectors. Previously the contribution of the funds was restricted to three percent of the employee’s salary but it has now been increased to nine percent since the year 2005. The employees indulge in the payment of the funds are also being made to pay a specified percentage of the investments (Power, 2014). It should be duly noted that the use of such systems have been promoted in order to mould the social security systems of the employees which will help them to collect money for their peaceful retirement. One of the most renowned firms which take good care of the superannuation funds is Unisuper Limited. Also, the increases in the knowledge of the employees towards the superannuation funds have led to a great enhancement in the field as the flexibility have also been provided to them (Leo, 2011). They are now eligible to opt for the type of investment or assets in which the fund collected from their salary will be invested. The two main kinds of the investment plans are superannuation invest plans are Defined Benefit plan and Investment Choice Plan.

Relevant Factors to Consider

On the basis of the name, the defined benefit plan clearly states that all the factors are determined on the basis of which the amount of the superannuation funds which is to be provided to the employees is being ascertained.  The main factors on the basis of which the amount is decided are age, average salary, etc. In this process, the payout of the employees has been ascertained at the very beginning and there are no changes made at the time of final payment (Porter & Norton, 2014). This also defines that the employees are not benefitted by the gains that are being made by the use of their funds thus making it profitable for the Unisuper limited.

The investment Choice plan consists of the benefits which the company have received after the investment minus the administrative and the management expenses. These plans allow the employees to choose where the funds which they have given the firm are being invested. The employees can choose between the defend options of Secure Fund, Shares Fund, Trustees Selection Fund, and Stable Fund and they can choose any one of them after differentiating them on the basis of the risks and returns (Marsh, 2009).

While ascertaining the investment option for the superannuation funds, the employee should have a very determined and specified decision which should be made by the proper analysis all the factors of risk which have been present in the environment. For the employees who have no intention to seek the risks and also at the same time, they want high returns should make their investments in the Defined Choice Plan. Similarly, the employees who are not afraid of risks should invest in the Investment Choice Plan as it provides a much observable return is the investment is made by proper analysis (Petty et. al, 2012). There are many such more factors that can be used by the employees to ascertain the plan which they want to choose. The first thing to be done by the employees for the ascertainment of the plan is to find and select the portfolio in which it will invest by the use of his knowledge and experience thus allowing him to get greater returns instead of the partial losses (Ross et. al, 2014). The inability to manage the portfolios will lead the employees to suffer loss which will make them unable to live a peaceful future. The best way to deal is to give the employer the responsibility to invest so that is any loss is experienced then it will be suffered by the employer thus keeping the employee safe from any kind of hazard. The use of the Investment Choice plan is also beneficial as the employees have a specified source of income which is providing them with their expenses, thus they can use the extra funds to invest in the plans which may provide them with high returns and thus making the income much more beneficial (Kollmorgen , 2015). Defined investment plan provides them with less but sure returns thus making the choice between the two to be very hard to assess (Parrino et. al, 2012). Therefore all the decisions should be made in the accordance to the present environment and thus the employees should take the decisions of investment only after the proper analysis of all the prevailing factors.

The Concept of Time Value of Money

Future cash flows can be attributed to the fact that time is money and this can be said because of the financial decisions that are taken up by companies now which lay more importance on the expenses and the lying future opportunities for their business. These types of concepts are very important for the existing business policies.  It is known that money’s value gets degraded as time passes so it is important to invest in the areas rather and get profit at present while waiting for it in a long-term scale (Vaitilingam, 2014). Present term investments can be of more importance as it will earn interests to the investors which can be later used when and where demanded and required. The investor re much more concerned with the existing value of money because they want to trade now. Time value of money can be defined as the demarcation line that the present and the future values of money have between them. Also, the current value of money plays a key role in deciding the type of investments from their superannuation contributions that one should undertake to get the maximum output (Vaitilingam, 2014).      

It is seen that the working staff of the companies invest a limited amount of their salary ion superannuation funds till the date hey get money for their services. It is seen that this collected money comes with some interest and the total amount is further invested to maximize it. But it should also be known that this collected amount cannot be generated within a quick succession and takes a long time to summon up (Needles & Powers, 2013). So it is advised that the employees investing the particular amount of money should make an evaluation beforehand to make assumptions about the money they would receive in the future. It is said that long terms will incur more benefits to the employees. But it is also necessary that one has a well-attained knowledge about the investments he/she is making without which it can happen that the invested money gets degraded because of the silly decisions made without perfect knowledge (Merchant, 2012). It is advised that one should have a strategic plan to make the maximum benefits out of the investment. It must also be known that the investments knot always incur benefits because there can be a negative time which has a downfall. The undertaking plans of the employees must be perfect to cater the investments to their expectation. Also, the level of patience is very important because a high level of patience is required in making the investment and getting its output. So it all depends on the decisions that one makes in relation to the time value of money.     

There is always a confusion prevailing as to buy the low price stocks or to sell the stocks which are at their peak because both may change over time. Though a professional’s advice may help generate some value decisions but overpowering the market is a totally different thing and one can also see that they are gaining benefits from stocks that were vulnerable in nature. As in the case of pension funds, it is the duty of the manager to deliver investment mode which has better outputs. Different types of portfolios covering various areas and ranges must be present in hand of the manager for a different choice of peoples. If all the correct security measures and enhanced fund featured are tapped into the portfolio then the pin risks can be successfully eliminated (Melville, 2013). But most of the cases are found away from this category. Also, the existing tax rates should also be paid attention to by the fund’s manager because individual tax condition changes the selections made. But this also set the right path for the manager to maximize the output for its client.     

Conclusion

Efficient saving of money is done by the employees when they invest some part of their earnings in the superannuation funds. This is not all because this process also helps them to demarcate between Investment Choice Plan and Defined Choice Plan and to choose the one which is perfect caters to their strategic plans. The time value of money theory is also an essential one and it allows to choose the right mode of investment at the right time and to maintain patience so that the outputs can be maximized and caters to the expectations. As in relation to the EMH, it is advised that pin along with portfolios is not necessary for the fund managers as they leave the whole process open for the pin risks which may either make losses or gains to the user.  

References

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Needles, B.E & Powers, M. (2013) Principles of Financial Accounting. Financial Accounting Series: Cengage Learning.

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Parrino, R, Kidwell, D. & Bates, T. (2012) Fundamentals of corporate . Hoboken,

Petty, J. W, Titman, S., Keown, A. J., Martin, J. D., Burrow, M. and Nguyen, H. (2012) Financial Management: Principles and Applications, 6th ed. Australia: Pearson Education Australia.

Porter, G. and  Norton, C. (2014) Financial Accounting: The Impact on Decision Maker. Texas: Cengage Learning

Power, T. (2017) Fund choice: Comparing super funds in 8 steps [online].  Available at: https://www.superguide.com.au/boost-your-superannuation/comparing-super-funds-in-8-steps [Accessed 11 May 2018]

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