There is variety of factors that should be taken into consideration by the tertiary sector staff members while deciding on whether to place their individual superannuation contribution within the particular benefit plan in alignment with the investment choice plan (Weil, Schipper and Francis 2013). Addition to that, there are various issues noted that relates with the time value of money concept that will help or support at the time of decision-making process. Furthermore, the main focus on superannuation is to motivate people so that they show interest in saving as well as investing in the upcoming years. In that way, during the retirement years, they can easily enjoy their money that intensifies within Australia for past two years. It is noted that the Australian Government had become proactive as well as started considering minimum contributions that aligns with the superannuation or in that case retirement funds on the behalf of employers and employees. There has been decreased level of employer contribution to superannuation that was noted when 3% of staff salaries results in increased to minimum 9% contribution. Here, it can be seen that employees are deemed motivated on the fact where they start allocating a fraction of their income for investment especially in superannuation funds (Vernimmen et al. 2014).
There are reason associated to which it is necessary to present such policies of superannuation initiatives that explains the requirement for decreasing the burden from the social security system especially in for payment of pension funds. Pension funds support the people at the stage of retirement in the future years (Saunders and Cornett 2014). As mentioned in the superannuation laws, there has been increased realization on matters relating to significant saving by the individuals in the future. Nowadays, it is surprising to note the fact that there are billions of dollars present in superannuation contributions. Then, these are followed each year by the financial institutions as well as superannuation funds at the same time. The role of superannuation funds is to invest these contributions profitably so that it can offer suitable income for supporting the non-working aspect of lives within an individual (Weil, Schipper and Francis 2013).
It is noted that mutual funds along with the superannuation is deemed to be among the largest investors that is present in the financial markets in Australia that is present for the company as listed in equity securities in markets, be it local and international. For example, UniSuper Limited is one of the largest individual as well as industry specific superannuation funds that aims at offering services on matters relating to superannuation for employees within the tertiary education industries in and across Australia (Weil, Schipper and Francis 2013). To this, it includes universities, TAFE colleges as well as higher education institutes. There are many revolutions that are present for managing the superannuation funds along with the provision of service that is present in the recent years as it ensures considerable increase in the given superannuation funds products. These are mainly presented with options on investment as well as retirement plans at the same time. It takes into account the members who are flexible enough to decide on the types of funds and assets where superannuation can be invested in proper ways (Pratt 2013). To this, UniSuper Limited believes in providing its members with two types of superannuation funds that takes into account benefit plan as well as investment choice plan from where they can make the investment selection.
Explained Benefit Plan is one of the plans that is offered to the employees when retirement is explained for employing a formula that has factors while determining the final average salary of employees. In other words, Explained benefit help in calculating the employee retirement benefit that terms as retirement benefits that equals benefit salary length of membership lump-sum factor average service fraction (Peirson et al. 2014).
Money can be employed for productive usage purpose so the value is unique and relies upon time at the time when it is gathered or paid in any case. In addition, value of money is deemed in accordance to the amount when it has certain for the upcoming years. It is investors who mainly treat money that have time value due to various reasons that takes into consideration risk as well as uncertainty (Moffett, Stonehill and Eiteman 2014). It also takes into account consumption, investment opportunities as well as rate of inflation. It is the investors who belies that future is considered to be risky as well as uncertain where there is cash outflow that remains within the control and individuals who make or conduct payments to the parties. It is understood that there is uncertainty present in the future cash inflows as it is relied upon the banks as well as creditors. Employees can choose from various types of assets or portfolios where superannuation contributions can be totally invested from the below mentioned investment strategies (Weil, Schipper and Francis 2013).
The first investment strategy is the stable fund that takes into consideration fixed interests in accordance with the bond securities that has decreased exposure to the local as well as international property and shares (Jacob et al. 2016).
The second investment strategy that needs to be taken into account is the secure fund that involves Australian cash as well as fixed asset securities.
The third investment strategies that needs to be taken into account is the shares fund where the investment relies upon domestic as well as international shares (Weil, Schipper and Francis 2013).
The forth investment strategies that needs to be taken into account is the Trustees selection fund where the balanced funds are present of the local and international shares. Addition to that, property assets are present in alignment with the private equity as well as infrastructure investments.
The above mentioned investment strategies can be differentiated after considering the features of risk as well as return that aligns with the secured fund as it carries increased risk and predicts for offering increased in the overall average return (Hoskin, Fizzell and Cherry 2014). It is for the employees who take into account ways for making the selection of investment fund where the overall retirement payout depends upon the gathered returns from the selected investment strategy and properly deals with the concerned investment risk. In that case, at the time of retirement, UniSuper Limited should be offering wide variety of investment products for Explained Benefit Plan as well as subscribers of investment selection plan for distributing and dealing with the benefits of retirement (Weil, Schipper and Francis 2013). In that case, some of the investment options as well as pension plans are explained below with proper justification:
The first pension plan is the indexed pensions that offers a regular income that is indexed within the rate of inflation as well as dedicated to be payable as long as the person lives. It is then transferred to the spouse of that person or relies on the death of the individual (Hillier et al. 2014).
The second pension plan is the Individual Life Indexed Pension that offers an increased regular income after comparing it with the standard indexed pension as noted above but are not transferred to anyone else after the death of that individual (Weil, Schipper and Francis 2013).
The third pension plan is the allocated pensions where it offers with a regular income that is based on the section and access to capital. It is where the individual desire to get access to unique available investment strategies that depends upon the capital of the people on which it is invested. In case of death of that person, the balance of the pension is distributed to all the dependent of that person (Berk et al. 2013)
The forth pension plan is the Roll-over pension that offers an individual with the selection of transfer for roll over the retirement fund of that person. The balance to the industry superannuation is approved from the personal or investment fund aligning with the approved deposit find with a retirement savings account at the same time (Flannery and Hankins 2013).
The fifth pension plan is the Part-cash distributions where it offers an individual with an option to gather a desire percentage of retirement funds of an individual that is subject to the tax as well as regulatory approvals as lump sum amount (Weil, Schipper and Francis 2013). The amount is for the employees for investing purpose or for consumption purpose. It is needed for the participants for selecting the best combination fro the alternatives with an important view so that it addresses their income that aligns with the lifestyle requirements after the retirement of the person. At the time of decision-making process, it is needed for an individual for looking at the considerations on matters relating to investment risk as well as risk profiles where the factors includes aspects in relation with time value of money as well as inflation (Ferran and Ho 2014).
The Efficient Market Hypothesis is also known as Random Walk Theory that mainly states the proposition where the recent stock prices focus mainly on getting the information on matters relating to company value where there is no other way to attain the higher profits after using the financial information (Ehrhardt and Brigham 2016). Addition to that, the deal that is explained is one of the major issues within finance that states the reason for which price changes within the security markets as well as ways in which such changes took place. It is the investors who attempts to dedicate some of the securities that are either undervalued or overvalued and predicted for enhancing the value in the future financial years. There are many investors who take into account pension fund manager as they can make the selection of securities that will outperform in the market (Weil, Schipper and Francis 2013). It is for this reason why they employ various valuation as well as forecasting techniques that can help at the time of undertaking investment decisions. To that, there are several factors that are taken into consideration by the pension fund manager where they can easily transform decisions into gain of substantial profits in the near future. It is the investors who show interest on matters relating to condition where market is deemed efficient as that represent the prices to be deemed on either it is high or low depending upon the flow of market condition (Edwards 2013).
In this question, it is argued with the fact that it is deemed that if an efficient market hypothesis is true, then the pension fund manager will be considering to select a portfolio with a pin. To this, it can be explained that it is not significant fact where the resulting portfolio cannot be properly diversified and it mainly increases ways to correlate stocks (Deegan 2013). In that way, this leaves the fund with exceptional risk where it cannot be rewarded in any form. It is noted that the resultant portfolio is deemed for getting access to excess systematic risks for several people. In that case, if individuals are deemed to have further wealth then they have the ability or capability to invest in the specific risk free assets that is not considered as an issue any ways (Weil, Schipper and Francis 2013). Furthermore, on the contrary, a portfolio may provide with an increased beta in accordance with the risk preferences for the individuals it is not the case. It is needed to consider the fact within the non-perfect world that is tax existence. It is the tax position of the investors that is required to take into consideration and vital fact in real life scenario. It is because of the equilibrium process of several assets, surplus amount is gathered that leads to increased taxability position (Damodaran 2016). Therefore, the return after tax on such assets for individual are shown in the low brackets and deemed to be favorable condition by nature where the given consideration are deemed to make the tax status a major aspect that need proper attention and study.
Reference List
Berk, J., DeMarzo, P., Harford, J., Ford, G., Mollica, V. and Finch, N., 2013. Fundamentals of corporate finance. Pearson Higher Education AU.
Damodaran, A., 2016. Damodaran on valuation: security analysis for investment and corporate finance (Vol. 324). John Wiley & Sons.
Deegan, C., 2013. Financial accounting theory. McGraw-Hill Education Australia.
Edwards, J.R., 2013. A History of Financial Accounting (RLE Accounting) (Vol. 29). Routledge.
Ehrhardt, M.C. and Brigham, E.F., 2016. Corporate finance: A focused approach. Cengage learning.
Ferran, E. and Ho, L.C., 2014. Principles of corporate finance law. Oxford University Press.
Flannery, M.J. and Hankins, K.W., 2013. Estimating dynamic panel models in corporate finance. Journal of Corporate Finance, 19, pp.1-19.
Hillier, D., Clacher, I., Ross, S., Westerfield, R. and Jordan, B., 2014. Fundamentals of corporate finance. McGraw Hill.
Hoskin, R.E., Fizzell, M.R. and Cherry, D.C., 2014. Financial Accounting: a user perspective. Wiley Global Education.
Jacob, M., Johan, S., Schweizer, D. and Zhan, F., 2016. Corporate finance and the governance implications of removing government support programs. Journal of Banking & Finance, 63, pp.35-47.
Moffett, M.H., Stonehill, A.I. and Eiteman, D.K., 2014. Fundamentals of multinational finance. Pearson.
Peirson, G., Brown, R., Easton, S. and Howard, P., 2014. Business finance. McGraw-Hill Education Australia.
Pratt, J., 2013. Financial accounting in an economic context. Wiley Global Education.
Saunders, A. and Cornett, M.M., 2014. Financial institutions management. McGraw-Hill Education,.
Vernimmen, P., Quiry, P., Dallocchio, M., Le Fur, Y. and Salvi, A., 2014. Corporate finance: theory and practice. John Wiley & Sons.
Weil, R.L., Schipper, K. and Francis, J., 2013. Financial accounting: an introduction to concepts, methods and uses. Cengage Learning.
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