Through the report a conscious effort is being made to ensure that the position of the superannuation fund in respect of the resources available for it and the returns generated by it is duly reflected. The primary objective of the fund is to provide financial freedom to the esteemed teachers of the various public educational institutions operating within the country. For the purpose of analysing the present situation of the superannuation fund an effort has been made to ensure that different scenarios are being studied (Marshall & Steinbart, 2017). The study of the various scenarios will enable us to understand the implications of the changes in the inputs on the financial health of the superannuation fund.
The summary of the various inputs, constants and other factors determining the results of the various models or scenarios being used for analysis are as follows:
This reflects the number of years that the teachers are expected to work for an institution. This is necessary for the purpose of determination of the period for which the teachers are entitled to receive the pension. This also helps in the determination of the period for which the assets will remain invested in the market. The longer the period of investment, the larger will be the returns generated by the stock market in respect of it (Hassan et al., 2017). For the purpose of calculation it has been ascertained that the average number of years of service to be rendered by the teachers will be equal to 30 years.
This input reflects the change in the basic salary of teachers in the various public institutions across the country. This plays a key role in calculating the amount of benefit that is going to accrue in respect of the teachers for the relevant period. The reason for this is that with the change in the basic salary of the teachers the amount of the remuneration of the teachers also increases. Along with it the total amount that is contributed by the teachers towards investment in the stock market and the amount that has to be contributed by the state in proportion to the teachers contribution also changes (Teittinen & Granlund, 2017). For the purpose of conducting the analysis it has been ascertained that the rate of increase in the salaries of the teachers will be equal to 1% every year.
This input reflects the number of teachers that are going to retire in the upcoming years. This input is necessary for the purpose of determination of the amount of cash flow in respect of the payment of the superannuation fund by the government. The input is very necessary because it gives the state an expected figure in respect of the amount of cash outflow that is going to be executed on its part for the relevant period of time. For the purpose of calculation it has been ascertained that the retiree rate will be equal to 4% each year.
This input is concerned with the number of teachers who are expected to pass away each year. It is very important that this input is being included in the calculation because the teachers who will be dead will be collecting their dues in respect of the superannuation immediately. This can lead to massive pressure on the state in terms of the cash outflow in the relevant period of time. The other effect of the same will be that the returns that are being generated in respect of the investment made in the stock exchange will reduce significantly (Apostolou et al., 2014). The reason for this is that the period for which the investment was being invested gets reduced. For the purpose of calculation it has be ascertained that the mortality rate will be fixed at 5%. It has also been observed that due to the mortality rate prevailing in the recent times, the period after which the investment in the superannuation is taken out by the teachers stands out at average of around 20 years.
This input suggests the amount of salary that is payable to the teachers in the last year of their service to the institution. This is important for the calculation because of the fact that higher the salary, higher will be the amount invested in the stock exchange and higher will be the amount payable to the teachers in respect of their investment in superannuation fund. Due consideration has to be given also to the fact that the final salary payable to the teachers in their last year of service will increase over the period of time. For the purpose of calculation it has been ascertained that the average last year salary of the teachers stood at $96975.
This input reflects the amount that is being spent by the state in respect of the administering the funds collected by the teachers and the amount contributed by the state in respect of the superannuation funds. The input is important due to the fact that the administration expense have a direct bearing on the returns that is being generated by the superannuation funds and its effective and efficient management over the period of time. Due consideration and effort has to be made by the state in order to ascertain that the administration expense in respect of management of the funds is reduced over the period of time (Trigo et al., 2014). The reduction in the administration expense is necessary to ensure that the majority of the cash outflow is done by the state to increase the returns of the investment of the teachers and not on functions that have very less overall value in terms of retirement benefits of the teachers.
This input gives an indication to the state in respect of the amount that is being given out from the total funds to the teachers for the relevant period of time. it is important to ensure that actual outflow of cash takes place in the relevant period of time in respect of prompt payment to the teachers in exchange of their investment and the contribution made by the state.
This input dictates the present value of the investment that has been contributed by the state and the teachers in respect of the superannuation fund. The discounting rate is of crucial importance the reason for this is that depending upon the discounting rate the present value of the investment over the period of time is determined.
For the purpose of calculation of the various alternatives and the corresponding effect of the same in respect of the teacher’s superannuation funds have been properly described by Director General.
For the purpose of discussing the various alternatives an effort has been made to include several scenarios. It has been ascertained that due study will be done of four alternative situation, they are A, B, R and W.
This input is necessary for the purpose of including the increasing cost of living in the calculation of the returns that is being generated by the superannuation funds in respect of the teachers. The input is of significant importance due to the fact that it is virtually impossible to determine the real returns generated in respect of the teachers without taking into consideration the rise in the prices of the commodities over the period of time (Kurniawan et al., 2017). To ensure that the returns generated by the investment is in corresponding to the prevailing economic condition, suitable adjustment has to be made in the contribution done by the state. For the purpose of calculating the amount in respect of the investment the rate of the increase in the cost of living has been fixed at 3% annually.
It is the input that gives the percentage of the return that will be generated in respect of the teachers over the period of the investment that has been made by the teachers and the state. This input is of crucial importance due to the fact that depending upon the rate of return the amount of the investment to be received by the teachers will be determined. For the purpose of calculation it has been ascertained that 7.5% will be rate of returns generated by the investment.
It is the input that reflects the number of the teachers that leave the employment of the institution over the period of the investment that has been made in respect of the superannuation fund. This input is crucial because depending on this input the cash flow of the state is significantly influenced. The teachers who leave the employment immediately cash in the benefits of the superannuation funds. For the purpose of calculation it has been ascertained that the rate of attrition will be fixed at 0.5%.
This input reflects the rate at which the teachers are expected to contribute towards the superannuation fund. This input is of utmost importance because of the fact that depending upon this rate the amount to be contributed to the superannuation fund is determined. For the purpose of calculation it has been ascertained that 9.5% will be taken as the rate at which the contribution has to be made by the teachers.
This input reflects the implementation of a relatively new scheme under which the Department of Education has started to cut down the final year payment of the teachers. This scheme is necessary due to the fact that depending on the last year salary the contribution made by the teachers and the state is influenced significantly. Hence, the scheme was introduced to ensure that the last year salary of the employees is being reduced a little bit (Peters et al., 2016).
This input reflects the amount of contribution that has to be made on part of the government to the funds. The contribution of the government is directly related to the contribution made by the teachers or in other words the amount to be contributed by the government is the function of teacher’s contribution and the government contribution factor. For the purpose of calculation it has been ascertained
Summary of key result section-
An unfunded liability is that portion of the debt or liability which has not been adequately covered with corresponding value of assets saving and investments. It is of utmost necessary that the liability on the part of the state in respect of the payment of the superannuation fund is duly covered with the requisite assets, savings or investments. This result is of utmost importance due to the fact that the bearing it has on the security of the payment to the beneficiaries of the fund is very significant. Hence an effort has to be made on the part of the state to ensure that the amount of the unfunded liability has to be reduced over the period of time (Marshall et al., 2015). Depending upon the various alternative scenarios the value of the unfunded liability will change.
This result depicts the relationship between the superannuation fund’s assets and the fund’s liability. The relationship is of significant importance because the final payment and the ability of the state to pay the amount pertaining to the beneficiaries depend significantly on the ratio of the assets and liabilities of the funds (Pearlson et al., 2016).
Justification for not changing the inputs provided by the Director General:
For the purpose of conducting the analysis of the situation pertaining to the superannuation fund it is necessary that suitable inputs are being taken into due consideration. In respect of this the Director General has provided several inputs. The requirement of the requisite inputs has already been fulfilled by the Director General, the reason for this being that all the factors ranging from the employment of the employees to their termination has been duly adjudged and included in the calculation of the superannuation fund. There is no additional requirement for changing the inputs due to the fact that already all the factors having an impact on the decision made by the state in respect of the superannuation funds have been taken into consideration by the Director General (Huerta & Jensen, 2017).
Analysis of the various cases being presented for calculation:
|
Particulars |
2018 |
|
Expected Defined Benefits |
$ 22,02,88,410 |
|
Unfunded Liability |
-6,77,97,11,590 |
|
NPV of Defined Benefits Pay-out |
$ 27,94,58,32,600 |
|
NPV of Unfunded Liability |
$ 20,94,58,32,600 |
|
Ratio of Assets to Liability NPV |
25.05% |
Under the inputs that have been given under this scheme it is found that the expected defined benefits in respect of the teachers amounted to $220288410 and the corresponding unfunded liability of the state amounted to $27945832600. The present value of the assets to liability amounted to 25.05% in the year 2018.
The analysis of the worst case scenario reflects a condition under which the government fails to exercise any control over the living costs. In addition to this it is expected that the stock market will not be able to generate enough returns for the teachers.
|
Particulars |
2018 |
|
Expected Defined Benefits |
$ 22,02,88,410 |
|
Unfunded Liability |
-6,77,97,11,590 |
|
NPV of Defined Benefits Pay-out |
$ 29,41,81,85,969 |
|
NPV of Unfunded Liability |
$ 22,41,81,85,969 |
|
Ratio of Assets to Liability NPV |
23.79% |
Under the inputs that have been given under this scheme it is found that the expected defined benefits in respect of the teachers amounted to $220288410 and the corresponding unfunded liability of the state amounted to $29418185969. The present value of the assets to liability amounted to 23.79 % in the year 2018.
Under the aggressive case an ideal situation has been analysed. Under the same the cost of living is effectively controlled by the state. The productivity factor is also favourable for the government and in addition to that the contribution made by the employees has also increased significantly.
|
Particulars |
2018 |
|
Expected Defined Benefits |
$ 22,02,88,410 |
|
Unfunded Liability |
-6,77,97,11,590 |
|
NPV of Defined Benefits Pay-out |
$ 18,32,19,17,851 |
|
NPV of Unfunded Liability |
$ 11,32,19,17,851 |
|
Ratio of Assets to Liability NPV |
38.21% |
Under the inputs that have been given under this scheme it is found that the expected defined benefits in respect of the teachers amounted to $220288410 and the corresponding unfunded liability of the state amounted to $18, 32, 19, 17,851. The present value of the assets to liability amounted to 38.21% in the year 2018.
In this case a scenario is run under which the government is contributing at a rate which is sufficient enough to bail it out of the current superannuation fund.
|
Particulars |
2018 |
|
Expected Defined Benefits |
$ 22,02,88,410 |
|
Unfunded Liability |
-6,77,97,11,590 |
|
NPV of Defined Benefits Pay-out |
$ 27,94,58,32,600 |
|
NPV of Unfunded Liability |
$ 20,94,58,32,600 |
|
Ratio of Assets to Liability NPV |
25.05% |
Under the inputs that have been given under this scheme it is found that the expected defined benefits in respect of the teachers amounted to $220288410 and the corresponding unfunded liability of the state amounted to $27945832600. The present value of the assets to liability amounted to 25.05%% in the year 2018.
Recommendation to be made to the Director General:
After the analysis of the situation based on the several inputs used some of the recommendations that can be made are as follows:
Reference
Apostolou, B., Dorminey, J. W., Hassell, J. M., & Rebele, J. E. (2014). A summary and analysis of education research in accounting information systems (AIS). Journal of Accounting Education, 32(2), 99-112.
Hassan, H., Nasir, M. H. M., & Khairudin, N. (2017). Accounting Information Systems. In SHS Web of Conferences(Vol. 34). EDP Sciences.
Huerta, E., & Jensen, S. (2017). An accounting information systems perspective on data analytics and Big Data. Journal of Information Systems, 31(3), 101-114.
Kurniawan, Y., Karsen, M., vin Adiprasetyo, A., Juwitasary, H., & Tapia, D. F. C. (2017, November). Accounting information systems implementation:(A case study approach). In Information Management and Technology (ICIMTech), 2017 International Conference on (pp. 294-299). IEEE.
Marshall, B. R., & Steinbart, P. J. (2017). ACCOUNTING INFORMATION SYSTEMS. PEARSON EDUCATION LIMITED.
Marshall, B., Curry, M., & Kawalek, P. (2015). International Journal of Accounting Information Systems. International Journal of Accounting Information Systems, 19, 17-28.
Pearlson, K. E., Saunders, C. S., & Galletta, D. F. (2016). Managing and Using Information Systems, Binder Ready Version: A Strategic Approach. John Wiley & Sons.
Peters, M. D., Wieder, B., Sutton, S. G., & Wakefield, J. (2016). International Journal of Accounting Information Systems. International Journal of Accounting Information Systems, 21, 1-17.
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