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In the present time, business organizations places high level emphasis on the superannuation fund. This in turn enables personnel to save and invest money for their near future and thereby ensures them to secure their life to the large extent. In this regard, both employer and employee contributes specific amount of money in the fund with the aim to get high level of financial benefits at the time of retirement. Specifically there are mainly two types of fund which can be chosen or undertaken by the employees are defined benefit and investment choice plan. The present report is based on the case situation of tertiary sector employees who offers transport, health, insurance, teaching services etc. In this, it can be summarized from the report that employees must consider the time value of money concept at the time of making selection of investment or pension options. By this, personnel of tertiary sector can assess the extent to which specific option will offer high level of monetary benefits to them in the upcoming time period.
1. Assessing the factors that tertiary sector employees need to consider while making decision about superannuation fund
Superannuation may be defined as an initiative which is undertaken by the government with the motive to secure life of individuals after their retirement. Government has also introduced laws and legislation in relation to the amount which employer needs to contribute in the superannuation fund on the behalf of employees (Butler, 2015). In this, amount of contribution is highly influenced from the basic pay or salary of the personnel. For this purpose, UniSuper offers various kinds of investment options to the employees of university.
The cited case situation presents that employer is obliged to contribute in the superannuation fund on the behalf of employees minimum 3%. Such minimum can be increased by 9% which is highly dependent on the concerned organization. Thus, in accordance with the decision and announcement of Australian government both employer and employees are obliged to contribute some amount of fund in the superannuation (O'Connor, 2015). In this regard, employees have option to choose one plan from defined benefit and investment choice plan. Hence, there are several factors which tertiary sector employees need to consider while making selection of superannuation fund are enumerated below:
Fees: For maintaining the superannuation fund concerned authority charges some specific amount in terms of fees. Hence, tertiary sector employees need to consider such aspect while making selection of investment option. The reason behind this, such fees has high level of impact on the amount which individual will receive after retirement.
Investment options: Risk and return are other major factors which individual needs to keep in mind while making decision about investment (Rowley and Purves, 2015). Thus, tertiary employees need to consider the aspect that they will attain acceptable return for the risk taken by them.
Performance level: At the time of making comparison of various super funds related authority needs to consider the performance level. In this, employer and employee require to evaluate the last five year performance of the portfolio.
Insurance: Employees also needs to make assessment of the insurance options which are related with the investment options. In this, employees should select the plan which offers good value of money.
Extra benefits: In the recent times, with the objective to retain the talented personnel for longer duration employer makes focus on investing above the limit of 9.5%. Thus, employees require considering such extra benefits while taking decision about option which is available to them (Superannuation is a form of saving for retirement, 2017). Moreover, when investors have more funds they are in condition to choose highly attractive options.
Customer service: Tertiary sector employees also make evaluation of the services which are offered by UniSuper. Moreover, in the world of technological advancement employees prefer to see all the information on their websites. Besides this, they also prefer to get quick information about all the alternative options that are available to them for investment purpose.
Hence, by taking into consideration all the above mentioned parameters tertiary sector employees can make effectual comparison of the investment options. This in turn helps employees of tertiary sector to select the suitable option from defined benefit and investment choice plan. By this, personnel would become able to enjoy high level of financial benefits on their retirement. Time value of money concept helps in determining the value of future amount in relation to present. Moreover, by employing the time value of money concept employees can determine the return which will generate by them after the specified time frame. In this, by calculating the net present value of an investment plan business unit can determine the extent to which specific investment option is financially viable and profitable (Awad, 2013). However, the main issue which is facing by the employees in relation to the identification of suitable discounting factor. Moreover, if employees fail to undertake appropriate PV factor then it may result into ineffectual framework for decision making. Thus, tertiary sector personnel need to make focus on the selection of suitable factor that directly aid in the decision making aspect.
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2. Explaining the ways in which time value of money concept affects potential investment return and retirement savings
Time value of money concept has high level of impact on the potential returns and investment savings. Moreover, risk and return which is associated with the specific investment plan highly influenced from the market trend and condition. In defined benefit employer contribute amount to the specific time period. Hence, such fund is provided by the business unit to the concerned employee at the time of his retirement (Griffith, 2015). Thus, by taking into account such aspect it can be said that there is low level of return is associated with the investment option or plan. Moreover, in this business entity only enjoys the fixed gain in terms of principle and interest amount.
On the other side, now there are several types of fund are available to the employee’s tertiary sector such as stable, secure, trustee’s selection and share etc. In this, by making selection of suitable investment options employers can enhance the productivity and profitability level to the large extent. The rationale behind this, there is several companies are available in both domestic and overseas market whose shares are growing with the very high pace. In this, there is opportunity for the employees to choose investment choice options and thereby enjoy high level of return (Summers, 2013). This aspect clearly shows that participants who chose defined benefit plans forgo potential gains and investment earnings to the large extent.
Time value of money concept entails that there is some value addition takes place in money after the specific time frame. In this regard, investment choice plan offers opportunity to the employees in relation to gaining high level of financial benefits. However, risk associated with other investment options such as shares, infrastructure etc. are very high. Besides this, there is no guarantee that investor will earn high or minimum return. In the investment choice plan, return is highly influenced from market trend, competitor’s strategies, and company financial and non-financial performance. Hence, when company is performing activities in a better way then it may result into higher return.
However, no guarantee is associated with such kind of options in terms of return. In contrast to this, under defined benefit plan there is no fear among the participants in relation to loosing the return (Cummings, 2015). In comparison to investment choice plan, defined benefit scheme offers opportunity to the personnel to gain fixed return. Thus, by keeping all such aspects in mind it can be said that participants or employees who chose defined benefit plan or scheme forgo the potential gain or return to the large extent.
3. Identifying retirement investment products that can be offered to the members by UniSuper Ltd.
Retirement investment products implies for the defined benefit and investment choice plan. Under the defined benefit plan all the monetary gains are enjoyed by employees at the time of retirement. In this, employee’s benefits are calculated through the means of following formula:
Retirement benefits = salary benefits * length of membership * lump sum factor * average service fraction
On the other side, investment choice plan offers several pension options to the personnel such as indexed, single life indexed, allocated, roll-over and part-cash distribution. In this, by applying the time value of money concept on such options employees can determine the return which will be generated by the firm after the predetermined time period. Moreover, earning high return is one of the main objectives of employees which in turn helps them in maintaining the life standard to the large extent (De Zwaan, Brimble and Stewart, 2015). There are several investment options which are offered by UniSuper Ltd are accumulation 1, 2, defined benefit division, spouse accounts, pension etc (Choosing a superannuation fund, 2017). In this, by applying NPV technique employees can assess the return which will generated by them after the specified time frame.
Net present value is highly effectual investment appraisal tool which in turn helps in evaluating the viability and attractiveness of proposal. This method will provide human resources of tertiary sector with the highly realistic framework for decision making. The rationale behind this, such method considers time value of money concept and thereby helps in decision making (Chant, Mohankumar and Warren, 2014). According to such method, employees need to select the investment fund which has higher NPV. Earning higher return is one of the main objectives of employees behind making investment.
In this, by evaluating the return of each proposal on the basis of discounting factor investors can assess the return which will be generated by them after the specified time period. In this way, by evaluating monetary returns in accordance with such method employees can compare the viability of different proposals (Butler, 2016). Besides this, time value of money concept or method also offers opportunity to the personnel to reject the proposal at initial level. In this way, it enables employees who work in tertiary sector reject the proposal with negative value.
Along with this, by comparing the net present value amount of various proposals investor can select the best option. Moreover, risk and return are highly varied from one project to another. In this regard, net present value is the most effectual aspect of time value of money concept which in turn facilitates effective decision making (Ali and et.al., 2015). Besides this, IRR is another most effectual tool of time value of money method which in turn helps in evaluating the attractiveness of several options. Hence, by identifying the potential returns in the form of % effectual comparison can be done.
In this, participants evaluate returns by taking into consideration the two discounting factors. Thus, by considering the outcome of such method participants can take highly profitable decision. However, if investors fail to undertake suitable discounting factor then it may result into unrealistic framework for decision making. On the basis of all the above mentioned aspects it can be said that time value of money concept aid in effective decision making and helps in generating higher returns.
From the above report, it has been concluded that by making contribution in the superannuation fund employees can make their future highly secure. Further, it can be revealed from the report that employees of tertiary sector needs to keep in mind risk, return etc. factors personnel need to make investment decision. Moreover, super funds are highly associated with the future aspect of personnel so they need to take decision by going through the time value of money concept. Besides this, it can be inferred that participants bear opportunity cost when they select defined benefit plan. Moreover, in the case of defined benefit plan investors have no chance to gain high potential return and other benefits. It can be seen in the report that by following NPV and IRR tool of time value of money concept personnel of tertiary sector can assess the attractiveness as well as profitability of project to the significant level.
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