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Factors Influencing Super Investment Destinations
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TABLE OF CONTENTS
INTRODUCTION                                        3
DEFINED BENEFIT PLAN AND INVESTMENT CHOICE                3
DRIVERS OF CHOICE                                    4
CONCLUSION                                        9
REFERENCES                                        10
INTRODUCTION
Many employers offer retirement benefits to their employees either as mandatory payment or with the objective of retaining employees for a long period, and thereby reducing employee turnover. Superannuation is an organizational retirement benefit plan designed for the benefit of the employees. Superannuation fund in Australia has increased the investment choices before the employees. The members of superannuation fund can be offered a defined benefit plan from a range of investment plans, or they can choose their own investment destinations. This paper seeks to explore the factors that should be taken into consideration by the employees in deciding between defined benefit plans and self-chosen investment assets.
DEFINED BENEFIT PLAN AND INVESTMENT CHOICE
Defined benefit plans refer to a range of ready-made investment plans. The amount of benefits to be derived from investment depends upon a number of factors, namely years of services, retirement age, final salary, and contribution made by the employee into superannuation fund. The plan is managed by the employers with no control of the employees. The benefit derived from the fund is taxable. Any increase in the value of the fund is distributed among the members in the ratio of their contribution to the fund. The investment plans are predetermined with default high and low risk options.
Investment choice plan is different from defined benefit plan chiefly due to the fact that here employees have their freedom to choose their investment destinations. Like defined benefit plans, here also the benefit derived is taxable. Investment experts raise the question as to ability of individual employees to evaluate individual investment destinations to park their retirement benefits. Wrong choice of investment plan is likely to reduce their retirement benefits substantially (Delpachitra & Beal, 2002; Dunstan, 1999; Marshall, 1999). On the other hand any benefit from right investment choice fully goes to the individual investor without having to share the same with other fund members. Inability of the employees to make investment decisions from a range of complex investment scenarios is not only a problem for individual members of the funds, but the policymakers too are worried about this since they desire the state sponsored retirement benefits to come down.
DRIVERS OF CHOICE
Determination of the nature and extent of superannuation fund investment makes it imperative to consider numbers of competing and interrelated factors. Trustees of superannuation funs are required to think how the returns to the retired Australians can be increased on one hand, and on the other how the risk of position of funds and their future performances can be mitigated. In order to achieve the dual objectives the superannuation fund managers need to rebalance the fund to accommodate individual investment choice of the members when the members reach the retirement age or want to transfer their funds to another group of assets.
Retirement Incomes
Superannuation fund is increasingly becoming a very important wealth of Australian households. The total sum of invested and un-invested superannuation fund constitutes 50% of total assets of Australian households. As the balance in Australian superannuation fund increases so increases the awareness of and interest in superannuation among the Australian employees. Increase in longevity, desire to maintain high standard of living after retirement, and long-term high return of superannuation fund are enough evidence that Australians are increasingly getting sensitized with the performance of superannuation fund. Due to the ability of more and more Australians to choose their retirement benefit investment destinations, responsibility of superfund trustees are also increasing and they have to ensure high return as well as retention of members (Nemtchinov et al, 2016).
In order to retain old members and attract new members, superfund trustees are offering high return as well as wider range of investment products. For this trustees are taking professional advice from investment experts. The trend in the advice of asset consultants reveals that alternative assets are chosen in such a way so as to maximize return and reduce their volatility. The promising result of superannuation fund can be attributed to its ability to access the premium associated with relatively illiquid investments like...