Stable Fund: Primarily fixed-interest and bond securities, with a small exposure to domestic and overseas shares and property. • Trustees' Selection Fund: Balanced fund of domestic and overseas shares, property assets and infrastructure and private equity investments. • Shares Fund: Investment solely in domestic and overseas shares. These strategies are distinguishable by their risk and return characteristics, with the Secure Fund being the least risky and likely to provide the lowest average return and the Shares Fund carrying the highest risk but being expected to provide the highest overall average return. For employees who choose the Investment Choice Fund, their final retirement payout is dependent on the returns generated by their chosen investment strategy and they bear the associated investment risk. At the time of retirement, UniSuper Ltd provides a range of investment products for both Defined Benefit Plan and Investment Choice Plan subscribers to manage and distribute their retirement benefits. These include the following pension and other investment options: • Indexed Pensions: provide a regular income that is indexed to inflation, is payable as long as you live and is transferred to a spouse or dependent upon your death. • Single Life Indexed Pensions: provide a higher regular income compared with the standard indexed pension outlined above, but are not transferred to a dependent upon your death. • Allocated Pensions: provide a regular income (at a level of your choosing), access to your capital, if desired, and four available investment strategies according to which your capital can be invested. If you die, the balance of the pension is distributed to your dependants. • Roll-over Options: give you the choice to transfer (roll over) your retirement fund balance to an approved personal or industry superannuation or investment fund, an approved deposit fund or a retirement savings account. Faculty of Business, Hospitality and Primary Industries Higher Education Business and Hospitality HMD304 Assignment Information Semester 2, 2015 Subject Code/Name: HMD304 Financial Management Prepared by: Tracy Zhou Page 5 of 6 pages • Part-Cash Distribution: give you the option to take a certain percentage of your retirement fund (subject to regulatory and tax approvals) as a cash lump sum to be used for investment or personal consumption purposes. Participants can also choose a combination of these alternatives, with a careful view to meeting their income and lifestyle requirements in retirement. Within this decision-making process, considerations of investment risk and return profiles are paramount, as are factors such as the effects of inflation and the time value of money. Outline what you think are the important factors that should be considered by tertiary sector employees when they are deciding whether to place their superannuation contributions in the Defined Benefit Plan or the Investment Choice Plan. What issues relating to the concept of the time value of money may be important in this decision-making process? (10 marks) 2. Explain how the time value of money has an impact on the potential investment returns and retirement savings of participants in both the Defined Benefit Plan and the Investment Choice Plan. Would you be correct in saying that participants who opt for the Defined Benefit Plan are foregoing potential gains in investment earnings and returns generated in connection with the time value of money? (13 marks) 3. Consider the retirement investment products that are offered to members by UniSuper Ltd. In terms of time value of money concepts and ideas, which of the available alternatives do you think would be most attractive? Explain the reasoning for your choice, using examples of present or future values calculations, if required. (12 marks)