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Frequently Asked Questions on Valuing Superannuation
- What is a Superannuation Phase?
- How to do I obtain Superannuation Information?
- How can I minimise the risk of an incorrect valuation?
- Which dates should be used for the valuation?
- What methods are used to value superannuation?
- Superannuation Phase: Growth
- Superannuation Interests: Accumulation Interest
- Superannuation Interests: Defined Benefit Interest
- Superannuation Interests: Self-Managed Superannuation
- Superannuation Phase: Payment
- Superannuation Benefits: Life Pension
- Superannuation Benefits: Fixed Term Pension
- Superannuation Benefits: Allocated Pension
What is a Superannuation Phase?
Superannuation now covers about 93% of the Australian workforce. The role of superannuation in a person's life can be placed in one of two phases: growth or payment.
Return to topHow to do I obtain Superannuation Information?
In the past, a superannuation interest could only be obtained by the member, or with the member’s authority. Under new regulations, both the member and the non-member spouse can obtain information on superannuation interest for valuation and other purposes such as making orders or agreements including prenuptial agreements.
In order to obtain the information, the member or non-member spouse must complete an Application for Information and a Form 6 Declaration as set down in the legislation. This declares that member or non-member spouse is eligible to ask for information. You can download a copy of the Application and Declaration forms from the Family Court web site.
Some Trustees require the completion of forms designed specifically for their schemes. Where such forms are provided some Trustees will only accept requests on their forms and will return the Family Law forms. SuperValuers supports valuations for some of these schemes. To check whether your scheme is one of them, refer to our list of superannuation schemes we support.
Trustees respond to the request for information through a prescribed form called the Superannuation Information Form. It is sometimes referred to as the Form 6 response.
Most Trustees charge a fee and require that fee to be paid at the time of lodgement of Application and Declaration. The quantum of the fee for providing the information is not prescribed but is required to be reasonable. The fees that are charged by Trustees vary significantly and would usually be in the range of $100 to $300. Some Trustees do not charge. The easiest way to enquire about charges is to contact the Trustees either through their web site or call centre. Our list of supported superannuation schemes lists the charges for the Application and Declaration forms.
The declaration must be signed by an eligible person:
- the member
- the spouse of the member
- a person who intends to enter into an agreement with the member
The practioner is not an eligible person, and should not sign the declaration. The superannuation information provided by the Trustee may be sent to the solicitor or practioner on the authority of the eligible person. Practioners should inform their clients that the penalty for a false declaration is 12 months imprisonment.
Some Trustees require authentication documentation before providing the Superannuation Information Form. Some of the larger Schemes have a specific address for the Family Law matters. Check with the web site or call centre for such information.
The trustees are required to complete the Form 6 within 28 days from receipt.
Checklist for Practioners
- A Superannuation Scheme may have its own Form 6 Declaration and Application form.
- Most Trustees require a fee to be paid when lodging the form.
- Three documents should be prepared:
- an Application for Information
- Form 6 Declaration
- Authority to provide the information to the practioner
How can I minimise the risk of an incorrect valuation?
Incorrect data is potentially one of the biggest risks when valuing superannuation. The data provided by the Trustees is only reliable when the information submitted to the Trustees is correct.
The reasonableness of the information provided should be checked. Items to check include:
All Schemes
- Check that the member's name and address are correct.
- Check that scheme and valuation dates coincide with the request.
- Check that all components are included - rollovers in are sometimes omitted and split benefit schemes should have both an accumulation component and a defined benefit component.
Accumulation Schemes
- Check against the latest Member Statement adjusted for contributions and earning since the date of the Member Statement:
- Does the superannuation interest look reasonable given the member’s salary and the contribution rates?
- Do the superannuation schemes align with the member’s employment history?
Defined Benefit Schemes
- Check the superannuation salary. If different dates are used, the earlier superannuation salary should be lower or equal to the later one.
- Check the design of the scheme to determine the reasonableness of the accrued benefit multiple given the member’s length of service and contribution history. Some schemes have as many as 5 different components.
- Does the pension conversion factor align with the scheme rules?
- Are all the components of the member’s interests included?
Checklist for Practioners
- a reasonableness check on information supplied by Trustees is recommended
- the check process should be documented as it has a vital bearing on the accuracy of the valuation
Which dates should be used for the valuation?
The appropriate date is the date at which the applicant for information seeks to know the value of the superannuation interests. Circumstances will typically dictate which date to use. If no date is specified, then the appropriate date is the date of the application. Requesting the wrong date can cause unnecessary delays and expense. Dates to consider are:
- date of marriage
- date of separation
- date of hearing
- current date
- court order or agreement date
The valuation provisions refer to the concept of relevant date. The relevant date should be the appropriate date – it is up to the practioner to specify. Thus the relevant date is the date at which the valuation is to be performed. The Trustees will provide data in response to the date specified in the application.
The Trustees will not give superannuation at a future date as they will not be able to predict such matters as investment returns and future salary. However, the valuations can be performed with the information relating to the current date and be updated at the time of the proceedings if required by the Court.
Checklist for Practioners
- The current date is generally required for property settlement purposes
- The date of marriage and date of separation may also be relevant when it is relevant to assess change in value over a period of cohabitation.
- A specific date may be required for a court order or an agreement.
What methods are used to value superannuation?
The type of superannuation interests determine the valuation methodology.
Valuations in the growth phase involve a three stage process:
- the determination of the gross value of the superannuation interests
- deduction of any earlier payment splits
- deduction of any surcharge
The concept of valuing an accumulation interest is straightforward. It is the value of that benefit to the member at the relevant date. The benefit may not be immediately accessible and generally most of the benefit would have to be preserved at least until a specific age is reached - normally age 60.
If the value of the accumulation scheme is required at a date other than at a date for which a statement (either Annual Statement or Superannuation Information Form) is available, and the relevant date is in between two statement dates, the value can be determined by lineal interpolation as described in the regulations. The method basically apportions the movement between the statements based on the number of days and determines the value on the relevant date based on the number of days since the statement. SuperValuers support this type of valuation.
At this stage, some Family Court registries are accepting a completed Form 6 request from the fund as evidence of the value of an accumulation interest. However, some other Family Court officials are currently requiring an expert to provide an opinion on the value as evidence. This will generally be in the form of an affidavit that states the gross value as at the statement date is the gross value detailed on the statement. This services is provided by SuperValuers.
For a defined benefit interests, the concept is to calculate the value at retirement age then discount the calculation to present values. There are separate prescribed valuation methodologies for:
- Benefit payable only as a lump sum
- Benefit payable only as a pension
- Benefit payable as combination of lump sum and pension
Where the superannuation interest consists of an accumulation component and a defined benefit component, they are valued separately and are added together to determine the value of the interest as a whole.
For superannuation interests in the payment phase, there is a two stage process to determine the value. The first stage is to determine its gross value. The second stage is to deduct from the gross value any amounts payable under any previous payment splits. The basic concept is to discount the payment stream back to a present value. SuperValuers gives a step by step description of the valuation process linked to the relevant legislation when valuing superannuation interests in the payment phase.
Checklist for Practioners
- Ensure that the standard of documentation is fit for purpose which is to anchor each step of the valuation process to relevant legislation.
- The outcome should be transparent and explainable
Superannuation Phase: Growth
When individuals are accumulating wealth in a superannuation environment, it is said to be in the growth phase. The characteristic of a growth phase is that contributions are being made. The contributions can be made by either the employer or by an individual.
There are three basic types of superannuation interests in growth phase:
- an accumulation interest
- a defined benefit interest
- an interest in a self managed superannuation fund
It is also possible for a member’s interest to be comprised of a number of different components, such that part of their interest may be a defined benefit and accumulation interest. The Commonwealth Superannuation Scheme is such an example.
Checklist for Practioners
- The vast majority of your clients who are employed would have a superannuation interest.
- The type of superannuation interest is relevant for valuation purposes.
Superannuation Interests: Accumulation Interest
An accumulation interest is one where the wealth in the superannuation fund grows based on the contributions and the fund earnings. It could be compared to a bank account. However, unlike a bank account, there are restrictions on when the funds invested in a superannuation environment can be accessed. Accumulation interests are the most common type of superannuation interest and are the easiest to value. The mandatory superannuation paid by employers is 9% and is sometimes referred to as the Superannuation Guarantee Charge. Most of this money is paid into accumulation schemes.
Return to topDefined Benefit Interest
A defined benefit interest is one where the amount that is paid at retirement is defined by the member’s salary and length of service. These types of funds are most commonly found in government schemes and some corporate schemes. Entry to many of these schemes ceased in the early 1990’s, and any new employees will often only have the option of joining an accumulation fund.
Return to topSelf-Managed Superannuation
Self managed superannuation funds are funds that meet a number of conditions including having fewer than five members and each member must be a trustee of the fund. Self managed super funds will most often be established as accumulation funds, but may also be a defined benefit fund. The same concepts of accumulation and defined benefits apply to self managed funds, it is only that the funds are restricted by matters such as the number of members.
Return to topSuperannuation Phase: Payment
The payment phase is when the wealth accumulated during the growth phase is paid out as retirement benefits. The benefits generally take the form of either lump sum payments or pension payments. Mostly, benefits received by way of lump sum will be paid in whole on exiting the fund.
The benefits paid by way of pension may include:
- a life pension
- fixed term pension
- allocated pension
Superannuation Benefits: Life Pension
A life pension will be payable for the life of the member. The pension may be indexed, usually to the consumer price index. The pension may also include what is referred to as a reversionary component, which is a pension, usually around two thirds of the full pension, that is paid (or reverts) to the spouse of the member on death of the member.
Return to topSuperannuation Benefits: Fixed Term Pension
A fixed term pension is one that is payable for a specified period of time, usually five, ten or fifteen years. Fixed term pensions may be indexed and may also include a residual value.
Return to topSuperannuation Benefits: Allocated Pension
An allocated pension is one that is paid from an identifiable lump sum. The annual pension payments are subject to specified minimum and maximum amounts depending on the amount of the lump sum and the circumstances of the member. The lump sum will earn interest during the period in which the pension is paid. It could be compared to a bank account, earning interest, from which specified minimum and maximum amounts are withdrawn each year.
Return to topThe above provides a brief summary of Family Law legislation as it applies to superannuation. It is not intended and should not be relied upon as advice. You should always seek professional advice for your specific circumstances.
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