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SuperValuers Newsletter - December 2003

The Superannuation Legislation Amendment (Family Law) Bill 2002

The Superannuation Legislation Amendment (Family Law) Bill 2002, referred to commonly as the Separate Interest Bill, was listed for debate in the Senate for one day in mid October. It was not debated. Despite their being a further 10 sitting days since that day, the Bill has not been listed since. The schemes affected by this Bill are CSS, PSS, MSBS, and DFRDB.

The impact of the delay in this legislation is two fold. First, it ties the outcome of splitting super to the actions of the member. If the member dies or delays retirement, the non- member spouse would not have an entitlement until the member receives his or her benefit - hence the term, separate interest Bill. A summary of the differences between the current default splitting arrangements and those proposed under the separate interest Bill is attached. These differences have been the main reason why some settlement cases have been deferred.

The second impact of the separate interest Bill will be felt more immediately in terms of dividing the pool of matrimonial assets for it relates to how the superannuation interests are valued. Currently, superannuation interests are valued using the factors in the Family Law (Superannuation) Regulations 2001. There is provision in those Regulations for the Attorney General to prescribe scheme specific factors that more accurately reflect the design of the schemes. These scheme specific factors are integral to the workings of the separate interest Bill.

The scheme specific factors will be introduced as a disallowable instrument and will be effective from date of Gazettal. The separate interest Bill and the instrument giving rise to the scheme specific factors are administratively coupled so that the date of effect will be the same. Whether they will continue to be linked remains speculative.

The significance of the scheme specific factors relates to the difference in the scheme design assumed in the default factors and the actual design of the schemes. Mostly, scheme specific factors will result in an increase in the value of the superannuation interests - for CSS and DFRDB, these could range up to 100%!! There is a clear strategic and timing consequence of knowing the impact of these scheme specific values.

So when will the separate interest Bill be considered again? The next opportunity is in 2004. The Senate sits again for 2 days in Feb and again for 10 days in March. Once passed, there will be about 4 weeks before date of effect. Of course, an early election would see further delays.

Analysis Present Approach � Default without scheme specific factors Proposed � Separate Interest Bill

Overview of Process
Valuation prescribed (or agreed)

Parties/court can set out ex-spouse amount (base amount)

Base amount indexed by prescribed factors

At time of benefit payment, indexed base amount deducted and paid to ex spouse.

Valuation prescribed

Agreement/court set out ex-spouse amount

New account created for ex-spouse

Ex-spouse account is indexed

Member benefit reduced

Valuation
Benefits can be valued using default factors. Default factors are broad based averages and by definition, do not take into consideration the specifics of individual scheme design. Can result in unintentional gains and losses in the division of the matrimonial property pool.

Default factors can be used for property settlement purposes (but not likely)

Scheme factors used to create new account for ex-spouse. Outcome cannot be less and in most cases, will be more.

Clean Break
Delays ex-spouse benefit until member exits the scheme � could be years later and even delayed by the member.

Separate benefit created for ex-spouse that is fully independent of the member. Generally, benefit has same characteristics of the member except no contributions and reversionary benefits.

Certainty and control
Ex-spouse amount is the lesser of the base amount interest, or the member�s benefit

Member benefit is a residual value (ie member benefit less indexed base amount). Where the indexed base amount is larger than member�s benefit, the member will receive no benefit. Proportions of the payment may bear little resemblance to proportion agreed at marriage breakdown.

Member doesn�t know deduction until benefit is paid

Ex-spouse and member benefit treated as separate benefits.

Member knows reduction to their benefits

Retirement incomes policy
Ex-spouse benefit not payable until member benefit is paid. Ex-spouse may have been retired for years.

Separate benefits paid in accordance with each person�s retirement.

Equitable treatment
Member benefit is residual value � can be reduced to zero

Reduction of member�s benefits reflect share of benefit attributed to ex-spouse.

News from www.supervaluers.com.au

DFRDB valuations now available

The 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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Analysis	Present Approach � Default without scheme specific factors	Proposed � Separate Interest Bill
Overview of Process	Valuation prescribed (or agreed) Parties/court can set out ex-spouse amount (base amount) Base amount indexed by prescribed factors At time of benefit payment, indexed base amount deducted and paid to ex spouse.	Valuation prescribed Agreement/court set out ex-spouse amount New account created for ex-spouse Ex-spouse account is indexed Member benefit reduced
Valuation	Benefits can be valued using default factors. Default factors are broad based averages and by definition, do not take into consideration the specifics of individual scheme design. Can result in unintentional gains and losses in the division of the matrimonial property pool.	Default factors can be used for property settlement purposes (but not likely) Scheme factors used to create new account for ex-spouse. Outcome cannot be less and in most cases, will be more.
Clean Break	Delays ex-spouse benefit until member exits the scheme � could be years later and even delayed by the member.	Separate benefit created for ex-spouse that is fully independent of the member. Generally, benefit has same characteristics of the member except no contributions and reversionary benefits.
Certainty and control	Ex-spouse amount is the lesser of the base amount interest, or the member�s benefit Member benefit is a residual value (ie member benefit less indexed base amount). Where the indexed base amount is larger than member�s benefit, the member will receive no benefit. Proportions of the payment may bear little resemblance to proportion agreed at marriage breakdown. Member doesn�t know deduction until benefit is paid	Ex-spouse and member benefit treated as separate benefits. Member knows reduction to their benefits
Retirement incomes policy	Ex-spouse benefit not payable until member benefit is paid. Ex-spouse may have been retired for years.	Separate benefits paid in accordance with each person�s retirement.
Equitable treatment	Member benefit is residual value � can be reduced to zero	Reduction of member�s benefits reflect share of benefit attributed to ex-spouse.