EXPLANATORY STATEMENT

FAMILY LAW (SUPERANNUATION) (METHODS AND FACTORS FOR VALUING PARTICULAR SUPERANNUATION INTERESTS) AMENDMENT APPROVAL 2006 (No. 2)

ISSUED BY THE AUTHORITY OF THE ATTORNEY-GENERAL

In this instrument, the Attorney-General, under regulations 38 and 43A of the Family Law (Superannuation) Regulations 2001 (the Regulations), approves in writing, for the purpose of the provisions in the Family Law Act 1975 (the Act) allowing superannuation to be split on marriage breakdown, methods for determining the gross value of superannuation interests in:

• the New South Wales Police Superannuation Scheme;
• the New South Wales Police Association Superannuation Scheme;
• the New South Wales State Authorities Superannuation Scheme (the NSW SAS Scheme); and
• the New South Wales State Authorities Non-contributory Superannuation Scheme (the NSW SANCS Scheme).

The gross value is one element in the determination of an amount which is taken to be the value of superannuation in property settlement proceedings under the Act.

Methods are approved for two categories of superannuation interests in the New South Wales Police Superannuation Scheme, which provides superannuation benefits for members of the New South Wales Police Service with service prior to 1 April 1988, the date on which the Scheme closed to new members.  The benefits provided by the Scheme are pensions, linked to salary, which are able to be commuted.

First, a method is approved for interests in the New South Wales Police Superannuation Scheme held by current contributing members of the New South Wales Police Service. 

The method contains a formula which reflects the accrual of benefits under the Scheme.  The formula includes an adjustment for the tax on employer-funded superannuation contributions which is passed on by the Scheme to members through a reduction in the employer-funded component of benefits which have accrued since the introduction of the tax in 1988.  The formula provides for use of factors derived from the experience of the Scheme as set out in the assumptions in the Scheme’s most recent actuarial report.

Second, a method is approved for interests in the New South Wales Police Superannuation Scheme held by former members of the New South Wales Police Service or their surviving spouses who are in receipt of superannuation allowance under the Scheme. 

The method provides for use of separate factors, derived from the experience of the Scheme, for persons in receipt of age retirement superannuation allowance, invalidity superannuation allowance and surviving spouse superannuation allowance.

Methods are approved for two categories of superannuation interests in the New South Wales Police Association Superannuation Scheme.  

The New South Wales Police Association Superannuation Scheme provides superannuation benefits for former members of the New South Wales Police Service who on resignation have transferred directly to employment with the Police Association of New South Wales (the Association), an industrial organisation representing police officers in New South Wales.  The New South Wales Police Association Superannuation Scheme provides benefits closely linked to those provided by the New South Wales Police Superannuation Scheme.  An exception is that invalidity benefits under the former Scheme do not include ‘hurt on duty’ invalidity allowance, a higher rate of invalidity allowance payable under the latter Scheme. 

First, a method is approved for interests in the New South Wales Police Association Superannuation Scheme held by current employees of the Association.  The method is based on the method approved for interests in the New South Wales Police Superannuation Scheme held by current members of the New South Wales Police Service.  The exception is that the factors are lower reflecting that no ‘hurt on duty’ invalidity allowance is payable under the New South Wales Police Association Superannuation Scheme.

Second, a method is approved for interests in the New South Wales Police Association Superannuation Scheme held by former employees of the Association or their surviving spouses who are in receipt of superannuation allowance under the Scheme.  The method is based on the method approved for former members of the New South Wales Police Service and their surviving spouses.  The method provides for use of separate factors for persons in receipt of age retirement superannuation allowance, invalidity superannuation allowance and surviving spouse superannuation allowance. 

The NSW SAS Scheme provides lump sum superannuation benefits to New South Wales public sector employees with service prior to 19 December 1992, the date on which it closed to new members.  Methods are approved for four categories of interests in the NSW SAS Scheme:

• current New South Wales public sector employees with interests in the Scheme, other than:

–          those guaranteed minimum benefits under transitional arrangements for certain closed predecessor local government superannuation schemes; and

–          employees who either have elected to take a deferred benefit in the NSW SAS Scheme following taking a salary reduction after age 55 or, having transferred their superannuation coverage by becoming a contributor to another superannuation scheme, have been taken to have made provision for such a benefit;

• current New South Wales public sector employees who are guaranteed minimum benefits by the transitional arrangements that apply for closed predecessor local government superannuation schemes;
• current and former New South Wales public sector employees with a deferred benefit in the Scheme; and
• former New South Wales public sector employees or their surviving spouses receiving pensions under the NSW SAS Scheme.

Lump sum benefits under the NSW SAS Scheme consist of two components, an employer-funded benefit linked to salary and level of member contributions, and a benefit reflecting those member contributions adjusted by fund earnings, levies and charges.

The method approved for current New South Wales public sector employees with interests in the NSW SAS Scheme reflects:

• member contributions (with the above-mentioned adjustments) that an employee has made;
• the variable member contribution rate under the Scheme, which affects the rate of accrual of the employer-funded benefit that is payable;
• an adjustment for the tax on employer-funded superannuation contributions which the Scheme passes on through a reduction in the employer-funded benefit that an employee has accrued since the tax was introduced in 1988; and
• the experience of the Scheme as set out in the assumptions in the Scheme’s most recent actuarial report.

The method approved for current New South Wales public sector employees with guaranteed minimum benefits under transitional arrangements for closed predecessor local government schemes reflects the notional accumulation of benefits under those predecessor schemes.  Employees guaranteed minimum benefits were either:

• contributors to the Local Government Provident Fund or to the Superannuation Benefits Fund established under the Local Government and Other Authorities (Superannuation) Act 1927 (NSW); or
• holders of insurance policies which were kept in force by the payment of premiums under that Act. 

The method provides for a comparison of the employee’s contributions and notional accumulation of benefits under the predecessor scheme with the value his or her interest would have under the method approved for other current public sector employees.  The gross value of an employee’s interest is the greater of the two values.

The method approved for current and former New South Wales public sector employees with a deferred benefit in the NSW SAS Scheme discounts the employer-funded component of that benefit payable to certain categories of deferred benefit members of the Scheme.  These are members who can take a lower benefit prior to the deferred benefit becoming payable, and the discount is by a factor reflecting that the lower benefit may be taken.  The categories of deferred benefit members to which the method applies are:

• former New South Wales public sector employees who, on resignation, dismissal or discharge from employment have elected to take a deferred benefit in the Scheme; and
• current or former New South Wales public sector employees who, since transferring their employment under a New South Wales Government privatisation initiative or other Government initiative or their superannuation coverage by becoming a contributor to another superannuation scheme (other than an employee who became a member of the closed New South Wales Public Sector Executives Superannuation Scheme), have a deferred benefit in the Scheme.

The method approved for former New South Wales public sector employees or their surviving spouses receiving pensions under the NSW SAS Scheme provides for separate factors reflecting the mortality rates for retirement, invalidity and surviving spouse pensioners in the Scheme.  Although the NSW SAS Scheme is a lump sum scheme, transitional arrangements made for some predecessor schemes at the time of commencement of the NSW SAS Scheme provide an option to receive benefits in pension form.

The NSW SANCS Scheme provides lump sum productivity and Commonwealth Government co-contribution superannuation benefits to members of other public sector defined benefit schemes in New South Wales.  The Scheme closed to new members on 8 December 1992.  Methods are approved for two categories of interests in the NSW SANCS Scheme:

• current New South Wales public sector employees with interests in the Scheme; and
• former New South Wales public sector employees who have preserved benefits in the Scheme.

Lump sum benefits are provided under the NSW SANCS Scheme consisting of:

• a basic benefit of 3% of final average salary for each year of service from 1 April 1988 (the date of commencement of the Scheme), subject to an adjustment for the tax on employer-funded superannuation contributions which the Scheme passes on through a reduction in benefits; and
• any Commonwealth Government co-contribution made towards the superannuation of a New South Wales public sector employee, with an interest in the Scheme, who is a low income earner.

The method approved for current New South Wales public sector employees reflects the accrual of the basic benefit provided by the NSW SANCS Scheme, the assumptions in the NSW SANCS Scheme’s most recent actuarial report and any Commonwealth Government co-contribution that has been made.  

The method approved for former New South Wales public sector employees who have preserved benefits in the NSW SANCS Scheme provides for their interests to be valued by reference to the amount that would be paid if the preserved benefits were payable at the time of valuation.

The instrument incorporates by reference:

• the Police Regulation (Superannuation) Act 1906 (NSW) providing for the NSW Police Superannuation Scheme;
• the Police Association Employees (Superannuation) Act 1969 (NSW) providing for certain employees of the Police Association of New South Wales and other persons to receive payments out of the Police Superannuation Fund;
• the State Authorities Non-contributory Superannuation Act 1987 (NSW) establishing the NSW State Authorities Non-contributory Superannuation Scheme;
• the State Authorities Superannuation Act 1987 (NSW) establishing the NSW State Authorities Superannuation Scheme;
• the Local Government and Other Authorities (Superannuation) Act 1927 (NSW) providing for a superannuation scheme for certain employees of the Councils of Shires and Municipalities in New South Wales;
• the Police Superannuation Regulation 2005 (NSW) making provision with respect to matters relating to the NSW Police Superannuation Scheme;
• the State Authorities Non-contributory Superannuation Regulation 2005 (NSW) making provision with respect to matters relating to the NSW State Authorities Non-contributory Superannuation Scheme;  
• the State Authorities Superannuation (Closed Local Government Schemes Transfer) (Savings and Transitional) Regulation 1990 (NSW) making provision with respect to matters relating to closed local government superannuation schemes which were predecessor schemes to the NSW State Authorities Superannuation Scheme; and
• the State Authorities Superannuation (State Public Service Superannuation Scheme Transfer) (Savings and Transitional) Regulation 1989 (NSW) making provision in relation to the transfer of contributors from the State Public Service Superannuation Scheme, constituted by the State Public Service Superannuation Act 1985 (NSW), to the NSW State Authorities Superannuation Scheme.

These Acts and Regulations can be viewed at the following website:

http://www.legislation.nsw.gov.au/

Copies of the Acts and Regulations can also be obtained from Salmat, a print-on-demand and mail order service, at Level 3, McKell Building, 2/24 Rawson Place, Sydney, NSW 2000 (telephone: 1300 656 986; facsimile: 02 9372 8993; e-mail: bookshop@salmat.com.au).

Consultation on the content of the instrument was undertaken under section 17 of the Legislative Instruments Act 2003 with the Australian Government Actuary, the New South Wales Premier’s Department, the former New South Wales Government Actuary (prior to the closure of the New South Wales Government Actuary’s Office in 2003) and Cumpston Sarjeant, Consulting Actuaries, who were engaged by the New South Wales Premier’s Department following closure of the New South Wales Government Actuary’s Office to advise in relation to the methods that have been approved.  The consultation occurred by way of exchange of correspondence and discussions and also by a meeting between Commonwealth and New South Wales officials.