EXPLANATORY STATEMENT

FAMILY LAW (SUPERANNUATION) (METHODS AND FACTORS FOR VALUING PARTICULAR SUPERANNUATION INTERESTS) AMENDMENT APPROVAL 2007 (No.1)

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 Commonwealth Act) allowing superannuation to be split on marriage breakdown, methods for determining the gross value of superannuation interests in the New South Wales State Superannuation Scheme (the NSW SS Scheme) constituted by the Superannuation Act 1916 (NSW) (the NSW Act). 

The Attorney-General’s approval of the methods is contained in new Part 7 of Schedule 2 to the Family Law (Superannuation) (Methods and Factors for Valuing Particular Superannuation Interests) Approval 2003 (the Valuation Approval).  In this instrument the Attorney-General also corrects a reference to a provision of a New South Wales Act contained in Part 9 of Schedule 2 to the Valuation Approval, in relation to his approval on 10 April 2006 of a method for determining the gross value of superannuation interests held by certain persons in the New South Wales 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 Commonwealth Act.

The NSW SS Scheme is a unit based defined benefit pension scheme for New South Wales public sector employees with service prior to 1 July 1985, the date on which it closed to new members.

Methods are approved for five categories of interests in the NSW SS Scheme.

First, a method is approved for interests held by contributing members of the NSW SS Scheme, other than those in respect of which deferred benefits are payable Divisions 3A, 3B or 3D of Part 4 of the NSW Act. 

The method provides for interpolation between two actuarial valuations of accrued benefits payable to such a contributing member in respect of his or her interest in the Scheme at the beginning and end of the financial year in which the valuation date of the interest falls.  The gross value of an interest using the method will be provided to separating or divorcing couples, on behalf of the trustee of the NSW SS Scheme, in response to a request for valuation information concerning the interest under section 90MZB of the Commonwealth Act.

Second, a method is approved for interests held by members of the NSW SS Scheme to whom deferred benefits are payable under Division 3A of Part 4 of the NSW Act.

Members of the NSW SS Scheme to whom those deferred benefits are payable are:

• former New South Wales public sector employees who, on cessation of public sector employment, have elected to take those deferred benefits instead of receiving a refund of contributions they have made towards purchasing units of pension under the Scheme
• New South Wales public sector chief executive, senior executive and police executive officers who have made the same election
• New South Wales public sector employees who, following a single reduction of salary of 20% or more at or after age 55 taken at a time when they could not have retired with pension entitlements, have also made that election, or
• certain other New South Wales sector employees who have become contributors to other superannuation schemes and are taken to have elected those deferred benefits in respect of their period of membership in the Scheme.

The deferred benefits payable under Division 3A of Part 4 of the NSW Act consist of a deferred pension made up of two components, one of which is indexed in accordance with movements in the consumer price index, and the other of which is not indexed.  The method values interests under which those benefits are payable by reference to the current value of each component.

Third, a method is approved for interests held by members of the NSW SS Scheme to whom deferred benefits are payable under Division 3B of Part 4 of the NSW Act.

Certain members of the NSW SS Scheme who would qualify for pension entitlements under the Scheme if they were to retire, including members with those entitlements who have taken a single reduction of salary of 20% or more at or after age 55, may elect deferred benefits under Division 3B of Part 4 of the NSW Act. 

Where members elect deferred benefits under Division 3B of Part 4 of the NSW Act, they have a further three months to commute the whole or part of their pension entitlements in the Scheme.

Deferred benefits payable under Division 3B of Part 4 may, therefore, consist of a lump sum, a pension or a combination of lump sum and pension.  The method values interests under which those benefits are payable by reference to the current value of that lump sum and pension.

Fourth, a method is approved for interests held by members of the NSW SS Scheme to whom deferred benefits are payable under Division 3D of Part 4 of the NSW Act. 

Under Division 3D of Part 4, when a lump sum or pension becomes payable under the NSW Act, the trustee of the NSW SS Scheme must preserve so much of the lump sum or pension as is required to be preserved so as to be consistent with a relevant Commonwealth superannuation standard. 

Preserved amounts then become payable under the Scheme when they are payable under such a standard. 

Where pension payments are required to be preserved, the payments are accumulated in the Scheme until benefits are payable under a relevant Commonwealth superannuation standard, at which time:

• the accumulated value of those preserved pension payments, together with any other lump sum required to be preserved, is paid as a lump sum, and
• any pension, in relation to which payments have been preserved, commences to be paid. 

Deferred benefits, therefore, payable under Division 3D of Part 4 can consist of a  lump sum of any preserved lump sum amount and accumulated pension payments, and any pension that will commence to be paid under the Scheme once a relevant Commonwealth superannuation standards applies.  The method values interests under which those benefits are payable by reference to the current value of that lump sum and pension on the basis that the lump sum or pension will be taken by the member at age 60 or, if the member is over that age, at the date at which the interest is being valued.

Finally, a method is approved for interests held by former New South Wales public sector employees or their surviving spouses who are receiving pensions under the NSW SS Scheme.  The method values interests paying such a pension by reference to the current value of the pension, and includes separate factors reflecting the mortality rates for age retirement, invalidity and surviving spouse pensioners in the Scheme.

In relation to the NSW SANCS Scheme, Item 2 of the Table in clause 2 in Part 9 of Schedule 2 of the Valuation Approval provides a method for determining the gross value of a superannuation interest held by a former New South Wales public sector employee who has preserved benefits in the NSW SANCS Scheme.  The reference, in the definition of the factor ‘SC’ in that method, to subsection 26A(1) of the State Authorities Non-contributory Superannuation Act 1987 (NSW) has been corrected to one to subsection 26A(3) of that Act.  In that method, the factor ‘SC’ represents the superannuation contributions surcharge payable in respect of benefits to such a former employee under the NSW SANCS Scheme.  A benefit payable under the NSW SANCS Scheme can be reduced to apply the benefit toward payment of a superannuation contributions surcharge under subsection 26A(3), and not subsection 26A(1), of the State Authorities Non-contributory Superannuation Act 1987 (NSW).

The instrument incorporates by reference the Superannuation Act 1916 (NSW) which establishes the New South Wales State Superannuation Scheme.

The Superannuation Act 1916 (NSW) may be viewed at the following website:

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

A copy of the Act can also be obtained from Salmat, a print-on-demand and mail order service, located at Level 3, McKell Building, 2/24 Rawson Place, Sydney, NSW 2000.

Contact details for Salmat are:  Telephone: 1300 656 986, facsimile: 02 9324 1901 and e-mail: bookshop@salmat.com.au.

The instrument also incorporates by reference the Superannuation Industry (Supervision) Regulations 1994, which provides for the regulation of superannuation funds, approved deposit funds and pooled superannuation trusts (including standards for the operation of such entities). 

The Superannuation Industry (Supervision) Regulations 1994 may be viewed at the following website:

http://www.comlaw.gov.au/ComLaw/Legislation/LegislativeInstrumentCompilation1.nsf/current/bytitle/2EFDAE9210BBCF86CA25730C00154AF9?OpenDocument&mostrecent=1

A copy of the Regulations can also be purchased from CanPrint Information Services, PO Box 7456, Canberra MC ACT 2610 (telephone: 1300 656 863) or, through its website, at the following address:

http://www.canprint.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), 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 and Pillar Administration, which provides administrative services to the trustee of the New South Wales State Superannuation Scheme. 

The consultation occurred by way of exchange of correspondence and discussions and also by a meeting between Commonwealth and New South Wales officials.