Step 1

Identify the unfunded component in relation to the transfer amount at the operative time.
Note
Paragraph 146MC (1) (b) of the Act requires the rate of associate deferred pension to be calculated by reference to the unfunded amount.

Step 2A

Increase the unfunded component in relation to the transfer amount for any period between the operative time and the time at which the associate deferred pension first becomes payable, using the Treasury bond rate for the last working day of the financial year ending immediately before the period for which the increase is being calculated for bonds with a 10 year term.

Note
The period between the operative time and the time at which the associate deferred pension first becomes payable may include a number of full financial years, or may occur entirely within a single financial year.

Treasury bond rate for bonds with a 10 year term
The Treasury bond rate for the last working day of a financial year for bonds with a 10 year term is:
(a) if any Treasury bonds with that term were issued on that day — the annual yield on those bonds; or
(b) in any other case — the annual yield on Treasury bonds with that term, as published by the Reserve Bank of Australia for that day.

Calculation of increase in transfer amount
The increase in the unfunded component is calculated:
(a) at the end of each financial year that occurs between the operative time and the time at which the associate deferred pension first becomes payable; and
(b) immediately before the associate deferred pension first becomes payable;
using the applicable Treasury bond rate for the relevant period worked out in steps 2B, 2C and 2D, and compounded period by period.

Step 2B

First period
Identify the shorter of:
(a) the period between the operative time and the end of the financial year in which the operative time occurs; and
(b) the period between the operative time and the day before the associate deferred pension becomes payable.
This is the first period .

Multiply the number of days in the first period by the Treasury bond rate for bonds with a 10 year term that is applicable to the financial year in which the first period occurs, and divide the result by 365.
Round the result to 3 decimal places.
The result is the applicable Treasury bond rate for the first period.

Step 2C

Full financial years (if any)
Use this step if a full financial year occurs immediately after the end of the first period and before the associate deferred pension becomes payable. This is the second period .
Identify the Treasury bond rate for bonds with a 10 year term that is applicable to the financial year.
Round the result to 3 decimal places.
The result is the applicable Treasury bond rate for the second period.
Repeat this arrangement for each full financial year after the second period.

Step 2D

Final period (if any)
Use this step if:
(a) there is any period between the end of a financial year and the time at which the associate deferred pension becomes payable; and
(b) neither step 2B nor step 2C covers that period.
This is the final period .

Multiply the number of days in the final period by the Treasury bond rate for bonds with a 10 year term that is applicable to the financial year in which the final period occurs, and divide the result by 365.
Round the result to 3 decimal places.
The result is the applicable Treasury bond rate for the final period.

Step 3

Work out a pension factor ( F _y+m ) based on the non-member spouse's gender and age, using the formula:

where:
F _y is:
(a) if the associate deferred pension is not payable on permanent incapacity — the valuation factor mentioned in Table 3A in Schedule 2, applicable, when the associate deferred pension first becomes payable, to the non-member spouse's gender and age in completed years (represented by y ); and
(b) if the associate deferred pension is payable on permanent incapacity — the valuation factor mentioned in Table 3B in Schedule 2, applicable, when the associate deferred pension first becomes payable, to the non-member spouse's gender and age in completed years (represented by y ).

F _y+1 is:
(a) if the associate deferred pension is not payable on permanent incapacity — the valuation factor mentioned in Table 3A in Schedule 2, applicable, when the associate deferred pension would first become payable, if the non-member spouse's gender and age in completed years were one year more than they are at that time (represented by y + 1 ); and

(b) if the associate deferred pension is payable on permanent incapacity — the valuation factor mentioned in Table 3B in Schedule 2, that would be applicable, when the associate deferred pension first becomes payable, if the non-member spouse's gender and age in completed years were one year more than they are at that time (represented by y + 1 ).
"m" is the number of completed months of the non-member spouse's age, when the pension first becomes payable, that are not included in the non-member spouse's age in completed years.
Note
The associate deferred pension does not include a reversionary component.

Step 4

Divide the unfunded component in relation to the transfer amount, as increased in step 2A, by the pension factor worked out in step 3.
The result is the annual rate of the associate deferred pension.