EXPLANATORY STATEMENT

Select Legislative Instrument 2005 No. 89

ISSUED BY AUTHORITY OF THE ATTORNEY-GENERAL

FAMILY LAW ACT 1975

Family Law (Superannuation) Amendment Regulations 2005 (No. 2)

 

Subsection 125(1) of the Family Law Act 1975 (the Act) provides, in part, that the

Governor-General may make regulations, not inconsistent with the Act, prescribing all matters required or permitted by the Act to be prescribed, or necessary or convenient to be prescribed for carrying out or giving effect to the Act.

Part VIIIB of the Family Law Act provides for the division of superannuation between parties to a marriage on marriage breakdown or divorce.  This Part was extended to also cover interests in superannuation-like annuity products by amendments included in the Family Law Amendment (Annuities) Act 2004 in December 2004.  These products are referred to as ‘eligible annuities’.

The purpose of the Regulations is to support the extension of Part VIIIB of the Act to superannuation interests in an eligible annuity.

The Family Law (Superannuation) Regulations 2001 (the Principal Regulations) contain much of the detail of the legislative scheme for the division of superannuation on marriage breakdown or divorce, including provisions for the method for valuing superannuation interests, the entitlement of parties when superannuation is divided and the provision of information before and after division occurs.

In particular, the Regulations:

• provide for the identification of the trustee, for the purpose of Part VIIIB of the Act, of an eligible annuity;
• prescribe a superannuation interest in an eligible annuity as a percentage-only interest;

–            interests that are prescribed as percentage-only can only be split, under Part VIIIB of the Act, by reference to a percentage of future payments to be made to the member spouse; 

–            they are also valued in property settlement proceedings under the Act by expert opinion evidence, rather than in accordance with valuation methods set out in the Principal Regulations;

• provide for future entitlements under a splitting order or agreement in respect of such an interest to be satisfied by other means, including by an agreement under which the trustee of the eligible annuity will provide a separate annuity to the spouse with those entitlements;

 

• provide for the entitlement of a person under a splitting order or agreement that applies to an interest in an eligible annuity; and
• correct the definition of a factor used in formulas contained in the methods under the Principal Regulations for valuing a defined benefit superannuation interest held by a spouse as a result of employment in which he or she was no longer engaged.

The Regulations commence on 15 June 2005, the date of commencement of the amendments extending Part VIIIB of the Act.

 

Details of the Regulations are as follows:

Regulation 1 – Name of Regulations

This regulation provides that the title of the Regulations is the Family Law (Superannuation) Amendment Regulations 2005 (No. 2).

Regulation 2 – Commencement

This regulation provides for the commencement of the Regulations on 15 June 2005.  The amendments to Part VIIIB of the Act made by the Family Law Amendment (Annuities) Act 2004 also commence on that date.

Regulation 3 – Amendment of Family Law (Superannuation Regulations 2001

This regulation provides for the amendment of the Family Law (Superannuation) Regulations 2001 (the Principal Regulations) as set out in Schedule 1.

Schedule 1 – Amendments

Item [1] – Regulation 3, after definition of adjusted base amount

Item [1] inserts a definition of the term ‘allocated annuity’ in regulation 3 of the Principal Regulations.  The term is used in the definition of ‘market linked annuity’ in regulation 3, new regulations 14Q and new subregulation 66(3A) (see Items [5], [14] and [24] below).

Item [2] – Regulation 3, after definition of allocated pension

Item [2] inserts a definition of the term ‘annuity provider’ in regulation 3 of the Principal Regulations.  The term is used in new subregulation 10(5A) (see Item [9] below).

Item [3] – Regulation 3, after definition of constitutionally protected fund

Item [3] inserts a definition of the term ‘deferred annuity’ in regulation 3 of the Principal Regulations.  The term is used in new regulation 14P, new paragraph 66(2)(eaa) and new subregulation 66(4A) (see Items [14], [23] and [25] below).

 

Item [4] – Regulation 3, after definition of exempt public sector superannuation scheme

Item [4] inserts a definition of the term ‘fixed term annuity’ in regulation 3 of the Principal Regulations.  The term is used in new regulation 14Q and new subregulation 66(3A) (see Items [14] and [24] below).

Item [5] – Regulation 3, after definition of Judges’ Pensions Act Scheme

Item [5] inserts a definition of the term ‘market linked annuity’ in regulation 3 of the Principal Regulations.  The term is used in new regulation 14Q and new subregulation 66(3A) (see Items [14] and [24] below).

Item [6] – Subregulation 7(1)

Item [6] amends subregulation 7(1) of the Principal Regulations to provide for the meaning of the term ‘growth phase’ in relation to an interest in an eligible annuity.  The term has the same meaning that it has in respect of a superannuation interest in a superannuation fund that is not a regulated superannuation fund. 

Items [7] and [8] – Paragraph 9A(1)(e), After 7(1) paragraph 9A(1)(e)

Items [7] and [8] amend regulation 9A of the Principal Regulations to prescribe a superannuation interest in an eligible annuity as a percentage-only interest.  The financial services sector requested that an interest in an eligible annuity should only be able to be split by reference to a percentage.

Item [9] – After subregulation 10(5)

Item [9] inserts new subregulation 10(5A) of the Principal Regulations to provide that the annuity provider that has entered into a contract with a person to provide an eligible annuity to that person is identified as the trustee of that eligible annuity for the purpose of the definition of the term ‘trustee’ in section 90MD of the Act.

Item [10] – After subparagraph 14A(a)(iii)

Item [10] inserts new subparagraph 14A(a)(iv) to provide a meaning for the term ‘relevant condition of release’, in respect of a superannuation interest in an eligible annuity, where that term is used in Division 2.2 of the Principal Regulations.

Item [11] – After subregulation 14G(11)

Item [11] inserts new subregulation 14G(12), consequential on the inclusion, by Item [14], of provisions to a similar effect in new regulations 14P and 14Q. 

New subregulation 14G(12) provides that nothing in regulation 14G of the Principal Regulations required the trustee of a superannuation plan to do any of a number of things set out in regulation 14G.

 

The inclusion of the provisions in new regulations 14P and 14Q (new subregulations 14P(10) and 14Q(8) respectively) were requested during consultations with the financial services sector.

Item [12] – Paragraph 14H(2)(a)

Item [12] amends subregulation 14H of the Principal Regulations to extend regulation 14H to a superannuation interest in an eligible annuity.  Regulation 14H enables parties to a marriage, where an interest in the growth phase in a superannuation fund, an approved deposit fund or a retirement savings account is subject to a splitting order or agreement, to make alternative arrangements to the split of future benefits made by the order or agreement.

Item [13] – After subregulation 14N(7)

Item [13] inserts new subregulation 14N(8), consequential on the inclusion, by Item [14], of provisions to a similar effect in new regulations 14P and 14Q. 

New subregulation 14N(8) provides that nothing in regulation 14N of the Principal Regulations required the trustee of a superannuation plan to do any of a number of things set out in regulation 14N.

The inclusion of the provisions in new regulations 14P and 14Q (new subregulations 14P(10) and 14Q(8) respectively) were requested during consultations with the financial services sector.

Item [14] – After Regulation 14N

Item [14] inserts new regulations 14P and 14Q in Division 2.2 of the Principal Regulations to provide further categories of payments in respect of superannuation interests in eligible annuities that are not splittable.

The new subregulations complement other regulations in Division 2.2 of the Principal Regulations that provide for the particular circumstances in which payments in respect of a superannuation interest of a member spouse, to which a splitting order or agreement under Part VIIIB of the Act applies, are not splittable for the purpose of applying Part VIIIB to the order or agreement.

The scheme of Division 2.2 is that such payments are not splittable for that purpose, effectively bringing to an end the operation of the splitting order or agreement, where the future entitlements of the non-member spouse under the order or agreement have been satisfied in some other way.  The non-member spouse is the person for whose benefit an order or agreement has been made (that is, where there has been a divorce, the former spouse of the person who has the superannuation interest).

New regulation 14P brings to an end the operation of a splitting order or agreement in respect of a superannuation interest in an eligible annuity that is a deferred annuity where the trustee of that annuity has:

• paid to a non-member spouse, who has satisfied a relevant condition of release in relation to the annuity, an amount equal to the value of his or her future entitlements under the splitting order or agreement;
• transferred or rolled over to a superannuation fund or a retirement savings account an amount equal to that value to be held for the non-member spouse’s benefit;
• paid such an amount to an annuity provider for that provider to provide an annuity for the non-member spouse that is a non-commutable income stream; or
• entered into an agreement with the non-member spouse to provide a deferred annuity for his or her benefit with a value equal to the value of his or her future entitlements under the order or agreement.  If a deferred annuity is provided for the non-member spouse, benefits in respect of the annuity must not commence to be paid earlier than the time that Part 6 of the Superannuation Industry (Supervision) Regulations 1993 would require or permit benefits to be paid from an approved deposit fund.

New regulation 14Q brings to an end the operation of a splitting order or agreement in respect of a superannuation interest in an eligible annuity that is presently payable where the trustee of that annuity has:

• (where the interest was in the payment phase at the operative time of the order or agreement), paid to a non-member spouse an amount equal to the value of his or her future entitlements under the splitting order or agreement;
• transferred or rolled over to a superannuation fund or a retirement savings account an amount equal to that value to be held for the non-member spouse’s benefit; or
• entered into an agreement with the non-member spouse to provide:

–       an allocated annuity;

–       a market linked annuity;

–       a fixed term annuity; or

–       a lifetime annuity;

for his or her benefit with a value equal to the value of his or her future entitlements under the order or agreement; or

• paid an amount equal to that value to another annuity provider for that other annuity provider to provide:

–       an allocated annuity;

–       a market linked annuity;

–       a fixed term annuity; or

–       a lifetime annuity;

for the benefit of the non-member spouse.

For the purpose of these new regulations, the value of the non-member spouse’s future entitlements under a splitting order or agreement under Part VIIIB of the Act is to be exclusive of any fees payable by the non-member spouse under regulation 59 of the Principal Regulations. 

The new regulations include, at the request of the financial services sector, provisions in each regulation (new subregulations 14P(10) and 14Q(8) respectively) to make it clear that nothing in the new regulations 14P or 14Q requires the trustee of an eligible annuity to make a payment, transfer or rollover, or to enter into an agreement in relation to the non-member spouse’s entitlements under the splitting order or agreement. 

Where none of those things are done by the trustee, and the annuity payments remain splittable payments, the entitlement of the non-member spouse in respect of each payment is set out in new regulation 19A and 26A (see below).

Items [15] to [17] – Regulation 19, heading; Regulation 19; After regulation 19

These items amend regulation 19 and insert new regulation 19A in the Principal Regulations to provide for the entitlement of the non-member spouse where a superannuation interest in an eligible annuity is subject to a splitting agreement that specifies a percentage that is to apply for the purposes of subparagraph 90MJ(1)(b)(i) of the Act.  The entitlement of the non-member spouse is to the percentage specified in the agreement of each splittable payment that becomes payable in respect of the interest.

Items [18] to [20] – Regulation 26 heading; Regulation 26; After regulation 26

These items amend regulation 26 and insert new regulation 26A in the Principal Regulations to provide for the entitlement of the non-member spouse where a superannuation interest in an eligible annuity is subject to a splitting order made under paragraph 90MT(1)(c) of the Act.  The entitlement of the non-member spouse is to the percentage specified in the order of each splittable payment that becomes payable in respect of the interest.

Items [21], [22], [24] and [27] – After paragraph 66(2)(d); Paragraph 66(2)(e); After subregulation 66(3); Paragraph 66(6)(b)

These items amend subregulation 66(2) and insert new subregulation 66(3A) in the Principal Regulations to provide for the information that the trustee of a superannuation interest in an eligible annuity that is in the payment phase must provide to an applicant under section 90MZB of the Act for information about the interest.  The content of the information is similar to the information requirements where an application has been made under section 90MZB in relation to other superannuation interests that are percentage-only interests and are in the payment phase.

Item [23], [25] and [27]:  After paragraph 66(2)(e); After subregulation 66(4); Paragraph 66(6)(b)

These items amend subregulation 66(2) and insert new subregulation 66(4A) in the Principal Regulations to provide for the information that the trustee of a superannuation interest in an eligible annuity that is in the growth phase (that is, a deferred annuity) must provide to an applicant under section 90MZB of the Act for information about the interest.  The trustee must provide the account balance of the deferred annuity, and the information relating to the taxation and preservation components of the interest that is required to be provided where an application under section 90MZB has been made in relation to other superannuation interests.

Item [26] – Subparagraph 66(5)(d)(iii)

Item [26] amends subparagraph 66(5)(d)(iii) of the Principal Regulations consequential on the insertion of new regulation 26A of the Principal Regulations at Item [20].

Item [28] – Schedule 1, Form 1

Item [28] inserts references to an eligible annuity in the Heading of Part A, and in the text following that Heading, in Form 1 of Schedule 1 to the Principal Regulations.  The insertions are consequential on the extension of regulation 14H of those Regulations made by Item [12].

Items [29] and [30] – Schedule 2, Part 5, subclause 31(3), definition of Dy+1; Schedule 2, Part 6, subclause 34(3), definition of Dy+1

These items amend the definitions of the factor Dy+1 in subclauses 31(3) and 34(3) of the Part 5 and 6 respectively of Schedule 2 to the Principal Regulations. 

The factors are used in formulas in each subclause that are contained in methods for determining the gross value of a defined benefit superannuation interest held by a spouse as a result of employment in which he or she is no longer engaged at the date of valuation. 

Benefits in respect of such a superannuation interest are, except in the case of death or disability of the spouse, deferred for a minimum period. 

The formulas in which the factors Dy+1 and Dy appear provide for an adjustment, to the actual month in which the interest is being valued, between two yearly discount valuation factors that are relevant in the application of the method to a particular superannuation interest. 

Where there is a need, under those methods, to adjust, on a monthly basis, between yearly discount valuation factors at, say, year 10 and year 11, the factors formerly required that monthly adjustment to occur between year 9 and 10, thereby overvaluing the interest.

These items corrected this error in subclause 31(3) and 34(3) of Schedule 2 to the Principal Regulations.

Item [31] – After Schedule 4

Item [31] inserts Schedule 4A in the Principal Regulations to provide for the method valuing a superannuation interest in a lifetime annuity or in a joint lifetime annuity for the purposes of new regulation 14Q proposed by Item [14].  The method is drawn from the method in clause 2 of Schedule 4 of the Principal Regulations for valuing a superannuation interest in the payment phase paying benefits as a lifetime pension.

Item [32] – After Schedule 5

Item [32] inserts Schedule 5A in the Principal Regulations to provide for the method valuing a superannuation interest in a fixed term annuity for the purposes of new regulation 14Q proposed by Item [14].  The method is drawn from the method in clause 2 of Schedule 5 of the Principal Regulations for valuing a superannuation interest in the payment phase paying benefits as pension for a fixed term.

The Regulations incorporate by reference the Superannuation Industry (Supervision) Regulations 1993, 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 may be viewed at the following website address:

http://www.comlaw.gov.au/ComLaw/Legislation/LegislativeInstrumentCompilation1.nsf/current/bytitle/366EB6283C1D87ECCA256F8800079C38?OpenDocument&mostrecent=1

A copy of the Superannuation Industry (Supervision) Regulations may be purchased from CanPrint Information Services, PO Box 7456, Canberra MC ACT 2610 (telephone: 1300 656 863).

Consultation on the content of the Regulations was undertaken under section 17 of the Legislative Instruments Act 2003 with the Investment & Financial Services Association Ltd, the Association of Superannuation Funds of Australia Ltd, the Law Council of Australia, the Family Court of Australia, the Federal Magistrates Service, MLC Limited, AMP, the Commonwealth Bank, BT Financial Group, Treasury, the Australian Taxation Office, the Department of Family and Community Services and the Department of Veterans’ Affairs.  The consultation involved exchange of correspondence, discussions and meetings.