EXPLANATORY STATEMENT
Issued by Authority of the Attorney-General
Family Law Act 1975
Family Law (Superannuation)(Methods and Factors for Valuing Particular Superannuation Interests) Amendment Approval 2013 (No. 1)
Subsection 125(1) of the Family Law Act 1975 (the Family Law Act) provides, in part, that the Governor-General may make regulations, not inconsistent with the Family Law Act, prescribing all matters required or permitted by the Family Law Act to be prescribed, or necessary or convenient to be prescribed for carrying out or giving effect to the Family Law Act. The Family Law (Superannuation) Regulations 2001 (the Regulations) have been prescribed to give effect to the distribution of superannuation interests under Part VIIIB of the Family Law Act.
Subsection 90MT(2) of the Family Law Act provides that before superannuation is split by court order, it must be valued. The Regulations contain a default method for valuing superannuation interests. Under regulations 38 and 43A of the Regulations, the Attorney‑General may approve in writing alternative (scheme-specific) methods and factors for determining, respectively, the gross value of particular superannuation interests in the growth phase, and the payment phase and paying a lifetime pension. The Family Law (Superannuation)(Methods and Factors for Valuing Particular Superannuation Interests) Approval 2003 (the Approval) has been made for this purpose and contains methods and factors for determining the interests in over 30 superannuation plans. The Approval is a legislative instrument and has been registered on the Federal Register of Legislative Instruments.
The Family Law (Superannuation)(Methods and Factors for Valuing Particular Superannuation Interests) Amendment Approval 2013 (No. 1) (the Approval Amendment) amends the Approval to include scheme-specific methods and factors for determining the gross value of interests in the Judges’ Pension Act Scheme and the Governors-General Pension Scheme.
The Judges’ Pensions Act Scheme (the scheme constituted by the Judges’ Pensions Act 1968 (Judges’ Pensions Act) for the provision of retirement and other benefits to and in respect of Judges, within the meaning of that Act) is being amended by the Judges and Governors-General Legislation Amendment (Family Law) Act 2012 (the Judges and Governors-General Act) to implement new superannuation splitting arrangements in relation to Federal Judges. The amendments introduce a new process for the splitting of a Judges’ pension at the time of a property settlement/split, rather than rely on the ‘percentage-only’ splitting arrangements whereby any split in a property settlement of the pension of a Judge occurs only when payments are made to a retired Judge.
The Judges and Governors-General Act is also amending the Governor-General Act 1974 (GG Act) to introduce scheme-specific methods and factors to cover the splitting of superannuation pensions (referred to as allowances in the GG Act) for current and former Governors-General. There are currently no scheme-specific arrangements in place for this group.
For Judges, five classes of superannuation interests are included in the Approval Amendment, each with their own method for determining the gross value of the interest: an interest as a serving Judge who will have served for a period of at least 6 years by the time of their compulsory retirement; an interest as a serving Judge who will have served for a period of less than 6 years by the time of their compulsory retirement; an interest as a serving Judge without a compulsory retirement age; an interest as a result of an entitlement to an associate deferred pension (an interest given to a non-member spouse where a pension is not yet payable); and an interest as a result of being paid a pension under the Judges’ Pensions Act.
For Governors-General, three classes of superannuation interests are included in the Approval Amendment, each with their own method for determining the gross value of the interest: an interest as a serving Governor-General; an interest as a result of an entitlement to an associate deferred pension; and an interest as a result of being paid an allowance under the GG Act.
Judges
Three classes of serving members are covered in the Approval Amendment. The majority of interests will fall into the class covering members who have already or could be expected to qualify for a pension (a serving Judge who will have served for a period of at least 6 years by the time they reach their compulsory retirement age). The method for this group separately considers the value of the potential retirement or invalid pension and the lump sum that would be payable on death without a dependent. The method will give a best estimate value.
The second class of serving members covers those who would not have met the minimum length of service to qualify for a pension by the time they reach their compulsory retirement age (a serving Judge who will have served for a period of less than 6 years by the time they reach their compulsory retirement age). Again this will give a best estimate value.
The third class covers a serving member who does not have a compulsory retirement age. Currently there is one serving Judge who does not have a compulsory retirement age (a referendum was held in 1977 to introduce a compulsory retirement age of seventy years into the Commonwealth of Australia Constitution Act (The Constitution); this Judge was appointed prior to the introduction of a compulsory retirement age). The method does not allow for invalidity retirement or death without dependents in office. However, there is no experience on which to set assumptions for such exits, and effectively assuming a zero probability of invalidity or death is reasonable. The resulting estimate is a best estimate.
For associate members who are not yet in receipt of a pension, the method takes account of the fact that the transfer amount determined as part of a family law settlement is adjusted in determining the non-member spouse’s entitlement. The adjustment allows for the lower discount rate used in valuing the liabilities of the scheme, relative to the discount rate prescribed for family law purposes. Where the non-member spouse subsequently re-partners, separates and is subject to a further family law split, this adjustment needs to be reversed out to get back to the family law value.
For pensioners, the method is effectively identical to the default method outlined in the Regulations, with the only difference being the use of factors which reflect the mortality experience for the scheme. The scheme-specific factors are expected to give more accurate values on average that the default factors in the Regulations.
Governors-General
Accurate valuation of the interests of Governors-General is complicated by the offset arrangements which apply under subsection 4(4) of the GG Act. The effect of this subsection is that the total amount payable under the GG Act and other government funded pension arrangements is indexed in line with the salary of the Chief Justice of the High Court. Since most government funded pensions use alternative indexation methods, the effective rate of indexation of the allowance under the GG Act may differ from both the indexation rates applied to the other pensions and the rate of increase in the Chief Justice’s salary.
The complexity of allowing accurately for these indexation arrangements is not justified by the difference in the resulting values. Accordingly, the simplifying assumption that any allowance paid under the GG Act will be indexed in line with the Chief Justice’s salary has been adopted. Two further approximations have been made in the valuation method for serving Governors-General. The first is to use a flat discount rate to discount the value of the benefit payable at the end of the expected term of the Governor-General, rather than the prescribed economic assumptions combined with an assumption on mortality over the period. The second is to ignore the possibility that the person could qualify for a benefit under section 4AA of the GG Act. This section ensures that the value of the benefits paid in respect of the Governor-General is not less than the benefits that would have accumulated under a Superannuation Guarantee arrangement. The likelihood of this section being invoked is very small and the method effectively assumes the probability is zero. There is no reliable way of arriving at a more accurate estimate of the impact of these two factors. The lighter mortality assumed in calculating the scheme-specific factors will give rise to a higher value of the interest relative to the default methodology.
The method proposed for associate members is identical to that proposed for the comparable members in the Judges’ Pensions Act Scheme. Specifically, the method takes account of the fact that the transfer amount determined as part of a family law settlement is adjusted in determining the non-member spouse’s entitlement. The adjustment allows for the lower discount rate used in valuing the liabilities of the scheme, relative to the discount rate prescribed for family law purposes. In the event that the non-member spouse subsequently re-partners, separates and is subject to a further family law split, this adjustment needs to be reversed out to get back to the family law value.
The method proposed for pensioners departs slightly from a best estimate value. This is because the same approximation has been made in relation to offset pensions. Overall, the scheme specific valuation factors are around 5 to 15 per cent higher than the default factors, reflecting the assumed lighter mortality, on average, of this group.
Consultation on the form of the Approval Amendment occurred between the Attorney-General’s Department, the Australian Government Actuary and the Department of Finance and Deregulation (the Secretary of the Department of Finance and Deregulation is the trustee of the schemes) by way of email and telephone exchange.
The Approval Amendment commences on 15 March 2013.
The Approval Amendment is a legislative instrument for the purposes of the Legislative Instruments Act 2003.
Details of the Approval Amendment are as follows:
Section 1 — Name of approval
Section 1 provides that the title of the approval is the Family Law (Superannuation)(Methods and Factors for Valuing Particular Superannuation Interests) Amendment Approval 2013 (No. 1).
Section 2 — Commencement
Section 2 provides that the approval commences on 15 March 2013.
Section 3 — Authority
Section 3 provides that the approval is made under regulations 38 and 43A of the Family Law (Superannuation) Regulations 2001.
Section 4 – Schedule(s)
Section 4 provides that the Family Law (Superannuation)(Methods and Factors for Valuing Particular Superannuation Interests) Approval 2003 is amended as set out in Schedule 1.
Schedule 1 – Amendments
Item 1 – At the end of Schedule 1
Item 1 adds a new Part 6 – Judges’ Pensions Act Scheme and a new Part 7 – Governors-General Pension Scheme at the end of Schedule 1 to the Family Law (Superannuation) (Method and Factors for Valuing Particular Superannuation Interests) Approval 2003.
Part 6 – Judges’ Pensions Act Scheme
Division 6.1 – Interpretation
Division 6.1 of Part 6 provides definitions in relation to certain terms used in Part 6:
Judge has the same meaning as in the Judges’ Pension Act 1968 (Judges’ Pensions Act).
Pensions Act means the Judges’ Pensions Act.
Scheme means the scheme constituted by the Judges’ Pensions Act.
Division 6.1 also clarifies that, for this Part, an expression used in this Part and in the Judges’ Pensions Act has the same meaning in this Part as it has in the Judges’ Pensions Act.
Division 6.2 – Interests in the growth phase
Division 6.2 of Part 6 provides the methods and factors for interests of members in the Judges’ Pensions Act Scheme. The table in Division 2 includes the methods or factors for valuing superannuation interests for four classes of interests in the growth phase and includes definitions of the terms used in the methods.
For the methods in the table, where the methods refer to a factor for an age which is greater than the maximum age included in the relevant table, the factor to be used is the factor for the maximum age included.
Item 1 of the table provides the methods and factors for determining the value of a superannuation interest for the members of the Judges’ Pensions Act Scheme who have already or could be expected to qualify for a pension (a serving Judge who will have served for a period of at least 6 years by the time they reach their compulsory retirement age).
The following terms are used in the method for valuing this class of superannuation interest:
APF stands for accrued pension factor and is defined in the Judges’ Pensions Act.
RAPF relates to a reduction to the accrued pension factor due to a previous split.
S is the annual salary paid to a person occupying a position as a Judge as defined in the Judges’ Pensions Act. The instrument will cover Deputy Presidents of Fair Work Australia who have entitlements under the Judges’ Pensions Act from earlier service as Presidential Members of the Australian Industrial Relations Commission.
F is determined in accordance with a formula provided in paragraph (b) of item 1 of the table. The formula requires the use of various valuation factors provided by Tables 1A to 1D listed in Division 6.4 of Part 6: the valuation factor determined by the person’s gender, compulsory retirement age, age in completed years at the relevant date and the age in completed years at which the person can first retire with a pension; the factor that would apply if the person’s age in completed years at the relevant date were 1 year more than it is; the factor that would apply if the age in completed years at which the person can first retire with a pension were 1 year more than it is; and the factor that would apply if, at the relevant date, both the person’s age in completed years and the age in completed years at which the person can first retire were 1 year more than they are.
The formula for F also includes other terms:
m is the number of complete months of the person’s age, at the relevant date, that are not included in the completed years of age.
ma is the number of complete months of the age at which the person can first retire with a pension that are not included in the age in completed years.
LS is the benefit that would have been payable under section 12A of the Judges’ Pensions Act, after taking into account any reduction under section 17AF of that Act, if the person had died on the relevant date and no spouse or orphan pension had been payable.
LSF is determined in accordance with a formula provided in paragraph (c) of item 1 of the table. The formula requires the use of various valuation factors provided by Tables 2A to 2D listed in Division 6.4 of Part 6: the lump sum valuation factor determined by the person’s gender, compulsory retirement age, age in completed years at the relevant date and the age in completed years at which the person can first retire with a pension; the lump sum valuation factor that would apply if the person’s age in completed years at the relevant date were 1 year more than it is; the lump sum valuation factor that would apply if the age in completed years at which the person can first retire with a pension were 1 year more than it is; the lump sum valuation factor that would apply if, at the relevant date, both the person’s age in completed years and the age in completed years at which the person can first retire were 1 year more than they are.
The formula for LSF also includes the terms ‘m’ and ‘ma’, which are defined as above.
Item 2 provides the method for determining the value of a superannuation interest for members who will not have met the minimum length of service to qualify for a pension by the time they reach their compulsory retirement age (a serving Judge who will have served for a period of less than 6 years by the time they reach their compulsory retirement age).
The value of this class of superannuation interest is determined in the same way as LS as outlined above for item 1 of the table.
Item 3 provides the method and factors for determining the value of a superannuation interest for members who do not have a compulsory retirement age.
The following terms are used in the method for valuing this class of superannuation interest:
HP is the annual rate of pension that would be payable to the person if the person retired on the relevant date.
m is defined in the same way as item 1.
The formula also requires the use of various valuation factors provided by Table 3 in Division 6.4 of Part 6: the pension valuation factor in relation to an age pension for the person’s gender and age in completed years at the relevant date; and the pension valuation factor in relation to an age pension that would apply if the person’s age in completed years at the relevant date were 1 year more than it is.
Item 4 provides the method and factors for determining the value of a superannuation interest for associate members who are not yet in receipt of a pension (associate deferred pensioners).
The following terms are used in the method for valuing this class of superannuation interest:
ATA is the amount calculated under step 2A of Section 8 of the Judges’ Pensions Order 2013, but with the reference to the time when the associate deferred pension becomes payable taken to be a reference to the relevant date.
m is defined in the same way as item 1.
The formula also requires the use of various valuation and scheme value pension factors provided by Tables 3 and 4 in Division 6.4 of Part 6: the pension valuation factor in relation to a spouse pension for the person’s gender and age in completed years at the relevant date; the pension valuation factor in relation to a spouse pension that would apply if the person’s age in completed years at the relevant date were 1 year more than it is; the scheme value pension factor for the person’s gender and age in completed years at the relevant date; and the scheme value pension factor that would apply if the person’s age in completed years at the relevant date were 1 year more than it is.
Division 6.3 – Interests in the payment phase
Division 6.3 of Part 6 provides the methods and factors for interests of members in the Judges’ Pensions Act Scheme. The table includes the methods or factors for valuing superannuation interests for one class of interest in the payment phase and includes definitions of the terms used in the methods.
Item 1 provides the method and factors for determining the value of a superannuation interest for members who have an interest as a result of being paid a pension under the Judges’ Pensions Act.
The following terms are used in the method for valuing this class of superannuation interest:
AP is the annual rate of pension payable to the person at the relevant date.
m is defined in the same way as item 1.
The formula also requires the use of various valuation factors provided by Table 3 in Division 6.4 of Part 6: the pension valuation factor for the person’s pension type, gender and age in completed years at the relevant date; and the pension valuation factor that would apply if the person’s age in completed years at the relevant date were 1 year more than it is.
For the purposes of determining the type of pension, associate immediate pensions, associate deferred pensions, and immediate transitional pensions are all taken to be spouse pensions.
Division 6.4 – Factors
Division 6.4 of Part 6 provides the valuation factors to be used for valuing interests of members in the Judges’ Pensions Act Scheme:
- Table 1A provides the valuation factors for serving male judges with a compulsory retiring age of 65
- Table 1B provides the valuation factors for serving female judges with a compulsory retiring age of 65
- Table 1C provides the valuation factors for serving male judges with a compulsory retiring age of 70
- Table 1D provides the valuation factors for serving female judges with a compulsory retiring age of 70
- Table 2A provides the lump sum valuation factors for serving male judges with a compulsory retiring age of 65
- Table 2B provides the lump sum valuation factors for serving female judges with a compulsory retiring age of 65
- Table 2C provides the lump sum valuation factors for serving male judges with a compulsory retiring age of 70
- Table 2D provides the lump sum valuation factors for serving female judges with a compulsory retiring age of 70
- Table 3 provides the pension valuation factors; and
- Table 4 provides the scheme value pension factors.
Part 7 – Governors-General Pension Scheme
Division 7.1 – Interpretation
Division 7.1 of Part 7 provides definitions in relation to certain terms used in Part 7:
Act means the Governor-General Act 1974 (GG Act).
end date, in relation to a person who holds office as Governor-General, means:
(a) the date that the person ceases to hold office as Governor-General, where this date is known; or
(b) the date that is 5 years after the day that the person first held office as Governor-General, if the date that the person will cease to hold office as Governor-General is unknown; or
(c) the date that is 6 months after the day that the value of the interest is being calculated, if the date that the person will cease to hold office as Governor-General is unknown and the person has held office as Governor-General for a period of 5 years or more.
Scheme means the Governors-General Pension Scheme as constituted by an allowance payable under section 4 of the GG Act.
Division 7.1 also clarifies that, for this Part, an expression used in this Part and in the GG Act has the same meaning in this Part as it has in the GG Act.
Division 7.2 – Interests in the growth phase
Division 7.2 of Part 7 provides the methods and factors for interests of members in the Governors-General Pension Scheme. The table in Division 7.2 includes the methods or factors for valuing superannuation interests for two classes of interests in the growth phase and includes definitions of the terms used in the methods.
For the methods in the table, where the methods refer to a factor for an age which is greater than the maximum age included in the relevant table, the factor to be used is the factor for the maximum age included.
Item 1 provides the method and factors for determining the value of a superannuation interest for a member who is a serving Governor-General.
The following terms are used in the method for valuing this class of superannuation interest:
PA is the annual rate of allowance that would be payable to the person under section 4 of the GG Act if the person ceased to hold office as Governor-General on the relevant date.
m is the number of completed months of the person’s age, at the end date, that are not included in the completed years of age.
n is the number of days between relevant date and end date divided by 365.
The formula also requires the use of various valuation factors provided by Table 1 in Division 7.4 of Part 7: the allowance valuation factor in relation to a retirement allowance for the person’s gender and age in completed years at the end date; and the allowance valuation factor in relation to a retirement allowance that would apply if the person’s age in completed years at the end date were 1 year more that it would be at that date.
Item 2 provides the method and factors for determining the value of a superannuation interest for associate members who are not yet in receipt of a pension (associate deferred pensioners).
The following terms are used in the method for valuing this class of superannuation interest:
ATA is the amount calculated under step 2A of section 7 of the Governor-General Allowance Order 2013, but with the reference to the time when the associate deferred benefit becomes payable taken to be a reference to the relevant date.
m is the number of complete months of the person’s age, at the relevant date, that are not included in the completed years of age.
The formula also requires the use of various valuation factors provided by Tables 1 and 2 in Division 7.4 of Part 7: the allowance valuation factor in relation to a spouse allowance for the person’s gender and age in completed years at the relevant date; the allowance valuation factor in relation to a spouse allowance that would apply if the person’s age in completed years at the relevant date were 1 year more than it is; the scheme value allowance valuation factor for the person’s gender and age in completed years at the relevant date; and the scheme value allowance valuation factor that would apply if the person’s age in completed years at the relevant date were 1 year more than it is.
Division 7.3 – Interests in the payment phase
Division 7.3 of Part 7 provides the methods and factors for interests of members in the Governors-General Pension Scheme. The table in Division 7.3 includes the methods or factors for valuing superannuation interests for one class of interest in the payment phase and includes definitions of the terms used in the methods.
Item 1 provides the method and factors for determining the value of a superannuation interest for members who would have an interest as a result of being paid an allowance under section 4 of the GG Act.
The following terms are used in the method for valuing this class of superannuation interest:
AA is the annual rate of allowance that is or was payable to the person under section 4 of the GG Act at the relevant date.
m is the number of complete months of the person’s age, at the relevant date, that are not included in the completed years of age.
The formula also requires the use of various valuation factors provided by Table 1 in Division 7.4 of Part 7: the allowance valuation factor for the person’s allowance type, gender and age in completed years at the relevant date; and the allowance valuation factor that would apply if the person’s age in completed years at the relevant date were 1 year more than it is.
For the purposes of determining the type of pension, associate immediate pensions and associate deferred pensions are all taken to be spouse pensions.
Division 7.4 – Factors
Division 7.4 of Part 7 provides the factors to be used for valuing interests of members in the Governors-General Pension Scheme:
- Table 1 provides the allowance valuation factors; and
- Table 2 provides the scheme value allowance valuation factors.
Statement of Compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
Family Law (Superannuation)(Methods and Factors for Valuing Particular Superannuation Interests) Amendment Approval 2013 (No. 1)
This Legislative Instrument is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview of the Legislative Instrument
The Judges and Governors-General Legislation Amendment (Family Law) Act 2012 (Judges and Governors-General Act) is amending the Judges’ Pensions Act Scheme (the scheme constituted by the Judges’ Pensions Act 1968 for the provision of retirement and other benefits to and in respect of Judges, within the meaning of that Act) to introduce scheme-specific methods and factors for the splitting of a Judges’ pension at the time of a property split, rather than rely on the ‘percentage-only’ splitting arrangements whereby any split in a property settlement of the pension of a Judge occurs only when payments are made to a retired Judge.
The Judges and Governors-General Act is also amending the Governor-General Act 1974 to introduce scheme-specific methods and factors to cover the splitting of superannuation pensions for Governors-General, for whom there are currently no scheme-specific arrangements in place.
The amendments will allow a former spouse of a Judge or of a Governor-General to receive his or her share of the superannuation benefit as a separate benefit at the time of a property split. This is consistent with family law policy, which aims to provide separating parties with a clean break, and is consistent with superannuation splitting arrangements in the other Commonwealth defined benefit schemes.
The Family Law (Superannuation)(Methods and Factors for Valuing Particular Superannuation Interests) Amendment Approval 2013 (No. 1) (the Approval Amendment) introduces a new Part 6 and a new Part 7 in Schedule 1 to the Family Law (Superannuation)(Methods and Factors for Valuing Particular Superannuation Interests) Approval 2003 to include the new scheme-specific methods and factors for the Judges’ Pensions Act Scheme and the Governors-General Pension Scheme, respectively.
Human rights implications
The Approval Amendment is a change assisting to reflect the amendments made by the Judges and Governors‑General Act and therefore does not directly impact on any human rights.
However, the effect of the Approval Amendment is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 as it advances the protection of human rights.
The Approval Amendment will assist in promoting the human rights recognised in the Convention on the Elimination of All Forms of Discrimination against Women (CEDAW), particularly Article 16. Article 16 requires that States’ parties take all appropriate measures to eliminate discrimination against women in all matters relating to marriage.
In 2008, Sex Discrimination Commissioner Elizabeth Broderick advised the then Attorney‑General that, in her view, the Judges Pension Act 1968 may be inconsistent with the objects of the Sex Discrimination Act 1984 and may also violate Article 16 of CEDAW. She explained that, as a consequence of the current family law splitting arrangements for Federal Judges, three major disadvantages for divorcing spouses of Federal Judges are likely:
- Commencement of pension payments is timed with the Judge's retirement and is therefore uncertain
- For women non-members there may be a gap between their retirement and their entitlement to pension payments, given that men tend to work longer than women before retiring, and
- There is no entitlement to pension payments after the Judge dies. Given the differential life expectancies of women and men, this means that women affected are unlikely to receive pension payments for the duration of their retirement.
The above issues also apply in relation to spouses of Governors-General.
The amendments made by the Judges and Governors-General Act promotes the human rights of women by allowing former spouses of Judges and Governors-General, who have until relatively recently predominantly been women, to receive a separate interest benefit in the event of a family law split. This approach resolves the issues identified by the Sex Discrimination Commissioner.
Conclusion
The Approval Amendment is compatible with human rights freedoms because it advances the protection of human rights.