Helping you understand everything you will need to know to get through your divorce
There are some basic terms used in the superannuation splitting laws that you will need to understand.
- Accumulation interest
- Defined benefit interest
- Percentage-only interest
- Member spouse
- Non-member spouse
- Splittable payment
- Condition of release
- Growth phase
- Payment phase
- Allocated pension
- Separation declaration
- Payment splitting
- Interest splitting
- Flagging a superannuation interest
- Regulated superannuation fund
- Self managed superannuation fund
- Retirement Savings Account
- Approved Deposit Fund
- Eligible Rollover Fund
- Scheme specific valuation methods or factors
Most superannuation interests are accumulation interests. An accumulation interest is a bit like a bank account, except that because of preservation requirements you can't access the balance until a specific event happens - known as a "condition of release", such as retirement.
An accumulation interest is relatively easy to value. The value of an accumulation interest is generally equal to the amount deposited on behalf of the member - either by the employer or as member contributions - plus any earnings on the balance less any administrative charges imposed by the fund.
This sort of accumulation interest is said to be fully vested - that is, the whole benefit is credited to the member's account in the fund.
An accumulation interest can be also be partially vested. This means that as well as the basic fully vested component of the accumulation interest there is an "add on" component.
These are typically described as "loyalty" schemes, where there is an additional amount that you will get if, for example, you remain with your employer for a specified number of years.
If your superannuation interest is one that says something like "you are entitled to this amount but if you remain in our employment for 10 years we will contribute an additional $10,000" it is a partially vested accumulation interest.
There are some worked examples for valuation of a partially vested accumulation interest using the valuation methods and factors set out in the FL Super Regulations.
Defined benefit interests are most common in the public service, though some people in the private sector also have this type of superannuation. A defined benefit interest is difficult to value because what you get depends on a number of things that happen during your working life - most typically length of service and final average salary.
These are things that will happen in the future and therefore can't be known with certainty now.
For this reason, it is necessary to calculate a value of a defined benefit interest on the basis of a number of assumptions about what is likely to happen.
This is referred to as actuarially valuing the interest. The superannuation splitting laws prescribe a method of doing an actuarial valuation of a defined benefit superannuation interest.
There are a number of worked examples of actuarial vaulation of a superannuation interest, using the valuation methods and factors set out in the FL Super Regulations.
The superannuation splitting laws allow some kinds of superannuation interests to be prescribed as "percentage-only" interests. The reason for this is because the way in which the superannuation interests vests is unusual and it is therefore not possible to actuarially determine a value of the interest.
An example of such an interest is one that a person has under the Commonwealth Judges' Pensions Act 1988. This has been prescribed, by the FL Super Regulations, as a percentage-only interest.
You are the member spouse if you are the person who has the superannuation interest to which the superannuation splitting laws apply.
You are the non-member spouse if you are the spouse, former spouse or former de facto partner of the member spouse.
A splittable payment is one that will be split in accordance with a splitting agreement or splitting order. Generally, most of the payments that are paid to the member spouse in respect of their superannuation interests will be splittable payments.
However, there are some payments made to a member spouse that are not splittable. These include a payment made on compassionate grounds and a payment made because the member spouse is in severe financial hardship. They also include pension payments made to the member spouse as a result of their ill health, but not on the grounds of permanent incapacity.
Generally you can't access a superannuation interest until you reach what is known as a condition of release.
The most common condition of release is retirement from the paid workforce. There are a number of other conditions of release defined in superannuation legislation - for example, invalidity and death.
If you are not in the paid workforce, your condition of release is when you reach age 65.
A superannuation interest is said to be in the growth phase before the member spouse has reached a condition of release and before any money has been paid out of the interest as a result of the member meeting a condition of release.
You should be aware that legally a superannuation interest can still be in the growth phase despite the fact that the member may have received some payment. For example, a payment that a member receives on the basis of financial hardship does not mean that the superannuation interest has stopped being in the growth phase just because that payment has been made.
A superannuation interest is said to be in the payment phase when the member spouse has reached a condition of release and money has been paid out of the interest - either as a lump sum payment or an income stream or a combination of the two.
An allocated pension is an investment for your superannuation savings that provides you with a regular income when you retire. You invest a lump sum of money in an account that accumulates investment earnings, and from which you draw regular income payments within minimum and maximum limits set by the Government each year.
You can make a superannuation agreement at any time before or during your marriage or de facto relationhship or after your marriage or de facto relationship has broken down.
When you want it to come into operation, you will also need to make a separation declaration. The separation declaration has to be served on the trustee of the superannuation fund with the superannuation agreement otherwise the superannuation agreement won't be binding on the trustee. The separation declaration has to be made no more than 28 days before the time that you serve it on the trustee. If you made an earlier separation declaration, you will have to make a new one to server on the trustee.
What the separation declaration has to say depends on the value of the superannuation interest(s) that you are dealing with.
Under the superannuation splitting laws, an agreement or court order to split a superannuation interest is, in effect, an agreement or order for payment splitting.
What this means is that as and when a payment from a superannuation interest becomes payable to the member spouse - usually because a condition of release has been met - a certain amount will be paid to the non-member spouse and the remainder will be paid to the member spouse.
The payment splitting done pursuant to an agreement or court order does NOT create a new superannuation interest for the non-member spouse.
If there is a payment splitting agreement or order operating on a superannuation interest, it is also possible - in certain circumstances - for a new interest to be created for the non-member spouse in the member spouse's superannuation fund. If a new interest is created for the non-member spouse, the entitlement that that person has under the payment splitting agreement or order will be the amount that is credited to the new interest.
It is also possible, if the non-member spouse already has a superannuation interest, for their entitlement under the payment split to be transferred into that existing superannuation interest. It is also possible, if the non-member spouse does not already have a superannuation interest, for their entitlement under the payment split to be rolled over into a new superannuation interest.
If it is possible for a new interest to be created, or the entitlement to be rolled over or transferred, the non-member spouse will be able to request that this be done for them. If the non-member spouse doesn't make such a request, then the fund will be able to make a decision whether or not to do it anyway.
The amount that is credited to the new interest, or transferred or rolled over to another fund, is basically your entitlement under the superannuation splitting laws.
It is important to remember that it isn't possible to create a new interest, or for the entitlement to be rolled over or transferred, under the superannuation splitting laws unless there is a payment splitting agreement or order in effect.
It is also important to remember that interest splitting will not be possible for all superannuation interests. Whether or not it will be available to you depends on the type of interest that the member spouse has and, sometimes, whether or not the rules of the superannuation fund have been amended to allow it to happen. If you are interested in finding out whether or not you can have a new interest created for you or your entitlement to be rolled over or transferred to another superannuation interest - and you haven't already been provided with this information - you should ask the trustee of the member spouse's superannuation fund.
Under the superannuation splitting laws it is possible to "flag" a superannuation interest.
The effect of a flag on a superannuation interest is that the trustee of the superannuation fund is prevented from making any payments out of the interest until the flag has been lifted.
A regulated superannuation fund is one that is regulated by the Superannuation Industry (Supervision) Act 1993 and the associated Superannuation Industry (Supervision) Regulations, including the amendments dealing with splitting superannuation interests.
The majority of superannuation funds are regulated superannuation funds.
However, some of the large superannuation funds - for example those established by the States under State legislation and covering State public servants, politicians and judges - are not regulated superannuation funds.
A superannuation fund is a self managed superannuation fund (SMSF) if it meets the following conditions:
- has fewer than 5 members
- each individual trustee of the fund is a fund member
- each member of the fund is a trustee
- no member of the fund is an employee of another member of the fund, unless those members are related
- no trustee of the fund receives any remuneration for his or her services as a trustee
The requirement that all members be trustees ensures that each member is fully involved and has the opportunity to participate in the decision-making processes of the fund.
A retirement savings account (RSA) is an account offered by banks, building societies, credit unions, life insurance companies and prescribed financial institutions (RSA providers). It is used for retirement savings and is similar to a superannuation fund.
RSAs are capital guaranteed. This means that contributions and interest on the account, can only be reduced by fees and charges. RSAs are fully portable. This means that the balance of the account can be transferred to another RSA or superannuation provider at your request.
An approved deposit fund (ADF) is a type of rollover fund.
ADFs may only accept eligible termination payments (ETPs). If a person retires early, is retrenched or changes jobs, the ETP can be rolled over into the ADF, where it can remain (attracting tax concessions on investment earnings) until that person reaches the age of 65.
An eligible rollover fund (ERF) is a fund which is eligible to receive benefits automatically transferred from other funds, generally for members who have very low account balances which have been inactive for a substantial period of time, or when the member cannot be located.
Under the superannuation splitting laws, if a non-member spouse asks the trustee to transfer their entitlement to another fund but doesn't nominate which other fund, then the trustee may transfer the entitlement to an ERF.
Similarly, if the trustee decides to transfer the non-member spouse's entitlement and the non-member spouse doesn't reply when the trustee asks where the non-member would like the entitlement to go, the trustee may transfer it to an ERF.
For some superannuation interests, the method of valuation or the valuation factors set out in the FL Super Regulations may not be appropriate. Regulations 38 and 43A of the FL Super Regulations say that the Minister may approve alternative methods or factors for particular kinds of superannuation interest or categories of superannuation interest. If alternative method or factors have been approved and apply to the superannuation interest that you wish to value, then the scheme specific method or factors that have been approved will be the ones that have to be used to value the superannuation interest.