Second Reading SpeechMr WILLIAMS (Tangney - Attorney-General)
I move that the Bill be now read a second time.
That the bill be now read a second time.
The Family Law Legislation Amendment (Superannuation) Bill 2000 is another landmark in the Howard government's ongoing reform of family law. Under this legislation, couples will for the first time be able to divide their superannuation interests on marriage breakdown in the same way as they can divide their other assets.
In recent years, we have seen superannuation become an increasingly valuable component of the asset wealth of most Australian families. Ninety-one per cent of employees held a superannuation account in 1999. As a nation, we hold over 20 million superannuation accounts in more than 200,000 funds. The aggregate value of superannuation assets is estimated at $439 billion, around double the level of five years ago. Moreover, this is projected to reach around $700 billion by June 2005 and $1 trillion-that is, $1,000 billion-by June 2010.
Despite this wealth of funds, many couples whose marriages break down do not consider superannuation among their assets when they arrange their property settlement. In a recent study entitled Superannuation and Divorce in Australia, the Australian Institute of Family Studies noted the increasing significance of superannuation among family assets. The institute found that superannuation may approach, or even exceed, the value of the family home for many couples who have limited assets. The average superannuation balance per person is now about $54,000, with wide variations depending on years of membership and the level of contributions. By June 2010 the average balance is projected to increase to $80,000 and by June 2020 to around $135,000. However, the Institute of Family Studies found that, despite the increasing value and importance of superannuation, separating couples did not consider splitting it in more than half of all the cases where property was divided.
Even if couples negotiating a family law settlement do recognise that superannuation is an important asset, there is currently no mechanism for superannuation held in one person's name to be divided or transferred to the other. Nor can the Family Court order a third party, such as a superannuation fund trustee, to provide benefits to a former spouse at some future time, even though this might provide the fairest outcome for both spouses.
The Family Court can, and does, take superannuation interests into account and divide other property accordingly. However, this is not an ideal solution because it often means that current property-usually the family home-has to be traded away in exchange for superannuation that may not be able to be accessed for many years. In many cases, this may leave one person with a house but no retirement income, and the other person with no accommodation but significant retirement income that may not be accessible for many years.
This legislation is designed to address the inequity and inflexibility of this situation.
The bill will amend the Family Law Act 1975 to allow superannuation to be divided on marriage breakdown. This division will be able to be achieved in one of two ways: either by agreement of the separating couple or by order of the court.
The bill will permit separating couples to make binding agreements about how to divide their superannuation interest or interests. This gives people the flexibility to settle their own financial affairs wherever possible, and therefore to avoid costly and protracted litigation.
This is consistent with the approach set out in schedule 2 of the Family Law Amendment Bill 1999, which is currently before the parliament. That bill will allow couples to make binding financial agreements either before or during marriage, or after marriage breakdown, about how any or all of their property is to be divided on marriage breakdown.
The superannuation bill will provide that couples may make a superannuation agreement, in the context of these broader financial agreements, to specify how their superannuation will be divided on marriage breakdown.
The government recognises that, in some circumstances, couples will want to defer an agreement about how their superannuation interests are to be divided. This might be because the person who holds the superannuation interest is nearing retirement, or another condition of release, at which time the actual value of the interest will become known.
The bill therefore provides for couples to make an agreement to `flag' their superannuation interest. This agreement would prevent the superannuation trustee from dealing with the flagged superannuation interest until the flag has been lifted either by further agreement or by court order.
When a superannuation agreement is in force, the trustee of the relevant fund will be required by law to give effect to the agreement.
The bill contains special provisions to ensure that people do not enter into contrived arrangements. Significant penalties will apply where these are detected. Where a couple has separated but not yet divorced, at least one of them will have to sign a document called a breakdown declaration. This declaration will state that the couple is still married but that they have separated at the time of the making of the declaration. If the value of the superannuation interest is greater than the eligible termination payment threshold determined under the Income Tax Assessment Act 1936, then an additional declaration will be required.
For people to be able to make agreements about dividing their superannuation, they will need information about the fair value of any superannuation interests to be taken into account upon marriage breakdown. For this reason, the bill provides that a superannuation trustee must provide information to the spouse of a member so that both parties are aware of the details of superannuation interests that are involved.
Valuation is a particularly important issue for defined benefit schemes where there is a vested benefit and an unvested value. The unvested value is generally not accessible until the fund member satisfies certain requirements specified by the fund. The value of an interest in such a plan is typically based upon years of service with an employer and salary levels prior to retirement, as well as contributions and investment earnings. As the final benefit is dependent on future events, the full value of the retirement benefit cannot be predicted with certainty at the time of marriage breakdown.
The value of an accumulation plan is generally more easily ascertained. For this reason, the bill will provide for different methods of valuing a superannuation interest, depending on the type of interest. The details of how the value is to be calculated, including actuarial information, will be set out in the regulations. This will ensure that people are aware of the value of the interest they are dealing with in the agreement, and will also ensure that there can be no dispute about how the value is to be calculated.
Obviously it is preferable that people are able to make their own arrangements for dealing with superannuation interests. However, if they are unable to agree, the court will have the jurisdiction and power to make an order to divide superannuation interests. Such orders will usually be made as part of a broader court order dealing with all of the property of the parties that has not been dealt with in a financial agreement. These orders will bind the relevant third party superannuation trustee. As with superannuation agreements, the court will be able to make an order either to split a superannuation interest or to `flag' an interest and deal with it later.
The amendments will apply to all marriages, including those that were dissolved before the amendments commenced. The amendments will not apply, however, where a property settlement has been finally concluded, whether by formal agreement or by court order.
In addition to the amendments of the Family Law Act, the bill makes a number of consequential amendments of other legislation. Amendments to the Superannuation Industry (Supervision) Regulations will allow the creation of a new interest for a non-contributing spouse who is to receive payments under an agreement or order to split a superannuation interest. That interest will be carved out of the withdrawal benefit of the contributing spouse's superannuation interest. The bill provides for preservation of superannuation money by making the superannuation payment subject to regulations that provide for payment out of a superannuation fund or retirement savings account.
Membership of the fund is intended to provide the new member (the non-contributing spouse) with similar membership rights to those enjoyed by other members in the fund. These rights would include the right to receive the annual report and other information and the right to be paid when a condition of release is met by the non-contributing spouse. The amendments of the Superannuation Industry (Supervision) Act 1993 contained in the bill are designed to facilitate these amendments.
The Superannuation (Resolution of Complaints) Act 1993 provides a low cost dispute resolution mechanism to deal with complaints from members and beneficiaries of superannuation funds about decisions of trustees that are not settled through a fund's internal complaints mechanism. The amendments to the complaints act will permit non-contributing spouses, for whom a new interest in the fund is created, to make complaints to the Superannuation Complaints Tribunal about their treatment by the superannuation trustee in appropriate circumstances.
The amendments of the Family Law Act and the consequential amendments of other legislation will commence on the first anniversary of the day on which the bill receives the royal assent. The reason for the delay in commencement is to allow the superannuation industry and relevant government agencies to make the necessary adjustments to their information and computer systems to implement the division of superannuation on marriage breakdown.
I commend the bill to the House and I present the explanatory memorandum.
Debate (on motion by Mr Stephen Smith) adjourned.