A superannuation scheme can either be an accumulation scheme or a defined benefit scheme.
An accumulation scheme is what the majority of workers belong to and is typically a retailbased fund such as industry super schemes. A lump sum becomes available upon the conditions of release being met and the value of your entitlement is the value which you see on an annual member statement.
Defined benefit superannuation schemes are a specialised type of superannuation plan that provides a guaranteed income for life upon retirement, by way of a pension. Most people with a defined benefit entitlement are already aware of this due to the nature of the scheme, but the non-member spouse may not. Some examples of these types of schemes include Military Super, State Super and Public Sector Superannuation.
When a marriage or de facto relationship breaks down, the Family Law Act 1975 (“the Act”) allows for the splitting of superannuation interests between spouses or former spouses. This includes defined benefit superannuation schemes, except in limited exceptions. Defined benefit interests cannot be valued simply by reading a member statement, like you would for an accumulation interest. A request for information, known as a Form 6, must first be obtained from the Fund and then a valuation must be undertaken by a qualified expert.
Defined benefit schemes are an advantage into retirement that the non-member spouse may not have the benefit of, unless they are also a member of this type of scheme. The member spouse will have an income for the duration of their retirement, whereas the non-member spouse will need to rely on whatever superannuation which has been accumulated and/or a government pension. The existence of a defined benefit scheme will be a relevant factor for consideration as to what is an appropriate division of the property settlement.
The process of splitting a defined benefit superannuation scheme can be complex, and there are a number of factors that need to be considered. These factors include:
- The value of the member’s interest in the scheme;
- The future benefits that the member is entitled to, such as a pension;
- The waiting period, if any, that applies to the split; and
- The tax implications of the split.
The Act provides two methods for splitting a defined benefit superannuation scheme:
- Base amount split: This method involves splitting the base amount of the member’s interest in the scheme.
- Percentage payment split: This method involves splitting a percentage of the member’s future benefits.
Once the method of splitting and the amount of the split has been agreed upon, the split must be approved by the trustee of the superannuation fund. If the member’s superannuation entitlement is in growth phase (i.e., there are still contributions being made to the fund) a new entitlement will be created in the fund for the non-member spouse. It can be rolled over into another fund upon request. If the member’s superannuation entitlement is in payment phase the member’s pension entitlement will be reduced and, depending on the fund, the non-member can sometimes elect to take the entitlement as a pension or a lump sum. It is important to note that the non-member spouse cannot withdraw their split amount unless they also meet the conditions for release.
The split of a defined benefit superannuation scheme can have a significant impact on the member’s retirement income. It does not however affect the member’s eligibility for a pension. There may also be tax considerations for both the member and non-member spouse. It is important to seek legal advice to ensure that the process is done correctly and that the non-member spouse receives a fair share of the benefits. It may also be relevant to seek advice from an accountant and/or financial planner to see what option is best for your circumstances.
The splitting of defined benefit superannuation schemes can be a complex process, but it is an important part of the family law process. By understanding the options available and seeking legal advice, you can ensure that the split is fair and that your interests are protected.