Senator COONAN (1:20 PM) —The announcement by the Prime Minister (Mr Howard) this week that reforms will be introduced to provide equity of access to superannuation in the event of a marriage breakdown is further evidence of this government's commitment to the principles of equity and sharing. The current inequities in the treatment of superannuation when a marriage breaks down were identified over 10 years ago, yet absolutely nothing was done about it by the previous Labor government.

The government recognises that superannuation has not always provided women in particular with the security they need and deserve in retirement. The issue is an important one when it is taken into account that in 1996, 52,000 Australian couples applied for a divorce. This government has acted and introduced measures already to address the needs of women, including the low income spouse superannuation rebate, to help women outside the paid work force. Another measure introduced by the government has been the added versatility provided by the retirement savings accounts. Now the government is actively working to introduce reforms to bring about greater fairness and certainty into the treatment of superannuation in the event of a marriage breakdown.

The situation at present is that often a women forgoes the economic benefits which are derived from working to enable her partner to go to work and save via a superannuation fund. The woman forgoes work and makes sacrifices for her husband and family and the husband is able to translate some of those sacrifices into a compulsory savings program or superannuation.

On any view, the woman has made an indirect, but nonetheless tangible, contribution to that form of family savings. The problem arises in that if the couple divorce, superannuation is not available in a liquid form to be adjusted between the parties. Even the person who has directly contributed to the fund usually cannot have access to it and may have to wait a number of years before he or she can draw down the superannuation. Added to this is that it can be difficult for superannuation that is the legal property of only one party to a marriage to be adjusted as if it is an asset of both parties to the marriage.

The Family Court may have regard to superannuation as an asset to be taken into account in its calculations and can offset the value of other assets by way of adjustment to compensate the non-superannuated spouse. Such a system is fine if there are sufficient other assets to provide sufficiently for a dependent spouse and children and enough to allow the party with the superannuation to survive until he or she can access that superannuation. Where it falls down, however, is where there are insufficient other assets to allow a fair adjustment to reflect the amount of superannuation involved. It also fails to allow the proper quantification of the superannuation or provide a formula for arriving at a quantification. The reforms will allow far greater clarity in divorce settlements as well as providing certainty for the future of the non-superannuated spouse after a divorce.

There are a number of key areas being examined to guide these reforms through. The first is that superannuation should be clearly recognised in legislation dealing with the division of marital property. The key here is that the principles be clearly defined, not just assumed. The second aspect is that there be clear rules for valuing superannuation that will take into account the vagaries of the different types of schemes. Back of matchbook calculations cause more problems than they solve. By having a defined formula and set of rules, both parties will know exactly where they stand. This is important in order to bring to finality settlement of property and to allow both parties to have a fresh start, especially if new partners and new families are on the scene. The third policy objective with these reforms is to encourage the parties to try to settle their own affairs. To facilitate this, the reforms will ensure that both parties have full information available to them.

On top of this, the reforms will be consistent with the government's retirement incomes policy and arrangements will be made to minimise the complexity and costs for all parties. They will also take into account the particular features of the various types of superannuation funds involved. The government is addressing the tough questions involved with these reforms. One such question is just when will the superannuation be shared between the two parties and in what proportions?

Then there is the question of calculating just how much superannuation will be accrued up to the contributor's retirement. Obviously, if a member of a superannuation fund has been contributing before marriage, an equal division would not be fair. If both parties have superannuation, it may be necessary to offset one against the other to see if any adjustment is warranted. Already the government has written to superannuation industry representatives seeking their input in relation to the reforms. One of the principles in the reforms is to provide maximum flexibility as well as a legislative lever.

There is overseas precedent not only for community of property schemes but also for legislating to ensure superannuation is fairly adjusted on separation. One model is that of British Columbia, with its 1995 Family Relations Amendment Act, which deals with the divisions of superannuation—called `pension' in British Columbia—in the event of a marriage breakdown. This act clearly defines such terms as entitlement, net investment returns, pensionable services and vested pension. The act also details how the calculation of commuted value should be arrived at. This is a vital area which has clouded the division of superannuation in Australia.

Germany and the United States have schemes in place which recognise superannuation as a marital asset. This allows for the equitable division of superannuation as part of the property settlement in divorce proceedings. Great Britain is heading in the same direction. A white paper is being prepared which defines the benefits and tax implications of splitting superannuation, or pensions as they are also called in the UK.

This government is now heading towards the fair division of superannuation. In a marriage breakdown, the prospective loss of benefits on retirement from a former spouse's superannuation scheme can impact with particular severity on the party who was not a member of the scheme and whose potential for loss of security is very great indeed.

The 1994 Australian Law Reform Commission report has pointed out the particular effect on women. It states:

The issue of retirement income is particularly important for women. On average, women live longer than men and are therefore more likely to spend more of their last years alone.

Current government policies are aimed at retirement income being provided by superannuation funded by the employer or the employee, or a combination of both, rather than by government through age pensions.

The problem for women is that the superannuation system is geared to the typical working pattern of a man, not a woman. The greatest benefit is derived by those who work full time and continuously over an extended number of years.

This is not a typical working pattern for women.

Therefore, we have the situation where the non-member spouse loses the prospect of security for the future, the legitimate expectation of which has been a foundation of the financial management of the couple's affairs.

One of the problems faced by the Family Court in trying to determine superannuation entitlements stems from the very nature of superannuation schemes. A common model is the discretionary trust. If the marriage breaks down and the member spouse is not of retirement age, he or she has no proprietary interest in future superannuation entitlements, merely an expectation. How then is the real value of the future benefit to be taken into account in property division given that an order cannot operate directly on the benefit? One technique is what is known as offsetting, under which the Family Court takes future superannuation entitlements into account at the time of property distribution. But the court has experienced considerable difficulty in identifying precisely how the superannuation entitlements should be taken into account and in particular how the entitlement should be calculated at the time of the trial.

Different Family Court rulings such as Prestwitch and Prestwitch, Jenner and Jenner, Webber and Webber and Hauff and Hauff have seen a number of complex formulas being devised. However, there has been no consistency in these formulas. The court has another approach available to it in that it can adjourn part of the family property proceedings if a party's financial circumstances are likely to change significantly in the future—for instance, by benefiting from a superannuation pay-out down the track.

However, this also has its problems. It goes against the grain of the clean break principle in that it may see a case go on for years. Understandably, the courts have tended to prefer the techniques of offsetting rather than adjournment when the spouse with the benefit is a long way off retirement age. Under the current law, these are the only options available as the Family Court stressed in Harrison and Harrison in 1996.

A point of significance in looking at superannuation benefits is that they often involve substantial amounts of money. In a great number of cases, the sum involved is greater than the value of the family home, which so often is the single most valuable asset a couple has. Future superannuation benefits are significant primarily because they affect the financial circumstances of a party after retirement. However, their significance is not confined to future financial circumstances. They also concern past financial circumstances as they constitute enforced savings and, in many circumstances, income which has been voluntarily forgone. Therefore, when a marriage breaks down, a wife may want to make a notional claim on part of her husband's superannuation benefits not only to share in his future economic security but also as compensation for income which her husband earned but did not receive and which she did not enjoy during the marriage.

Some superannuation schemes give members a vested interest in the fund itself, which enables the member to withdraw their contributions plus accrued interest at any time they wish. In these circumstances, the Family Court does not have a problem because clearly there is a present entitlement to property. In other circumstances, members cannot withdraw their funds until retirement and, while there is some authority for the proposition that an entitlement of this kind constitutes property, the prevailing view is that although technically vested it is not property divisible in divorce proceedings.

The third area is funds that do not give members any vested interest in the superannuation fund itself until retirement. In this case members have no rights in respect of the fund, and the court's view is that their superannuation is not regarded as divisible property. In light of the complexity of the issue, private property agreements between parties have assumed some popularity. The Family Law Act makes provision for parties to a marriage to enter into private agreements which, although technically called maintenance agreements, can concern the division of property. Such agreements can be prenuptial, although they are generally entered into upon separation. This is only equitable if the parties are aware they can claim a share of their partner's superannuation.

Commenting on the ignorance of rights and also the problem of identifying superannuation entitlements, the Australian Law Reform Commission noted:

This lack of certainty causes particular hardship for non-contributory spouses, usually female partners, on separation. They do not have a clear basis on which to conduct their negotiations . . . Many are unaware of their entitlement to have superannuation taken into account in property settlement.

As can be seen from the remarks I have made so far, the whole issue of the division of superannuation in divorce cases is murky, confusing and indecisive. This leads to uncertainty of financial future and because the parties often do not understand the complexity of the issues, the debate between the parties so frequently becomes acrimonious.

The government's initiatives will lead to a clear, precise and understandable way to proceed in relation to the division of superannuation. At last there will be equitable and fair division of funds which to many have been a pot of gold largely unavailable to a non-member spouse on divorce. While much of the focus is on protecting women and ensuring that they receive their equitable share of their partner's superannuation, I hasten to say the reforms will cut both ways. If both parties have worked, then both superannuation funds will be accounted for in the divorce settlement, and where, as is increasingly the case, there has been a man who has forgone the economic benefits and stayed at home being a Mr Mum, he will also be protected by the reforms. What could be fairer than that?