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Wednesday, 25 September 2002
Page: 4896

Senator PATTERSON (Minister for Health and Ageing) (5:37 PM) —I table revised explanatory memoranda relating to the bills and move:

That these bills be now read a second time.

I seek leave to have the second reading speeches incorporated in Hansard.

Leave granted.

The speeches read as follows—


The Family Law Legislation Amendment (Superannuation) (Consequential Provisions) Bill 2002 will make amendments to legislation dealing with Government income streams to ensure that appropriate means test assessment is applied to superannuation interests that are split pursuant to the Family Law Legislation Amendment (Superannuation) Act 2001 (Family Law Superannuation Act).

It will also amend the legislation that provides for pensions for Commonwealth judges and amend the Family Law Act 1975 to ensure the effective operation of the superannuation reforms contained in the Family Law Superannuation Act.

The Family Law Superannuation Act is a major landmark in the Howard Government's ongoing reform of family law.

Under the current law, superannuation interests can—and usually are—taken into account in court proceedings for a property settlement following marriage breakdown.

However, under the law as it now stands, superannuation interests are not able to be split in a family law property settlement.

Under the Family Law Superannuation Act, when it commences, couples will for the first time be able to split their superannuation interests on marriage breakdown in the same way as their other assets.

Superannuation interests will be able to be split either by agreement between the parties or, if the parties are unable to agree, by court order.

Under the Family Law Superannuation Act, both agreements and court orders will generally be binding on the trustees of superannuation funds.

The Family Law Legislation Amendment (Superannuation) (Consequential Provisions) Act 2001 makes consequential amendments to relevant tax legislation to ensure that appropriate tax treatment is applied to superannuation interests which will be split pursuant to the Family Law Superannuation Act.

This bill will make consequential amendments to social security and veterans' affairs legislation to ensure that superannuation interests that have been split pursuant to a family law settlement are assessed consistently with the current assessment of other income and assets under the means test.

The bill will amend the Social Security Act 1991 and the Veterans' Entitlements Act 1986 to ensure that, where an income stream is split under the new family law arrangements pursuant to the Family Law Superannuation Act, the income and asset values of the separate income streams will be assessed in accordance with guidelines that cover the various situations.

Those guidelines will be set out in disallowable instruments.

The bill will also repeal a complex provision of the Social Security Act 1991 that treats the profit component of a withdrawal from a superannuation fund as income over the following 12 months.

If not repealed, these provisions could result in the inequitable outcome that a split of superannuation under the Family Law Act could lead to the assessment of income against the partner who owned the superannuation.

Following the implementation of a measure announced in the 2001 Budget, people aged 55 and over were exempted from the provisions from 1 July 2001.

Accordingly, the provisions are now of very limited application.

Repeal of the provisions is also in accord with the Government's objective of simplifying social security and veterans' entitlements to the maximum extent possible.

The bill will also repeal mirroring provisions in the Veterans' Entitlement Act 1986.

The bill will also amend the Judges' Pensions Act 1968 (Judges' Pensions Act) to authorise the making of regulations to contain factors for use in determining the proportion of a pension that had accrued at the time of a judge's marriage breakdown.

Under the Judges' Pensions Act, a judge generally does not qualify for a pension until he or she has turned 60 years of age and has served for at least 10 years. If a judge does not satisfy these preconditions, no pension is payable. For this type of benefit, it is more equitable to divide the interest by way of a percentage split, rather than attempting to calculate a dollar value.

In some circumstances, such as where most of a judge's pension entitlement accrued after separation, it may be appropriate that the percentage split apply to only that portion of the pension which accrued before separation. In determining that proportion, the relevant formulas in the family law legislation refer to the judge's `accrued benefit multiples' at certain dates.

As the Judges' Pensions Act currently does not contain factors that would constitute accrued benefit multiples for the purposes of the formulae, the bill will amend the Judges' Pensions Act to authorise the making of regulations to set out such factors.

The bill will amend the Family Law Act 1975 (Family Law Act) to provide that the amount that is calculated in accordance with the valuation method prescribed in the Regulations is taken to be the value of the superannuation interest for the purposes of the Family Law Act.

The Family Law Act provides that before making an order splitting a superannuation interest the court must, if the regulations provide a method for determining the value of the interest, determine the value in accordance with the regulations.

The Family Law (Superannuation) Regulations 2001 (`the Regulations'), together with amendments made by the Family Law (Superannuation Amendments) Regulations 2002, relevantly provide for an actuarial method of valuing a defined benefit superannuation interest.

It is not possible to accurately speak of “the value” of a defined benefit superannuation interest as a single figure that can be objectively defined. Defined benefits are intrinsically uncertain. The actual benefit received by an individual member from a defined benefit interest will depend upon the time and reason for their exit from the scheme. As a result, actuarial techniques have been developed to allow calculation of “a value” of the benefits that reflects the range of possible outcomes. However, there is a number of possible methods for valuing a defined benefit superannuation interest as well as a range of assumptions that may be considered to be reasonable in any particular situation. The method and assumptions adopted will depend upon the purpose of the valuation exercise and the judgement of the actuary carrying out the valuation.

The actuarial method of valuing a defined benefit superannuation interest that is prescribed in the Regulations has been developed specifically for the purposes of the splitting of superannuation interests on marriage breakdown. It does not, for example, take into account the actuarial value of any additional benefits which the member could be expected to accrue if their membership in the scheme continued into the future. These additional benefits could be, for example, an increase in the accrued benefit multiple for an additional year of membership or an increase in the pension entitlement for additional years of membership, which is something that trustees of a superannuation fund would normally take into account when valuing a defined benefit superannuation scheme for the purposes of determining a future employer contribution rate.

For this reason it is necessary to provide in the Family Law Act that the amount that is calculated in accordance with the valuation method prescribed in the Regulations is taken to be the value of the superannuation interest.

Finally, the bill will also make minor technical and correcting amendments to the Family Law Act 1975 to ensure the efficient operation of the family law superannuation reforms. These amendments will:

· insert a definition of “reversionary beneficiary” into Part VIIIB of the Family Law Act;

· clarify that the provisions dealing with second and subsequent splits of a superannuation interest so that they will apply if the parties to a marriage separate, re-marry and then separate a second time;

· ensure that the preservation requirements that apply to any interest that the non-member spouse has in a regulated superannuation fund will also apply to any interest that the non-member spouse has in an approved deposit fund or to an exempt public sector superannuation scheme; and

· make a minor drafting amendment, consequent on amendments made in the Parliament during debate on the Family Law Superannuation Act.

I commend the bill to the Senate.



This bill will amend the Income Tax Assessment Act 1997 to encourage the use of structured settlements for personal injury compensation, by providing an income tax exemption for annuities and deferred lump sums paid as compensation for seriously injured persons under structured settlements.

The income tax exemption will be available in relation to such payments if the necessary eligibility criteria are met. The eligibility criteria are designed to remove the disincentives in the tax system in relation to structured settlements and to ensure that the interests of the injured persons are protected; for instance, by providing for prudential regulation of the annuities and preventing the injured party from commuting an annuity.

Structured settlements involve periodic payments for life or over a substantial period. They give injured people greater security about their future income and their capacity to meet ongoing medical expenses.

Many people who receive large lump sums as damages for personal injury may be unable to properly manage the investment of the lump sums. This can result in the early dissipation of compensation payments, leaving an injured person unable to provide for his or her future needs. Regular periodic payments avoid these problems.

They can also more closely align the damages awarded with a person's actual needs.

There are cases of windfall payouts that are much larger than necessary, because of the uncertainty surrounding a claimant's future medical needs. There are also cases where the lump sum was spent too soon, or proved inadequate for the long term care of the injured person.

Structured settlements therefore provide better outcomes for both claimants and insurers who make large payouts on behalf of defendants.

At the Ministerial Meetings on Public Liability Insurance in March and May 2002, Commonwealth and State and Territory Ministers recognised the importance of introducing structured settlements into the Australian insurance market, as one of a range of measures to address difficulties associated with the availability and affordability of public liability insurance.

The Commonwealth agreed to introduce the legislation contained in this bill and State and Territory Ministers have agreed to sponsor legislation to remove the barriers to structured settlements as an alternative to lump sum payouts—and in some cases have already done so.

These amendments are the result of extensive consultation with the Structured Settlements Group, which represents a broad range of interested organisations.

The bill will also amend the Life Insurance Act 1995 to provide that any commutation or assignment of a tax-exempt annuity or lump sum will be ineffective. This will ensure the settlements continue to benefit the person they are intended to benefit.

A statutory review of the operation of the tax exemption is to be undertaken no later than five years after the date of commencement.

Full details of the measures in this bill are contained in the explanatory memorandum.

I commend this bill.

Debate (on motion by Senator Crossin) adjourned.

Ordered that the bills be listed on the Notice Paper as separate orders of the day.