Peter SkinnerPGS [email protected]
1PGS Superannuation
Why I am presenting!!Crawford & Crawford [2012] FMCAfam 1315 (4 December
2012) – a judgment by Altobelli FM“Assisted” by a joint expert report, namely - statement
prepared by Mr B of [S] (the wife’s expert) and Mr S of [P] (the husband’s expert) dated 5 November 2012
Para 53.” Ultimately, neither Mr B nor Mr S’s expert evidence directly assists the court in assessing whether, and if so to what extent, the husband has made a contribution to the wife’s pension.
I am currently preparing another joint expert report and I would like your input as to what would assist the court.
Furthermore, I have another 4 similar cases that are likely to proceed to court
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Why the Fuss?
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Invalidity payments from defined benefit schemes can be very large!
Invalidity Super PaymentsPolice and military traditionally have had generous
superannuation invalidity payments. Reflects the hazardous nature of their occupation.
Superannuation preceded compensation payments so at one time in the past, an injured member might only be compensated through superannuation.
Most NSW police retire on invalidity grounds – pension is 72.5% to 100% of salary. Average age is 45.
Military schemes have always been generous – eg a 18 year old recruit could be given a benefit equivalent to serving to 60 years of age but payable immediately.
FLVs range from $.8m to $1.8m
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The Real IssueInvalidity superannuation payments were
designed prior to the family law splitting regime.
Can result in unintended consequences.Invalidity payments have to be unravelled or
deconstructed to fit into the concepts of the Family Law Act.
This has posed considerable challenges to practitioners and the Courts.
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An Unintended Consequence ScenarioSoldier returns from Afghanistan – suffers PTSDMarriage failsDischarged on invalidity grounds – pension
$60,000Family Law Value is $1.2mAssets divided equallyWife has a CPI life time pension of $30,000Soldier’s health improves – pension now $15,000Further improvement – pension ceasesWife retains her pension irrespective
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OutlineThis presentation will assist practitioners to:
enhance understanding of invalidity pensionsprovide practical arguments to assist in
negotiations2 recent cases will illustrate the range of
possible outcome and the disparity in considerations
Address the issue of how experts can be more helpful to the Court
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Form and Character of Invalidity Pensions
Invalidity pension is not all retirement incomeSome compensation, some insurance type
paymentOnly awarded by virtue of ill healthNo thought given to the consequences of
splitting an invalidity pension in the FLA or Regulations
Result is ad hoc approach by practitionersPrecedent cases now emerging but .....!
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Authority to Look Behind the FLVWell-known case of Coghlan and Coghlan [2005]
FamCA 429; (2005) 67. If this approach is adopted, …, the real nature of
the superannuation interests in question can also be taken into account, both in consideration of the s 75(2) matters and in the final assessment of whether the ultimate order is just and equitable.
68. When we refer to “the real nature” of the relevant superannuation interest, we are referring to the fact that notwithstanding that its value according to the Regulations may well be calculated to be a very significant amount, that superannuation interest may be no more than a present or future periodic sum, or perhaps a future lump sum, the value of which at date of receipt is unknown.
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Difference in Family Law ValuesDay before discharged invalidity, FLV
$165,000Day after, FLV $1.2mWhat has changed?Military will be the focus but applies to all
occupations, especially police and fireman.
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Current Defence Super SchemesA tiered approach
Class A, - 60% or more incapacityClass B, - 30% to 59% or more incapacityClass C, - less than 30% incapacity
Dual purpose of super has been maintainedInjury does not have to be work relatedMower examplePension only and (mostly) reviewed periodicallyAdditional qualifications could allow other
employment kinds to be taken into account - example
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Current Scheme – Military SuperIntroduced actual and prospective serviceIs the prospective service a compensation
element?Younger the age, the higher the prospective
service and higher the compensation elementPrevious superannuation scheme (DFRDB)
based compensation on 40 years service – even if the joining age was say 45 years.
Illustrates the importance of understanding the rules of the super scheme
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Super & Injury - GeneralMost superannuation schemes offer some form of
medical insuranceMost accumulation schemes only offer insurance on
a fee for service basisMost defined benefit schemes provides coverage for
sickness or injuryHowever, only the military have a tiered approachOther schemes require the person to be totally and
permanently incapacitatedLimited life expectancy and no possibility of ever
working again is the criteriaConsequently, most other schemes pay lump sums
although some defined benefit schemes pay a pension
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Are Splittable Payments Made from an Invalidity Pension?For schemes that have scheme specific
factors, the invalidity pension is splittable in the same way as a retirement pension
For the rest, the Regulations provide an amnesty for the first 2 years where total and permanent incapacity has not been established
Caters for the period where payments are made during an assessment process
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What Happens to the Non-Member Spouse if Member’s Health Improves?2004 Orders provide provide for a clean break
between the parties as a consequence of a splitNeither party influences the other’s holdingsAn improvement in the health of the member will
not result in a diminished benefit for the non-member spouse
On the other hand, if member health improves, he/she will only have 25% of the pension in the first review (50% reduction due to split, 50% reduction due to health improvement)
Second review could result in no pension – only fully preserved lump sum
Non-member spouse enjoys CPI indexed pension for life without any reviews
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Double Counting – Asset and Income Is it double counting to count the invalidity pension as both an
asset and an income stream This appeal case DJ & AJ [2006] FamCA 961 involved a husband
who was on an invalidity pension of $52,146 pa. The husband objected to his super being included in his income asserting that it was double counting to include it as an asset and as income. The wife’s income was $40,000. The family law value (FLV) of the husband’s superannuation in the growth phase was $407,000 and $865,000 in the payment phase
Outcome: - The Full Court of Bryant Finn & Coleman dismissed the appeal. The Court ruled that the nature of the “income” is different. The wife earned her income by her own labour whereas his income was through superannuation. The husband does not have to work for his income – the wife does!
Importantly, there was no argument presented in this case that sought to identify the compensation component of the invalidity pension. Compensation for personal injuries has rarely been shared equally between the parties.
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What Do the Trustees Provide?
For an invalidity pension, the superannuation information form provides no information
Pension is noted as an invalidity pensionPractitioners must look elsewhere for useful
information in relation to the invalidity pension
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Family Law ValuationsNo useful information except for the FLVIf scheme specific factors are used, the FLV
reflects the actuarial longevity of invalid pensioners
FLV is 15 to 20% lower – reflecting lower life expectancy
If no scheme specific factors, FLV uses default factors which do not differentiate between invalids and retirees
Above can be used to argue the case for a discount off the FLV
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Peeling Back the OnionThe increase in the FLV relative to the day before
receipt of the invalidity pension is due to a sole event – an injury or sickness preventing continuation of employment
The question arises as to how can practitioners isolate the compensation or insurance part of the FLV
Examine 2 cases – both delivered in Dec 2012Crawford - [2012]FMCAfam1315 – most recent
and best argued, andDoran and Doran SYC 6943 of 6 Dec 12
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Crawford & Crawford[2012]FMCAfam1315Judgment of Altobelli, 4 Dec 2012, SydneyBoth age 46, both joined Police Force in 1986Wife – hurt on duty pension from 2006 – FLV
$1mHusband – Police Officer – FLV, $.6m 2/3 asset pool is superSeparated in 2009 after 20 year relationship
– 3.5 years before hearing3 children – 17, 14 & 12.
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Contributions until SeparationEach of the husband and wife contributed
diligently, and faithfully, albeit in slightly different ways
There is no evidence before the court that warrants a finding of greater contribution as the end of a long and productive relationship
There is an issue about assessment of contribution in the 3.5 years post separation – discussed next
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The Issues + How Many PoolsMost complex issue in this case is how the
wife’s pension should be considered within the section 79 adjustment process.
Also section 75(2) considerationsWhat approach for the section 79 –process??Husband contends for a global approach – a
single poolWife – 3 pools. Non-super assets, wife’s
pension & the remaining super assets with assessment of contribution & future needs differentiated for each pool
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Orders SoughtWife – husband to pay her $50,000Husband – wife to pay him $257,244Common groundEach to retain one property + assoc
mortgageEach to retain their respective
superannuationNeither sought orders for super to be splitPolarity – direct results of how the wife’s
pension is to be treatedPGS Superannuation 23
Applicable LawPreferred approach Hickey & Hickey4 interrelated steps
Identify property & financial resourcesIdentify contributionsIdentify other factors under s.79(4)(d) inc s.75(2)
and determine any adjustment to step 2, andConsider whether above is just and equitable
Acknowledged that the High Court’s recent decision in Stanford v Stanford (14 November 2012) [2012] HCA 52 may signal a departure from the approach described above. To the extent that this may be the case it has no bearing on the outcome of this case.
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Applicable Law - contGlobal or asset by asset approach to contributions?Authority is the High Court’s decision in Norbis vNorbis [1986] HCA 17; (1986) 161 CLR 51Either is available – in part or in wholeDiscretion should be exercised having regard to the
factsIn relation to add-backs, the applicable law can be
found in decisions such as the Full Court'sDecision in AJO v GRO [2005] FamCA 195; (2005) FLC
93-218 - three clear categories of cases have emerged where it is appropriate to notionally add assets that no longer exist. After discussion, no add backs allowed
“The parties have already separated. It is just and equitable to alter the parties’ interests: s.79(2); Stanford (op. cit.)”
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Assessment of Contributions – excluding wife’s pensionUp to date of separation, assessed to be
equalWife contends greater contribution due to
parenting post separation.By declining to make the add-backs
contended on the husband’s behalf, the effect was to equalise financial burdens in the post-separation period.
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Contribution – the wife’s pension2 competing expert witnesses – both giving
competing evidence in favour of their clientWife – contends separate pool and contributions
should be assessed in her favour at 82%Husband contends – global and equal
contributionsWeight of authority favours separate pool
approach, particularly when the benefit cannot be commuted to a lump sum
Real issue for wife’s pension is how to assess contributions to it.
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The wife’s pensionPeriodical, indexed, and only became payable because
wife was hurt on dutyDesigned to replace lost income and is not
compensatory in natureContinues until deathExperts – whether is was possible to break down the
pension into components to facilitate a contributions based assessment
That part that is not lost income could be viewed as a contribution by the husband
Experts – not directly helpful. Indirectly, however, their evidence confirms that in reality the wife’s pension does have some component to it that is not exclusively referable to her injury.
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Assessing the husband’s contribution to the pension is more art than science.A fact conceded by the wife who submits his
contribution should be assessed at 18 per cent.Other cases might provide some guidance, but
ultimately each case is different, and thus different judicial approaches might be warranted:
In T & T [2006] FamCA 207 the non-beneficiary spouse was awarded 15 per cent. In Schmidt & Schmidt [2009] FamCA 1386 (2 April 2009), it was 10 per cent. In Wheeldon & Wheeldon [2011] FamCA 40 it was 15 per cent, Treloar & Treloar (No 2) [2007] FamCA 1127, 15 per cent, and in Hayton & Bendle [2010] FamCA 592 it was also 15 per cent.
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Compensation= no contribution“Once it is accepted that a sizeable component of the
value of the pension merely compensates the wife for the income she is no longer earning, there can be no logical basis for claiming to have contributed to this.” para55
“If the husband’s case is that he did make significant contribution to the compensation component of the wife’s pension, it is a poorly articulated case. The court accepts, however, that over a long marriage he did make a contribution to what Mr S described as the retirement component.” para56
“Doing the best the court can do under the circumstances, the court would have in fact assessed the husband’s contribution to the wife’s pension at 15 per cent. As the wife herself proposes 18 per cent, a figure which is well within the reasonable range..”.
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Section 75(2) considerationsCourt accepts 3 pools – 2 super + non-super82%, 37% (husband’s super would have
accepted higher but that is what wife contends) and 50%
S 75(2) considerationsHusband double the income, wife’s care of the
children 12, 14 & 17Acknowledged potential for double counting
between s79 and s75(2). Excluded super from s75(2)
10% adjustment on non-super pool. Result 60% to wife.
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Just and Equitable“If orders are made to reflect the above, would this be
just and equitable? The answer is that it is as just and equitable as the circumstances permit.
Both parties end up with homes that are encumbered by manageable mortgages, especially if the husband uses the payment to him to reduce his mortgage. Both have an income: for the wife it is for life, for the husband it is till retirement at which time his superannuation will be available to him.
The particular challenge of dealing equitably with the wife’s police pension is also dealt with adequately.”
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Doran and Doran Family CourtDelivered 6 Dec 2012, judgment of Fowler JDuffin & Duffin pseudonym but not yet
publishedHusband ex NSW police, hurt on duty pension
since 2000, suffering PSTDHis FLV $1,046,350. Her super negligible.
Other assets $2mOne child age 22 self supportingOne independent expert – 3 paras (63, 64 &65) –
description only – no analysisHusband contends zero value for his super.
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Doran & Doran - continuedSection 79(4) contributions – para 84 & 85
“It is the view of the Court that the pension until age of commutation is an amount designed to replace income which would normally have been earned by a Police Office but which by reasons of the consequences of the injury are no longer available to him”
“It is in effect significant part compensation for loss of income and, to the extent that it represent lost income, there is no reason why it should not be treated to that extent as earned income.”
Dismissed pain and suffering as no case was presented to the Court– para 86
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Doran & Doran - outcomeConclusions based on contributions – 58:42 in favour
of the wifeS 75(2) considerations – mainly gambling and
unexplained withdrawals. Outcome – 7% in wife’s favour
Wife to receive 65% of real assets and 35% to husbandSuper – each party has capacity to work earning equal
amounts. Adjustment to account for pre-marriage super + ...”the wife and her contributions to it have been indirect.”
40% to wife, 60% to husband. Just and equitable – just stated.
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LessonsMust provide evidenceNeed to argue the form, nature and character
of the pensionShould not assume that receipt of invalidity
pension is sufficient to provide compensation for sickness. Health and capacity to still needs to be argued.
Single independent expert did not provide any arguments and may not be appropriate for such cases
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What Information Source Should the Practitioner Use?Most relevant information has to be
requestedFrom trusteesFrom member
Is the pension reviewable?What are the reasons for granting the
invalidity pensionsrange of incapacity a signal
Medical reports great valuewill address the likelihood of improvements
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Options to Quantify the Amount of Compensation
Compare the FLV before the invalidity event (it would then be in the growth phase) with the FLV of the invalidity pension,This excludes from the FLV of the invalidity
pension the prospective years of service What would be shared is the superannuation
earned up to the invalidity eventCalculate the component of the pension that
would be payable after retirement agePGS Superannuation 38
What Info Would be Useful to the CourtsCrawford & Crawford Mr B (for the wife, the super invalidity member) –
divided the FLV into pre 65 and post 65 values – 76% compo
Mr S – FLV just before Compo event with FLV just after - & using normal retirement age of 55 & 60 – 40% to 60% compo
Doran & DoranNo competing evidenceNo analysis
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Case Listed for 11 Dec in NewcastleMr S (for husband – the invalid)
FLV before invalidity with just after invalidityApportion FLV to retirement age and after retirement
ageMr G
Above division depends on whether the pension payment is replaced by employment income
If so, whole of pension is superannuationIf not, pension after retirement age is normal super
Above shows the importance of “normal” retirement age
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Is it Appropriate to Quantify NMS Contribution to the Invalidity Pension?Skinner is of the view that it may be of
assistance to the Court for him to provide his opinion on the value of the Wife’s contribution towards the Husband’s Police Super interest. Skinner has included a summary of his opinion on this matter at section 3.0 of this joint statement. Mr G. is of the view that the value of the Wife’s contribution is a matter for the Court to determine.
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ConclusionInvalidity pensions require special
considerationSubstantive arguments supported by logical
quantification will materially assistExpect the matter to be considered further
by the Courts in the future
ENDPGS Superannuation 42