SuperSplitting and the Budget!

15 May, 2014

What are the budget changes that will affect Superannuation and family law?

 

Stephen2-217x300Military Super

The two big changes in the Budget for us at SuperSplitting are the changes to the MSBS and DFRDB superannuation schemes.   All family lawyers should be aware of these changes because they are going to raise their heads as issues in the coming months.

The first change is the closure of the defined benefit MSBS Scheme. The scheme is to be replaced with an accumulation scheme with a contribution rate of 15.4% making it essentially the same scheme as the

current PSSap scheme for Commonwealth civilian employees. The one difference being that it will still include provision for hurt on duty cases which will act as insurance for members of the scheme. Whether this insurance will be publicly or privately funded is yet to be seen.

The second change is the increase in the indexation of pension payments for members of the DFRDB. The indexation for payments under the DFRDB will now follow the better of the Consumer Price Index and the Pensioner and Beneficiary Living Cost Index, with reference also to a benchmark level of Male Total Average Weekly Earnings. In short, these pensions pay more.

What does this mean for valuations?

Unless the method for valuing super is amended, the amount stated in any DFRDB valuation will not reflect the true value of the fund. If you have one of these cases approaching hearing or settlement, you should take account of this increase in pension indexation.  The change to indexation will commence on 1 July 2014.

Age pension

Eligibility for Age pensions is also going to increase to 70 commencing in 2035.  This means that if you were born after 1 July 1965 you’re now going to be working until you are 70before being eligible for the age pension. The indexation of these pensions will also be fixed to the Consumer Price Index which will almost certainly mean a reduction in the future income received by pensioner over time.

Health care card

For self funded pensioners (ie. those with super) their untaxed super payments will now be counted toward the income test for their eligibility for a Seniors Health Card. This means that many self-funded pensioners will not have access to the benefits of this card and also will have to pay the $7 co payment for visits to their doctor.

In a family law matter it is always important to consider these changes.  You have to consider what your client is going to need not only in the immediate future but also what property  (and super) they’re going to need in their retirement.

Stephen Bourke

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