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Peter Skinner PGS Superannuation [email protected] 1 PGS Superannuation

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Page 1: Peter Skinner PGS Superannuation peter@pgssuperannuation.com.au 1PGS Superannuation

Peter SkinnerPGS [email protected]

1PGS Superannuation

Page 2: Peter Skinner PGS Superannuation peter@pgssuperannuation.com.au 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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Page 3: Peter Skinner PGS Superannuation peter@pgssuperannuation.com.au 1PGS Superannuation

Why the Fuss?

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Invalidity payments from defined benefit schemes can be very large!

Page 4: Peter Skinner PGS Superannuation peter@pgssuperannuation.com.au 1PGS Superannuation

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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Page 5: Peter Skinner PGS Superannuation peter@pgssuperannuation.com.au 1PGS Superannuation

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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Page 6: Peter Skinner PGS Superannuation peter@pgssuperannuation.com.au 1PGS Superannuation

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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Page 7: Peter Skinner PGS Superannuation peter@pgssuperannuation.com.au 1PGS Superannuation

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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Page 8: Peter Skinner PGS Superannuation peter@pgssuperannuation.com.au 1PGS Superannuation

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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Page 9: Peter Skinner PGS Superannuation peter@pgssuperannuation.com.au 1PGS Superannuation

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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Page 10: Peter Skinner PGS Superannuation peter@pgssuperannuation.com.au 1PGS Superannuation

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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Page 11: Peter Skinner PGS Superannuation peter@pgssuperannuation.com.au 1PGS Superannuation

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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Page 12: Peter Skinner PGS Superannuation peter@pgssuperannuation.com.au 1PGS Superannuation

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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Page 13: Peter Skinner PGS Superannuation peter@pgssuperannuation.com.au 1PGS Superannuation

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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Page 14: Peter Skinner PGS Superannuation peter@pgssuperannuation.com.au 1PGS Superannuation

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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Page 15: Peter Skinner PGS Superannuation peter@pgssuperannuation.com.au 1PGS Superannuation

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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Page 16: Peter Skinner PGS Superannuation peter@pgssuperannuation.com.au 1PGS Superannuation

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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Page 17: Peter Skinner PGS Superannuation peter@pgssuperannuation.com.au 1PGS Superannuation

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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Page 18: Peter Skinner PGS Superannuation peter@pgssuperannuation.com.au 1PGS Superannuation

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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Page 19: Peter Skinner PGS Superannuation peter@pgssuperannuation.com.au 1PGS Superannuation

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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Page 20: Peter Skinner PGS Superannuation peter@pgssuperannuation.com.au 1PGS Superannuation

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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Page 21: Peter Skinner PGS Superannuation peter@pgssuperannuation.com.au 1PGS Superannuation

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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Page 22: Peter Skinner PGS Superannuation peter@pgssuperannuation.com.au 1PGS Superannuation

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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Page 23: Peter Skinner PGS Superannuation peter@pgssuperannuation.com.au 1PGS Superannuation

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

Page 24: Peter Skinner PGS Superannuation peter@pgssuperannuation.com.au 1PGS Superannuation

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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Page 25: Peter Skinner PGS Superannuation peter@pgssuperannuation.com.au 1PGS Superannuation

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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Page 26: Peter Skinner PGS Superannuation peter@pgssuperannuation.com.au 1PGS Superannuation

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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Page 27: Peter Skinner PGS Superannuation peter@pgssuperannuation.com.au 1PGS Superannuation

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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Page 28: Peter Skinner PGS Superannuation peter@pgssuperannuation.com.au 1PGS Superannuation

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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Page 29: Peter Skinner PGS Superannuation peter@pgssuperannuation.com.au 1PGS Superannuation

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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Page 30: Peter Skinner PGS Superannuation peter@pgssuperannuation.com.au 1PGS Superannuation

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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Page 31: Peter Skinner PGS Superannuation peter@pgssuperannuation.com.au 1PGS Superannuation

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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Page 32: Peter Skinner PGS Superannuation peter@pgssuperannuation.com.au 1PGS Superannuation

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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Page 33: Peter Skinner PGS Superannuation peter@pgssuperannuation.com.au 1PGS Superannuation

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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Page 34: Peter Skinner PGS Superannuation peter@pgssuperannuation.com.au 1PGS Superannuation

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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Page 35: Peter Skinner PGS Superannuation peter@pgssuperannuation.com.au 1PGS Superannuation

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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Page 36: Peter Skinner PGS Superannuation peter@pgssuperannuation.com.au 1PGS Superannuation

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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Page 37: Peter Skinner PGS Superannuation peter@pgssuperannuation.com.au 1PGS Superannuation

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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Page 38: Peter Skinner PGS Superannuation peter@pgssuperannuation.com.au 1PGS Superannuation

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

Page 39: Peter Skinner PGS Superannuation peter@pgssuperannuation.com.au 1PGS Superannuation

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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Page 40: Peter Skinner PGS Superannuation peter@pgssuperannuation.com.au 1PGS Superannuation

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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Page 41: Peter Skinner PGS Superannuation peter@pgssuperannuation.com.au 1PGS Superannuation

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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Page 42: Peter Skinner PGS Superannuation peter@pgssuperannuation.com.au 1PGS Superannuation

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