Spotlight on pension division: transitional provisions
4 June 2020
By Kevin Zakreski
BCLI is running a public consultation (closing date: 15 September 2020) on pension division. It is asking for public input into its proposed changes to part 6 of the Family Law Act and the Division of Pensions Regulation. For information on how to participate in the consultation please visit the Pension Division Review Project webpage.
This post is part of a series that spotlights issues discussed in the Consultation Paper on Pension Division: A Review of Part 6 of the Family Law Act. To read other posts in the series please click here.
Brief description of the issue
Under section 253 (1) of the Family Law Act, “if forms prescribed under the former Act were delivered to the administrator before Part 6 [Pension Division] of this Act comes into force, the former Act continues to apply to the division of benefits between a member and spouse.” This transitional rule is subject to an exception, which applies “[i]f a spouse became a limited member under the former Act but benefits have not been divided as of the date Part 6 of this Act comes into force, Part 6 of this Act applies to the division of benefits.”
It could be seen as inconsistent, on the one hand, to provide a spouse who has become a limited member with the benefits of the new legislative framework found in part 6 of the Family Law Act, while, on the other hand, to provide that these benefits are denied to a spouse who has only started the process by filing a prescribed form. Should section 253 be revised to provide that spouses who have filed a prescribed form are transitioned to the Family Law Act?
Discussion of options for reform
There are essentially two options to consider for this issue: (1) amend section 253 and revise the transitional rule for spouses who have filed a prescribed form; (2) retain the status quo.
The main advantage of the first option is that it brings more spouses into the regime for pension division set out in part 6 of the Family Law Act. This regime is an upgrade over what preceded it. Among the disadvantages of the former scheme is that a spouse under it who becomes a limited member usually faces a longer wait before receiving a share of the pension benefits. The general approach to transition is to favour transitions to the Family Law Act for this reason. This approach may be usefully extended to this specific area.
In addition, the current transitional rule might create something of a trap for spouses and their lawyers. It enhances the significance of filing a prescribed form, giving this act a substantive effect that might not be fully appreciated at first glance. Finally, it should be borne in mind that pensions operate on long time frames. This transitional rule will continue to apply for years to come, so if it can be improved there is reason to make that improvement.
On the other hand, the current provision might have some advantages of its own. Most notably, it might reflect the reasonable expectations of spouses. A spouse could reasonably believe that filing the form began the process under the Family Relations Act, and now the process should be allowed to unfold under that act. Another argument that could be mounted in favour of the current provision would be that it amounted to a just result for spouses who failed to take procedural steps diligently.
The committee’s tentative recommendation for reform
The committee was concerned about the effect of this transitional rule. It has been recognized that the Family Relations Act was in some respects unfavourable to a spouse’s financial interests. In particular, the former act’s position that a spouse who becomes a limited member may not begin receiving a share of the pension benefits until the member spouse retires can put the limited member at the mercy of the member, who has a financial interest in delaying retirement. The committee is aware of cases in practice in which the transitional rule that is the subject of this issue has operated to the detriment of limited-member spouses. A revised rule favouring transition to the Family Law Act would likely be fairer, and the committee decided that a reformed provision should be proposed for this reason.
The committee was also concerned that the transitional rule could operate as a trap for family-law lawyers. This rule departs from the general approach to transitions under part 6, which is to favour transition to the Family Law Act in most cases. Since there can be a significant difference in some cases between proceeding under the Family Law Act and the Family Relations Act, the committee was concerned about investing the filing of forms with a significance that might not be readily apparent.
Finally, the committee was of the view that changing this transitional rule would likely have few ill effects in practice. The number of cases that will be caught by this transitional rule likely decreases every year. In the committee’s view, there is a greater prospect for abuse under the current rule than there would be under a reformed rule. A reformed transitional rule that is more in line with the general approach of section 253 would also promote administrative efficiency in pension division.
The committee tentatively recommends:
A spouse who has only filed a prescribed form under the Family Relations Act should be transitioned to the Family Law Act.