Source: https://api.parliament.uk/historic-hansard/commons/1995/jul/04/life-assurance
Timestamp: 2019-04-24 16:33:52+00:00

Document:
(d) to make such contributions to a pension scheme and pay such premiums in respect of a policy of life assurance for such term as may be specified in the order.
(2) Any order made under subsection (1) above may contain such directions for the compliance with any conditions for the implementation and maintenance of such life assurance (including medical examination) as the court thinks fit. (3) It shall be the duty of the court in deciding whether to exercise its powers under this section and, if so, in what manner to have regard in particular to the matters referred to in section 24B(5). 168 (4) After paragraph (2)(g) of section 31, there shall be inserted: "(h) any order made under section 24C above." (5) Nothing in this section shall affect any proceedings commenced before the commencement of this section. (6) In this section "pension scheme" shall have the meaning referred to in section 24B(15) of this Act.".'.
§ New clause 5—Pension provision on death of person not providing for spouse — `There shall be inserted in section 2 of the Inheritance (Provision for Family and Dependants) Act 1975 (Power of court to make orders) a new paragraph— (g) an order in respect of any pension rights of the deceased.".'.
§ Amendment No. 2, in clause 164, page 121, leave out from beginning of line 25 to end of line 26 on page 124.
§ Amendment No. 6, in clause 164, page 121, line 26, after '1973', insert `in section 25 there is inserted after subsection (1)— (1 A) Where a court is satisfied that it has not had regard to any pension in deciding whether to exercise its powers under sections 23, 24 or 24A above, it shall have power to vary any order which it has made to take account of that pension". (1A) In that Act,'.
Government amendments Nos. 69 to 72. Amendment No. 3, in clause 164, page 122, line 15, after 'question', insert `(a) to ensure that the other party is informed of the extent of those rights, and (b)'.
§ Government amendments Nos. 73 to 81.
§ Amendment No. 4, in clause 176, page 129, line 26, leave out '165' and insert '164'.
§ Amendment No. 5, in clause 176, page 129, leave out lines 29 to 31.
As the hon. Member for Glasgow, Garscadden (Mr. Dewar) predicted in Committee, we are once again discussing the difficult topic of pensions on divorce.
I shall deal with the new clauses and amendments in some detail. New clause 1 is intended to provide a comprehensive pension splitting system. It would give the courts power to divide pension rights between divorcing spouses. Groups lobbying on behalf of ex-wives have suggested that divorce settlements could be made more equitable if courts could give them a share of their husband's pension. We must remember, however, that whatever provisions the courts are required to apply must be gender-neutral. As we know, the issue raises important and wide-ranging arguments, some of which we rehearsed in Committee. It was apparent from our thoughtful debate in Committee that there are no simple solutions in dealing with any of these issues. As I said in Committee, any solution must take into account more fundamental issues than merely producing a piece of legislation that gives some additional powers to the court. The three issues involved are cost, complexity and equity.
I do not want to repeat on the Floor of the House all that I said in Committee. I shall summarise my remarks instead. The costs of the new clause would arise in two ways. First, there would be tax losses, which in the long term would amount to £200 million a year. Secondly, account must be taken of unfunded public sector schemes. On prudent assumptions, that extra cost would start at up to £500 million per annum. The complexity issue arises from the treatment of the state earnings-related pension 169 scheme, the guaranteed minimum pension and home responsibilities protection. The Opposition new clauses and amendments ignore that complexity. Finally, inequity results from giving to the divorced a tax advantage that is not available to the married.
I am firmly of the view that pension splitting is not easy to effect and implement. I am supported in that view by Lord Nicholls of Birkenhead in last Thursday's ruling on Brooks v. Brooks. He observed: The problem does not admit of one simple solution. In his final paragraph, he said: This decision should not be seen as a solution to the overall pensions problem. Not every pension scheme constitutes a marriage settlement. And even when a scheme does fall within the court's jurisdiction to vary a marriage settlement, it would not be right for the court to vary one scheme member's rights to the prejudice of other scheme members. Directing a variation which does not meet with Inland Revenue approval would normally be prejudicial to the rights of the other scheme members. A feature of the instant case is that there is only one scheme member and, moreover, the wife has earnings of her own from the same employer which will sustain provision of an immediate pension for her. If the court is to be able to split pension rights on divorce in the more usual case of a multi-member scheme where the wife has no earnings of her own from the same employer, or to direct the taking out of life insurance, legislation will still be needed. Lord Nicholls has acknowledged the complexity that could arise from the diversity and complexity of pension provision and systems. From our discussion in Committee, it seems that the outcome of the case of Brooks v. Brooks does not go as far as Opposition Members might have wished.
Any so-called solution to effecting pension splitting must clearly be one that neither imposes an unacceptable additional burden on schemes nor leads to additional state scheme expenditure. But it is recognised that to include the state scheme, especially SERPS and its private pension equivalent, the guaranteed minimum pension, will add a specific layer of complexity. Pensions experts have already acknowledged that.
The amendments tabled by the Opposition appear to include the state scheme in their scope. Surprisingly, they also include the state basic pension scheme, which already has a precise and generous system for dealing with divorce. It allows a divorced wife to substitute her ex-husband's national insurance contribution record for her own.
The state scheme is another type of unfunded scheme. There is no pool of assets available to split or to transfer out. Payments of pension are met by current national insurance contributors, who in most instances are also the taxpayers who would be asked to fund the cost effects that I mentioned. Those are the cost effects of unfunded pension schemes and tax losses.
It would be difficult to put an accurate value on SERPS rights before they are due to come into payment. Enhancements to SERPS through home responsibilities protection and the family credit/disability working allowance measure contained in the Bill can properly be factored in only at the end of the working life. There is no concept of an early leaver from the state scheme, so there is no method of valuing on a cash-equivalent basis.
In addition, however, despite the new contracting out measures in the Bill, SERPS entitlement will continue to be calculated net of any guaranteed minimum pension for 170 several decades to come. SERPS is calculated in the following way. It is rather complicated and at one stage I asked the Committee to hang on tight; I now ask the House to do the same.
First, a person's gross state earnings-related pension scheme is considered, regardless of whether he is contracted in or out. Secondly, any guaranteed minimum pension that he has accrued is taken into account. The guaranteed minimum pension is subtracted from his gross state earnings-related pension scheme to achieve his net state earnings-related pension scheme entitlement. I am not surprised that the hon. Member for Garscadden finds it amusing.
If a person's occupational pension scheme were split, a smaller guaranteed pension would be deducted from his gross state earnings-related pension scheme entitlement, so SERPS would pick up the tab. That is why we would need to ensure that any splitting of a scheme member's pension did not result in an artificial boost to his net SERPS entitlement. That would mean costs once again falling on the general taxpayer.
I accept that excluding SERPS and guaranteed minimum pensions, as some have suggested, could have problems of its own. It would mean that, for many years to come, only ex-spouses whose former partners had built up substantial private pensions would stand to gain. Those whose former partners had only a SERPS entitlement or private pension equivalent would effectively be excluded from the change and we do not believe that that would be fair.
I have touched on some questions of equity between married and divorced couples, between members of different schemes and their ex-spouses, and between divorcing couples and current taxpayers and national insurance contributors. Those matters of fairness have important implications that cannot be pushed aside, even by the courts, especially when increasing numbers of women are building up pension rights of their own.
It has been claimed by the Family Law Committee that pension splitting is widely supported. There is considerable support for the idea, but it needs to be closely examined before the House can accept it. New clause 1, which I understand will be spoken to by the hon. Member for Garscadden, does not deal with the fundamental issues that I outlined. In view of the fact that I set out the problems in Committee, perhaps at greater length, I am surprised that Opposition Members are asking the House to accept the new clause. We are not even clear about the nature and extent of the problems that courts face when dealing with pensions in divorce settlements. That is why we commissioned the research to which we referred in the White Paper published last summer. As far as I am aware, that research is the largest ever survey of the facts behind the problem.
I had the misfortune not to serve on the Standing Committee. Is the Minister saying to those of us who were not on the Committee that the Government made a commitment to legislate further if they believed that the results of the research merited it? Is that the case?
The misfortune was ours rather than the hon. Gentleman's. The commitment is in precisely the terms that I have just stated, and the hon. Gentleman would not expect to tempt me further.
New clause 2 would give courts the power to require either party to the marriage to order a spouse to take out life assurance for the benefit of the other or for a child. It would also allow the courts to require one party to nominate the other or to nominate a child for any benefits due to him under a pension scheme.
In my view, it would be unrealistic to require the court to require someone to take out life assurance. In some circumstances, such insurance would be prohibitively expensive, it might be refused or it might be terminated. In any case, nominations for scheme benefits would be subject to their availability under scheme rules.
The hon. Gentleman says, sotto voce, "Mortgage interest." The two varieties of insurance are not analogous, as he well knows. In some cases, it is already possible for scheme members to make nominations for scheme benefits.
I cannot see any genuine merit in new clause 2. As I said in Committee, it is clear from anecdotal evidence that pension rights are not always put before the courts for consideration in divorce settlements. That is why we accepted the intentions of amendments tabled in another place by my noble Friend Baroness Young, to whom I paid tribute in Committee, and I repeat those tributes here. She persuaded us that pension rights were not always taken into account and her amendment, which was successful, will have a dramatic and important effect for women going through divorce from now on.
We also accepted the intention of the amendment tabled by Baroness Hollis, to the effect that orders should have the power to bind the pension scheme as well as the ex-husband. That will have the benefit of not forcing ex-wives to drag their husbands through the courts in order to enforce the orders.
We tabled our amendments in Committee to improve on the amendments that were accepted in another place. The fact that pensions on divorce have now been debated at some length should increase the awareness of all parties of the number of settlements in which pensions feature, but our amendments will highlight the duty on the courts to take those pensions into account.
With regard to amendment No. 2, I am a little disappointed that Opposition Members are now asking the House to rescind the amendments to which I have just referred and which were agreed and improved in Committee. Opposition Members seem now to reject what 172 I thought amounted almost to a consensus that those amendments were desirable, generally acceptable and potentially useful. In the light of our wide-ranging debate in Committee, I undertook to consider concerns that were raised, and that is why we are introducing today further amendments to deal with those undertakings.
I now refer to Government amendments Nos. 69 to 81. One concern is the limitation that the Matrimonial Causes Act 1973 puts on the time scale to which the courts have regard. In Committee I referred to the use of the term "foreseeable future". I understand that in some cases that can be, and has been, construed as referring to a period of up to 10 years. I agree that such a construction seems to put an undue restriction on the courts when they consider pensions, which are built up over a whole working lifetime—and I see that Opposition Members, too, have attempted to deal with that difficulty in their amendments. Our amendments Nos. 69 to 71 and 80 remove the restriction, and I hope that the House will welcome that.
Another concern, which I well understand, is that an ex-wife could lose access to any payments from her ex-husband's scheme if he died. I explained in Committee that in some circumstances the court may be able to make some provision under the Inheritance (Provisions of Family and Dependants) Act 1975 for the ex-wife, but said that I was prepared to consider the argument further. I have done so. I therefore ask the House to agree to a further amendment that would give the ex-wife access, if the court deemed appropriate, to such share of any lump sum payments from the pension scheme as she may have had access to if the couple had not divorced.
There was also some concern about the effectiveness of the amendments when pension rights were transferred from one scheme to another. Amendment No. 73 allows that where a court order is in force requiring scheme trustees or managers to make payments to an ex-spouse on a scheme member's behalf, that requirement transfers automatically to the new scheme if all pension rights are transferred. If, however, only a part of the rights is transferred, any of the parties will be able to seek further direction from the court.
My right hon. Friend the Secretary of State for Scotland has suggested amendments to bring in analogous provisions for Scotland so far as is practicable, given the very different nature of the legislative regimes and procedures. The hon. Member for Garscadden said that he hesitated to dip his toe into English law. Well, I hesitate to dip mine into Scottish law, but it seems to be my duty to do that today.
Since Committee stage, my right hon. Friend has taken the opportunity to consider what amendments to the law of Scotland might be required. Of course, Scotland is a separate jurisdiction, and it is not possible to lift wholesale provisions designed for one jurisdiction into the law of another. As divorce law in Scotland is different from that in England and Wales, it has not been possible for the Government amendments for Scotland to mirror in all aspects those for England and Wales.
One purpose of new clause 23 was to clarify the law under section 10(5) of the Family Law (Scotland) Act 1985. That section sets out the principle to which the court is to have regard in determining a fair division of matrimonial property on divorce. In particular, it provides that the pension rights of a party to the marriage are to 173 form part of a matrimonial property. However, the definition of pension rights has left some room for interpretation by the courts. One of the thrusts of the Scottish amendments is therefore to clarify what pension rights the courts are to take into account.
Secondly, the amendments provide for the Secretary of State for Scotland to make regulations for Scotland, as are made for England and Wales, covering how pension rights are to be valued. As the hon. Member for Garscadden pointed out in Committee, Scottish courts have reached inconsistent decisions on that matter, the majority favouring the continuing-service basis of valuation. Under the enabling power, the Secretary of State for Scotland will be able to make regulations to introduce consistency in the courts' practice.
The Scottish amendments also make provision for empowering the courts to make orders of various sorts where a party's pension benefits include or may include a lump sum. In particular, where the court orders one party to pay an immediate or deferred capital sum to the other party, it will be able to provide the other party with some security, by making an order binding the trustees or managers of the pension scheme to pay that sum to the other party direct when the pension comes into payment.
The court could order the party to nominate the other party for all or part of any benefit payable on death, and order the pension managers or trustees to exercise any discretion that they had in respect of a pension guarantee so as to benefit the other party. Finally, the court could order the pension scheme managers or trustees to pay any benefit accruing on the death of a member to the other party, overriding the normal rules regarding who is entitled to receive such a benefit.
I believe that the measures that we are introducing for Scotland will pave the way for a significant improvement in the consistency with which the courts approach pension rights. They will also align the law of Scotland on pensions to a significant extent with that of England and Wales.
Another serious concern was raised by Opposition Members in Committee. They seemed anxious to ensure that any amendments did not have retrospective effect. I shared that anxiety then, and I share it now. It has been our clear intention from the outset to avoid such retrospection. However, amendment Nos. 6 and 3, tabled by the hon. Member for Leyton (Mr. Cohen), suggest that he has no such qualms. Amendment No. 6, which would amend the Matrimonial Causes Act 1973, would enable courts to revisit all existing financial settlements to take account of any pension not previously considered. That would have the adverse retrospective effect that the Committee was anxious to avoid.
The hon. Gentleman also appears to have no strong qualms about imposing costs on schemes, or about imposing on trustees and scheme managers extra unnecessary obligations that would give an ex-spouse the right to more information from a scheme than is available to a spouse. I suggest that that would be unfair.
The hon. Gentleman also tabled amendment Nos. 4 and 5—far-reaching amendments which, for reasons that I explained, would be unworkable in practice. He would like pension splitting to operate from the date of Royal Assent. However, pension schemes would have no idea of what they were supposed to do, or of how to value the rights of pension scheme members. So I hope that the House will not accept those amendments.
174 I shall now talk about new clause 15. Hon. Members who have followed the Bill through all its stages will know how complex pensions issues are. Adding the hugely variable personal circumstances of divorcing couples must add to those complexities. The Opposition amendments do nothing to address that problem or the other key issues that I have outlined—cost to the taxpayer and fairness. It is not sensible to attempt to devise solutions, especially legislative solutions, when the nature and extent of the problems have not yet been identified.
New clause 15 does not appear to be directly related to the previous amendments. It seeks primarily to ensure a fair allocation of death benefits that may be payable by occupational pension schemes. I do not think it necessary or appropriate to legislate in that way. Employers set up occupational schemes voluntarily, and they are free to decide what scheme benefits will be payable and what, if any, conditions should surround their payment. That includes benefits payable on the death of a member, subject to the relevant rules on tax approval and, if appropriate, on contracting out of the state earnings-related pension scheme.
Perhaps I should clarify that. There are two main forms of death benefit—a survivor's pension and a lump sum payment. Under Inland Revenue rules, a survivor's pension can be paid only to a widow, a widower or someone else financially dependent on the member. Currently, the trustees of a scheme can decide, within their discretion, whether a person is financially dependent, but they must act in accordance with the scheme's trust deed and rules.
The rules surrounding the payment of the lump sum death benefit are more flexible. It can be paid to a nominated beneficiary or to a member's legal or personal representative, or it can be distributed at the discretion of the scheme's trustees. Payment does not have to be limited to someone who was financially dependent on the member, and the trustees can decide to divide up the lump sum among several people.
Finally, I repeat that it is a complicated matter. The Opposition amendments do not begin to deal with the complexities. Instead, they incur for the taxpayer significant costs while operating in a way that we consider unfair. I urge the House to accept instead the amendments which have been adopted by the other place, and which we have improved, as well as the analogous amendments for Scotland that we are now introducing.
I thank the Minister for what, by his standards, was quite a sharp trot over a time trial. I was quite impressed; it was all good dense stuff, which I am sure was the intention.
I start by dealing briefly with the Scottish aspects of the new clause. The Minister is quite right that Scottish law has been in a state of some flux. In a sense, we started with a lead over our colleagues south of the border in terms of good intentions, but case law is confused. I do not object in principle to the idea that some attempt should be made to ensure shape and discipline.
I am sure that the Minister accepts that this is a complicated area and that there has been only a short period between the end of Committee and Report. I telephoned the Law Society of Scotland to ask whether it had any comments. Its brief message was that it was not consulted and that it does not know much about it. I hope that the Scottish Office has got it right, because there does 175 not seem to have been any real contact—at least not according to the information that has been given to me, and, obviously, I am acting here as a go-between.
I may say, as a taster of the debate to come in the next few minutes, that the person who spoke to my office added gratuitously, but pithily, that earmarking is a very poor second best. The problem is being swept under the carpet. In Drumsheuch gardens—that will puzzle the Hansard reporters—there is not a unanimity of purpose with the Minister on this matter.
I now come to the main argument, and I make no apologies for revisiting an old friend in this debate: whether we go beyond earmarking into splitting. The Minister was dismissive of new clause 1, with which, I am not ashamed to admit, we got help. Indeed, it is largely—I hope that it will not mind being identified in this way—the work of the English Law Society. I was rather surprised that the Minister was quite so scathing, in his own gentle way, of its efforts. The new clause is an attempt to put into reasonable parliamentary form an important argument, with which I shall now deal.
A great deal of work has been done. The House will remember that in May 1993 the Pensions Management Institute report was published with the Government's blessing. It produced one general proposition and a number of proposals on how that proposition could be implemented. It argued that pension rights that have accrued during a marriage should be treated as assets at the point of divorce when financial settlements were being considered. It considered a number of possibilities, one of which is that, having valued those rights, payment should be made out of other assets of the marriage—the option that most of us would certainly favour—if it is possible to do so. In many cases, however, pension rights may be the most valuable asset of the marriage, and it would not be possible to take that course.
The Government seem to have settled for earmarking, a shorthand term that I shall not try to explain at length. Basically, it means that the court, at the time of divorce, should instruct that when the pension is in payment to the husband—for the sake of convenience, I shall assume that the husband holds the pension entitlement—a portion of it should go to the wife. It is a form of deferred maintenance that may not come into play for 10 or 20 years, depending on the point at which the divorce took place in the life cycle.
There are then two variations of splitting, which is the assumption that the courts, having valued the pension rights that are to go to the ex-wife to be, should then split the pension fund. It should be retained by the wife, who becomes a member of the same scheme and in fact becomes a deferred member within it, or there should be a splitting of the fund and a transfer to another pension provider picked by the wife. I have expressed strong support for splitting as an option, and shall return later to the reasons for doing so.
I do not want to spend a lot of time on history, but it is a little cruel of the Minister to talk about people trying to legislate for splitting when they do not even understand the problem. The Government have made up their minds about earmarking, and I would have thought that precisely the same problems and difficulties attend that.
I suppose, to be fair to the Minister, that the Government have been cautious. It might even be said that I have been driven to take action. At various points we were told—I shall not rehearse the references—that further research was required and that nothing could happen until that was to hand. In fact, on 20 February, when the Under-Secretary was explaining that to us in the Chamber, Lord Mackay of Clashfern was scrambling for cover down the Corridor, announcing that there was to be a major movement without waiting for any further research. I presume that the Government thought that that was defensible and workable.
The result, of course, has been changes to the Matrimonial Causes Act 1973. There was a particularly dense—perhaps opaque is a better word—passage in Committee, when the Minister attempted to explain precisely the impact of this change in terms of whether the courts had to take it into account but could ignore having done so, or whether they had to do a split and recognise the value of the pension entitlement in the final decision. He said that he thought that there was general acceptance that the result of these changes will be to place greater emphasis on the duty of the courts. That will mean that the valuation of the pension fund will become much more important.
I am slightly puzzled by this, as it is a little disingenuous, but when the Secretary of State wrote to me on 1 May, he said we gave our full support to an amendment to the Matrimonial Causes Act 1973 to place greater emphasis on the duty of the courts to take account of pension rights in divorce settlements. He continued: Lord Mackay did not, in fact, propose a system of 'earmarking'. I do not know whether this is playing with words, but the Government have acceded to a form of earmarking and have proceeded to defend it through thick and thin, despite the best efforts of those of us in Committee to introduce an element of flexibility.
I ask the Government to reconsider their inflexibility and their refusal to listen to the arguments because I believe that this is an area where the strength of the argument is overwhelming. The objections advanced, even with the additions that have been paraded in the last half hour by the Under-Secretary, are totally unsatisfactory.
My first objection to earmarking as the only possible way forward for the courts other than adjusting from other assets in the matrimonial property is that it is very hard to see it living happily and co-existing with the clean-break settlement. It is, as I said earlier, a form of deferred maintenance. The whole thrust of law over recent years, and Government policy, too, is to see divorce as a final severance.
Children, of course, are different considerations. In terms of the relationship between the parting spouses, as far as is possible there should be a once-and-for-all settlement, and we should not be left in a situation where the valuation of the divorce gives rise to a claim on the pension in payment many years hence. Admittedly, that has been very much improved by the amendments that were moved by the noble Baroness Hollis of Heigham in another place, which placed on the pension provider the duty to extract an amount due to the former spouse and to pay it direct. I was relieved and pleased that the 177 Government accepted that. Nevertheless, this is an odd set of proposals, which surely does not represent the only way forward.
I do not think that what the Minister said destroyed the force of the important social point that, if splitting is not an option, ex-wives will frequently find that their future is open to a degree of uncertainty. Although the ex-wife has been given a right to the pension in payment, a number of things may happen to that right, by chance or design, and she will have little or no control over those developments. The uncertainty strikes me as a fundamental difficulty.
The most obvious problem is that if the husband—the pension holder—dies before drawing his pension, which is always a possibility, his ex-wife's right to the earmarked portion will die with him. She might, of course, wish him a long and happy life in any event; but she would undoubtedly have a financial incentive to do so, regardless of her view of his general conduct and desirability as a member of the human race.
I do not think that the Minister dealt adequately with the much commoner circumstance in which the husband receives the pension in payment and the ex-wife receives her earmarked portion, but the husband then dies before her. For reasons that I have never quite understood, men tend to marry women a little younger than themselves. As we know from actuarial tables, women live longer than men, and it is likely that someone in the position that I have described would have a lengthy widowhood. She would draw the pension on the earmarking principle, but on her ex-husband's death she would be abruptly deprived of it. There might be survivor's benefits, but they would either die with the ex-husband or, in the event of a second marriage, go to the "actual" widow. No claim even on the survivor's benefit pro rata with the original earmarking would be open to the "notional", displaced widow.
In his letter of 1 May, the Secretary of State wrote: This is one of the issues which we are currently considering in the light of the amendments adopted in the House of Lords. It is possible—I say this with no mock modesty—that I have missed something in the substantial number of amendments that we are discussing that answers the question, but I do not think that I have. I am sure that the Minister will understand why I consider that point a practical difficulty that stands in the way of his determination to retain earmarking as the only option open to the courts.
I could continue on this theme for some time, but those who have nothing else to do with their lives can read about it in the report of the Committee stage. I am not sure that I warmly recommend the experience, but many similar points were made then. For example, what will happen to the earmarked portion if the ex-husband surrenders part of his pension in favour of his second wife? If he is reasonably wealthy, he may wish to use the new powers in the Bill for reasons of personal management or, indeed, malice. He may defer the purchase of the annuity, and draw from the capital. Presumably, that would have the effect of reducing the pension when it is in payment—perhaps not dramatically, but to some extent. While he is going through that performance, his former wife will be denied the pension that she may consider to be due to her.
178 It would be possible to embroider the argument intellectually for a long time. I shall merely say that I view the proposal as a fundamental attack on the Government's determination to make earmarking the only possible option.
Messengers surround me on all sides, speaking sotto voce. The Secretary of State looks remarkably cheerful; I do not know whether that is because what has just happened is a triumph for the hard right of which he is a distinguished ornament, or whether he has become, for the occasion, an establishment figure, but I have no doubt that all will be revealed shortly.
I believe that the advantages of splitting are overwhelming, and should be considered seriously. Clearly, if a capital sum is put into the hands of a departing spouse, and that sum must be lodged with a pension provider, the woman concerned will be mistress of her own pension. She can define it; she can build on it; she knows what it will produce. There will be certainty at the end of the day. Surely there is a case for retaining splitting as an option, rather than ruling it out of court. I put my view in modest terms; I hope that the Minister will at least consider it. It conforms to the clean-break principle, and was originally favoured decisively by the PMI report.
Let us examine some of the arguments that the Government have advanced against that option. In Committee, on 22 June, the Minister said: I shall put my anxieties about pension splitting in a nutshell. One might consider that quite a good place in which to put them. I am worried about three matters: cost, complexity and fairness of treatment between divorced and married couples."—[Official Report, Standing Committee D, 22 June 1995; c. 808.] I do not think that the Minister advanced a very powerful case in regard to any of those three matters, and I am not sure that he improved on it greatly today. It was clear in Committee, however, that cost was uppermost in the Government's mind.
A pretty massive red herring was introduced in column 810, when the Minister told us that there was a possibility that the cost of splitting would be as high as £1.3 billion a year. He has courteously written to me saying that there was an error in the calculation, and that the £1.3 billion was in fact £600 million. I accept that these things happen, and there are no hard feelings; but, in my opinion, it does not matter whether the figure is £600 million or £1.3 billion.
I apologise for making that mistake in Committee, but I explained in my letter that, although the figure would start at £600 million, it would rise to £1.3 billion in the fullness of time.
I understand that, but I do not think it relevant. The Minister is offering us the possibility that a substantial sum will be involved if we decide that married couples can allocate any pensionable income between them to minimise their tax bills, but, to the best of my knowledge, no one else has made the same suggestion. The Minister is on a little trip of his own. If he is saying that someone else might make the suggestion because they had read one of the Minister's speeches, and that he will then lie down like a puppy and allow himself to be swept away, I find that very unconvincing. I do not 179 imagine for a moment that what he has said represents a threat, and I consider it entirely irrelevant to the circumstances that we are discussing.
Much more serious is, for example, the suggestion that the cost will be around £800 million. It is interesting that that £800 million is made up of two components: £500 million, which refers to the liability of unfunded public sector pension schemes, and the rest, which was to do with the impact on the tax take and the expense of funding additional voluntary contributions that may be paid in because a pension holder, who has seen his pension split, will want to build it up again to the same position as before.
The £300 million was not mentioned in Committee. I think the £200 million figure has appeared, but the £300 million was taken from the Secretary of State's letter of 1 May and has been used on many other occasions. I do not make too much of that discrepancy, but I say strongly that the lower tax take from the split, if that is a concern, will still be a concern with earmarking. At least if the Under-Secretary introduces machinery to overcome the problem at that stage, it is possible to introduce machinery to overcome it in splitting.
If we accept the idea that a substantial number of people will cost the state money by paying in more additional voluntary contributions to make up for the loss from their pension fund as a result of splitting, it is equally possible that they will do the same with earmarking. They will consider the end product—they are not silly—and say that, with earmarking, exactly the same result will come about. It is therefore sophistry to argue that the disadvantage of splitting does not apply to earmarking. I am not impressed by what the Under-Secretary has said.
There is of course the £500 million for the liability for unfunded pension schemes in the public sector. Our point is a fair one: the Minister would not dispute it. In Committee, he said: As we do not know precisely how people would behave, it would be prudent to examine the worst possible effect of the proposal. In calculating the figure it was assumed that pensions would be split in all divorces relating to public service scheme members and that 50 per cent. of the accrued cash equivalent transfer valuation would be transferred out of the scheme…If all ex-spouses were to transfer their pensions, the cost to the taxpayer would be up to £500 million a year". That is the worst case scenario: everyone does it; no one remains in the scheme. That is a remarkably unlikely concept.
In Committee, I put it to the Minister, and I still hold to this view, that, if a spouse finds herself getting a split of a public sector scheme, she will be much more likely to want to stay in the scheme as a member than to leave. The Under-Secretary had some sympathy with that point. He accused me of saying that ex-wives should be banned from leaving and should stay in the unfunded scheme as a matter of law. That was not my argument, which was that best advice would be that ex-wives should stay and most of them would. When I explained that to the hon. Gentleman, he said: I can only say yes, best advice might be to stay."—[Official Report, Standing Committee D, 22 June 1995; c. 810–12.] 180 If he agrees that best advice might be to stay—and almost everyone else I have spoken to says that it certainly would—to quote that the cost of the prospect of splitting is that no one will stay, despite the best advice that almost all would have to stay, is an almost worthless assumption. It is almost perverse to follow that line of argument in the extreme way in which the Under-Secretary has followed it.
Perhaps I could quote from Mr. Richard Malone, president-elect of the Pensions Management Institute, who is a well-known and authoritative figure. He said: The £500M a year figure was openly acknowledged by the Minister to be a worst-scenario cost … In practice, comparatively few ex-spouses would transfer their pensions from such schemes in my view, and in any case it is not a 'cost' but a cash-flow or incidence issue". He is agreeing with my point, and indeed with the Under-Secretary's point that almost all ex-spouses will be advised to stay. Most of them will take that advice and the Under-Secretary's £500 million explodes before our very eyes. He should at least concede that that is a real possibility.
I recognise that there can be problems, but as we know from the work, for example, of Mr. Geoffrey Wilson of Binder Hamlyn, and all the advice that we have had from a range of sources, there are a number of different ways in which it is possible to overcome this problem if it is worrying the Under-Secretary. Perhaps I should mention that he will find that new clause 1(7) contains provision to make regulations to exclude public sector unfunded schemes. That was put in not by the Law Society but by me as a friendly gesture to the Under-Secretary. Lots of ways exist in which the problem can be overcome. That is at least a possible way of pursuing that problem.
On the point of order, Mr. Deputy Speaker. May I seek your guidance? More than 100 Conservative Members of Parliament have refused to support the Prime Minister. In those circumstances and in view of the humiliation that the Prime Minister has undoubtedly suffered, is it possible for a statement to be made by the Prime Minister as quickly as possible? More than 100 Tory Members have said no to the right hon. Gentleman—more than are in the Government. We should have a statement quickly in the House.
The occupant of the Chair is here to serve and if the Government or any Minister wish to make a statement, the occupant of the Chair will respond.
Further to that point of order, Mr. Deputy Speaker. As the Prime Minister has received the handsome majority that he sought—a majority larger than that achieved in any leadership ballot bar one for this party, and substantially larger than that achieved by the right hon. Member for Sedgefield (Mr. Blair)—presumably we may expect the right hon. Member for Sedgefield to seek a reaffirmation of his leadership, resign, go to his party and try to succeed in receiving the support that my right hon. Friend the Prime Minister has achieved.
These seem to be points of political observation rather than points of order.
No. I was in the process of intervening on the hon. Member for Glasgow, Garscadden (Mr. Dewar) and got blown off track. In the light of new clause 1(7)—I apologise for drawing us back to pensions and divorce—does he now accept the point that he would be banning the transfer out of public sector schemes, about whia he was so indignant in Committee?
No, of course I would not be doing that. I am just trying to be helpful. The Under-Secretary knows how helpful I am on these occasions. If he considers the new clause, he will find that it is a permissive clause that makes such provisions as may be appropriate to meet special circumstances. It is simply that I was seized of the point that the Under-Secretary, who sometimes has a one-track mind, would appear before the House today saying that the unfunded pension scheme liability was so frightening to Ministers in the Department of Social Security that further consideration was not possible. I moved to meet that with a permissive clause, but I have made it clear where we stand. I have argued, I hope with some force, that the £500 million figure is nonsense and that the £300 million figure would largely arise in any event with earmarking as well as with splitting.
I make a final point on financial matters. The Under-Secretary made a point and he incomprehensibly repeated it at some length—I shall read it; no doubt it will read better than it sounded—about GMP and the state earnings-related pension scheme. I shall read to him again from Mr. Malone, to give him an example of at least one person of some knowledge and weight in that respect who does not accept that argument. He says: The arguments about splitting SERPS and GMPs are not well-developed. I am sorry that that is a criticism of the Minister by implication, but never mind. To say that SERPS 'does not exist' is absurd. It may be unfunded, but the entitlements exist and it is those which are under discussion. GMPs are not an insurmountable problem as we have explained at length, face-to-face with DSS officials. A GMP is a deduction from the SERPS entitlement, and it could continue to be deducted in full despite a divorce settlement. This would not be 'an unacceptable burden on schemes' and I do not know that anyone has ever claimed that it was. It is earmarking that it is an unacceptable burden on schemes as everyone has repeatedly made clear to the government. Mr. Malone expressed that with some force, and perhaps a hint of exasperation.
I say firmly to the Government that, having tried, to the best of my ability, to consider the financial arguments, I do not believe that they stand up in any substantial sense against the social arguments of certainty—to which I referred—and justice and fairness, which at least argue eloquently for the possibility of including splitting among the options.
The argument is, on the whole, familiar to hon. Members who served on the Committee, and I promised that I would not rehearse it over-zealously. I must say, however, that there is a very powerful coalition in favour of at least going ahead with the option that I have discussed.
Fairshares is unashamedly a pressure group, but it has worked hard and fairly to inform its members and itself and to put its case. I pay tribute to that. In addition, I have quoted the PMI extensively. The PMI did the major piece 182 of research that is the foundation of the proposals to which the Government have now agreed. Unfortunately, they would not take the further step down the road with the PMI.
The Equal Opportunities Commission has been quoted. It has rightly expressed its opinions clearly. It does not want to find itself in a position where splitting is ruled out—I do not blame it for that.
The Law Society of England and Wales, the Law Society of Scotland, the Institute of Actuaries, the Faculty of Actuaries in Scotland, the Solicitor's Family Law Association and the National Association of Pension Funds—and a lengthy and impressive list of other organisations—have all said that the Government have got that matter monumentally wrong, and should be considering splitting.
If that is really so difficult to do—I understand that that is the Minister's position—let me quote what was said by the Pensions Board of Ireland. I do not pretend to be an expert about it, but I have been supplied with the annual report and accounts of the board, in which the board discusses the Family Law Bill, which was introduced in the Irish Parliament in February 1994 and I suspect will now be the law.
The board deals with different approaches to the division of pension rights on marital breakdown available under the terms of the Family Law Bill. They fall into four principal categories. One is pension splitting within the scheme, which we suggest is the answer to the unfunded public sector pension problem. The next is pension splitting by transfer payment: A variation of the approach immediately above, and it involves the transfer of an amount equal to the value of the pension rights allocated to a member's spouse out of the scheme to an approved insurance contract or to another pension scheme of which he or she becomes a member. That sounds like a very simple statement of what we propose.
The myriad difficulties do not appear to have stopped the Irish. I have no doubt that there are differences in their system and their social security system, and I do not pretend that I have had time to consider that in detail, but I put that in as a corrective against the way in which the Minister is throwing his hands in the air and saying, "It is impossible."
I expected that we might end up with Brooks v. Brooks, and I took the trouble, as the Minister did, to equip myself with a copy of the judgment in that contentious case, which ran on for a long time and ended up in the House of Lords.
I do not believe that the Brooks v. Brooks case argues the case for splitting, as the Minister accused me of believing. I do not think that he has heard me speak on the subject of Brooks v. Brooks, and therefore he must suffer from the delusion that he is a thought transference expert. In any event, I do not hold that opinion.
Brooks v. Brooks is a rather special case and it is narrow in its application. For a start, the decision does not provide for pension splitting on divorce in a normal case. Brooks v. Brooks, as the House will remember, depended to some extent on whether the specific pension scheme that was discussed was a marriage settlement. In addition, 183 the husband and wife were members of the same, very small, pension scheme, and therefore no problem of prejudice to other members of the scheme, or any other complications, arose.
It has been suggested to me that there are some messages from the decision. In the normal case of a wife who has not worked for the same employer as her husband, the case will allow a wife, on divorce, not necessarily to split, but to receive a dependant's pension if, first, her husband's pension scheme is capable of being a marriage settlement—that is one great exclusion—and, secondly, the ex-wife remains a dependant. The latter is not something that we would want to encourage, and is not a case, in these days of women working in the labour market, that will arise very often. Finally, it must not prejudice other scheme members.
I do not believe, therefore, that we can assume that the Brooks judgment is in any way a final word. However, I would urge on the Minister that it gives impetus to the need to clarify the position. If the Government leave the position as it is, in many cases the wife will have an earmarked portion of her husband's pension—assuming that the Bill becomes law—and the question whether her husband's pension arrangements might be the subject of a Brooks order would then arise, to secure a deferred pension as a replacement for the lost widow's pension. That will lead to enormous complication and difficulty, much of which would be removed if the amendments to which I spoke today—or at least their spirit—were accepted by the Government.
One might also draw some perverse conclusions from Brooks. For example, if one is a middle-aged, middle-income executive, one is probably better off in a large company scheme than in a small scheme in which one is the prime figure; but that is another matter.
I do not believe for a moment that Brooks settles the issue; indeed, it probably complicates the issue, but, by doing so, argues the case for completing the nap hand of options that should be available to the court in reaching the right decision in the circumstances of an individual case.
I was interested that the Minister quoted the leading judgment, which is by Lord Nicholls of Birkenhead. The Minister triumphantly quoted the last paragraph, but before we reach the last paragraph I shall draw his attention to page 4 of the judgment.
Lord Nicholls reviews the various possibilities with some care. He expresses—I want to make this clear—some reservations about splitting pension rights, but they are rather minor reservations. He suggests that there would be significant administrative burdens and expense for scheme trustees; there may be problems over guaranteed minimum payments and protected rights; and there would be major financial implications for unfunded public service schemes. I concede that he is entitled to refer to all those matters, but that is nothing to the objections that he raises to earmarking. I am surprised that the Minister did not read the passage to us, as he is so keen a fan of Lord Nicholls' prose. It says: A second method involves earmarking part of the pension benefit for payment direct to the spouse when the pension comes into payment. This earmarking method suffers from the disadvantages that it would not be a 'clean break': payment of benefit would depend on the happening of events some of which would be under the member's control; there would often be uncertainty for some 184 years for the former spouse, not knowing when benefits would start or what would be their duration; and in most cases this method would yield nothing for the wife after the husband's death, she no longer being entitled to a widow's pension under the scheme. That might be a summary of many of the arguments that I have made in the last half hour or so.
If we are going to reflect on Lord Nicholls' opinions, we should take his strictures—not an unfair word—about earmarking, and certainly earmarking as the only way forward, very much into account.
The Minister quoted the final paragraph of Lord Nicholls' speech: If the court is to be able to split pension rights on divorce in the more usual case of a multi-member scheme where the wife has no earnings of her own from the same employer, or to direct the taking out of life insurance, legislation will still be needed. I accept that entirely: it is exactly what we are trying to do. Lord Nicholls said that that possibility requires legislation. We are trying to supply that legislation through new clauses 1 and 2, which the Minister especially disliked but which were referred to specifically by Lord Nicholls. They were drafted because the Law Society thought that they were right.
I believe that we can by rational argument seriously shake the opposition to these proposals, certainly in respect of the financial arguments. When we come to the social arguments, to what is best for stability in the aftermath and trauma of a divorce and consider someone who may well find herself—it is likely to be the former wife—on her own, it is important to try to provide circumstances where she has certainty and knows that what she has been promised will be delivered, however modest it may be. That is not going to happen with earmarking and there will be many cases in which it will not be possible to accommodate a capital payment from other assets and in which earmarking may seem singularly inappropriate.
I believe that the Minister even now should go a little further down the road than he did in his exchanges with the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) and make it clear at least that the door is genuinely open to splitting and that the Government accept that there is a strong social case for making arrangements that would allow that.
For the past 45 minutes, I have listened with care to the hon. Member for Glasgow, Garscadden (Mr. Dewar), who has dissected the Government's position in a forensic way and demonstrated his well-known skills, especially in respect of the financial aspects. I concur with him. I am also grateful to him because I no longer have to repeat the arguments—he has deployed them with enough skill to satisfy anyone who has been listening that many questions about the Government's current position remain to be resolved.
As one who did some divorce work as a solicitor before coming to the House, I can say that it was clear to everyone practising such work that the situation was unfair. Things have moved on at some speed during the past 12 or 13 years, and the courts are going to take the issue further than the Government are prepared to take it in a legislative sense if this measure is the Government's last word on the matter.
185 If the Government were willing to leave the door open to further reform, there would be a case for reconsidering the problem after the commissioned research had borne fruit and, after they had had a chance to consider it, more sensible provisions could be made.
When the Bill was published, I was concerned that the amendments that were tabled in the other place started to tackle the issue as they did. I should have much preferred the issue to have been dealt with in a free-standing matrimonial family Act and separately from occupational pensions, the protection that schemes are now perceived to need and the rest of the burden of the Bill.
Matrimonial disputes are complicated and deserve their own legislation. I came to that view when I was looking at how such matters work out in the courts. I have felt for some time that the courts should be given more discretion to deal with individual circumstances. I do not believe that the straitjacket of a legislative framework can deal with the panoply of ramifications of all the peculiar circumstances that can arise during the dissolution of a marriage.
It is extremely difficult for legislators to cater for everything that can happen when a marriage is dissolved. If judges were given discretion, within a framework of law, to consider all the circumstances, including the cost to the public purse and to other members of the scheme, they could weigh those factors in the balance judicially. I have felt for some time that they should be given proper freedom and discretion and that we should have the confidence to allow the courts to make fair settlements. Case law could be established in that way.
I was interested to hear what the hon. Member for Garscadden said about the Brooks v. Brooks case. I entirely agree that some of the press reporting of that case, certainly in the initial hearings, was misleading. The case involved a very peculiar set of circumstances and no great conclusions could be drawn. The courts should be trusted a bit more and charged with considering the effects on the public purse and on other scheme members. That could permit more sympathetic consideration of individual circumstances when settlements are made.
I am nervous about how we have come to be in this situation. I fully understand the frustration felt by pressure groups such as Fairshares. I, too, commend them. They have played an excellent role. We have also been provided with briefing material during the passage of the Bill. I agree with the hon. Member for Garscadden about the role that has been played by the Pensions Management Institute report and Mr. Malone. They have exploded, certainly to my satisfaction, many of the positions that the Government have taken.
I have not yet studied all the Committee proceedings in great detail. I am taking them on holiday to the beaches with me and, in the autumn, I shall be in a much better position to target questions, but the explanation of the financial reasons against splitting seems to me to be wholly bogus and unsubstantiated.
I am grateful to the hon. Member for Garscadden because he effectively demolished the Government's argument that there would be a £500 million a year cost to unfunded public service schemes and tax losses estimated at some £300 million pounds a year by 2037. In passing, 2037 seems a gie long way away. It puzzles 186 me how such figures can be conjured up out of the air. If a bolt of enlightenment is to come from the Treasury Bench, I am more than willing to receive it.
I do not know that I have ever described myself as a bolt of enlightenment. I want to correct the hon. Gentleman on the £300 million. The hon. Member for Glasgow, Garscadden (Mr. Dewar) properly and fairly drew attention to the fact that the tax cost had changed. We now consider that the tax cost of pension splitting would be up to £200 million, not £300 million; £100 million is quite an important difference.
I am tempted to ask the Minister to explain why the estimate has been revised, but that would perhaps only provoke him.
I see that it would, so I shall not ask him.
There are many questions to be asked and there is a lot more work to be done before I shall be convinced that the financial difference between splitting and earmarking is as the Government allege.
What consideration have the Government given to equity between sexes in this argument? If the Government scheme goes on to the statute book, what view will the European Union and the European courts take of the current earmarking proposals? Has that been considered? I should be interested to hear the view of the Equal Opportunities Commission and other interested bodies. I am not confident from a legal point of view that the Government could successfully take a case to the European Court and argue that the earmarking provisions are not inherently discriminatory. I believe that they might fall foul of the European Court. I am certainly persuaded that the provisions for splitting on divorce are far more equitable from a social point of view—and, indeed, from every other point of view.
I understand that there are problems but I, too, have considered some ways to get around some of the difficulties that have been suggested by the Government. I should like to think that, if the Government had had longer to work on some of the objections, solutions to them could have been found. If the Government are saying that they will continue to examine the problem and that the current proposals are not the final word, I hope that the research that they have rightly commissioned will lead them to favour splitting and to introduce free-standing legislation that will, of itself, produce the fairness, justice and equity that we believe can be achieved only by a move towards splitting.
I should like to ask the Under-Secretary of State to look carefully at Government amendments Nos. 69, 70 and 71, which amend clause 164 and refer to section 25B of the Matrimonial Causes Act 1973. I know that he dealt with these amendments in his opening remarks, but I have to confess that I did not fully understand the need for Government amendment No. 70, which would appear to be completely unnecessary if Government amendments Nos. 69 and 71 are carried.
187 Amendment No. 69 deletes "in the foreseeable future" in line 32 on page 121, and amendment No. 71 deletes the same phrase in a later proposed subsection of the 1973 Act. Amendment No. 70 adds the words: and, accordingly, in relation to benefits under a pension scheme, section 25(2)(a) above shall have effect as if 'in the foreseeable future' were omitted". If that phrase is already omitted, where is the need for amendment No. 70? That is the main element of the Minister's remarks that I did not understand. Much of what he said concerned the complexity of the issues with which we have been dealing but, in Committee, we were able to distil that complexity into relatively simple terms and I managed to follow most of what was said. I have not, however, understood the reason for amendment No. 70.
The reason for the proposed change is that we want to remove the words "in the foreseeable future" only in so far as they apply to pension schemes to which they are not appropriate. The amendment to section 25 of the Matrimonial Causes Act 1973 would therefore not remove those words in relation to any other types of asset.
I am sincerely grateful to the Minister. He has cleared up what, to me, was a puzzle.
We can also distil into relatively simple arguments the complexity of what divides us. There is no difference between us on the principle that pensions are assets that can be split; the real difference relates to when we think that split should take place, which is why we have come to use jargon such as splitting and earmarking.
The Minister referred to the case of Brooks v. Brooks. The importance of that case has already been explained by my hon. Friend the Member for Glasgow, Garscadden (Mr. Dewar). The House of Lords' ruling means that the courts have the power to order the payment of part of an individual's pension to a divorced spouse. There is no intention on either side of the House to diminish the importance of that ruling, although the Minister has tried to underplay its importance. This is the first time that it has been found that pension benefits can belong to someone other than the scheme member for whom they are intended.
As I understand it, the courts in England have the power to compensate a divorced wife for the loss of expected pension benefits, but they are not allowed to vary pension schemes by splitting pension rights between the parties. The facts of the case of Brooks v. Brooks are recognised as unusual, but the Financial Times reported last Friday: Solicitors for Mrs. Brooks said…that the judgment was likely to set a precedent for division, at divorce, of personal pensions, most of which also are single-member plans paying benefits based on contribution. Mr. Norman Russell"— the solicitor in question— said: 'It is hard to see that there is one law for the wife whose husband bought an executive pension and another for the wife whose husband bought a personal pension'. There is no doubt that the argument will continue and that the courts will continue to make decisions. We should be failing if we did not help the courts to arrive at fair and equitable decisions.
188 One of the problems with the Bill is that it allows only the earmarking of pensions at divorce and dismisses the benefits of splitting. Under earmarking, divorcees are left entirely dependent on their ex-partners. It is only when a scheme member draws the pension that part of it is paid to a divorced partner. If that pension is drawn early, the divorced partner gets less than expected. If it is drawn later—if late retirement is taken—the ex-partner will have to wait for a share. If the scheme member dies before retiring, the ex-partner get nothing at all. The injustices of that will continue to be questioned by the courts. It is therefore right and proper that we now consider a solution which would assist the courts to arrive at fair and equitable decisions.
The Bill supports earmarking despite the recommendations of the Pensions Management Institute which, in May 1993, published the report of an independent working group that investigated in depth the issue of pensions and divorce. Despite Government claims to the contrary when the Bill was considered in the House of Lords, the PMI argued—and continues to argue—that its report was supported by the Law Society, the Society of Pension Consultants, the Association of Consulting Actuaries, the Institute of Actuaries and the Faculty of Actuaries. In passing, I have to say how much members of the Committee owe to the actuaries for their assistance with some of the complexities.
The PMI argues that its report came up with solutions that are practical, workable and effective. The report came out in favour of splitting pensions at divorce rather than waiting until the retirement of the partner who was a member of the scheme, thus allowing a full, clean break on divorce. It is worth quoting at length the PMI's memorandum which was submitted to the Select Committee on Social Security and appears on page 106 of the Select Committee's report. It states: We believe there are political motivations behind the Government's reluctance to make more fundamental changes in this area and we find this profoundly disappointing. In recent years the pensions industry has been accused of failing to be innovative and failing to keep pension scheme provisions in line with changing social needs and attitudes. Here we have an example of the industry (and the legal and actuarial professions) taking the lead only to meet a refusal from the Government to implement the recommendations. We believe it is critical to sort out pensions on divorce urgently because of the social ramifications. Furthermore, it will not be long before questions to do with pension rights between partners in relationships other than marriages become a legal, not to mention a social issue. We have gone into the problems of earmarking at length but they bear further consideration. The ex-partner would receive benefit only when the member retired and receive nothing if the member of the scheme, their former partner, died before retirement. The divorcee would therefore be required to keep track of their partner over a number of years when all that they wanted was a clean break. Divorce practitioners believe that a break is desirable so that those concerned are free to go their separate ways without being financially dependent on each other.
If the scheme does not require a direct payment of the earmarked sum, the ex-partner might have to use the courts to enforce the rights under the earmarking agreement. The costs of that—to both parties—are obvious. The only people who would benefit from that are lawyers, with all due respect to all hon. and learned Members present.
189 Another problem with earmarking is that, although divorcees would obviously have an interest in the financial performance of the scheme, how the pension was reinvested, and so on, they would have no say in any decisions because they would not be members of the scheme. They would be linked to the scheme only through their former partner. Scheme members could face difficulty on leaving a job and transferring their pension rights if they were earmarked in a divorce settlement.
There would be uncertainty about the level of retirement income, so it would be difficult for both parties to plan ahead. As I have already said, if the scheme member dies, former partners could have no income at all for their latter years. That would be a particular problem for women, as we tend to outlive men.
There are several benefits of splitting: most important, it would allow a clean break. Divorcees could begin their lives again without continuing to be reliant on each other in any way. It would also allow the courts to reallocate other assets without complicating the value of the pension and ensure that both parties had their own entitlement to their own retirement benefits.
I want the Minister to reconsider new clause 1, which is extremely constructive. It does not say that all pensions should be split at the point of divorce. At proposed new section 24B(3)(a), new clause 1 would allow for a lump sum to be paid to a partner if that was what the court determined and if it made an order to allow it. Paragraph (b) would allow the administrator of a pension scheme to treat the former party of a marriage as a member of the pension scheme in relation to such benefits as may be specified. The former partner would therefore become a full member of the scheme. Paragraph (c) would allow the administrator of the pension scheme to make such a payment into any other pension scheme that may be appropriate.
There are throughout new clause 1 a range of options for the courts or the administrator of a pension scheme. In each case, it would be possible for the courts and the administrator to determine exactly the best outcome for the two partners.
I know that there are difficulties with many of the solutions, just as there are with the earmarking solution that the Government have opted for. In new clause 1, proposed new subsection (4) allows for safeguards in that the administrator of the pension scheme would be able to present to the court a reason why any of the solutions being suggested should not be adopted. Paragraphs (b) and (c) in particular would allow the former partner to be brought into the scheme as a full member or allow payment from one pension scheme into another.
Proposed new subsection (7) would allow a safeguard for unfunded schemes by enabling the Secretary of State to introduce regulations which may be appropriate when it was felt that an unfunded scheme could not or should not be part of the settlement.
Will the Minister reconsider those points? I am not satisfied with the case that he has made against splitting on divorce. The new clause would allow the courts to choose the best solution for the two people before them when determining divorce settlements. That is the best solution for everybody and I commend new clause 1 to the House.
I have tabled amendments Nos. 3, 4, 5, and 6 and new clause 15. I also rise to support the amendments in the name of the official Opposition—excellently explained by my hon. Friend the Member for Glasgow, Garscadden (Mr. Dewar)—especially new clause 1, which puts the case for pension splitting within the scheme and, at the discretion of the courts, via transfer values to the ex-spouse of the pension fund member.
I note that the Minister will review the matter in the light of research. Indeed, he was cautious in replying to the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) about whether such a review would reveal a need for further legislation. I suspect that, when the Government receive the research, they will need to introduce further legislation and move toward a pension-splitting approach, as has been suggested not only by Opposition Members but by many expert organisations. I also suspect that, by relying on the research, the Government are kicking the whole matter into touch, and that further legislation will probably have to be introduced by a Labour Government after the next election.
The mere fact that amendments and new clauses have been tabled on pensions relating to divorce is a triumph for fairness, and a victory for the campaign to recognise the issue in the Bill. To begin with, the Government did not envisage dealing with the matter of dividing pensions in the event of divorce. I am pleased to have played my part in the recognition of the problem and bringing about change. I introduced two ten-minute Bills on the subject: one at the end of last year and one earlier this year, which greatly raised the profile of the issue.
An excellent campaign has been organised by Fairshares, a working party of the Pensions Management Institute has produced excellent reports, and I pay tribute to the work and achievements of Baronesses Young and Hollis in the other place in tabling an amendment on the subject.
The Government accepted the principle of the amendment, although I do not know whether they were dragged kicking and screaming to that view. Perhaps that is a rather ungentlemanly thing to say, so instead I shall praise them for at least accepting the principle, realising that there was an issue to face, and accepting that changes needed to be made to ensure fairness for ex-wives, who are badly treated under the current law and often do not get a share of the ex-husband's pension.
Nevertheless, my hon. Friends and I remain concerned, because the way that the provision is implemented could lead also to unfairness in the system. The earmarking method chosen by the Government, against all the advice from the experts, could result in unfairness. I have read the Hansard report of the Committee proceedings. My hon. Friend the Member for Garscadden asked whether I did not have better things to do with my life. He made an excellent speech in Committee on pension splitting on divorce, and he has done so again today.
In Committee, the hon. Member for Antrim, South (Mr. Forsythe) asked whether the Government were not in danger of following the path of the Child Support Agency by making a mistake in their choice of how to implement the legislation. The principle is good, hut if the implementation is wrong, that could lead to unfairness and the Bill would have to return to the House for 191 clarification. That would have cost implications. It would have been better to follow the reports of the Pensions Management Institute and the Goode committee.
On 30 June, The Independent described the Government's approach as "a strange mish-mash." It said that the Brooks v. Brooks case, which has been mentioned today, had made the Government alter their original intentions. Doubt has been cast on the overall effect of the Brooks case, and I agree with that. For example, The Independent said that a number of women would be entitled to a share of their former spouses' pensions at retirement. They can claim this even if the partner dies before reaching retirement age. I am not at all sure that that is a consequence of the Brooks case. Indeed, my understanding is that Mr. Brooks is still very much alive, so I do not see how The Independent can make that judgment.
As my hon. Friend the Member for Garscadden said, the Brooks case was narrow, and there were special circumstances, as Mr. and Mrs. Brooks were the only two members of the personal pension fund. Because of that, Mrs. Brooks had a right that would not necessarily apply to other spouses with a range of different circumstances. I certainly do not think that the right would apply if the partner were to die, which is why I have tabled my amendment.
If a member of a pension fund dies, that should not negate the right of the ex-spouse to his pension, which should have been guaranteed at the time of the divorce. If, subsequently, the member of the pension fund inconveniently dies, the ex-wife should not lose her rights. I do not think that the Brooks case resolved that problem, as The Independent maintained, although I shall be interested to hear the Under-Secretary's view. If it does not resolve that problem, I hope that the hon. Gentleman will reconsider my amendment, which would.
I want to press the case for pension splitting on divorce. Many of the expert organisations support that, rather than the Government's earmarking approach. I want to draw the attention of the House to two documents. May's edition of "Parliamentary Brief' carries an article by Stewart Ritchie, the director of pensions development for Scottish Equitable. In an article entitled "A Prescription For A Messy Divorce"—which in itself sheds some light on the Government's proposals—he states: The government's proposed answer is for the court to make an order which will oblige the pension arrangement to pay a proportion of the relevant pension to his ex-wife when he retires. That is the key point. He continues: However this is contrary to the conclusions reached by the Working Group appointed by the Pensions Management Institute in its widely acclaimed report of May 1993, and the government's approach has been greeted with dismay by many parts of the pensions industry. The article then gives a number of reasons for that dismay, such as the fact that the ex-spouse will have no control over her pension arrangements subsequent to the divorce.
Mr. Ritchie asks what would happen if the member of the pension fund deliberately postponed his retirement out of spite, to delay the ex-wife access to her share of the pension. That point highlights the unfairness that will arise out of the Government's approach. If we must have earmarking, the ex-wife should be able to exercise her 192 right on her retirement, rather than her ex-husband's. He should not be able to postpone his retirement out of spite. Mr. Ritchie was referring to a key point in my amendments—that the pension fund member may leave pensionable service and die before retirement. His pension would then die with him, as would the ex-wife's entitlement to her share. That would be unfair.
Mr. Ritchie stated: The PMI Working Group approach is to allow the ex-husband and ex-wife to agree a clean break using other assets if feasible … If this is not feasible, a transfer value can be paid…The ex-wife is then in charge of her own pension destiny. That is the approach favoured by the Opposition.
Mr. Ritchie concluded: If there is a political will for a clean break, it can be done, and it would be less messy than the current proposals. That is an expert opinion.
The other document comes from the PMI. It is a press release dated 13 June, headed "Pensions and Divorce: is Disaster Looming?" It quotes Mr. Richard Malone, the president-elect of the PMI, as saying: The hopes and expectations of thousands of divorcees will be badly let down if the present provisions for pensions on divorce are not changed as the Pensions Bill goes through the House of Commons. The PMI has been pressing for divorcees to be allocated a pension of their own as part of the divorce settlement; a pension which they can control themselves and around which they can plan their own financial affairs and independence. The press release continued: Only when the scheme member decides to draw pension will part of it be paid to the divorced spouse; if it is drawn early, the ex-spouse will get less than expected; if retirement is deferred, ex-spouses will just have to wait for their share; if the scheme member dies before retiring, they will often get nothing at all. Mr. Malone said that those are "fundamental flaws" in the current proposals, and concluded: Further complications arise because between the divorce and the time of retirement the scheme member may transfer the pension … Divorcees will have no say in any of these decisions despite the fact that they have a substantial interest in the form that the final pension takes and in the financial security of the investments. That is a pretty scathing criticism of the Government's earmarking approach, and there are arguments in favour of going down the road that the Opposition propose, of pension splitting. If the Government are insisting on earmarking, they should address the flaws and tackle them, even at this late stage.
In my amendments, I propose to give the Government an opportunity to ameliorate at least some of the worst effects of their proposals. My amendments relate to four main areas, which I shall now go through. Amendments Nos. 4 and 5 talk about the date when the legislation should be enacted. The fundamental point behind my amendments is that they should come into force on the day that the Bill receives Royal Assent.
In Committee on 22 June, the Minister said: We are talking about orders made after April 1996 for pension rights accruing after April 1997…If the divorce proceedings have started now, but have not concluded by the time that that time scale comes into effect, they will be affected in the ordinary way.
I should correct a word that I used in Committee and which the hon. Gentleman referred to in his quotation. I said "accruing" when I should have said "paying". I am sorry to be pedantic.
That is a fair point. The effect on the ex-spouse of a pension fund member if the case is 193 on-going is that she will not have the rights which the Bill would pass to her for payment. It is understandable that, if the legislation is not passed, one will not get the rights. But why should an ex-spouse wait until April 1996 or 1997? Once the Bill is enacted and the ex-spouse goes to court, she should have those rights, as that is clearly what Parliament intends.
In his opening speech, the Minister said that my amendments were retrospective, but I do not think that that is the case. I am saying that the measure should come into effect when the legislation is formally passed, as that is reasonable. Since taking up this matter, I have received letters from women who have been extremely badly treated in divorce settlements, and I have considerable sympathy with them. I understand the arguments about retrospective legislation, and I accept that we cannot reopen past divorce settlements. But I do think that we could start afresh from the date that the legislation is passed.
The amendments would allow the provisions of the Bill to come into force on the day that the Lord Chancellor decides. It might not even be April 1996 or 1997, as the Minister said—although I presume that that is the Government's intention—as the Lord Chancellor could put off the introduction under the provisions of the Bill. We should be clear, and let divorced couples know where they stand, as that is the fairest way forward.
There will be an anomalous situation if the Bill is enacted but its provisions are delayed until the rights start to come into effect, because couples will be bringing divorce cases to the courts and seeking settlements in the period between enactment and when the Lord Chancellor brings the measure into effect. It is unfair for the ex-spouse, and could create court chaos. Ex-spouses going to court for a settlement will—if properly advised by their lawyers—say, "Delay it until the Lord Chancellor brings the measure into effect," while the husband's solicitor will be telling him to get into court right away.
That is not a proper way for the courts to be looking at divorce settlements, either. It is a recipe for chaos and unfairness, especially when the legislation is on the statute book. There is a strong case for bringing into effect the provisions related to pensions and divorce as soon as the Bill receives Royal Assent, and I hope that the Minister will consider that carefully when he comes to respond.
My amendments would give an ex-spouse the right to be informed of any transfers of the pension fund money which occur when the ex-partner moves the money around different pension funds. In Committee, my hon. Friend the Member for Garscadden wondered whether the duty to inform should fall upon the provider, and asked how an ex-spouse would know where the pension fund money was and what her rights were. Someone should have the duty to keep the ex-spouse informed.
The Under-Secretary replied: Those are both fair points, which I shall consider further because they are important. The Under-Secretary might have considered those important points, but we have not heard the results of his consideration; he has not come up with anything. I have helped him out with my amendments that propose that the ex-spouse should have the right to be kept informed about where her pension money is.
In his opening remarks, the Under-Secretary said that we would be giving more information to her than to her former spouse. I find that hard to believe. There is a basic 194 case for saying that, if it is her money, she has the right to know where it is. That is a fundamental point. I find it hard to believe that she has more rights to information than her former partner, as he is the one shifting the money around—he will know where he has put it. If he changes jobs and joins a new employer's pension fund, he will know where the money is. His partner will not know. I think that, on reflection, the Under-Secretary will realise that what he said is not right, and that the ex-spouse will not receive more information than her partner.
The Under-Secretary also argued against the right for the ex-spouse to receive information, because the trustees would have to bear the cost. A cost probably would be involved, but I do not think that the cost is unreasonable. It is better for the trustees and the managers of the pension fund to have that duty than her ex-partner, who would have no incentive to tell her. It would be tricky to place a duty on him to do so in law. It would put the couple back into contact with each other, when their marriage was over and they wanted to break contact. It would not be wise to put the duty on the ex-partner. It would be far better to place it on the trustees and the managers of the fund. I acknowledge that, as the Under-Secretary said, my proposal would involve a cost, but it is a minimal cost—a letter, perhaps even a standard letter, and a stamp. That should not be too onerous a cost for the trustees to bear. At present, the ex-spouse is in the dark about where her money is, which is wrong.
The third of my four amendments relates to reconsidering the divorce settlement if the pension was not initially considered under the Matrimonial Causes Act 1973—an important point. The matter was dealt with by the Under-Secretary on 22 June, when he drew attention to the 1973 Act: The position now is that the courts are obliged to take into account the pension assets"— when there is a divorce settlement— But the experience of many people is that, despite that, such assets have not been taken into account—that is important"— —[Official Report, Standing Committee D, 22 June 1995; c.803–8.] The Under-Secretary acknowledged that, although there is, nominally, a legal right, in many cases the pension right is not taken into account.
My amendment gives the ex-spouse rights when that new pension money comes to light. It does so only in those circumstances where she may not have known that her partner had a pension fund, so it was never taken into account. The matter can be taken back to the court for consideration. But the case is reopened only in those specific circumstances—when the pension fund has not been taken into account in the original settlement hearing.
The court would not reopen the whole divorce settlement, but only the pensions aspect of the settlement, which should have been taken into account at the original hearing, as the Under-Secretary acknowledged. That is not retrospection on any grand scale, but merely an adjustment to take into account existing law which is not being fully implemented. People are losing as a result of that omission.
I have perhaps garbled my argument a bit, but I hope that I have made my point as best I can. I do not think that my amendment calls for too much retrospection—certainly not on a significant scale. It would allow for 195 pension rights, which are not always initially taken into account by the courts at the divorce settlement, to be considered as the law intended.
I come now to the fourth of my amendments, and I see that the Whip, my hon. Friend the Member for Leeds, East (Mr. Mudie), is concerned that I have been talking for too long. I apologise to the House for that. I certainly do not intend to make a speech as long as the one I did the other night, but I am making relevant points.
New clause 15 deals with what happens when the husband dies. I am strongly of the opinion that his ex-spouse should not lose her pension rights—they should not die with the husband, which would be extremely unfair. I shall not quote from the Committee Hansard again because of the shortage of time, but the Under-Secretary said that the matter was important. I give him credit for the fact that he was concerned about it. In response to points raised by Opposition members of the Committee, he said that he did not have the answers. He might not have the answers, but an answer is needed. My amendment gives the House the opportunity to have the answer.
The basic principle behind the amendment is that the pension rights of the ex-spouse should not die when her partner dies if he dies before the pension comes into effect. That is the crucial point of the amendment. The ex-spouse should be entitled to what she would have received had her partner lived. My amendment amends the Inheritance (Provision for Family and Dependants) Act 1975 to allow that to happen.
It is a clever amendment, and I pay tribute to the Clerks for its wording. It gives the ex-spouse the right under that Act for pension rights to be considered. The new clause is entitled Pension provision on death of person not providing for a spouse". The new clause therefore goes a little wider than my original intention, but in a good cause. Regardless of divorce, if a person has not provided out of his pension for his ex-spouse, she can use the amendment to go to the courts to obtain her rights. I think that the Under-Secretary should accept the amendment.
I think that the Under-Secretary said tonight that he was proposing to give the ex-spouse access to the lump sum. That goes part of the way to accepting my case that the ex-spouse should have rights, and that those rights should not die when her ex-partner dies.
The Under-Secretary nods his head, and I am grateful that he has accepted the principle behind my amendments. I welcome that acceptance, but access to the lump sum is only half a loaf. If the Minister accepts that principle, a widow should have full pension rights and receive all she would have been entitled to if her spouse had not died. I hope that the Minister will take my points into account. Although I welcome his partial concession and his acceptance of the principle, I hope that I can persuade him to accept all my amendments.
I believe that pension splitting is the best approach. A clean break would be best, and the courts should have the flexibility to arrange settlements and transfer values to the ex-spouse. The Government do not have time to address 196 all the points made by my hon. Friend the Member for Garscadden, but I believe that they have over-egged the pudding in terms of the cost of pension splitting. I do not think that the cost is as great as the Government maintain. Many wives who do not have pension rights are forced to claim benefit, which the Committee was told amounted to about £70 million. That sum must be offset against the Government's estimated cost.
I noted the Minister's argument about barring people from leaving public sector pension schemes because that would cost the taxpayer money. I thought that the Government wanted people to leave the state earnings-related pension scheme—in fact, the Government have awarded tax relief and tax bonuses to people to encourage them to leave SERPS and secure private pensions. If the Government do that as a general rule, I do not see why they should not do the same for ex-spouses. It should not be taken into account in the Government's calculations, because that is their policy, anyway.
I am in favour of pension splitting, but in this Bill it appears that the Government are stuck with the second-best earmarking approach. If the Government are stuck with that approach, my amendments at least clarify and improve the law. According to the Minister's own criteria, they are cost-neutral, less complex, and certainly a lot fairer than the Government's proposals. I recommend them to the House.
Time moves on. The pensions issue has been well documented by many of my colleagues and I pay tribute to my hon. Friend the Member for Glasgow, Garscadden (Mr. Dewar) for the way in which he dealt comprehensively with that issue in putting the case for pension splitting. The Committee missed the contribution of my hon. Friend the Member for Leyton (Mr. Cohen) during its deliberations.
Divorce is a traumatic event in the lives of the people involved. Many entanglements must be resolved, including emotional, financial and practical considerations. Sadly, in the United Kingdom the number of couples who opt for divorce has reached unwelcome proportions. Some two thirds of marriages now end in divorce, and that is the highest figure in western Europe. According to Mr. David Salter, vice-chairman of the Solicitor's Family Law Association, consecutive Governments have failed to take action on the issue of pensions and divorce. He went on to say that the current law creates inequitable settlements that often leave one partner of the marriage in poverty and that the courts need the power to redress the situation more fully.
I have received a large amount of correspondence from individuals and organisations who point to high levels of suffering as a result of the inadequacies of the current settlement procedures. Social trends will make the issue increasingly more important. That view is shared by many, including Goode and the Pensions Management Institute.
In marriage, careful provision is usually made by way of a pension and/or insurance to ensure that, if one partner dies, the other partner will be able to pay off a mortgage and to top up any existing pension entitlement. It is vital 197 that the dependent partner be provided for. At present, upon divorce, the dependent partner receives no such consideration. According to the organisation, Fairshares: Divorce is as traumatic as widowhood. There is no partner, no breadwinner, no friend, instead there is an adversarial situation where each is trying to get as much as they can financially". That can be, and is, an horrific position in many cases—especially for the partner who has no on-going salary or pension provision for the future. As Fairshares says, the situation is particularly bad for older women, who may have had no opportunity to build their own pension rights through employment because of child care and family responsibilities. Those women—many of whose children have grown up and left home—face many other problems also, including social isolation, which is made worse by a lack of finance. The average total retirement income of divorced women is £65 per week. In 1993, 80 per cent. of the 1.5 million income support claimants over state pensionable age were women. The Government already face a considerable cost.
Under existing trust law, a wife loses all her rights to her husband's pension upon divorce. We believe that our new clauses will assist the courts in quantifying the pension assets of partners through the pension-splitting process. It will not be the panacea that cures all ills, but it is a significant step in the right direction. Splitting pensions has the advantage of apportioning to a deposed or disposed-of partner a capital sum that may be passed to a pension provider if that is the required option.
As has been said, that arrangement would fit in well with the clean-break settlement philosophy that the Government claim to believe in. The procedure and calculations for splitting would not be a disaster from the point of view of individual pension funds and they would not disadvantage the Treasury in the long term. The extravagant figures cited by the noble Lord Mackay of Ardbrecknish in the other place have been extensively dismantled by notable experts such as Mr. Geoffrey Wilson, an ex-Government Actuary and a partner in Binder Hamlyn.
A Pensions Management Institute report of May 1993 opted decisively in favour of splitting, and a wide range of organisations have come to the same conclusion. The Equal Opportunities Commission said: Any new legislation should be based on the now established clean break principle which underlies the current legislation on divorce settlement. It is important that a share in an ex-spouse's pension is not regarded as a form of deferred maintenance". The Law Society is also in favour of the Labour party's arguments. The Solicitor's Family Law Association, the Institute of Actuaries—despite some differences about the details—and the National Association of Pension Funds take the same line and have said so publicly. However, as usual, the Government have not gone far enough and, as in so many policy areas, have missed the opportunity to do what is right and fair. The Government have stalled for too long. Their proposal is too complex and it does not address the core needs of those involved.
Earmarking makes no provision for the death of an ex-husband and would prove far more costly in administrative terms. It would not offer a clean break, with calculations having to be made for many years after divorce and all the agonising difficulties that bringing people together would bring. One cannot argue for parental responsibility with regard to child support provision and then not be consistent in ensuring that the 198 same responsibilities are applied to dependent partners who are divorcing. The law must reflect the changing face of our society and be adequate to meet people's needs. Pension splitting would allow people to get on with their lives, independent of their former partners. We believe that the Minister should reconsider the proposal.
Organisations and professionals in the industry have said that pension splitting is the best option. As has been said, the Bill has reached Report stage very quickly after the conclusion of consideration in Committee. However, it is important that we do what is right. The Bill, which is very long and complex, must put the statute right because we are not sure when we shall return to the issue in future—albeit that the Minister has said that he is prepared to examine the survey results with a view to future legislation.
We believe that our new clauses are appropriate and right and have the support of the majority of people. We urge the Minister to reconsider his decision.
I am sure that my colleagues will agree that some of the saddest and most difficult cases with which we deal in our constituency offices involve divorce. There are a number of reasons why that is so. Partners often disagree about property, children and, recently, about the Child Support Agency. The current pension situation will now be added to those problems.
Dreadful bitterness arises in many divorces, and sometimes children are used as pawns by one partner to get at the other. The situation that the House produced with the creation of the CSA has made matters worse. If it is now suggested that it is agreed by almost everyone that a former wife should be entitled to part of her former husband's pension, but only in the dim and distant future, we shall add to the burden of difficulty and anger. Divorce makes life hard enough for the children of a broken marriage without adding to it.
It would seem fair, equitable and reasonable that when a divorce goes to court, the judge should review the circumstances and make a decision at that time. That way, the pension issue could be put to one side, which would at least do away with some of the anger and frustration that surround a divorce. I ask the Minister to reconsider even at this late stage. Hon. Members, for all the best reasons, missed certain opportunities with the child support legislation. Let us not make the same mistake again, but decide that new clause 1 represents the best thing to do.
I am conscious that a number of my hon. Friends wish to contribute to the debate, because the subject is of considerable interest. We have all been lobbied extensively on pensions and divorce. My hon. Friend the Member for Glasgow, Garscadden (Mr. Dewar) spoke at length and most ably, and I support his detailed, reasoned and sensible line.
We are seeing the consequences of the Government being caught on the hop. For the past 10 years there has been pressure to rectify anomalies in the treatment of people after divorce. I accept the Minister's point that we must aim at gender neutrality, but the reality is that the vast majority of persons disadvantaged by the current situation are women, and women's organisations have been at the forefront in lobbying.
199 Opposing new clause 1—and one understands the Government not being interested, because that new clause took the argument further along the road than they want to go—the Minister referred to costs, complexity and fairness. The costs issue gives me cause for concern. There was lengthy consideration of the Bill, which spent 10 weeks in Committee. There was also the Bill's gestation period, the Goode report and that of the Social Security Select Committee, and the aftermath of various frauds and misappropriations affecting pension funds. There has been public demand for a review of pension funds. It is, therefore, regrettable that there is a sense that certain clauses have been cobbled together. The Government, having been caught on the hop in respect of pensions and divorce, have not thought through the matter properly and logically.
In Committee on 22 June, the Minister explained that the estimated cost of allowing pensions to be split by all married couples was £1.3 billion in the first full year. I am grateful to the Minister for advising the Committee that the figure had been rechecked by the Inland Revenue, when the estimate fell dramatically to £600 million—a substantial change. In view of the Minister's comments this afternoon, it appears that the figure has now fallen to £500 million.
The Minister shakes his head, but I understood him to say that £200 million would be lost in tax revenue and £300 million would be lost as a consequence of unfunded public sector schemes.
The latter was £500 million.
I stand corrected. That makes a total of £700 million. I would like much greater analysis of those figures. Having served an extended period before the legislative mast, as a member of the Committee on the Finance Bill prior to being a member of the Committee that considered the Pensions Bill, I cannot believe that it is beyond the wit of the Treasury to recoup some money.
I hope that it will help the hon. Lady if I set out the figures. The figure of up to £200 million is the amount of tax revenue that could be lost as a result of direct pension splitting, but it would grow over time. The figure of up to £500 million is the potential immediate cost of splitting pensions in relation to unfunded public sector pension schemes. The figure of £600 million relates to the immediate cost—it would eventually grow to £1.3 billion—of giving the same sort of tax breaks to married couples as the pension-splitting effect would give divorced couples.
I am grateful to the Minister. We are always grateful to the Government for fiscal prudence. In fact, our Whip is always careful to ensure that similar prudence is exerted by ourselves. The sum mentioned by the Minister is exactly the same that the Government spent on reorganising Scottish local government, which nobody wanted. The Government took that action in the hope that it would benefit them in some way, but instead they suffered the most humiliating result ever. If that is an example of the Government's fiscal prudence, I invite them to think again.
200 The Bill is unbelievably complex, and its very complexity deliberately confuses. The complex nature of pension law prior to the Bill was always a problem. Complexity was debated in detail in Committee, when my hon. Friend the Member for Garscadden greatly advanced the knowledge of Committee members, as he often does. He quoted from an article in New Law Journal by Maggie Rae, a matrimonial partner with Mishcon de Reya: Pension splitting is not complicated. Since 1988 it has been possible to transfer a pension from one fund to another, say when a person changes jobs."—[Official Report, Standing Committee D, 22 June 1995; c. 789.] The mechanism is not complex, so I fail to comprehend why the Government favour earmarking over splitting, when people who have no party political axe to grind make it clear that there is no question of undue complexity.
The Minister spoke also of fairness, which is at the heart of my hon. Friend's new clause. Until debate in another place—and I pay tribute to my noble Friend Lady Hollis—there existed the concept of women as chattels, even after divorce. Women lost control over their pensions because an ex-spouse, out of spite, could make sure that no pension or flexibility was available, which would allow the prudent person to plan ahead. It is important in the interest of fairness that those matters are considered. It is regrettable that the Government have not been more imaginative.
New clause 2 draws our attention to insurance. It is intriguing that the Government speak with forked tongue. On many occasions, the Prime Minister has commended private insurance for what it can do to protect the mortgages of those who are unfortunate enough to become unemployed. Yet when we are seeking to enforce prudence on those who are walking away from a marriage, voluntarily or involuntarily, we find that such enforcement is not acceptable and, indeed, would be far too costly to implement.
I was heartened to some extent by the Minister's rather evasive response to the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) about the research that the Government are undertaking. I would be grateful if the Minister were to provide greater elucidation on the direction that the Government are planning to take.
We must be conscious of the signal that we are giving to the outside world. The complexity of pensions is a major inhibiting factor when it comes to people planning prudently and wisely for their retirement. We have not managed to overcome that problem during our consideration of the Bill.
The Government should have taken the opportunity to think again. Social trends suggest that by the year 2025, 13 per cent. of divorced women will be more than 60 years of age as against 3 per cent. in 1985. Those of us who are conscious that the sittings of the House relate more to English school holidays than to those holidays in Scotland might be concerned about joining that band by 2025, if longevity allows. The Government must take into account changing social trends.
We have had 10 years in which to think about how pensions and divorce should be considered. The new clause moves us further on. It seems that the Government have been bounced and that they have not done justice to the extensive and widespread lobbying of those who are likely to be affected by the proposals that we are considering.
I congratulate my hon. Friend the Member for Monklands, East (Mrs. Liddell) on the quality of her speech. I have no doubt that she was encouraged to make it by the assiduous efforts of my hon. Friend the Member for Leeds, East (Mr. Mudie).
Pension rights have become the most important matrimonial asset for a significant number of divorcing couples. They have become more valuable, perhaps, than the matrimonial home. Yet despite the financial significance of pensions, they have been insufficiently appreciated by those advising on financial arrangements after divorce. We can compare the growing appreciation of professional advisers of the importance of pension assets with the development of the law on the division of the matrimonial home.
Traditionally, the matrimonial home was in the husband's name. That was because, traditionally, the husband went to work and made the mortgage payments each month. Given a growing recognition of the contribution in kind that was made by the wife, the courts eventually developed ways around the clear terms of the conveyance into the husband's sole name. That gave the divorced wife some interest in the former matrimonial home. Eventually the law, as made by Parliament, reflected that change and allowed courts a wide range of discretion in disposing appropriately of the asset of the matrimonial home.
This debate should be about giving the courts similar comprehensive powers to deal with that other significant financial asset, the pension. Our debates in Committee, and again today, have focused on how to deal with the pension, and have been characterised by three different approaches. First, there is what might be described as the compensatory approach, which means balancing the value of pension rights against non-pension assets. Secondly, there is the earmarking approach, which means deferring pension rights until the ex-spouse reaches retirement age. Thirdly, there is pension splitting.
The first option of balancing the various assets available to the spouses has, in effect, always been allowed under the Matrimonial Causes Act 1973. It has, however, significant disadvantages. It is difficult to calculate the exact amount of compensation that should be provided for the non-pension-paying spouse. One party may end up receiving a disproportionate share of the matrimonial home, but a poor pension. There may be insufficient assets to enable transfer from one spouse to the other. As a result, the debate has turned towards the Government's approach contained in clause 164, which would amend the Matrimonial Causes Act and allow for earmarking. Balanced against that is new clause 1, which sets out practical proposals for pension splitting.
There is no doubt that earmarking is an improvement on the present position. It would not alter the total sum to be paid out by a pension scheme. It would at least allow the courts to award a pension to an ex-spouse on retirement as long as the scheme member is still receiving a pension. It would save the court making complex calculations in balancing the parties' various financial interests.
There are still problems, especially in the failure to observe the clean-break principle. It is now well established that where possible it is attractive to the parties that they be allowed to continue to lead their lives 202 independently. That is what divorcing couples decide to do. As far as possible, the courts' approach should be to permit those couples to do so without continuing financial entanglements.
Earmarking means that where one spouse fails to pay his or her share there may be a necessity to return to court to enforce any order of the court relating to the pension. That is a particularly unfortunate consequence of earmarking. It means that there will always be a continuing connection between the former parties to the marriage. It means also that the former partner depends on the member spouse surviving to retirement. We have already heard of the difficulties that that involves.
In failing to observe the clean-break principle, there is considerable uncertainty about the level of retirement income. That means that individuals have difficulty in planning their future, including their retirement. That is why I hope that even at this stage the Government may still be considering the possibility of pension splitting. The Minister has already referred to surveys and investigations. We were much enlightened in Committee about the various surveys that the Government have conducted. As the reality is that there will not be further pension legislation in the near future, I hope that the Government will have some sympathy with the idea of pension splitting. It is a principle that supports the idea of a clean break. It would give former married partners the possibility of leaving their defunct marriage to go their own separate ways without being financially dependent on each other. With pension splitting, there would be no need for them, by and large, to depend on a continuing relationship with the former spouse.
Pension splitting has regard to the modern world of work, in which people are likely to pursue a series of occupations with a series of different pensions. That was the underlying theme of all that we discussed in Committee. That theme recognises the modern world of relationships, in which people have a series of different relationships and may well, therefore, have a series of different pensions on which they depend. That is something to which pension splitting gives recognition.
It follows that it would be sensible to take into account the contribution that is made by the non-member spouse in terms of the length of the marriage. It would appear to be possible to consider the contribution that has been made during the course of the marriage and to account for that financially in a split pension.
The Government's objections were set out thoroughly in Committee and again by the Minister today. The Minister is concerned about the cost, the complexity of any arrangements and the fairness of treatment between married and divorced couples. Cost is based on losses to the Exchequer in the form of lost tax revenue and the potential cost of transfers from unfunded public sector schemes.
I shall return to the tax implications in a moment, but it does not seem particularly complex for a pension fund to calculate a transfer value at the time of divorce. That transfer value can then be divided as appropriate, according to the length of the marriage, recognising that some people may have paid into a pension fund before the marriage. It seems perfectly straightforward to calculate the contribution in kind by the non-member spouse at the time of divorce. In those circumstances, I 203 cannot see that pension splitting is necessarily any more complicated or difficult than earmarking, which the Government appear to advocate.
I accept, however, that there are more substantial problems in respect of cost and I would be interested to hear the Minister's observations as to whether the substantial argument from the Government is based on complexity, or whether it is a disguised way of saying that they are concerned about the cost.
Obviously, there are potential costs of pension splitting. The substantial cost is likely to involve unfunded public service schemes, but that assumes a transfer at the time of divorce from the ex-spouse's share in the unfunded public sector scheme. Why not simply enrol the former spouse in the public sector scheme? That person would then receive a pension from the unfunded public sector scheme according to the length of time that they were eligible to receive such a pension, without involving the Exchequer in any substantial payout. I cannot see how it involves any greater cost to the public sector than would he the case if they had continued to be married and received a pension on retirement. Simply to put the former spouse into the pension scheme, with a guaranteed right to a pension on retirement, would not seem to involve any extra expenditure from the revenue.
In respect of tax losses, I am grateful that the Minister appears to have revised down the original assessment of £300 million to £200 million. The first element of that cost appears to result from the splitting of personal allowances. If I understood the Minister's argument properly, the divorced couple would claim two personal allowances instead of the one that formerly would have been available to the person in receipt of the pension. I should be grateful if the Minister would comment on that calculation. It assumes that the non-earning spouse on retirement has no other income and, therefore, does not take up her—as it is likely to be the woman—personal allowance. That does not appear to be the most realistic approach. It is likely that that person will be entitled, for example, to a state pension which will take up all the personal allowance on retirement. If that assumption is correct, as more and more women are entitled to the state pension and, therefore, use up their personal allowance with the state pension, I assume that the costs of pension splitting would correspondingly diminish and might not increase in the way that the Minister has suggested.
The second cost has been said to be the potential consequence of former spouses making extra tax-deductible contributions to top up their divided pension. Surely there are straightforward means of ensuring that a spouse does not claim more tax relief than that to which he or she is entitled. If that is likely to be a serious cost to the revenue, I assume that it is possible to produce regulations to limit the effect of that potential topping up. On the assumption that the topping up would be only within the existing revenue rules, it is unlikely to be a significant cost.
The third cost was in respect of fairness. The Minister felt that it might be necessary to give benefits to married couples on retirement to put them in the same position as divorced couples. The cost has been estimated at £600 million, but I cannot see any reason why it should be necessary. The law on taxation already treats married couples significantly differently from single couples. 204 There are arguments for many married couples to divorce and take advantage of the various allowances that then would be available to them, so I am not clear why we should take a different view of couples in retirement receiving a pension. That fairness argument is not nearly so substantial as the Minister suggests.
The real benefits of splitting as against earmarking seem to be in terms of simplicity and fairness. It provides a clean break, it allows both former partners to take benefits when they need them, and it assures ex-spouses a pension when they need it. That is an attractive argument in favour of splitting.
We have heard several excellent speeches from Opposition Members, and I shall add just a few words. Opposition Members recognise that thousands of women—and some men—up and down the country are watching the outcome of the debate, but it is mainly women because, at the end of the day, it is mainly women who will benefit from our amendment.
The normal pattern of life for many women will involve divorce, as my hon. Friend the Member for Bradford, South (Mr. Sutcliffe) said earlier. We should not pretend that it is an undesirable social change. We cannot hide our heads in the sand and pretend that it has not happened. It has happened and the Government have recognised it in their proposals for earmarking.
Tonight's debate is clearly between a clean break and earmarking. It is a debate about what thousands of women want and what the Government choose to deny them. Women earn pensions in their own right, but those pensions are often very small or virtually non-existent, and we all know the reasons for that. Many women do not earn at all because they care for children and have other caring responsibilities. Even when they work, there is still gross inequality in earnings. Women have broken periods of employment because they devote time to bringing up their children and, increasingly, to the care of elderly and dependent relatives. All those issues are interrelated. In practice, few women have adequate pensions in their own right. Following a divorce, women often do not have pensions appropriate to the standard of living to which they became accustomed during married life.
As many Opposition Members have already said, divorce is a painful emotional experience. The circumstances giving rise to it can be long drawn out, as can the process of the divorce itself and its aftermath. The Government must recognise that social change; they cannot turn back the clock. Not only do many marriages end in divorce, but many second and subsequent marriages also end in divorce.
The Government's earmarking option will leave thousands of women once or twice divorced without a clean break. They will be unable to put marriage behind them and plan a new life in full and complete independence. In their later years, they will have to track down their benefits, as my hon. Friend the Member for Leyton (Mr. Cohen) said. They may have to find various pension schemes in which small sums of money are buried because their former partners had many different employments. It is totally unrealistic to expect elderly women, often burdened by many other problems, to undertake time-consuming tasks which are often a bureaucratic nightmare simply to claim what is rightly theirs. Why should they have to do that when they may be 205 suffering from ill health or other detriment or incapacity? Women do not want the Government's inadequate option; increasingly they recognise that it is a mealy-mouthed measure—another example of the Government's failure to understand what modern women want and deserve.
The women concerned know that pensions are deferred pay and that they are entitled to the money. When they divorce they want to be sure that, as part of the divorce settlement, they will know exactly what their pension rights are. They also want to know that the money is theirs, and is in their name, so that they can do with it what they want.
Surely the Government—I understand that at the moment they are a reshuffled, or rather, a reshuffling Government—can bring their great mind to bear on trying to overcome the difficulties of bringing about a clean break. As my hon. Friend the Member for Monklands, East (Mrs. Liddell) said, many people in the financial and pensions world realise that that is achievable, so that women who want a fair and equitable settlement can pick up the strands of their lives after divorce.
The Minister's explanation of the Government's failure to rise to the challenge was unusually foggy—if that is not too unparliamentary an expression, Mr. Deputy Speaker. We do not accept that explanation, and neither will our constituents. They want a modern pensions law—something clear on the statute book that will ensure that when they go through the painful process of divorce the law does not add to the pain and uncertainty of their future lives.
When will the Government recognise that we are now becoming a nation of multi-marriages—or at least two marriages in many cases? When will they admit that marriage for a lifetime is not what is actually happening to everybody and therefore provide clarity in pensions law? To protest that they cannot do that does not wash, and thousands of women know that it is wrong. It is an appalling failure to recognise what women want and to provide it.
We shall return to the matter another time, but it will not be while the Minister and his friends occupy the Government Benches. We can be clear about that tonight: the moment will come, and I believe that it will come soon.
From the mood of the House I sense that we feel that we have heard the arguments on both sides. They have been developed in another place, further developed in Committee and developed even further by the amendments that we have now tabled.
It is important to remind the House what we are doing. We are giving the courts important extra powers which we believe that they will value, and which will be especially valuable to women going through divorce. The position of such women will be significantly strengthened. I commend the Government's proposals to the House.

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