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Mr. Arbuthnot: 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
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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.4.45 pm
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
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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 shall now repeat something that I said in Committee, which was more important than Opposition Members may have realised at the time, so I shall say it more slowly:
"We recognise that some people would prefer a different, pension-splitting, approach to the treatment of pensions on divorce. However, our amendments will enable the courts to reinforce and build on their existing powers; they represent a much improved framework to enable the courts to take proper account of pension rights in divorce settlements.
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We shall review the treatment of pension rights on divorce in the light of the outcome of the research project that my Department commissioned to gauge the nature and extent of the problem."- -[ Official Report, Standing Committee D , 22 June 1995; c. 813-14.]Mr. Archy Kirkwood (Roxburgh and Berwickshire): 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?
Mr. Arbuthnot: 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.
Mr. Arbuthnot: 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
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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.
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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
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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.
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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.
Mr. Dewar: 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
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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.
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5.15 pmI 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
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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.
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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.
Mr. Arbuthnot: 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.
Mr. Dewar: 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
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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.
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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.]
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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. Mr. Arbuthnot rose --
Mr. David Winnick (Walsall, North): 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.
Mr. Deputy Speaker: 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.
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