Examination of witnesses (Question 60
- 89)
WEDNESDAY 24 JUNE 1998
MR JOHN
DENHAM, MP,
MR CHRISTOPHER
EVANS and MR
WILLIAM ARNOLD
Miss Kirkbride
60. Has it ever been valued, the unfunded
public sector scheme, when the divorcing spouse takes it away?
What value has been put on them and how has it been decided what
the benefits were?
(Mr Denham) The usual cash equivalent valuation
would be applied to the rights of the member of the scheme in
order then for that valuation to go to the settlement in court
and then to be divided in proportion.
61. I want to take you on to a few things
which just cross my mind. When you said earlier that you could
challenge the valuation given to the divorcing spouse by the pension
fund, the benefits of that fund, is that challenge one which could
be applied against the pension fund as being too mean or is it
a part of the sharing of the property and an argument about that?
(Mr Denham) I am grateful to you for raising that.
In terms of the pension sharing on divorce, it would be the ability
to argue about the percentage that is applied to the valuation.
If members of the scheme have complaints about the valuation process,
that would not be dealt with by the family law court, as I understand
it, but through the internal disputes resolution procedure, going
to the Ombudsman and so on if they were unhappy about how the
scheme had valued it, so the reference I made earlier was to the
ability to argue about the percentage as it applied to the valuation.
62. The other thing that crosses my mind
again when we are talking about tax treatment, presumably although
men will not be able to completely rebuild their contributions,
you could have a situation in which, as it is normally the wife
who takes the pension, she could get her full rights by the tax
system in addition to his, but he cannot. Has that been addressed?
(Mr Denham) There is a consequence which comes
of the tax treatments being proposed in the Bill that he is likely
to be more limited in his ability to rebuild, although he is likely
to have a much bigger pension than she is, yes.
63. But that is something that you have
already agreed and acknowledged?
(Mr Denham) We have acknowledged that, yes, and
we will cover that point in the examples that I said I would send
to the Committee.
64. And then the other thing that crossed
my mind about the problems that arise due to the tax system is
how much thought have you given to the possibility that it may
suit some couples, if there are great charges on pensions, to
actually divorce when they reach retirement because you get two
separate lots of tax relief?
(Mr Denham) I recall that this was heavily debated
in the last Parliament when there were questions about whether
pension sharing should go ahead and I think the view which emerged,
which was certainly mine, was that it was actually extremely unlikely
that there would be a significant behavioural change of that sort.
There is, as Mr Wicks said earlier on, a balance to be struck
in the general treatment of pension sharing to avoid people being
able to maximise very significantly their pension advantages,
so I am sceptical about the number of people who, once retired,
would divorce solely to enable them to reduce their pension income
down to take advantage of two personal allowances. One has to
say I think that would be possible, as I understand it, but I
am sceptical that people would divorce for that reason.
65. But the moral climate having changed
and bearing in mind what the personal allowances are around for,
that means you get it tax free, plus a 10p tax bracket to bring
it in, you could be talking about very small amounts of money
that you would then have to pay tax on for a reasonable pension
on which a couple would be living in addition to their state pension.
(Mr Denham) It is a matter on which everybody
is going to have to make their own judgment. My own judgment is
that you are not going to see significant behavioural changes
of that sort from this legislation because there is, I believe,
though it is not my field, very little evidence that people enter
into financial calculations when they go into a divorce at present,
although it can have big implications for the two parties.
66. Moving on to SERPS, can we be clear
about what the position is with regard to SERPS and how it will
operate under the pension arrangements in the Bill?
(Mr Denham) The SERPS will be split and the principle
is the same as the other.
67. So no earmarking?
(Mr Denham) It will be split.[2]
68. On the computerisation, given that it
is so complicated, I would not even want to begin to try and ask
anything in too great a detail, but are you confident that you
can do it on the new computer?
(Mr Denham) Yes, our discussions with Andersens
who are the main contractor on the NIRS2 computer system, they
know the sort of timescales on which we would like to work and
I am sure that we will have a system which is capable of delivering
this, if we can get the legislative time, by April 2000.
69. You are confident that it will?
(Mr Denham) Certainly sitting here today, I have
no grounds to believe that it will not.
70. And it will all be in place because
the problem of valuing SERPS is so much greater than all the other
types of pensions and that too has been worked through?
(Mr Denham) Certainly we have been working towards
the aspiration of having this in place by April 2000 and that
has not just meant that the work has been going on on the legislative
side, but on the managerial and administration side as well, so
yes.
71. And bearing in mind the wider context
of the Pensions Review, how much have you been worrying about
the wider Pensions Review being compatible with the pension-splitting
arrangements if indeed SERPS continues under it?
(Mr Denham) I think it is clear that if there
are changes in pensions policy as a result of the review, just
as pension sharing reflects current pensions provision, pension
sharing will need to evolve to reflect those changes in future.
Ms Stuart
72. I understand that the Government will
not make a charge for the administration of splitting SERPS to
the parties. Is that so?
(Mr Denham) Yes, I am assured that is the case.
There will be no profiteering here!
73. I remember tabling a question not long
back asking how much it would cost if you sent every person an
annual pensions entitlement statement and the standard answer
which came back was that it would be £3.50 a head and it
was £20 million or was it billion—anyway it was enormous.
(Mr Denham) It was a lot of money.
74. So what is your estimate of how much
it would actually cost you or is that such a marginal cost that
you think it could be absorbed?
(Mr Denham) I have seen an estimate, but I cannot
recall it and, if I might, perhaps I could write to the Committee
to give you a direct answer on that. It is certainly something
which we have looked at, but I could not off the top of my head
tell you what the answer was.
75. I do not want to miss this opportunity
because I have been approached by people who thought that given
this issue of helping women in retirement who have not built up
their pension rights and whether SERPS could be used in some way
to supplement that, could you just make it clear that all this
has no potential of any retrospective legislation and that within
the whole draft Bill there is nothing which has an element of
retrospection about it?
(Mr Denham) The provisions will come into place
when the Act comes into force. There is retrospection in the sense
that it will apply to pension rights accrued up until that point,
some of which will clearly already have been accrued today, so
in a sense when the legislation comes into force, somebody entering
into the divorce process will then look backwards over the working
life or the period of the marriage, but there will be no retrospection
provisions for revisiting previous cases.
Chairman: I want just
now to spend a few minutes talking about the modernisation process
itself, but before we do that, I wonder if we could just spend
a moment looking at how this potential legislative change might
affect marriage and remarriage rates and I know that Malcolm is
particularly interested in this.
Mr Wicks
76. It is one of these behavioural things
again and it relates to the issue of co-habitation. I acknowledge
that people get married and remarried for all sorts of reasons
and the actuary is not usually present, but I think there is potentially
a serious point here, that we know that in recent years marriage
rates have declined and we should not exaggerate that trend, but
there has been a decline, and, as I remember from my demography
a few years ago, remarriage rates have particularly declined.
Now, is it not possible that in future, let us take remarriage,
and with large numbers of divorces, there is a lot of re-partnering
going on, which I think is now the expression, and a certain number
of remarriages, but particularly from a man's point of view, a
man who has had a divorce and lost a chunk of his pension fund,
but settles down again with another woman, is it not likely that
this will affect his decision, and it might affect her decision
as well of course, about whether to contemplate a second marriage?
Given that, as I say, there are a lot of co-habitations now following
divorces, and, as I remember, rather fewer remarriages, is there
not a chance that your policy has an impact on that kind of behaviour
which could lead to fewer women in the future having access to
a decent pension in old age when the second relationship breaks
down, as they often do?
(Mr Denham) I think it is actually very difficult
to predict any behavioural changes that might come from these
measures. I, therefore, am quite reluctant to say, "No, that
could not possibly happen", or "That would certainly
happen". All I would say at the moment is that I am not aware
of any evidence that suggests that pension rights are a major
factor in determining whether people get married or whether they
get divorced. Whether that will evolve in the future, I do not
know, but I think the safest assumption to make is that this sort
of measure will not lead to a significant behavioural change and
I do not see any great evidence to suggest that it would change
significantly.
77. There is no answer to my question if
you do not know, but can I ask that you consider seeking advice
from some of the demographers both within government and maybe
outside, people like John Haskey and the Government Statistical
Service who might be able to look at some of the evidence about
what motivates remarriages and so on and possibly give some advice
both to yourself and to this Committee. I am not certain, but
it seems to me to be a potentially interesting one because following
one divorce and the person contemplating a remarriage, it is different
for the man and the woman of course, but from the man's point
of view, if you were that man's accountant or lawyer or if you
were writing the family finance page on this in the Daily Telegraph
or in the Guardian, what advice would you give? I think
the answer is obvious. I am asking whether you can get that sort
of informed note on this for us.
(Mr Denham) Well, it is very important to get
this into perspective. If we were talking as though up until this
point pensions had never featured in divorce and the courts had
never in the last 20 years taken pensions into account, then I
think the change would be much bigger, but we are talking about
20 years now of experience of divorces in which pensions are taken
into account. The problem is they are not taken into account adequately
and we do not have the right legal procedures to allow the former
spouse to gain access to her fair share of the rights and that
all makes a difference clearly, otherwise we would not be doing
it, but it is not as though something brand new has come along
and up until now a man's pension rights were treated as his and
his alone and had no impact in the divorce case and then suddenly
we are bringing about a revolutionary change which must mean men
are going to look at the whole business totally differently, so
I am a little bit sceptical that we may be really overstating
the impact.
78. Well, so am I, John, but I put it to
you that over those 20 years, we have seen the decline in first
marriage rates and second marriage rates and the rise of co-habitation,
particularly co-habitation following first divorces. Now, that
is a correlation and I am not saying there is a causal relationship,
but I think although it is very difficult territory, it would
be unwise not at least to raise the possibility in the future
that that may make an impact.
(Mr Denham) If the Select Committee wanted to
look at it and express its views on it, I think we would find
that very interesting, but we have not ourselves been able to
see any evidence that there is, for example, a correlation between
the introduction of pensions into the divorce process in the early
1970s and the failure of the divorcing couple to remarry and choosing
to co-habit, but if there is, I am sure we would be interested
to see it.
Chairman
79. To support the point Malcolm has made,
I think that pensions in my day when I was doing divorces were
ancillary, rather a secondary issue and they certainly will not
be that in the future.
(Mr Denham) But there has been some change already
in the Pensions Act and the issues around the Pensions Act which,
I think, did lead not just to some, I think, inadequate changes
in the law, but much greater education amongst solicitors dealing
perhaps with family law so that they were much more aware of it,
although I do not think any of us would be sanguine about saying
that pensions are now always properly taken into account even
under the existing law. The pensions and divorce study that the
Department published in 1996, I believe, actually showed quite
a remarkable disparity between the proportion of solicitors who
said that the pension had been taken fully into account and the
number of former spouses who simply thought that it had not been,
so the level of understanding in the process was not as clear
as it should be and I think it should be much better as a result
of this.
80. But I think we may be reflecting on
some of the issues Malcolm has raised. Could we spend the last
ten minutes just looking at the process of the pre-legislative
scrutiny and I want to ask Patricia Hewitt if she will lead that
discussion, but could you just start by telling us a wee bit about
the timetable? Are we up to speed and are you reasonably confident
that we are able to do all of this in time to get a report that
will be helpful and available at the same time as the legislation
actually starts its legislative passage?
(Mr Denham) I think we are, and we cannot preempt
the Queen's Speech, as you will understand, but I think that if
we were to be successful in the Queen's Speech, my understanding
of your timetable at the moment is that it will enable us to gain
value from the process.
Ms Hewitt
81. I think we all were very pleased by
the Government's decision to introduce this new pre-legislative
scrutiny using select committees and we were very pleased to be
chosen as a pilot project for this. What would make this process
a success for you or indeed what would make it a failure? How
are you going to evaluate the success of this process in contributing
to the Pension Sharing Bill?
(Mr Denham) I think I would put it in a number
of ways. From what I have seen of the legislative process both
in opposition and briefly this year as a Minister, many of the
types of discussions which we have had this morning, not about
perhaps the fundamental principles, but the detailed choices,
only really arise with other Members of Parliament once you are
in standing committee. When you are in standing committee, not
only does it become a sort of macho thing that any acceptance
of amendments is greeted by the Opposition as a U-turn or as a
climb-down or something of that sort, but you are actually up
against really very serious legislative timetable pressures and
actually taking something away for another look and still delivering
to the timetable of the House is difficult. So what I think would
make this a successful process for me, whether the process leads
to change or to confirmation of what we are doing, is the ability
to be talking through these issues and anticipating those types
of debates well in advance so that if there is a need to change,
we can do that. The second thing is I think the potential advantage
of going into standing committee with many of these issues previously
discussed, not with the select committee to resolve what the standing
committee will do, but having had a good debate and the report
and consideration of them, so that the time of the House can be
spent effectively on the most contentious issues which perhaps
will be points of principle between members of a standing committee.
The third thing is that if the whole process, not just your own
scrutiny, but the outside consultation, means that the legislation
can work, then that is quite a big gain and we are already, I
think it is referred to in the consultation paper, finding in
the earmarking and attachment provisions that the information
which goes from the court to the schemes is not necessarily everything
the scheme needs to do, so the scheme then has to go back and
try and sort the thing out, so everyone is wasting money. Now,
if we could be sure about the arrangements we are putting in place
for the information to go to the scheme at the right time and
all the right information so it is a simple administrative exercise,
it will be much more cost-effective for the divorcing couple,
it will be better for the scheme and it will get credit from it,
so if we can get the legislation right in practical terms, it
will be an advance.
82. In terms of the timetable, I gather
the Department is conducting its own consultation at the moment
and we have asked, I do not know whether it is you or civil servants,
but the Department to come back and give evidence to us in September.
At our next evidence session with you, will we be able to be given
a preview of the results of the Department's consultation?
(Mr Denham) It is something I would like to consider,
but in principle I would want to share as much information with
the Committee as possible. We will, for example, have, I think,
some of the research results of the work on earmarking and attachment
available for you for September. I would like to be as helpful
as possible in this process and if we are beginning, which I cannot
anticipate now, but if we are beginning to pick up areas where
we think we need to rethink an approach, then I certainly want
to be able to come to the Select Committee and say, "Forget
what I told you in June. We are going to do it this way",
and I think we would want to keep that process as open as possible.
83. Good, that is very helpful. Obviously
we will consider when we have considered our process what recommendations,
if any, we want to make in terms of the actual draft Bill. Can
you give us any indication at this point of how you would wish
to approach a response to our recommendations?
(Mr Denham) The formal process is that we would
respond to the Select Committee in the normal way in the normal
procedure. At the very least, if you were recommending something
different from what we have put in front of you as draft legislation,
we would want to consider that as part of the response and I think
it would simply be a matter at this stage of looking at that very
closely. It would provide us the opportunity to revisit what I
described earlier as the finely-balanced judgments that we have
made so far and clearly at the end of the day the Government will
have to take the responsibility of whether we come to the Committee
and say, "Well, we are grateful for the Select Committee's
views, but nonetheless we are still persuaded by these arguments"
or to say that we would want to change the legislation. I could
not for you now work through the detailed timescales as to whether
your report might require us to consider amendments to legislation
which had been brought before the House or whether we could complete
that process before the legislation had been brought in.
84. On that point, if you are successful
in the bid for the Queen's Speech, do you have any indication
of when the brief and the current draft Bill would go back to
the parliamentary draftsman?
(Mr Denham) I think that would be premature, to
be honest, given that we do not know exactly and I cannot anticipate
the Queen's Speech and I certainly cannot anticipate the order
of business in the Houses of Parliament.
85. Do you think that the Child Support
Act would be different if it had gone through this process?
(Mr Denham) That sounds like a benignly simple
question, but I suspect it is a leading question. I am sure that
there is a great deal of legislation that would be better if it
had been through this sort of process and I am just very grateful
for the opportunity to be part of it this time around and hopefully
between us we can show that it does make a difference to what
comes out.
Ms Hewitt: Very diplomatic.
You should be in the Foreign Office!
Chairman
86. There are just a couple of supplementaries
to that. The working documents that we have already been given
access to are very, very helpful, and the primary legislation
is all there in draft, but of course there is a lot of detail
that will be left to the secondary legislation, orders in council
and statutory instruments. Can we ask you to make sure that as
much of the briefing material and working assumptions that will
be put into those regulations will be part of and a continuing
and ongoing part of the process as far as the consultation that
we are going through in our report and the publication is concerned?
Can we rely on you to give us as much as you possibly can even
if it is only options? We understand that there are limits to
what you can do, but it would be very helpful to us bearing in
mind that this is a two-stage process too.
(Mr Denham) Yes, it is and I hope, Chairman, the
Committee recognise that the notes on the draft clauses are very
different in style and language from the notes on the draft clauses
that some of us are used to and they do make a genuine attempt
to explain that and also to indicate what we think we will be
using regulation for at a much earlier stage in the process than
we normally have. Again I would want to be able to consult on
regulations and it is standard practice in the DSS to consult
widely on pension scheme regulations in any case. We would need
to look at the practicalities of bringing regulations formally
back to the Committee, but I am certainly happy to say that I
want to keep the process as open as is possible with you.
87. Absolutely. We must be careful we do
not just completely subvert the proper legislative process. Are
you making special arrangements with this piece of legislation,
for example, with the Opposition spokesmen and teams that it might
be available if they make requests? Would they get access to ministers
and would you be able to be as open as you are with the Select
Committee?
(Mr Denham) I am, as a Minister, trying to be
as open to Opposition spokespeople to come and see me as they
wish to do to talk through things. The documents here are published
and we do see, I think, the Select Committee as the cross-party
focus for the sort of detailed discussion that you are now undertaking.
88. Is there anything that you think at
this stage that we should be looking at which would help you from
the position that you are in at the moment? That might be something
you want to reflect on, but if there is, I can tell you that I
know that my colleagues would positively respond to any particular
steer where you thought that we had some kind of unique way or
special way of dealing with questions that you may be wrestling
with behind the doors of the Department, so if there is anything
now or anything in the future you think we could particularly
assist with, we would be very pleased to hear about that.
(Mr Denham) The only two reflections that I would
make as an immediate response to today's discussion is that I
think that the process that was touched on at several points of
working through what this would actually mean in practice at each
stage, and we have talked about charges and administration and
who has to send the information to the scheme and so on, I think
it is useful to have a second view of how this will actually work
if you are actually undergoing this experience of running a pension
scheme because, to take the CSA analogy, that is actually where
the focus, not on the principle, but what it is going to feel
like is so important. I would suggest that for the Committee to
form its own view, getting a clear understanding about what the
purpose of this legislation is and how its pension policy purposes
fit in to the family law procedures is very important. There is
clearly a job of understanding there that we all need to take
on.
89. Can I reinforce the invitation that
we have extended to your officials that at any stage even for
very brief periods of time during the course of our inquiry, if
there is anything you want to come and clear up if you think we
are going off the beaten track or if you want to come yourself,
even just dropping into a session here, you would be very welcome
to come for 15 or 20 minutes to explore a single question. That
would be of assistance to us to understand that that is a possibility.
(Mr Denham) Thank you very much for that.
Chairman: Finally,
can I specifically ask you to say thank you to your own officials
for being so well disposed to the Committee in making themselves
available. We have had two very full briefings now and I must
say that we are getting the impression that they are making every
effort that they can to try and assist us in this difficult but
very important process. We are very grateful for that and we want
you to make that clear to them, if you will. Thank you for your
time this morning. I think that the session has been very useful
and it may well be the start of a new historic process in the
way that we conduct legislation and people will look back to this
very day and say that this was the point at which all things suddenly
became sensible. Thank you very much.
2 Note by Witness: "The Government propose
to enable SERPS to be shared on divorce. It will also remain possible
for SERPS to be earmarked (though not attached) as now." Back
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