|
Examination of witnesses (Questions 160 - 179)
WEDNESDAY 8 JULY 1998
MR PETER
MURRAY, MR
PETER THOMPSON and MRS
JANE MARSHALL
160. Can you give me some
sort of indication? Are we talking about tens, hundreds or thousands?
What kind of figures are we talking about?
(Mr Thompson) To give you an indication of order
of magnitude, we are talking about hundreds—not tens and
not thousands.
161. So, given that it is perfectly acceptable,
we are able to anticipate that lawyers who advise divorcing couples
will have a list of scales saying "This is the penalty charge",
if it is a third-party administered scheme, of what they have
incurred—of what the cost might be.
(Mr Thompson) Peter Murray has already mentioned
that NAPF is prepared to consider putting out an indicative scale
of charges, and it will be a range rather than a fixed charge.
We would expect that to be made available to anybody who wants
to use it. We would also hope, incidentally, that the existence
of such a scale of charges would reduce the scope for disputes
arising subsequently, as to the level of those charges.
Chairman: We do have
other areas, apart from costs and charges, we want to cover, so
I appeal to colleagues for a bit of discipline.
Mr Wicks
162. My colleague has pursued this line
of questioning, but give us an idea about what a reasonable charge
might be. £80?
(Mr Thompson) As I say, from the relatively limited
work we have been able to do so far, we are looking at a cost
whose order of magnitude is measured in hundreds of pounds, not
tens of pounds.
163. It would not be a percentage of any
fund?
(Mr Thompson) I do not see that the cost of dealing
with a pension share is going to vary materially whether the pension
is £100,000 a year or £10,000 a year.
164. Would the Association lay that down
as a guideline, do you think?
(Mr Thompson) I think we would be prepared to
lay down a range of charges. There are a number of stages to go
through, but I am conscious that the Committee has other issues
to look at this morning. For example, the first stage will be
for the member to approach the pension scheme and ask for a cash
equivalent quotation. The member is entitled to that as of right
under legislation, and has been for a number of years, and I cannot
imagine schemes wanting to pass on that charge to the member.
However, if a pension sharing order is then served on the scheme,
the scheme has to set up a new pension record for the ex-spouse,
has to set up a negative deferred pension for the scheme member,
and if the ex-spouse remains in the scheme when he or she reaches
retirement age there will be a pension to put into payment and
payments to be made. Charges and costs will arise in all those
areas.
165. Can I ask whether the Association would
want schemes to be allowed to request medical evidence in respect
of shared pension schemes?
(Mr Murray) Yes, we would. We would like to avoid
being exposed to a situation where a couple decide to divorce
because one of them is terminally ill. It is for that type of
situation we would want to be able to protect the scheme—against
being selected against.
166. How would that work? The divorce goes
through the court, the judge makes a judgment about the division
of assets and, I suppose, the judge says X per cent of any funds
should go to the ex-wife. How does your requiring medical evidence
impact on that judgment?
(Mr Murray) I think we would like to be in a position
to approach the court ourselves, if necessary, to explain to the
court what was going on in that situation. At the end of the day,
if we had a court order we would have to follow the court order.
167. I am not quite sure how this works.
You may only hear about the divorce once it has occurred.
(Mr Murray) Yes.
168. You mean that after the divorce you
would go back to the court and say "Hang on a minute, there
is something fishy here"?
(Mr Murray) We will need medical evidence in order
to calculate the cash equivalent of the member's benefits. If
the member's life expectancy was impaired then that could affect
the calculation of the cash equivalent. It is in those circumstances
that we would want medical evidence from them.
169. You would seek a court hearing?
(Mr Murray) If we were of the view that there
was a risk that the member's life expectancy was impaired, then
we would need to feed that into the calculation of the cash equivalent.
So that, when we sent that back the court had a correctly calculated
cash equivalent.
(Mr Thompson) I do not see this as a regular occurrence,
or one that is going to arise for what I might call the "normal"
divorce involving an active member of a pension scheme. The situation
might, however, arise in the context of someone who is already
receiving a pension—who is drawing a pension from the scheme—where,
because of a terminal illness, the expectation of life could be
very much reduced. It would not, therefore, be fair on the scheme
if that member could receive a cash equivalent calculated as if
he had an expectation of 10 or 20 years if, in fact, his expectation
was only a few months. What we are dealing with, I think, is the
potential concept of what I might call a "divorce of convenience".
We have seen talk in the past of marriages of convenience, but
I think we might be talking here about the potential of a divorce
of convenience.
170. Could you send us a note about this
issue?[4]
(Mr Thompson) Yes, okay.
Chairman: I think
that would be helpful. It is a bit of a learning curve for us
all, I think.
Mr Leigh
171. On that point, we were told that under
the new Family Law Act 1996 you cannot get a divorce within 18
months, so it is difficult to arrange a divorce of convenience.
Is it not?
(Mr Thompson) If that is the case then you may
well be right.
Chairman: Can we move
on to safeguarded rights? Mr Paul Goggins has some questions in
that area.
Mr Goggins
172. I am particularly interested in your
views on the need for the option between internal membership and
external transfer. We know that your organisation's view is that
that should be a practical option wherever possible. Indeed, in
the consultation document published by the Government it says
that the National Association of Pension Funds intends to encourage
schemes to offer former spouses the choice of an external transfer
or scheme membership. It seems to me that the important word there
is the word "encourage". I wonder if you could tell
us about your track record in offering encouragement to your members.
How effective are you? What evidence can you bring to this Committee
of your effectiveness in offering advice and encouragement?
(Mr Murray) Clearly, we cannot instruct our members
to do something that they do not want to do, and clearly we can,
even less, instruct pension schemes who are not our members. What
we are seeking to do is to work with all concerned in setting
up this legislation to ensure that it is relatively straightforward
for schemes to enable former spouses to join. If it is relatively
straightforward for schemes to do that and, indeed, it can be
set up in that way, then I would expect that the majority of schemes
would admit to the scheme those former spouses who wanted to.
173. What evidence do you have to say that?
One of the things we face, I think, as a Committee, is that everybody
is full of good intentions when it comes to this, but what we
are actually looking at is further down the track, and what the
practical outcomes are. We need some firm evidence, I think, to
make the claim that organisations will follow your advice.
(Mr Murray) Clearly, if the arrangements are set
up so that it is just as easy for a scheme to admit former spouses
as it is to go through the business of transferring out—which
is quite a protracted and complex business—then my view,
and the view of the NAPF, is that the majority of schemes will
do that. We provide a service to our employees, we provide a service
to other beneficiaries of pension schemes, and we do not think
it will be a big deal for us to provide for another group of beneficiaries.
We have thousands of beneficiaries anyway, and having a few hundred
or thousand former spouses is not likely to be a big deal.
(Mr Thompson) If I might add another point, arising
out of what Mr Goggins has said, which is in the area of good
intentions, NAPF members operate occupational pension schemes,
occupational pension schemes are a voluntary act on the part of
our members—they do not have to set them up—so the
good intentions are already evidenced by the fact that they have
set up occupational pension schemes in the first place.
174. Can I press you, nonetheless, a little
bit further? You say in your evidence that you hope that schemes
will not be dissuaded from offering this option by unnecessary
complexity. Again, I think my experience, certainly—and
other Committee Members may share this experience—is that
where organisations want to introduce complexity they will do.
What advice or encouragement are you giving to reduce complexity.
(Mr Murray) That main advice we are giving in
this area is that schemes should be able to set up the benefit
structure for the former spouse—they should have powers
to set it up—in a way where it actually fits into their
benefit structure, with the proviso that the benefits which they
give must give good value for the cash value which is transferred
in. We believe that if it is set up in that sort of way then it
will be easy for schemes to absorb former spouses.
175. I am sure it is the hope of this Committee
that this advice is followed and that complexity is reduced.
(Mr Murray) That is, really, not our hope, it
is our expectation.
(Ms Marshall) We have been discussing some of
the detail with DSS and we have suggested a number of ways in
which the point that Peter has just made can be made clearer in
the legislation. DSS, I think, understands the point we are making,
so we do not see any reason why the Bill cannot deliver on that.
However, there will need to be some detailed discussion which,
after all, is the point of having the consultation process at
all.
176. Can you tell the Committee the kind
of recommendations that you are making? Clearly you say in your
evidence that you are not certain this is reflected in the draft
legislation, but what improvements would you like to see?
(Ms Marshall) Just one example, I think. If you
read all the explanatory notes you will see, at the end, there
are some changes proposed in relation to the Inland Revenue practice
notes, which is the discretionary practice under which approved
pension schemes operate. One of the things there that the Inland
Revenue is suggesting is that it will amend its practice notes
to ensure that if the person with the pension share who is retained
in the scheme membership dies before pension rights come into
payment, then the Revenue would be happy—as I understand
the notes—for up to 25 per cent of the member's rights to
be paid as a lump sum. That is fine. I can understand why the
Revenue would want to say that, but it is not necessarily a benefit
which will be given to a deferred pensioner under a pension scheme.
So, immediately, we have the Inland Revenue, rightly, trying to
give schemes flexibility, and schemes may well want to take advantage
of that flexibility, but therefore they will have to distinguish
between those rights and a normal deferred pensioner. In fact,
the Bill makes it clear that the intention is that schemes must
give value for the cash equivalent which has been ordered, or
agreed on, but that subject to that the exact package will have
to be notified clearly to the person concerned so that they understand
what the benefits are—but that it is the scheme who can
make that package so that it fits in with their own arrangements.
That is the sort of thing I am talking about, which does not perhaps
raise expectations that all schemes are going to package their
benefits in one way—they may wish to do it in another way—but
the over-riding principle is that they have to give value within
the scheme, clearly, for the percentage of the cash equivalent
which has been agreed or ordered.
Chairman: Can we move
on to regulation.
Mr Leigh
177. Almost by way of comment, I think the
example you gave us, Mr Murray, was a fairly chilling one of the
divorcing husband being left with as little as, perhaps, a quarter
of his pension. I think this convinces me that this is not a narrow,
technical thing we are talking about but it is potentially a major
political issue. I can see a wave of people coming through our
surgeries—as they do with the Child Support Agency—saying
"This is so unfair. I am left with a quarter of my pension.
My ex-wife has married somebody who has got plenty of money"—and
so it goes on and on. That is almost by way of comment, to show
that we know there is a huge cost to divorce. On that point, if
an ex-wife, as is increasingly the case, has her own occupational
pension scheme, and she now gets a pension credit from her ex-husband,
is that going to complicate the whole system? Would you be able
to cope with that pension credit?
(Mr Murray) Pension schemes quite normally take
transfers in from other occupational pension schemes, so that
is quite normal. That is routine.
178. On the wider regulatory point, you
say in your memorandum in paragraph 6, under the heading "Simplicity":
"The provision of pensions by employers for their employees
has become complex and its administration expensive. It is essential
that pension sharing does not increase that complexity any more
than is absolutely necessary. If it does, the long term effect
could be a reduction in the number of occupational pension schemes
..." Obviously I am very worried about the increasing amount
of regulation of your industry. Have you managed to cope with
the increased regulation since the 1995 Pensions Act? Has that
been a major burden on you?
(Mr Murray) It has been a major burden and there
is evidence from surveys which we have done, and also a very interesting
survey which was published a few weeks ago by the Association
of Consulting Actuaries, of small schemes, schemes with fewer
than 250 members, that the cost of regulation and concerns about
potential future increases in the cost of regulation are causing
an increasing number of employers, particularly small employers
but not just small employers, to move away from final salary schemes
to money purchase schemes, particularly group personal pensions.
The biggest concern is that the amounts which not only employers
but in some cases members contribute to these arrangements are
very much lower than to final salary schemes and, therefore, obviously
what comes out is a function of what goes in and members' pension
prospects are considerably reduced. So over-regulation is a major
problem for this industry and there have been some encouraging
noises coming out of the Department of Social Security that they
are looking at the 1995 Act and are trying to simplify it for
us. We are encouraged by that and we hope that they will, but
the 1995 Act added very considerably to the administrative burden
on schemes, for very good reasons, but nonetheless they did.
179. The other side of the coin is, will
this new regulatory environment prevent another Maxwell? Is it
going over the top or is it inadequate?
(Mr Murray) My view is that the new regulatory
environment will improve things in a number of ways but I do not
think it would necessarily prevent another Maxwell. The main thing
that would reduce the chances of another Maxwell is not the 1995
Pensions Act but the fact that the activity of custodianship is
now a regulated activity. The Maxwell affair was a failure of
proper regulatory control over custodians. The assets moved and
they should not have moved. The 1995 Act does not cover that at
all. Indeed, one of our biggest criticisms of the 1995 Act was
that it missed that crucial point, that the financial services
regulators now regulate custodians. That, I think, is a far more
significant factor in dealing with the specific issues that arose
in the Maxwell affair than the Pensions Act.
4 Not available at time of publication. Back
|
