Examination of witnesses (Questions 360
- 379)
WEDNESDAY 15 JULY 1998
MR
DAVID
DAVIDSON,
MR
RICHARD
SAX
and MR
DAVID
SALTER
360. So in the case of pension sharing,
the courts in England and Wales would tend to look at the value
of a pension fund and to look at the equitable distribution of
those assets against other assets. In the Scottish system, you
would expect that it would only be that element of the pension
fund which had been accrued during the marriage which would be
taken into account in pension sharing?
(Mr Sax) Yes, and indeed the draft legislation
differs because we in England are expected to deal with it on
a percentage basis only, whereas in Scotland there is the option
of the lump sum, which is their method of calculation, or the
percentage.
361. We have had this interesting debate
this morning about whether or not this preliminary material produced
by the officials will be taken into account by the courts, and
you can see that it has caused such concerns and worries amongst
some members of the Committee that Mr Wicks is talking of putting
his doodles in the shredder! Could I ask whether you share that
view?
(Mr Sax) I am not a sophisticated pensions lawyer,
I am only a family lawyer. I would be horrified at the thought
that the material which we have been discussing in the consultation
panel and before you would then be brought into account in interpreting
the legislation. I would much prefer the rule that what is said
in Hansard can be looked at where appropriate, but nothing over
and beyond that. Otherwise, this whole process would be jeopardised.
362. Finally, on pre-nuptial agreements,
do you think pension sharing will lead to a greater use of pre-nuptial
agreements and do you think they have a role to play?
(Mr Sax) I must speak now with my Solicitors Family
Law Association hat on, which is different from my own personal
view, and that is that there is a role for pre-nuptial contracts,
it is a limited role, the SFLA's view is that it should be inserted
as a factor into the factors which the court now has to consider,
but that they should not be prima facie binding, subject
to certain limitations about proper advice, proper disclosure,
non-misrepresentation and so on.
Ms Hewitt
363. On this very interesting issue of multiple
pension sharing orders, I think it is actually sub-section 24C(5)
in paragraph 3 of Schedule 1 which restricts the power of the
court to make a pension sharing order where there is already an
order made in relation to the marriage. It is quite intriguing
if you compare what is in the schedule to the Bill with what is
in the explanatory notes. The explanatory notes say that the court
would be prevented from making an order where a pension sharing
order has already been made in relation to the pension arrangements
for that particular marriage, which seems to imply that actually
they intended something different from what the schedule as drafted
actually says. Can you shed any light on that?
(Mr Salter) I cannot, I am afraid, and I certainly
would hope that that explanatory note is in fact correct. It certainly
would seem to run contrary to the general scheme and it would
place an obligation on the parties to agree or the court to order
everything at a single time, which may simply not be possible.
Discovery may not have revealed the existence of a particular
pension, or, for any number of reasons, it may be appropriate
to make the orders at different times.
364. Although you do say, I think, only
one order in relation to one pension scheme?
(Mr Salter) Yes, indeed, which seems to be what
is suggested in the note to which you have referred. I wonder,
Chairman, if Mr Davidson could say something which relates to
that question in relation to pension sharing and earmarking and
how they inter-relate?
Chairman
365. Yes, please, Mr Davidson.
(Mr Davidson) One of the four concerns we have
at the moment when advising clients is the lump sum death benefit.
Often we cannot achieve a clean break because there is a wife
with young children although we might be able to achieve a clean
break when they have finished their secondary or tertiary education.
The husband may be a member of an occupational scheme getting
four times his salary being paid out in the event of his death.
As the Bill is drafted, you cannot have an earmarking order and
a sharing order in respect of the same pension arrangement, but
an order earmarking a lump sum death benefit meets a quite different
and specific need from pension sharing. Indeed, the cash equivalent
transfer value, I do not think, takes any account of the lump
sum death benefit, for example, so you have a wife with three
children and the children receiving maintenance, a husband gets
killed at work or whatever, or ex-husband, and a large sum is
available. At the moment, if you do not have earmarking the trustees
have a discretion as to who they can pay it to. It would be very
much better to have earmarking because then in devising your settlement
you can meet that specific need which is probably the best and
cheapest life assurance you can have for the family. Indeed, one
of the defects of the present earmarking is that you cannot earmark
the death benefit to children and it is often the children you
are wanting to earmark for, whether for their education or for
their general maintenance.
Chairman
366. That is not allowed under the current
framework of the scheme for earmarking?
(Mr Davidson) No, it is not. It is theoretically
possible and you could have a need in a particular case where
you cannot achieve a clean break to even earmark the pension in
payment as well as having a sharing order. I find that a hard
circumstance to envisage. I cannot see it is going to pose a problem
for pension schemes to have to deal with two elements in respect
of a member of their scheme. They have already got this problem
of how they exercise their discretion on death in service, it
is not such a great burden for them, which is I suspect why the
policy decision has been made to date, to exclude the earmarking
where you have pension sharing.
367. Are you implying that it may be possible
in gremio, to protect this Bill to deal with that, or amend
this Bill to give that power?
(Mr Davidson) Yes. It is subsection 24C(6) in
paragraph 3 of Schedule 1 which is the problem clause. If you
strike that out, you would not have this problem, and we would
need amending legislation to have earmarking of lump sum death
benefits for children.
368. I am wondering if you can do that all-in-a-oner,
as they say, in the course of this Bill?
(Mr Davidson) It can be done in this Bill, yes.
Chairman: That is
helpful, thank you.
Ms Stuart
369. The difficulty with what you are suggesting
is that if we start to confuse pensions, which serve one purpose,
with in-service death benefit, which has a different purpose,
we have significant difficulties particularly as there may be
subsequent families and subsequent children, and to freeze that
one-off in-service death benefit for that one family and not take
account of maybe subsequent children is dangerous, I think, so
we may need to think about that.
(Mr Davidson) But are you freezing it? You may
only be earmarking a proportion of it.
370. But the trustees' discretion at the
moment may be more responsive given the very nature of in-service
death is something you do not intend to happen, it is an accidental
event, therefore I have found trustees' discretion in those cases
probably more useful, and having seen it exercised in occupational
schemes I felt comfortable with it, but I digress. Would you say
anything in addition on the issue of cash equivalent transfer
values to what we have heard this morning so far? I notice you
were all in the room. Rather than going over common ground, is
there anything you wish to say in addition on that?
(Mr Salter) We would certainly support what the
Law Society said. The cash equivalent transfer value is recognised
as being cheap and cheerful, and clearly there are legal aid considerations
because if we are to go down a different avenue of involving expert
evidence from actuaries that will be a huge burden on the Legal
Aid Fund.
371. I was quite concerned in the earlier
discussions when we were talking about flow of revenue and capital,
that when we are dividing assets I do think different kinds of
ultimate assets like the house and pension are different when,
as a result of that asset, you have very different patterns or
flows of revenue. I have a feeling that the Law Society did not
feel very comfortable going down the route of distinguishing between
capital assets and flows of revenue. Do you have the same view,
or would you say we should be more discriminating when we give
advice to spouses and ask them to take account of subsequent flows
of revenue?
(Mr Salter) I think there is an understandable
great danger when considering this legislation that one develops
a form of pensions tunnel-vision and compartmentalises pensions
alone. Hilary Siddle was at pains to stress that a family practitioner
has to look at the picture overall in any given case in relation
to capital and in relation to income. I think it can sometimes
produce a false result just to take the pension first of all in
isolation and say, "What are we going to do with that?"
It is not a helpful approach.
Chairman: Division
of assets?
Mr Wicks
372. Before coming to that, your idea that
the pension industry might regulate its own costs would have been
more convincing to me if I had not read in today's Independent
that trainees from Eagle Star on a motivation course were asked
to run over hot coals in their bare feet, and that even when sadly
some of their colleagues had been quite seriously burnt they continued
to run over the coals, which does cast new light on pensions misselling;
clearly dangerous but it kept happening. A question of all heart
and no sole perhaps! Division of assets, yes, this is the fairly
central theme we have been interested in. I think you were implying
earlier that your perspective too is that properly the pension
fund is among other assets to be considered by the courts. On
your past experience and asking you to forecast into the future,
in typical cases—and I do not know if they are typical—in
cases where there is a pension fund but there is also a family
home, in what proportion of cases do you think this legislation
will lead to the woman on retirement getting a split of the pension
fund from the husband?
(Mr Salter) I think we are talking now, with pension
sharing, about moving towards a situation where clean breaks will
become easier to achieve, in those difficult cases where the pension
fund is perhaps the largest available asset, and that has proved
a stumbling block so far. Yes, I think it may produce situations,
but I do not think there will be quite so many as your question
perhaps implies, where husbands then would say, "If that
is going to happen, I am rather reluctant to part with the family
home in its entirety." I know when Lord Justice Thorpe gave
evidence he did make reference to Mesher orders, the idea of deferred
sales, whereby the wife and the children were allowed to remain
in the family home until certain events occurred, perhaps the
children obtaining their majority or finishing full- time education,
and then the property would be sold at that point. It may be that
the result of this legislation will be that we will seek rather
more of those orders, yes.
373. What would your guess be? Of those
where there is a significant pension fund—and significant
could be more than £10,000, I do not mean huge amounts—of
those coming before the courts where there is a pension fund to
be considered (it is a bit unfair to ask you to guess) in 10 or
20 years' time do you think in half of those cases the woman might
be sharing?
(Mr Salter) I think we are talking about a sizeable
minority.
374. Could you hazard a guess at that?
(Mr Salter) I would not want to put a percentage
on it. Whereas with earmarking we have seen hardly any orders
at all go through, especially after contested hearings, this is
going to be a much more important and much more widely used order.
375. You referred to a kind of pensions
tunnel vision, and I understand that, but I suppose my concern
now is the total opposite of that really. Here we start off with
a consultation paper which is called "pension sharing on
divorce", which does imply pension sharing on divorce to
me—I am not a lawyer, I do not understand these technicalities—and
reforming pensions for a fairer future; old age, I suppose. My
concern now, hearing evidence and seeing how things work in practice
and what lawyers think about this and judges, is that it is only
going to be a minority who end up with a pension share in that
sense, and indeed create plain difficult practice about who lives
in the home and what about the children which will dictate that
there is going to be very little pension sharing going on.
(Mr Salter) I think that is probably over-stating
it. One has to recognise that upon divorce couples have other
concerns.
376. Sure.
(Mr Salter) There is the home, there is the issue
of immediate maintenance, and for many the prospect of retirement
is going to be a very distant concept, and off-setting, I am sure,
will continue for a long time into the future. Earmarking, though
it has many defects, will still be a remedy for some.
377. I think you are right that it is a
more distant concern, if it is a concern at all, but it is a concern,
is it not? You have the immediate family situation with children
and in that insecurity, the understandable view from the custodial
parent, the mother, is let's maintain the home for the sake of
the children to give them that security, we do not want to have
to move and all of that, and that concerns, but 20 years on there
is a concern that that lady may have a very poor old age, and
is it not right that Parliament and indeed a lawyer advising her
should try to get some balance between those two concerns?
(Mr Salter) I think it is absolutely right and
with the limited remedies available that is what family lawyers
certainly over the last ten years or so have been trying to do.
Mr Wicks: On another
question, when a pension is split, do you have any sense of the
amounts of real money involved? A pension split will not mean
that half is actually 50 per cent, in terms of the charges made
and various other matters, it is often considerably less. Is half
less than 50 per cent often? Do you see what I mean?
Mr Pond
378. Neither a lawyer nor a statistician!
(Mr Salter) We do not have in existence practical
experience, of course, of pension sharing at the moment, but I
think there is a misconception certainly in certain quarters that
pension sharing is going to be 50 per cent, and of course it is
not. It is going to be whatever the parties agree or the court
directs, taking into account the other parts of the matrimonial
equation.
Mr Wicks
379. It is not just commission charges,
I am thinking about things like duplication of benefits, spouse's
pensions, hence my funny question about is half always 50 per
cent.
(Mr Sax) There is a further point in that because
of the actuarial difference between men and women the fund which
the wife gets will actually buy her less. There is what I might
call the double whammy. There is calculating the CETV in the first
place which involves husband and wife, and then secondly she gets
caught again because it buys her less, and we will have to take
that into account when we are asking the court to look at it.
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