Examination of witnesses (Questions 380
- 399)
WEDNESDAY 15 JULY 1998
MR
DAVID
DAVIDSON,
MR
RICHARD
SAX
and MR
DAVID
SALTER
Ms Hewitt
380. Can I just ask a question on that specific
point? You have put the double whammy extremely well, and I was
trying to explore this point with some pensions experts last week
I think. Do you think the courts should simply be left to take
account of that double problem in deciding what appropriate percentage
is given to each of the parties, or should Parliament be offering,
by way of regulation or guidance, some other form of guidance
to the courts?
(Mr Sax) I think there should be two things. I
think number one, we should stick with the CETV. Number two, we
should have in the guidance which we issue with the Act pointers
towards this point, and we should leave it to the judges and the
advisers to take this into account in advising their clients.
Chairman
381. Can we in passing invite you to comment
on any problems you foresee about the different jurisdictions
north and south of the English border? Another opportunity to
be superior perhaps about the English legal system!
(Mr Sax) There are difficulties about pensions
during the period of cohabitation. Unfortunately you did not ask
Lord Justice Thorpe about one of his cases which is called H
v H, in which he said that the court should have regard to
the pension during the period of cohabitation. I suspect that
he has recanted since then, but it is an element of the Scottish
thinking moving into the English thinking, and it is something
which we will need to have clarified when we come to look how
the courts will deal with this aspect. I have two other points,
may I raise those?
382. Indeed.
(Mr Sax) One is the question of agreements. Under
the Family Law Act 1996, when it comes in, one of the things which
may be presented to the court before you can get your divorce
order is an agreement, and this will largely be a mediated agreement.
383. It is an informal agreement between
the parties?
(Mr Sax) It could be any kind of agreement but
it is an agreement involving a third party, so in all likelihood
this will be a mediated agreement. In the guidance notes for the
Pensions bill, in one place, it says these agreements will be
produced to the court, and in another place it says they will
be certified by the court. What has been said so far by the Lord
Chancellor's Department is that the court will be rubber-stamping
these agreements and will not be considering them in the way in
which at the moment they consider a draft order which is put before
them. We have concerns about the wider issue as to whether the
parties will expect that when it has the court's stamp, the court
will actually have looked at it, but on the narrower issue where
we have had these problems with earmarking and so on, the thought
that you will have an agreement which is then binding on the pension
provider, and which may be inadequately drafted and there may
been no prior consultation with the pension provider, is particularly
worrying to us. The second point is about tracking and rebuilding
pensions. This is a quite complex area and I certainly do not
pretend I can understand the part of the draft Bill which is the
Inland Revenue part, but we have been led to understand that what
will now happen is that even if you have a clean break the pension
provider is going to have to continue to track the former wife's
fund, so if she puts her fund into Scottish Amicable and her fund
does terribly well, that will then affect the husband's ability
to rebuild his pension. We think this is——
Mr Pond: No!
Ms Hewitt: Will it?
Chairman
384. Could you explain that?
(Mr Sax) I may be wrong. The tax relief in relation
to the two continues to be tied together. We think that is extremely
undesirable. If you have a clean break, you have a clean break,
and the amount of the husband's rebuilding should not depend on
how good the wife's rebuilding is.
385. That is an interesting interpretation.
I think it is different from the one we have had to date, but
we will certainly look at that.
(Mr Sax) It was certainly not our view but it
was raised with us very recently and we understand this is what
the pension funds believe the situation to be.
386. It was raised by whom?
(Mr Sax) It was raised by Mr Ellison in the discussions
which he had been having with the pension providers.
Chairman: We had better
think about that a little more.
Ms Hewitt
387. A supplementary question on that point.
My understanding was that the tax relief limit while the pension
is being built up applies to the contributions, not to the value
of the fund—it is a certain percentage of salary up to a
certain limit. I think your general point is absolutely correct,
the Inland Revenue is severely constraining the ability of one
party, probably the husband, to rebuild his pension fund. I think
that that requires looking at what contributions are being paid
by both parties rather than the value of the fund. The point I
want to explore with you, or get confirmation on, is are you saying
that by restricting the husband's ability to re-build his pension
fund by reference to what the ex-wife has got, the tax relief
arrangements will completely undermine the concept of a clean
break which otherwise is strengthened by this Bill?
(Mr Sax) Yes, that is what I am saying. If you
are going to have to track what happens and what the wife does
with her fund, you are continuing the relationship between the
ex-husband and the wife, which goes against the clean break principle.
388. One assumes the Treasury is, as was
suggested earlier, motivated by trying to make sure that divorced
couples do not get more tax relief than married couples. What
is your response to that?
(Mr Sax) I cannot object to that principle at
all, but I think this goes way above and beyond that, and I cannot
see that the loss of revenue is worth going against the clean
break principle.
Chairman
389. Mr Sax, I know you have helpfully suggested
you might be able to supply us with more detailed thinking based
on work you are still doing, but it might be helpful to pursue
that for a minute. As far as we are concerned, we think the husband's
rebuilding depends on the pension credit at the split.
(Mr Sax) That is what we initially understood
from the notes, yes.
Chairman: If you think
that is different, we would like to get the evidence for that
because it is obviously an important point. Can I ask Mr Wicks
to bring this to a conclusion with some questions about cohabitation?
Mr Wicks
390. Do you as individuals or as an Association
have any thoughts about this issue of pension splitting and cohabitation
or cohabitation break-down? I would have thought there are now
a growing number of couples who, following one marriage break-down,
cohabit with other people rather than remarry, and therefore the
last 15, 20 years of their working life is in a cohabiting relationship,
some of which break down. Should the law have anything to do with
this?
(Mr Salter) As you know, the Law Commission is
looking at this whole area at the moment, and I think it would
certainly be unwise to try and introduce anything in this Bill
in advance of that paper. Certainly the whole inter-relationship
of cohabitants in a financial sense is long overdue for review
and it is possible that certainly pensions may have some part
to play in that.
391. I suppose not but I am wondering whether
clients ever seek the advice of family lawyers about the consequences
of this kind of a remarriage?
(Mr Sax) Frequently, yes.
392. They do? Tell me about them.
(Mr Sax) We have lots of cohabitant clients because
there are lots of cohabitants now and the law is very, very unsatisfactory.
One of the things which they are concerned about is that it is
only death in service benefits which depend on the discretion
of the trustees which on the whole they can receive. There are
some pension schemes—I think British Airways is one—where
a pension can be paid to a dependent rather than an ex-wife, but
there are not many.
393. Is it not complex in that on the one
hand when someone forms a cohabiting relationship they would like
their partner to share in this kind of entitlement as a spouse
would, but if someone has lost 30 per cent of their pension fund
in the last divorce, they might be in slightly two minds about
the issue?
(Mr Sax) It is very complex, there are very complex
moral and legal issues about it, and there is certainly a wide
disparity of views in our Association and in every other group
of lawyers as to what is the proper provision.
394. Given those two rather different perspectives,
dispassionately—and I know it is not dispassionate when
people think about marriage—would you advise them to remarry
or to cohabit.
(Mr Sax) Our concentration has been on those cohabitations
where there are dependents and where at the moment under the present
law provision can be made for children but not for the cohabitants
themselves. That has been our main concentration and, apart from
that, as you say, should the law be imposing on people who cohabit
what the law imposes on them in relation to marriage?
Chairman
395. Is your peer group really beginning
to talk amongst itself about a cohabitation legal framework or
lack of it?
(Mr Sax) Yes, we have been for quite some time.
It has in our view been a major issue in need of law reform.
Chairman: We are into
injury time but I omitted to give Gisela Stuart the opportunity
to ask about Landau.
Ms Stuart
396. For the very last time, Chairman. Would
you like to add anything to the current state of play?
(Mr Salter) I would add to what Robin Ellison
said only in this sense, that I believe there are some provisions
in the Pensions Act, 1995 of a protective nature, which strangely
have still not been brought into effect, which will go some way
to reducing the effect re Landau. I agree with what Robin
said about the scope of the decision. Of course, in relation to
occupational schemes it may well be that on bankruptcy a forfeiture
clause would then operate, and there are of course in the current
earmarking legislation and in this Bill provisions which enable
the court to override those very forfeiture clauses. So I think
in a way it is somewhat limited and there is in the 1995 Act already
in place legislation which, when brought into effect, will reduce
its effect even further.
397. So you would feel that the current
draft of the Bill sufficiently protects pension rights? Or would
you feel it should be strengthened?
(Mr Salter) It does need strengthening in relation
to retirement annuity contracts, yes. There is still some strengthening
that is required.
398. And would that Bill be the right vehicle
to do so?
(Mr Salter) I do not see any reason why the Pension
Act, 1995 could not be amended in this Bill.
399. Would it be useful to have a note on
how you think that could be achieved, Chairman?
(Mr Salter) It was one of the areas we intended
to cover in our fuller response.
Chairman: Gentlemen,
thank you very much, that has been extremely useful. We look forward
to a continuing dialogue and your further memoranda and notes
on the subject. It has been very valuable, thank you for your
time.
| 
