Examination of witnesses (Questions 400
- 419)
WEDNESDAY 15 JULY 1998
MR
IAIN
TALMAN
and MR
KENNETH
ROBB
Chairman
400. We are delighted to have two representatives
from the Law Society of Scotland, Mr Iain Talman, who is a convenor
of the Pensions Law Working Party, and Mr Kenneth Robb, who is
a convenor of the Family Law Committee. For the avoidance of doubt,
I should declare an interest as a non-practising member of the
august Law Society of Scotland. We are delighted to see you. You
have both come on a long journey to spend some time with us this
morning and we are very grateful for that. I understand, Mr Robb,
there is some work in gestation in the Law Society of Scotland
which we might be able to take some advantage of when that is
completed, but perhaps you could say a word about that and then
we have some areas of questions we would like to consider with
you?
(Mr Robb) The introductions are done, simply to
say that we are both working lawyers, I am particularly more on
the side of family law and Iain is more in relation to pensions
and advising trustees of pension schemes, employers in relation
to pension schemes and individuals in these matters. We are very
grateful for the opportunity, notwithstanding the long distance
we have had to travel to get here—things will change! Thank
you for the opportunity of coming to give evidence. Certainly
it is the case that the Society in Scotland is looking at this
draft legislation. We are very grateful for a draft Bill being
introduced in this way, because it does give us a chance to have
more insight and input at an earlier stage, and we will submit
written responses more particularly to do with the detail. We
have identified some points where we see some confusion arising
between the present Scots law and the effect this legislation
will have, and whether we go into that today or leave it to you,
we will certainly go into that matter in due course in any event.
401. Can we turn straight away to training,
because I know of my own knowledge that there is a very extensive
Law Society of Scotland training programme. How would you envisage
the Society responding to this Bill becoming an Act in terms of
the training you would offer your membership to make sure the
standards are high enough, to be comfortable that you are not
dealing with members who are giving incompetent advice to clients?
(Mr Robb) So far as the practice in family law
is concerned, I think we have an established practice in looking
at pension considerations because we have very forcibly looked
at pensions and the value of pensions and how these are dealt
with under the legislation we have had since the Family Law Act,
1985 and Divorce in 1986. So we have a lot of experience of dealing
with it. So the idea, the concept, being in people's minds is
not a problem. What we also have to look at is the detailed idea
of pension splitting. So where we have to take on board more skill
is in advising on the pros and cons of what you do with pension
splitting, in other words, is someone going to take the split,
is it better to take the house because you have an immediate need
for a house, or do you take a lump sum of money rather than splitting
the pension? These are the issues and these issues become more
complicated because of the public policy element of encouraging
people to have pensions in the future, and where will they be
in five years, ten years, if they do not have a pension. On training
in respect of that, as the Chairman has indicated, the Law Society
of Scotland have continuing professional development, it is a
requirement to practise that you complete the required hours every
year of varying types. From my membership of our up-date committee,
I know it is the established practice when something like this
is coming out that there will be courses, there will be highlighting
of this, so people will take on board the extra needs here.
402. So you will not have an accreditation
or kite-marking exercise for individuals?
(Mr Robb) If you mean in respect of being allowed
to deal with the pensions aspect, certainly no, because that would
be such a narrow field we would not see it being considered. In
terms of family law, we already have accreditation as family law
specialists. I am one, for example. That scheme was originally
designed as a referral system so that other lawyers who did not
feel so confident in that specialism—and family law has
become a specialism—can refer over, although equally it
attracts members of the public who look to specialism in a high
degree. That scheme in itself requires re-accreditation at least
every five years, so it is not the case that you pass your exam
and you are free forever. We have systems in place to pick up
on that. It is more a case, I would suggest, of making sure that
weeds do not take root rather than weed out the incompetents later.
On the other side of the question, the actual pension and what
you do with it, perhaps that is more Iain's field. It moves over
to questions of financial expertise and the financial services
side and there are very strict rules about being allowed to practise
as a financial adviser—under Scots law you have to be licensed
and granted authority by the Law Society of Scotland.
(Mr Talman) We are advised by the secretariat
that in the almost 12 years now that we have lived with the notion
of pension rights as matrimonial property, there has not been
a complaint against a solicitor for inadequate service. There
may well have been negligence problems but there have not been
any complaints to the Society under this heading.
403. I am very pleased to hear it. Can we
turn to the question of costs? The Committee is slightly concerned
that the Bill as currently drafted is a bit vague about what costs
may be imposed on the clients which are subjected to the provisions
of this Bill when it becomes an Act. Do you have any thoughts
about that?
(Mr Robb) Which costs? Costs in relation to the
charges by pension schemes or generally the costs of dealing with
this problem between couples?
404. Actually both.
(Mr Robb) If I deal with the second one in the
first place. In most cases, when you are dealing with divorce,
inevitably there is an element of legal aid. If there is a pension
involved, clearly there is going to be property involved and the
prospect of gaining property as a result of litigation if it goes
that far, and therefore there clearly is a prospect of the Legal
Aid Board in terms of the rules being able to recover what it
has expended initially from the public purse from that property.
There are restrictions on that, if it is only £2,500, that
is waived. Where I see the difficulty in terms of keeping the
cost to the public purse down, is if the pension is the only asset
which is going to be under discussion and then if at the end of
the day there is a pension splitting, so that it might be five,
ten, fifteen, twenty years before that asset is really available
and realised. I see difficulties in the Legal Aid Board attaching—they
have powers to take charge on a property—because you cannot
put a charge on a prospective pension right. I do not know how
that is going to be dealt with. I do not see anything in the Bill.
Whether the legal aid provisions will look at that in due course,
I do not know but I see that as a problem for the Legal Aid Board
in being able to recover at an early stage.
405. Is that a problem that is going to
be common north and south of the border? I understand what you
are describing.
(Mr Robb) It is common to both jurisdictions,
I would expect, although I cannot speak for the detailed rules
of the English legal aid system. It is common in that it applies
to both but I do not think it would be a common problem because,
first of all, you are only dealing with the cases where there
is a pension which is the only asset under discussion. In most
cases if someone has a pension, they have some bank accounts or
a house or something else.
406. So are you suggesting that the legal
aid rules need to be looked at, re-written or reviewed?
(Mr Robb) If they wish to have some form of attachment,
and I think they do, if they are going to form any attachment
or charge on a pension fund.
(Mr Talman) The second aspect actually runs into
that last point, how do you decide how much a pension scheme can
charge? Looking at the pensions law aspect and leaving aside divorce,
members have the right to ask for certain things from their pension
scheme. In some cases they have rights to copies of trustees reports,
trust deeds and so forth, and that is a reasonable charge. What
is reasonable? That is a very good question and as a lawyer you
can be here all day learning what it is and still not learn very
much. But that can also impact on legal aid costs, because if
someone is having to pay a charge, reasonable or otherwise, in
a legal aid case that is an added cost. I think perhaps that is
an area of the Bill which does need tightening up. Quite how you
do it when the social security legislation itself is so vague
as to what is reasonable, and how you can enforce that——
Mr Leigh
407. How do you put that in the Bill? I
do not see how you can put this on the face of the Bill in terms
of charges and costs. It is not practical.
(Mr Talman) No, I agree.
Chairman
408. But this is something you have identified
as a concern?
(Mr Talman) Yes.
Ms Stuart
409. Would you agree with what the Law Society
suggested, that the Pensions Ombudsman would be the final arbitrator
in the case of pension schemes?
(Mr Talman) Yes, I would. That would be a consistent
approach.
Chairman
410. Can we turn to the process of implementation,
which we obviously are directly concerned about? We have been
asking some questions this morning about retrospection and about
some of the ways that earmarking and attachment orders have been
working in the past. Do you have anything to contribute to either
of these questions?
(Mr Robb) My own personal experience in divorce
matters since earmarking became an option available is that I
have never ever seen one granted. I know there have been some
granted but I have never known of one in any case I have dealt
with. I have seen it held up as a threat—"I am going
to stop you getting things now"—to make it difficult,
but at the end of the day I have never seen one. I am of the opinion
that the legislation on earmarking is flawed; to take the tendency
of it being a woman who is seeking something from her husband's
pension scheme, I think from the point of view of the non-member
the legislation is severely flawed and I would not recommend it.
So my own expectation is that earmarking will wither away and
it has been very much a poor half-way house to what is now being
proposed.
411. What about retrospection? Do you have
concerns about that? Some of your sister organisations south of
the border were expressing some concerns about that this morning,
that some parts of the Bill are admitting retrospection inadvertently
via the back door.
(Mr Robb) We missed the questions earlier, unless
you want to tell me what their concerns are. The Bill seems to
suggest this would apply in respect of actions raised after a
certain date, so we do not see any problem with that—we
do not see retrospection in that.
Ms Hewitt
412. The problem on retrospection which
was pointed out to us by some earlier witnesses arises, if I remember
correctly, in Schedule 1, in paragraph 3 which includes subsection
24C(6), where essentially what this Bill is doing is inserting
into the Family Law Act, 1996——
(Mr Robb) That does not apply to us.
413. Sorry, that is purely England and Wales.
So there may not be an equivalent piece of retrospectivity for
you. It is quite impossible to find one's way quickly through
these schedules. It is at the bottom of page 33, sub-paragraph
6(6) of Schedule 1. I think you will find the point if you would
not mind looking at the evidence of the witnesses immediately
before you. Would you mind checking for us whether there is a
similar problem in relation to applications for a variation order
relating to a divorce made before this Bill takes effect? What
is happening in England and Wales is that on a variation order
the court will have the power to make a pension sharing order
even if divorce precedes this Act. If you could check for us whether
there is some similar problem in relation to Scotland, that would
be helpful.
(Mr Talman) Our understanding was that the legislation
would not have that effect, but it is worth checking.
Ms Hewitt: It does
in England and Wales.
Chairman
414. That would be useful, just to check
whether that applies north of the border. Do you have any concerns
about pre-nuptial contracts in the Scottish context?
(Mr Robb) I was working on one last week. I do
not have concerns. I was listening to the evidence shortly before
we sat down regarding the problems about cohabitation, and perhaps
it is a marketing exercise for lawyers to encourage people to
have pre-nuptial agreements. There is no difficulty in Scotland
about these not being enforceable; and it is a very good vehicle
and method for people to recognise the percentage possibility
of their marriage failing and to take account of that for the
future.
Mr Pond
415. I got mixed up with your double negatives
there. In Scotland they are enforceable?
(Mr Robb) Yes.
416. We learned in the session yesterday
that certainly in England and Wales they would only be taken into
account by a court as one of a number of factors, and the court
could at the end of the day ignore them altogether. There is a
different situation in Scotland?
(Mr Robb) There are some provisos. I think the
court would still expect that they be fair and reasonable, because
if your pre-nuptial agreement was dealing with prospective financial
provision on divorce, that is relating obviously purely to a marriage
situation, then the overriding requirement is that these be fair
and reasonable and there would be opportunity to challenge them
by one spouse if they asserted it was not fair and reasonable.
On a cohabitation, that protection would not be there, it would
simply be a contract between people relating to how they dealt
with their financial affairs.
417. In Scotland a court would have to follow
the contents of such agreements, would they, such contracts?
(Mr Talman) My understanding would be they would
not. This might be two different ways of saying the same thing
almost. I think the legislation is fairly similarly drafted in
that respect. The court does have power "to make an order
setting aside or varying any term of an ante-nuptial or post-nuptial
marriage settlement." That is, I think, pretty close to what
the English legislation says, if not the same.
(Mr Robb) There can be variation on that because
in practice my understanding has been that it would be the case
that if someone challenged the agreement, it would be a case of
was it fair, was it reasonable, what is wrong with it. It might
be required to be changed to give easier effect to the reality
of the situation at the end of the day. In general terms they
are valid contracts between parties, and in many cases if people
had done that already they probably would not come near the courts
for financial provision orders. It would simply be that they would
deal with it and it would only be if they had a fall-out as to
whether it was right or should be enforced that they would ever
go near the courts.
Ms Hewitt
418. An earlier witness was touching on
a problem which he described as a double whammy, which relates
to the difference in what a certain amount of money will buy for
a man or a woman. Indeed the double whammy aspect comes from the
fact if you are in a final salary scheme, if you take a man or
a woman with absolutely identical employment and earnings records,
the cash equivalent transfer value of the pension for the man
will be lower than that for the woman. Conversely, the ex-wife
who gets a certain amount of money will be able to buy less with
it than the ex-husband who gets exactly the same amount of money.
I wonder whether this is a particular problem in Scotland where,
if I understand it correctly and please correct me if I am wrong,
the courts have to divide property acquired during the marriage
fairly and that is normally taken to mean equally? The problem
that I think arises in relation to pensions and cash equivalent
transfer values is that an equal division, say 50-50, will not
produce a fair outcome because it will produce a different pension
in payment and a lower pension in payment for the woman who is
receiving that 50 per cent than for the man. Do you have concerns
about that, and do you think Parliament or the Government needs
to guide the courts in Scotland on the percentages that they should
be applying if they want to achieve, for instance, a 50-50 division
of pension assets and they might actually need to apply, let us
say, a 60-40 division of the cash equivalent transfer values?
(Mr Talman) I am not really sure there is an answer
to that. The fact is that women get a better deal because they
live longer and I really do not see any way round that.
419. Is not the way round it to say that
if you have, let's say, a pension pot of 100,000—it may
be the CETV from a final salary scheme or a money purchased pension
pot—and the court wishes, having applied a formula to the
other assets, to divide that equally between the parties, rather
than dividing it 50-50 they should divide it by whatever percentage
will produce an equal pension in payment taking into account the
variable assumed life expectancies of the man and the woman?
(Mr Talman) Yes, that is arguable. That is a policy
matter which I, as a lawyer, would not feel terribly competent
or happy about pronouncing upon. It is also a valuation question
which is really an actuarial matter. You are correct, at the present
moment the courts could divide it on the face of it equally. They
could take that into account but I am not aware of a court ever
having taken that gender-bias or sex-bias into account.
(Mr Robb) The difficulty has been that we have
not had this legislation. We have noted a thread through this
draft Bill referring to the substantive law in practice in Scotland
and to the power of the Scottish courts to grant a fixed sum as
opposed to a percentage. I think we can make the valid point that
the Scots courts have given fixed sums because that is all they
could do and whether or not that will be the common order in the
future, or whether it will move to percentages, remains to be
seen. So we may have some flexibility there. Also it is in fact
the case that although I have just said we order fixed sums, these
fixed sums have often been calculated as, "I'll take this
percentage, you take that percentage." Although you have
made reference to it being fair and equal, the majority of cases
in Scotland have always been that the pension member will have
retained more than 50 per cent of the pension rights on the value
and a lesser sum has gone, reflecting non-realisability. Again,
that may change with the legislation moving to a split. As Iain
said, these are issues of valuation and whichever way you look
at it you can find inequality. It is down to questions of, are
you valuing an asset or an income payment, and how do you do these
things.
(Mr Talman) Also one of the previous witnesses
suggested that if you take it to the extent of saying the woman
gets the house, she is going to enjoy it longer because she is
going to live longer, and it does become quite impossible to resolve
all the problems satisfactorily.
Chairman: I wonder
if you could include that question in the evidence that you are
working on at the moment? It would help the Committee because
this is a question which has come up time after time. It is certainly
open to Parliament, quite clearly—and it would be possible
for the Bill to reflect the will of Parliament—that the
imbalance is taken into account by the courts and if the Act said
that, it would have to be followed.
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