Examination of witnesses (Questions 420
- 436)
WEDNESDAY 15 JULY 1998
MR
IAIN
TALMAN
and MR
KENNETH
ROBB
Ms Stuart
420. Directly following on from that, it
could be resolved by rather than looking at splitting the capital
asset of the pension, you arrive at a split which would give you
an equal flow of revenue.
(Mr Robb) Even that I suggest gives you a problem
because what is equal flow of revenue? Is it to equalise over
the prospective life of the person or is it an equal month by
month payment, in which case again the present actuarial experience
suggests the woman would get more. So where is the fairness in
that? Is she to have a smaller income but live longer or is she
to have more than he has?
421. Purely intuitively, I would like £50
for me and £50 for him on the first of the month, rather
than say, "You get £35 because in 20 years' time you
will still be drawing it."
(Mr Robb) Maybe the strain of the extra money
will shorten your life!
422. I am simply suggesting that a continuous
raising of what is capital and what is flow of revenue, when you
look at that, is something which should be addressed. Could I
take you on to another question, and to the relief of the Committee
I shall not refer to the Landau case but to Shand,
which I understand is a case in the Scottish jurisdiction where
trustees in bankruptcy had access to section 226 pensions. Would
you like to comment whether you feel the law got itself into a
mess here?
(Mr Talman) That is one in which I feel I have
an interest because the sheriff quoted an article of mine but
he did not follow it because unfortunately he quoted the wrong
bit of the article! If he had quoted the right bit, he might have
upheld me!
Chairman
423. It is not the first time sheriffs have
done that!
(Mr Talman) There is a policy decision to be made
by somebody somewhere. Retirement annuity contracts following
the Shand case and the Landau case seem to fall
to trustees in bankruptcy. The position is much less clear in
relation to occupational pension schemes because then you get
into—and the Chairman may remember the fiendish book by
Candlish Henderson on Vesting—the concept of vesting
of rights under trusts. This really is lawyers' law par excellence,
if that is the right sort of excellence. It is extremely
difficult to work out whether rights, particularly rights where
pension is not in payment under an occupational pension scheme
because it is a trust and not a contract, fall to a trustee in
bankruptcy. The situation might have been simplified if the provisions
of the Pensions Act had been brought into force, but they have
not. They said that occupational pensions would not fall to trustees
in bankruptcy insofar as excessive provision had not been made.
So we have a situation where the common law is unclear regarding
occupational pension schemes. It is possibly not a level playing
field looked at in commercial terms, although legally they are
different things and therefore different legal principles apply.
You have hovering in the background legislation which has not
been brought into force, which I gather may be to do with the
fact that the Department of Trade & Industry may want to turn
everything round, so that everything falls to trustees in bankruptcy,
and the thing is at present far from clear and is a muddle. Add
to that muddle what happens if the spouse goes bankrupt before
or after an earmarking or splitting order is made or implemented,
and the whole thing just becomes an absolutely impossible conundrum.
I think it is more than high time the matter was clarified as
to what the effect of personal bankruptcy is on a pension, whether
it is a personal pension or an occupational pension, and how that
also impacts on orders made in relation to the divorce. Sorry!
424. That will keep Gisela quiet for quite
some time! Thank you for that. Do you have any reservations about
cash equivalent transfer values? The whole CETV system is one
that people are prepared to live with but recognise that it is
an imperfect system. Do you have anything to contribute there?
(Mr Robb) If I take it on a more general level,
subject to any comments Iain has on the intricacies of pension
law, on the general level, we in Scotland commenced this in 1986
and it became reasonably established that what we worked with
in most cases was what was called the continuing service valuation,
which is assuming that the member of the pension would continue
in service. Eventually, the Act was changed and regulations were
brought in to require it to be valued on a CETV basis. The effect
of that is roughly, and it cannot be precise in any case, that
the valuations have dropped perhaps by about a third of what they
were before. I can only give my own experience of the two or three
cases I have come across where, for some reason or another, we
have had both types of valuation, but that was the order of the
difference. The effect of that has been that since 80 per cent
of the pension holders are male—or what is described as
"substantial pension holders" are male—and 20
per cent are female, you could say that there has been an indirect
discrimination in that change of the law. It has certainly been
very effective. That, of course, coupled with the earmarking arrangements,
if you want a double whammy against females, gave the opportunity
to say, "I am not paying you this smaller portion, I am going
to pay it to you in 20 years' time when my pension comes on stream."
I have reservations about CETV being an appropriate valuation
but it is based on my experience of what happened before. I am
not qualified to say which is right, all I am conscious of is
that I understand CETV to be at the bottom end of the possible
reasonable valuations of pensions.
425. Will you be developing those thoughts
in the work you are doing within the Law Society?
(Mr Talman) Yes, we will be. To expand on that
slightly, policemen seem to keep coming up in these things, policemen
have very good pensions and they are worth quite a lot of money.
There is a case, Bannon v Bannon, which involved a policeman,
which appropriately occurred in 1993, Scots Law Times, page 999—which
was an easy one to remember for a policeman. A policeman is a
slightly specialised class, I suppose, because you could say it
is one of the few jobs for life nowadays, and if you have a job
for life then the cash equivalent is really pretty wide of the
mark, and there the difference was 51,000 on the continuous service
method and 34,000 on the cash equivalent method, and this was
a pre-last lot of regulations case. It certainly seems to me that
there are inequities in the use of the cash equivalent in particular
cases. Another area where unfairness can arise is in the notion
of time apportionment. In Scotland we have this window period
from marriage to the end of cohabitation or service of the summons,
and it is only during that period that the matrimonial property
builds up, so how you relate that to pensions is quite difficult
to do. The way which has been chosen by the regulations is simply
time apportionment. There are all sorts of reasons why time apportionment
does not work—some pension arrangements may only come in
later or the whole of service pension to a person who has only
been a member of the pension scheme for a short time. That is
highly distorting. You can have quite varied salary progressions
which, again, lead to extraordinary results and make time apportionment
quite inappropriate. The cynics remarked that this was really
just a way of keeping it simple and making legal aid costs cheaper,
and that may be so, but, having said that, there are unfairnesses
in it. If you were to have a fair system for everyone at whatever
cost, I think you would have to say that cash equivalent is fine
but there should be a rider saying that in appropriate cases on
cause shown that could be departed from, and similarly time apportionment
on cause shown could be departed from.
426. Without any further guidance on that?
Just giving a blanket discretion to the courts to set CETV apart?
Are you talking about enhancing CETV or an alternative system?
(Mr Talman) An alternative method of valuation.
At the moment for pensions in payment the court is really just
cast on the waters at large. It is such methods as the court may
see fit. That effectively was what it was in the days of Bannon
and before the regulations in 1996. Given the overall vagueness
of the system in to some extent valuation but to a greater extent
in this idea of fair sharing, I think to fine-tune something like
that much more than saying on cause shown is being far too particular.
I once heard a story from an actuary of people sitting with barrel
slide-rules working things out to 23 decimal places and then at
the end rounding it up to the nearest £10! That is almost
what you are in danger of doing.
427. We are a bit constrained by time. Do
you have anything else you think we should be particularly looking
at, specifically in relation to your own perspectives and the
differences between the two jurisdictions? Is there anything in
particular in that area that you want to draw our attention to
or are there any key issues which you think we should be looking
at?
(Mr Robb) One that I would like to bring to the
attention of the Committee is that the draft Bill has introduced
the concept of valuation date when the pension provider has to
set a date in the implementation period for valuing the pension
fund and then giving effect to the order. I see that this sits
rather awkwardly with our relevant date. What we are faced with
is a situation where the relevant date is the date on which a
valuation applies in the court and will, in terms of present legislation
and probably future, be the value that people will work on in
negotiating but, having negotiated and got to either a fixed sum
or a percentage, the pension provider will then use a different
figure to implement. That certainly has the possibility of confusion
and injustice about it.
428. The difference between the two dates
can be sometimes two years?
(Mr Robb) It could be a very long time. It could
indeed. It might not be but it could be years. It could be five
years or more. So that gives us a concern. Also, another one,
is the very short window in which people are able to intimate
to the scheme provider that an order has been made. A two month
period is all that seems to be allowed in the Bill and we see
no good reason for such a short period, given that it is at least
a fortnight after divorce is granted before you can possibly get
the piece of paper to send, and sometimes in common practice it
is longer than that, so your time is cut down miserably. I would
suggest that a period of a year would be more reasonable. It is
simply to allow for all these things to be picked up on. You may
say I am wearing the lawyer's hat or using the plaintiff's voice,
but I perceive claims because folk will have just missed that
date. It is a very short period.
Mr Wicks
429. Based on your own experience and given
the problem we have been exploring of how you balance out, as
it were, the family home against pensions, in the future what
sort of proportion of women do you think will benefit from pension
splitting as such and have a higher pension in old age as a result
of this legislation?
(Mr Robb) I could not possibly put a figure or
a percentage on women, taking that general view. My experience
is of course based on the market profile of divorcing couples
which I deal with and I would not profess to deal with all the
nice rich pension-endowed divorcing couples. In my own experience
I would foresee that it would not apply to the majority because
in many cases the pension is either non-existent or is very small.
I think with the very small pension sums it will probably be easier
for couples just to say, "I will take a few thousand pounds"
because the difference will be so slight in terms of future pension
provision.
430. Where it is reasonably sizeable?
(Mr Robb) I think in that case it will have a
beneficial effect, but there will still be the problem of people
tempted to take the roof over their head. It is not just a matter
of value, it is a matter of emotional attachment, and they would
like to stay with something with which they are familiar, it is
less change and so on.
431. Can I quickly ask you another point
which I do not think we have asked other witnesses about? We have
been talking about divorce but what about separation, where there
is a separation order, where perhaps for religious reasons people
do not want to get divorced?
(Mr Robb) That is a very different matter. In
Scotland you can have a decree of judicial separation.
432. But this legislation will not apply
to that, will it?
(Mr Robb) No. They remain married. A decree of
judicial separation does not compel the court to deal with any
matter that would arise on financial provision on divorce. In
Scotland the most common way of dealing with financial provision
on divorce is of course that people get together and get it sorted
out before their final divorce. In some cases it is done purely
by agreement, in other cases it is done with the threat of the
court action trundling along at the same time. So this legislation
will empower people, thankfully, to make their own agreement on
a pension sharing order or on pension sharing by the provision
of an agreement registered in Edinburgh. That was another failure
of the earmarking, it had to go to the court to get an order,
you could not agree to it.
433. Are you saying this legislation will
not allow——
(Mr Robb) This legislation will allow people to
agree on pension splitting.
434. On separation?
(Mr Talman) No, on divorce.
(Mr Robb) It will not have effect until divorce.
435. I am trying to address the issue of
where there is separation, where this does not lead to divorce
perhaps because of religious conviction. Are you worried about
that inequity?
(Mr Robb) They will simply have to sort it out
between themselves and come to an agreement on that. If one is
so upset by the refusal of the other, then they will have to overcome
their religious qualms about divorce.
(Mr Talman) There is a difficulty with that because
it is always possible for people who are married yet separated
judicially or by agreement to come together again. If you make
some arrangement which changes all the pension rights, somebody
is going to have to remember to tell somebody about that. It is
not an actual change of legal status as it is with a divorce.
436. It would be interesting for us to dig
out the numbers on how many people remain separated, who never
get divorced.
(Mr Talman) I think it is diminishing in number.
My understanding is that one particular religious objection is
from the Roman Catholic Church, and I understand that divorce
is permitted not with a view to remarriage but with a view to
property settlements or protection from violent spouses and so
on. So it can be permitted in some circumstances.
Chairman: It might
be helpful if we could have a bit more evidence on that. Gentlemen,
thank you very much indeed. It has been extremely valuable. Thank
you for taking the trouble to come and I hope the dialogue can
continue. We have obviously got to make sure the Scottish system
is not left out in any way in terms of the implementation of this
piece of legislation which is complicated and there are difficulties
with the two jurisdictions. We are very grateful to you for the
work that both the Law Society of Scotland and yourself are doing
and we hope we can continue the dialogue in the future. Thank
you.
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