Examination of witnesses (Questions 560
- 579)
WEDNESDAY 16 SEPTEMBER 1998
MR
JIM
PARTON,
MR
BRUCE
WILSON
and MR
IAN
MACKAY
560. I have always been in favour of using
the Child Support Agency to encourage fathers to see their children
more and they are rewarded through the system and the more they
can see of their children but I presume this is impossible in
pensions, is it not, because one is talking about far too complex
an area?
(Mr Parton) We do not disagree with your views on the
CSA there.
(Mr Mackay) The CSA are aware of our existence.
561. I think the CSA may be aware of your
existence.
(Mr Mackay) The trouble is the injustices felt that they
are being required to support the children when they are not seeing
the children.
(Mr Parton) The CSA find us very helpful nowadays and
they do pass CSA enquiries on to us.
562. You make a good point in paragraph
11 about unmarried couples. This is going to become an increasing
issue I would have thought—is an increasing issue. At which
point do you think people living together do become "entwined"
for pension purposes or do you not have a view on it?
(Mr Parton) I just wonder whether the Government can
become embroiled in that and whether you can pass legislation.
I hesitate to even take a view on that, it is very, very difficult.
563. I think it is very difficult.
(Mr Parton) I think it is down to the couple surely.
It is an education thing. They need to be made aware that these
issues are real issues for them, especially if they have got children.
564. Presumably you feel you could not have
mandatory contracts then for unmarried people about their pensions?
It is impossible, is it not?
(Mr Parton) It seems strange to me otherwise what is
the difference between being unmarried and married?
(Mr Wilson) I would like to make a point that as far
as pensions are generally concerned for the mass, the amount of
money that is put into pensions is very, very small. People retire
on very, very small pensions by and large. Only one per cent retire
on the maximum of two-thirds final salary pension. Most pension
contributions are minimal. The pension funds themselves for the
majority of people, not a select number, are quite small as well.
Obviously the issues that hit the press are the bigger pension
funds. Most people are going to retire on poor pensions. With
the diminution of the state earnings related pension scheme, state
pension schemes, more and more dependence is going to be placed
on pensions contributions by individuals in the future and it
will become very difficult for most people.
Chairman
565. I could not resist noticing the introduction
to your paragraph 8, "Is the proposed Scottish system better
than the English one?" I have a vested interested in this
one. Could you expand a little on that? I did some divorce work
in a previous incarnation and the Scottish system is not perfect
either. The main problem for us, and I would like you to think
about this for a moment, is of course different jurisdictions
have a clear impact on this Bill but should we be using a pension
splitting piece of legislation to try and reform the common law
provision for divorce north and south of the border?
(Mr Parton) That is a slightly complicated question for
me, but in general terms, from the little I know of the Scottish
system, it seems to me possibly a better one than the English
in that you know that what you take into the marriage is what
you take out and what accrues in between, as I understand it,
is split 50/50.
566. Yes, but you can live together 18 years
and then get married for two and it is not clever that way round.
(Mr Parton) No, it is not, but that is a decision people
make in that they decide to marry or decide to co-habit for whatever
their personal reasons are. I do not see how you can legislate
for that.
567. I am honestly not trying to catch you
out or be clever, but I am reflecting the difficulties we are
having to some extent in teasing out, disaggregating the different
legal jurisdiction questions with what is actually, you could
say, quite a finely focused piece of legislation. Can you or should
you use something that is designed to try and improve the pension
provision in statute law to try and make changes in either the
English system to make it more like the Scottish, or the other
way round? Your paragraphs 8, 9 and 10 were commenting on that
and I was interested in what you were saying.
(Mr Parton) They were more of a question, I think, than
an answer, but I think this whole debate seems to be spreading
out into one about pre-nuptial contracts and the Scottish version
of marriage is a bit like a pre-nuptial contract in some ways.
I do not know if you would agree with me, but it seems to me that
when you are getting married in your romantic haze, it is going
to be very difficult actually to make a pre-nuptial contract which
has any meaning at all and it actually might be helpful to have
something like the Scottish system which lays it down for you
so that when the ghastly day comes when your romantic ideals do
not live up to what you had hoped, at least there is a bit of
guidance as to what is going to happen next because at the moment
there is all this discretion and then there is this ghastly word
"reasonable" used by the lawyers which floats around,
and "reasonable" is a word around which many financial
arguments and arguments over children revolve, and it seems to
me that a little less flexibility for lawyers would be a good
thing.
(Mr Mackay) Chairman, could I just pick up a point which
is that one of the merits, dare I say it, of the CSA is that it
involves certainty and formula, despite the fact that it has had
enormous problems over the administration, and it has taken the
resolution of what is reasonable into a formula. One of the things
that to some extent the Scottish system has is that there is a
degree of certainty and so people can be informed, and obviously
there are many other issues, when they are considering divorce.
The Family Law Act of course is bringing in advisory meetings
and I think Fairshares has understandably commented on that, about
the lack of expertise and knowledge. That is one point, the certainty
and formulaic approach. The second point I would make is of course
that many of the pensions for the English are provided by Scottish
companies, Standard Life and Scottish Widows being two, which
are big insurance companies of course, with the concept of things
like the tartan tax and the limits of that, and we are probably
looking at sort of cross-country trading and there may be issues
there which will need to be addressed in the future.
568. I do not want to dwell on this too
much because I want us to come on to Gisela Stuart's questions
about transfer values which are important, but just following
that last point, the evidence seems to suggest, and it was evidence
from one of the insurance companies, that there might be some
incentive for people to travel to Gretna Green or go back across
the border.
(Mr Wilson) They do already!
569. I am interested in that because I could
not follow the reasoning. Can you just explain that to me?
(Mr Parton) I do not think that that as an incentive
would work because you might marry in one country, but you can
divorce where you are. I do not see that as realistic.
570. The law in Scotland changed in 1985,
but anyway you say in your evidence, "At least one pensions
firm, National Mutual, has raised the possibility of an exodus
to Scotland", and I think the people of Scotland may want
to know about this, "if the Government's proposals are implemented".
I would not mind more of an explanation of that.
(Mr Wilson) The situation in Scotland is that it would
appear to me, having married in England and suffered from that,
to be a much fairer system from what I understand which is that
the entitlements earned over the period of marriage are considered
rather than what you come into. My firm of chartered accountants
actually already some time before the Pensions Act 1995 was putting
forward that if you were likely to get divorced, you should be
advised to go to Scotland. In my situation, I am 50 and my wife,
who is 18 years younger, after a four-year marriage divorced me
and, like the other two, it was a unilateral decision that the
pension rights which would come in the whole of my pension entitlement
over all the years, long before I met her, would be taken into
account rather than just the period of marriage and we ended up
spending an awful lot of money on legal fees and discussing these
things and they were the winners because of the question of certainty
in that there is not any. One set of lawyers said, "You can
win this slice of the cake" and the other lawyers said the
other and the pensions are just going to be part and parcel and
unless you are going to come into some of these issues like the
cash equivalent transfer value and all these other problems, it
is absolutely nightmarish and makes the CSA with their formula,
well, I would love to have a formula where you know where you
stand and you know whether it is worth going and spending thousands
upon thousands of pounds on the lawyers because you know where
you stand, but you do not at the moment and you will not and it
will be even more confused.
Mr Leigh
571. If there is an exodus into Scotland,
it will be the first time in history that there has been! Can
we disagree because I am very attracted by this Scottish solution,
I must admit, but we are agreed then that what you favour is a
Judgement of Solomon that all the pension rights that the couple
accrue during their marriage are split in half down the middle,
and that is something that you would favour, would you? Presumably
any pension rights the husband accrues before the marriage or
after the marriage are not affected, but anything he accrues during
the marriage is split down the middle with his wife? Is that what
you are favouring?
(Mr Parton) I suppose it is within the constraints of
whether or not it is possible and given the complications that
Bruce has mentioned, but it seems to me that this is a hellishly
complicated area and you are potentially creating legislation
which is not going to make people's lives simpler, but it is going
to make them a lot more complicated.
(Mr Mackay) I think we are also wary, having seen the
response from the actuaries, for example, about the lack of detail
currently available on which we can comment. I think we are very
fearful, having seen the CSA and indicated the problems of that,
that we might be going down a similar road. It is one thing having
enabling legislation and for us to be debating that, but we need
to be debating at some stage, before they are implemented and
considered, the statutory instruments, the administration and
so forth.
Ms Stuart
572. Would I be wrong to sum up the evidence
so far by saying that Families Need Fathers tell us when it comes
to pension splitting on divorce, "Don't do it"?
(Mr Parton) I think that you would be wrong, yes. I think
that provided it is possible, which is a question all of its own,
then I would not say, "Don't do it", no. I do not think
you can intellectually be against the fair principles of splitting
an asset and it is a tool which clearly the lawyers want to have,
but I would say that it is one that should be used sparingly because
half the time the pension pot is not going to be worth splitting
and a lot of the time it might just be simpler to balance it against
another asset.
573. Is there anything in the existing draft
legislation which actually would not allow exactly that route
to be taken? It is not a statutory duty to split the pension,
is it, whereas you quote in your paper that Stewart Ritchie actually
suggests that the Government's estimate of £50,000 is an
under-estimate, and I would take issue with that. The current
legislation does allow, and I think Bruce Wilson used the right
words by saying that it "takes into account" the pension
provision, that it is a significant asset and there are problems
associated with it, but where it is appropriate, you split it.
I am getting a sense of confusion from the evidence so far.
(Mr Parton) That is perfectly possible because we are
quite confused because it is a confusing area.
(Mr Mackay) I think the issue is that we see some misery
in things like Mesher orders, for example, and we would like to
see a clean break because we want to get rid of the antagonism
between the parties at an early opportunity and the sooner you
can put that to bed, the sooner you can start to get things sorted
out and get the children into a routine and so forth. To have
the Mesher order, the limited experience we have got of those
tends to be of setting them up and it was interesting that Fairshares
talked about monitoring outcomes as well, and we have had remarkably
no feedback on what the results are, but talking to one or two
mothers, as I have, they feel very stressed about what the hell
is going to happen when the kids do get to 18 and may or may not
leave and so I think we would like to see that pressure off the
spouses so that they may be free to make their own way in life
and to the advantage of themselves as individuals and of the children.
I think we see fairness as important and to the extent that an
inability to split pensions may restrict that achievement, I think
we are supportive of it rather than against it, as you might suggest.
(Mr Wilson) As an organisation, we do feel that there
should be a fairness of assets and obviously pensions need to
be taken into account. What we are now, as I understand it, trying
to do is actually legislate to change something which was not
meant to be divisible, so we are having to change legislation
or introduce legislation to change something which has built up
huge layers of complexity and it has added, in my view, on the
basis of flawed grounds already where fathers particularly are
being penalised anyway in many respects. The whole situation is
being added on to, whereas the whole divorce situation acts hugely
against fathers. For instance, just as an example of the children
issue, my children have been moved 100 miles away from a situation
where they were 1½ miles away initially and then unilaterally
my ex-wife took them 100 miles away. She could have taken them
600 miles away, I believe, within UK jurisdiction. It makes it
very difficult for me because I spend eight hours, and many of
our members spend a lot more, just to see them every other fortnight.
It is eight hours and £100 just to go and see them, to go
up to Rugby and bring them back and take them back, and I do that
all the time every fortnight, and it could have been Gretna Green
or John O'Groats. Because I was the person who worked and she
stayed at home, there was no question that I could stay at home
because all my income was taken into account, so she gets my income
and she has our children and I get to visit and see them. That
is fundamentally flawed, in my view, and here we are adding other
legislation on top of it.
574. Houses were not meant to be divided
either, so we developed a method of dividing them by giving a
monetary value to them, and this is what we are doing at the moment
with the pension splitting in that we are giving a monetary value
which gives independent parcels on dividing assets, so I think
it has to be seen within the wider context. Whilst I agree with
many of the concerns you have raised in terms of cash equivalent
transfer values and how appropriate that is, you still keep on
saying that you want to try to make that possible, but can I just
ask a very specific question and draw on your experience and that
was a question I also put to Fairshares in terms of do you foresee
a position of people over the age of 50 cashing in their personal
pensions to gain a lump sum to pay for the children's school fees
or that kind of thing?
(Mr Mackay) I am 54, I am unemployed and I am worried
about how I am going to provide for my pension and I am concerned
about my wife having adequate provision. I did an offsetting in
my own circumstance; the equity on the house was substantial and
that was offset against the pension. I do not like to see my wife
without a pension and I do not like to see myself without a pension.
One of the things that I foresaw was that the pension was an issue
in my own particular case and I was fortunate inasmuch as I had
the access to actuaries to try and talk me through some of the
arguments which were just to sort of understand the issues. I
felt quite let down by legal advisers and my wife was not well
advised and the judge seemed to have been poorly informed in my
own particular case and, acting as a McKenzie friend in other
cases, that seems quite a common experience, but I think there
is a need for proper pension provision for both parties. The other
point you were raising of course is transfer values. The public
sector is good at transferring values and benefits and so forth.
There is a much greater problem, and I recall my own father who
is dead many years now, 12 years ago, but he said that the problem
now of course is that people do not work with one employer for
a lifetime, so there are enormous inequities in transfer values,
as it came out in Fairshares' evidence quite effectively, in that,
the old story, if you asked two actuaries, you had at least three
opinions and probably pretty expensive opinions. There is merit
in having a formulaic approach, but there is a lot of disadvantage
in having it debated.
(Mr Wilson) On the question of 50 which is the age you
can take, particularly with a personal pension, 25 per cent of
the lump sum, the number of people who will have a significant
lump sum at 50 is really fingers on one hand. That is point one.
If we are looking at a company scheme, we are looking at probably
one over 60 and retirement at 65 and sometimes at 60, so you are
going to be reducing it usually each year in taking it early anyway,
so that lump sum from that pension is going to enormously reduce
the final salary scheme going out at 50 and the sums of money
really would be crucifying for both parties.
(Mr Mackay) There is also the point that people are tending
to marry later now anyway, so hopefully there will be a better
balance in pension provision and it is not just one spouse, but
the two spouses should have been working and so forth.
575. I would also be interested to hear
your view on the current position in the Bill which does not allow
taking a lump sum out of statutory pension schemes.
(Mr Mackay) I think we have got to have this right across
the system and I can understand the Treasury's stance on this.
I was interested to hear Fairshares' comment of, I suppose, something
like a sort of section 32 buy-out or something like this which
might have an effect. Another possible solution is of course to
have a SERPS so you have a sort of guaranteed pension in that
the person with the pension pot can transfer something into the
state scheme. Whether there is some merit in having that or not,
I do not know, I am not sure, but the problem is usually that
there is inadequate secondary provision which needs to be addressed
and the state system, I really do not feel that just because someone
is married to a civil servant as opposed to somebody in industry
that they should be treated any differently and have any different
options. I was a bit disturbed about the talk of pension mis-selling
because I have spent an enormous amount of time, and I could almost
put my divorce at the door of that, in the work that I was doing
to prevent abuses of the tied agency system, but there are a lot
of insurance companies out there, particularly mutual companies
which in the past I have worked with and been involved with, that
do give value for money and it is not a cheap thing to do, to
provide a pension.
(Mr Wilson) I think the only comment I would make is
that the only reason I can understand for it being done is because
of the money. It is as simple as that and that flies in the face
of everything else that is being done because they will have to
come up with the money and the Government does not want to come
up with the money.
576. It is also in practice, if you look
at it, probably in quite exceptional circumstances that it has
ever been in anybody's interest to do so.
(Mr Mackay) Can I just pick up one other point which
was raised about teachers' pensions and so forth which is that
I think there is an enormous problem about unfunded pensions and
the burden on the public sector. You have got policemen, you have
got firemen, you have got teachers, all taking early retirement
and certainly the actuaries I have worked alongside in the private
sector would have looked very much more quizzically, dare I suggest,
at the behaviour in the public sector, so maybe there are other
areas where they could find the savings on that.
577. Can I return to one of your comments
in relation to reasonable charges because it is a concern which
we share in that "reasonable" is a very dangerous word.
One of the difficulties I would foresee is that if we set a level
or recommended a standard level of charges, that would then become
the minimum and people will build on it, and there is another
aspect which worries us in terms of paid-up policies, that the
cash transfer value quite often in paid-up policies can potentially
cover some considerable hidden charges. What, in your view, would
be a system of charges for containing them because you raised
the issue without suggesting any answers and I just wondered whether
you had some?
(Mr Wilson) I suppose I would be considered part of the
pensions industry because I am an independent financial adviser.
We actually run courses for solicitors to explain to them the
problems that are ensuing out of all of this because it is complicated.
Solicitors are charging anything from £150-£200 an hour
to get involved and we are charging the same and some solicitors
are charging more, and there is going to be a lot of batting and
to-ing and fro-ing on it. I cannot give you an answer, but all
I can say is that it is going to be terribly expensive. I understand,
according to this, that the DSS has said that it is going to cost
£5 million, they reckon, the implementation costs. The Halifax,
I believe, and Scottish Life reckon the costs are going to be
nearer £100 million and just my own experience of being divorced
and how much it cost in legal fees and knowing about pensions,
which is as complicated technically as divorce is emotionally
complicated, it is a bonanza.
578. We took evidence from the National
Association of Pension Fund who were trying to press the cost
of providing information on CET values. When we pressed on the
genuine marginal costs, it is very easy to overestimate them.
Similarly, we had some evidence of the CET values, if that is
what we end up with, that you can actually look them up on a chart
quite simply and we had evidence saying that you could contain
these and the process of just the pension bid within the divorce
was about £250-£300, so I think these things can be
overstated.
(Mr Mackay) There are two points. First of all, the obligation
of pension providers to give an annual statement and so forth,
that is already there and pension providers should be in a position
to provide that information on an annual basis. The other issue
is of course that if you depart from that, and there are maybe
good reasons why you should not use just the first sort of basis
of evaluation which comes to mind just because it is nice and
convenient and there and cheap, if you want more from the industry,
then of course there is this marginal costing. Having been in
the industry, I know that the costs of setting up computer systems
for personal pensions, we did not have the final documents from
government until after we were meant to be up and running, so
how to design a computer system that is sufficiently resilient
and can cope with these things was an enormous challenge to us
and my employer was very proud that we were one of the first in
the market with the documents that we could administer, but setting
up computer systems, the point I was making, is expensive, or
certainly modifying them is expensive and it can also be risky
if it is poorly done and can give inaccurate numbers. I just wonder
how maybe this evidence could be challenged in court. Everybody
seems to be accepting that the actuary presents the information
and I come across actuaries who maybe get their figures a bit
wrong and when you start to probe them, they are not quite as
accurate as they appear at first sight. So the marginal costing,
if you had a relatively small scheme and particularly if it is
poorly run or something like that, it could be an enormous burden
to set up the system and then find you only have two divorces
in the next five years or something and it costs maybe £10,000
to make the computer modification, so is £5,000 a reasonable
burden to put against the pension? The other point I would also
pick up is of course the cost of actuaries versus solicitors.
People think solicitors and barristers are expensive, but they
should look at consulting actuaries' fees.
Ms Buck
579. Can we just round this off by asking
you a bit about how you feel about the consultation process. As
you know, the consideration by the Select Committee on draft Bills
is very much pioneering and part of the modernisation of the House
of Commons procedure and I would just like to know first of all
what you think about that in general and how you feel this has
worked in particular.
(Mr Parton) Obviously we are very pleased to have been
invited to give an opinion. There was a stage earlier, I think,
with the DSS—is that right—which perhaps would have
made it easier for us if we had been involved even earlier, though
I do not know if that would have been possible, but long may this
particular style of doing things continue. I notice that Fairshares
and ourselves, having gone through all the evidence, or not having
gone through it all because there is far too much, but having
glanced through it all, we are the only two consumer organisations
you have actually consulted as far as I can see. You have had
submissions from the public, but otherwise you have consulted
lawyers, who have a bit of a vested interest, and actuaries, who
may have a vested interest, the pensions industry and so on and
I would urge you to consult consumers of legislation more actively,
and it is very encouraging to be invited, therefore, but there
are a lot of organisations you have not consulted who are missing,
like Gingerbread, and loads of others that I think might have
views on this.
Chairman: Well, gentlemen,
thank you very much. That has both been very instructive and very
helpful. I know it takes a lot of work preparing for these appearances
and you have done extremely well. It has been of great assistance
to the Committee, and thank you very much for your attendance.
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